UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file Number 811-04471
Value Line Core Bond Fund
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
7 Times Square, New York, N.Y. 10036
(Address of principal executive offices) (Zip Code)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 212-907-1900
Date of fiscal year end: December 31
Date of reporting period: June 30, 2015
Item I. Reports to Stockholders.
A copy of the Semi-Annual Report to Stockholders for the period ended 6/30/15 is included with this Form.
![[MISSING IMAGE: lg_vlcoverlines.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/lg_vlcoverlines.jpg)
![[MISSING IMAGE: lg_vlcover.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/lg_vlcover.jpg)
Semi-Annual Report
June 30, 2015
Value Line Core Bond Fund
(VAGIX)
The Value Line Tax Exempt Fund, Inc.
(VLHYX)
(VLHYX)
![[MISSING IMAGE: lg_e-delivery.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/lg_e-delivery.jpg)
This unaudited report is issued for information to shareholders. It is not authorized for distribution to
prospective investors unless preceded or accompanied by a currently effective prospectus of the Fund
(obtainable from the Distributor).
prospective investors unless preceded or accompanied by a currently effective prospectus of the Fund
(obtainable from the Distributor).
#00133181
Table of Contents
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| Value Line Core Bond Fund: | | | |||||
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| | | | | 8 | | | |
| | | | | 10 | | | |
| The Value Line Tax Exempt Fund, Inc.: | | | |||||
| | | | | 18 | | | |
| | | | | 20 | | | |
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2
President’s Letter (unaudited)
Dear Fellow Shareholders:
We are pleased to present you with this semi-annual report for Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc. (individually, a “Fund” and collectively, the “Funds”) for the six months ended June 30, 2015.
The six months ended June 30, 2015 were challenging ones for the fixed income Value Line Funds, as fixed income generated negative absolute returns. Still, the semi-annual period was highlighted by the Funds being recognized for their relative performance profiles.
•
Value Line Core Bond Fund outpaced its peers for the three-, five- and ten-year periods ended June 30, 2015, as noted by Lipper Inc.1 (core bond category). Lipper also awarded its top Lipper Leader rating of 5 to the Fund for Total Returni versus its peers overall as of June 30, 2015. Additionally, Morningstar2 gave the Fund an overall Return rating of Above Averageii as of June 30, 2015.
•
Value Line Tax Exempt Fund, Inc. outpaced its peers for the semi-annual period ended June 30, 2015, as noted by Lipper Inc.1 (general & insured municipal debt category).
On the following pages, the Funds’ portfolio managers discuss the management of their respective Funds during the semi-annual period. The discussions highlight key factors influencing recent performance of the Funds. You will also find a schedule of investments and financial statements for each of the Funds.
Before reviewing the performance of your individual mutual fund investment(s), we encourage you to take a brief look at the major factors affecting the financial markets during the six months ended June 30, 2015, especially given the newsworthy events of the semi-annual period. We also invite you to take this time to consider a broader diversification strategy by including additional Value Line Funds in your investment portfolio. You can find out more about the entire family of Value Line Funds at our website, www.vlfunds.com.
Economic Review
U.S. real Gross Domestic Product (GDP) got off to a slow start in 2015, contracting at a 0.2% annualized rate from January through March. This was a significant deceleration from the 2.2% pace of U.S. economic growth seen in the fourth quarter of 2014. The contraction in first quarter GDP was largely a reflection of weak consumer spending in part due to harsh winter weather and in part due to mixed employment data. A sharp drop in exports due to the strong U.S. dollar and a labor strike in west coast ports also contributed to weak first quarter economic growth. While the final GDP numbers for the second quarter of 2015 have not yet been reported as of this writing, most expect modest positive growth, as many of the driving forces of first quarter weakness were widely viewed as temporary.
On the positive side, U.S. unemployment declined from 5.6% at year-end 2014 to 5.3% in June 2015. Despite the declining unemployment rate, the labor picture was not uniformly positive. Job creation slowed toward the end of the semi-annual period, and the labor force participation rate edged down slightly. These mixed labor results contributed to lackluster retail sales, as consumers spent conservatively.
As would be expected in this period of relatively slow economic growth, inflationary pressures remained modest. Consumer prices remained in check, with the headline Consumer Price Index (CPI) rising just 0.1% year over year before seasonal adjustment as of June 2015. This was the first 12-month increase in CPI since December 2014. Core inflation, which excludes food and energy and which is the price measure tied to consumer spending watched most closely by the Federal Reserve (the Fed), was up 1.8% in June 2015 from a year earlier. Notably, while the food segment of the CPI increased 1.8% during the 12 months ended June 2015, the energy segment of the CPI, despite rising in the months of May and June 2015, declined 15.0% over the same 12-month span.
The Fed continued to monitor inflation, as well as unemployment and other key market data, still looking for signs of inflation heading toward its desired 2% target. Inflationary pressures could be re-kindled should wage pressures build from declining unemployment. However, through June 2015, the Fed left the targeted federal funds rate unchanged near zero. At its June 2015 meeting, the Fed hinted that U.S. rates were still on track to increase later this year, though a shift lower in Fed officials’ economic growth and inflation forecasts signaled a potential delay, extending forecasts for an initial rate hike to late 2015. Fed Chair Janet Yellen maintained a cautious tone at the Fed’s press conference, noting the Fed would raise short-term interest rates only gradually, with the precise timing of “lift off,” or its first rate hike, heavily dependent on data and developments.
Fixed Income Market Review
The broad U.S. fixed income market, as measured by the Barclays U.S. Aggregate Bond Index3, posted a return of -0.10% during the semi-annual period. The yield curve steepened, as longer-term yields (i.e. securities with maturities of seven years and longer) rose, while shorter-term maturities (i.e. securities with maturities of less than seven years) ended the semi-annual period with lower rates. A steepening yield curve is one in which the differential in yields of securities with various maturities widens. The yield on the two-year U.S. Treasury bill declined approximately three basis points, while the yield on the bellwether 10-year U.S. Treasury note rose approximately 18 basis points and the yield on the 30-year U.S. Treasury increased approximately 36 basis points during the semi-annual period. (A basis point is 1/100th of a percentage point.)
3
President’s Letter (unaudited) (continued)
Much of the shift in interest rates derived from investor expectations that the Fed would delay its first rate hike. The concern was that should rates stay “lower for longer,” the lack of Fed action would serve to increase inflation. In turn, expectations for potentially higher inflation led to an increase in rates at the longer-term end of the yield curve, or spectrum of maturities, despite the realization of only lackluster inflation measures. Amidst this backdrop, investors were attracted to securities offering higher yields. High yield corporate bonds performed best relative to U.S. Treasuries, followed at some distance by securitized bonds, including mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. The securitized sector overall tends to be more defensive than U.S. Treasuries in an environment of modest rate increases and thus tends to outperform. Investment grade corporate bonds lagged U.S. Treasuries during the semi-annual period.
While it was difficult at times to get a clear picture of U.S. economic strength, investors strongly focused on the Fed’s announcements and the likelihood of the first interest rate hike some time in 2015. The Greek crisis added another level of uncertainty to the markets. Still, as a whole, new issue supply was met with generally good demand.
The tax-exempt fixed income market, as measured by the Barclays Municipal Bond Index4, modestly outpaced the broad taxable fixed income market during the semi-annual period, with a return of 0.12%. As in the taxable fixed income market, shorter maturity tax-exempt bonds were the best performers, ending the semi-annual period with lower rates, while yields on longer-term tax-exempt bonds rose, thus leading to a steeper municipal bond yield curve.
The municipal bond market sustained healthy supply/demand metrics during the semi-annual period. New issue supply was met with generally good demand, as both retail and institutional investors were attracted to securities reflecting higher yields given the rise in rates. Tax-exempt fund inflows were net positive for the six-month period ended June 30, 2015. Investors showed a relatively high comfort level with the outlook for most state and municipal credit profiles. Puerto Rico bonds faced heightened pressures in June 2015 when its governor signaled a need to restructure all of the commonwealth’s debt, including general obligations and sales tax bonds. As a result of the continued credit stress and inability of Puerto Rico to meet its debt obligations, S&P downgraded Puerto Rico’s bonds. Still, the fear of credit contagion from the well-documented problems in Puerto Rico did not spill over into the broader credit universe. That said, there remained clear concerns about issues specific to a handful of individual states, most notably for New Jersey, which suffered credit rating downgrades from the independent rating agencies, as the state grappled with sizable unfunded pension obligations. In addition, Louisiana and Texas saw their bonds weaken with the fall in energy prices, given that oil and gas comprise a significant portion of their respective economies.
From a fundamental perspective, municipal credit spreads remained at post-recession tight levels, and municipal bonds offered value relative to corporate bonds on an after-tax basis in the intermediate- and long-maturity ranges. Pension and health care costs were widely projected to absorb almost all of the expected revenue growth of local governments, which may continue to put pressure on municipal budgets. However, widespread defaults are not expected. The overall default rate within the municipal bond sector remained well below 1% at the end of the semi-annual period.
Overall, medium quality issues, or those rated in the BBB category, exhibited the best performance within the tax-exempt fixed income market during the semi-annual period, as investors continued to reach for yield within the low rate environment.
* * *
We thank you for trusting us to be a part of your long-term, comprehensive investment strategy. We appreciate your confidence in the Value Line Funds and look forward to serving your investment needs in the years ahead just as we have been helping to secure generations’ financial futures for more than 60 years — based on solid fundamentals, sound investment principles and the power of disciplined and rigorous analytics. If you have any questions or would like additional information on these or other Value Line Funds, we invite you to contact your investment representative or visit us at www.vlfunds.com.
Sincerely,
![[MISSING IMAGE: sg_mitchell-appel.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/sg_mitchell-appel.jpg)
Mitchell Appel
President of the Value Line Funds
President of the Value Line Funds
4
Past performance does not guarantee future results. Investment return and principal value of an investment can fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost; and that current performance may be lower or higher than the performance data quoted. Investors should carefully consider the investment objective, risks, charges and expense of a fund. This and other important information about a fund is contained in the fund’s prospectus. A copy of our funds’ prospectuses can be obtained free of charge by going to our website at www.vlfunds.com or calling 800.243.2729.
The Value Line Funds are distributed by EULAV Securities LLC.
1
Lipper Rankings represent the funds’ ranking within its Lipper asset class peer group and are based on total return performance and do not reflect the effect of sales charges. Although a fund may outperform peers when compared to Lipper peer groups, the returns for that time period may still be negative. Rankings shown include management fees and are provided by Lipper Inc., a leading independent performance analysis service. This information is provided for educational purposes only and should not be considered investment advice. Lipper ratings are not intended to predict future results, and Lipper does not guarantee the accuracy of this information. Past performance is no guarantee of future results. Lipper Leader ratings are derived from highly sophisticated formulas that analyze funds against clearly defined criteria. Funds are compared to similar funds, and only those that trust stand out are awarded Lipper Leader status. Funds are ranked against their peers on each of four measures: Total Return, Consistent Return, Preservation and Expense. A fifth measure, Tax Efficiency, applies in the United States. Scores are subject to change every month and are calculated for the following periods: 3-year, 5-year, 10-year and overall. The overall calculation is based on an equal-weighted average of percentile ranks for each measure over 3-year, 5-year and 10-year periods (if applicable). For each measure, the highest 20% of funds in each peer group are named Lipper Leaders. The next 20% receive a rating of 4: the middle 20% are rated 3: the next 20% are rated 2; and the lowest 20% are rated 1.
i
For Value Line Core Bond Fund: Total Return 4 rating for 3-year (445 funds) period ended June 30, 2015; 5 rating for 5-year (393 funds), 10-year (285 funds) and Overall (445 funds) periods ended June 30, 2015.
2
The Morningstar Rating™ for funds methodology rates funds based on an enhanced Morningstar Risk-Adjusted Return measure, which also accounts for the effects of all sales charges, loads, or redemption fees.
ii
For Value Line Core Bond Fund, Inc.: Morningstar Return: Average for the 3-year period ended June 30, 2015. Above Average for the 5-year, 10-year and overall periods ended June 30, 2015. All in the intermediate-term bond category.
3
The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS. This is an unmanaged index and does not reflect charges, expenses or taxes, which are deducted from the Fund’s return. It is not possible to directly invest in this index.
4
The Barclays Municipal Bond Index is a total-return performance benchmark for the long-term investment grade tax-exempt bond market. The returns for the index do not reflect charges, expense or taxes. It is not possible to directly invest in this index.
5
VALUE LINE CORE BOND FUND
INVESTMENT OBJECTIVE AND STRATEGY (condensed)
The investment objective of the Fund is to maximize current income. Capital appreciation is a secondary objective but only when consistent with the Fund’s primary objective.
The Fund invests primarily in a diversified portfolio of primarily investment grade, fixed income obligations, including securities issued or guaranteed by the U.S. government, its agencies or instrumentalities (U.S. government securities), mortgage-backed securities, asset-backed securities, corporate bonds, and other fixed income securities. Under normal circumstances, the Fund invests at least 80% of its assets in fixed income securities. The Fund invests in debt securities of any maturity, and there is no limit on the Fund’s maximum average portfolio maturity.
Manager Discussion of Fund Performance
Below, Value Line Core Bond Fund’s portfolio managers Liane Rosenberg and Jeffrey D. Geffen discuss the Fund’s performance and positioning for the six months ended June 30, 2015.
How did the Fund perform during the semi-annual period?
The Fund generated a total return of -0.19% during the six months ended June 30, 2015. This compares to the -0.10% return of the Fund’s benchmark, the Barclays U.S. Aggregate Bond Index (the “Barclays Index”), during the same semi-annual period.
What key factors were responsible for the Fund’s performance during the six-month reporting period?
The Fund lagged its benchmark due primarily to an underweighting compared to the Barclays Index in short- to intermediate-term U.S. Treasuries. Unlike longer-term bonds, these shorter-term U.S. Treasuries ended the semi-annual period with lower rates. On the positive side, issue selection, especially within the corporate bond sector, contributed positively to the Fund’s relative results. Duration and yield curve positioning also added value during the six-month reporting period.
Which fixed income market sectors most significantly affected Fund performance?
Having a modest overweight to taxable municipal bonds detracted from the Fund’s performance, as this sector significantly lagged the Barclays Index during the semi-annual period. Further, having an underweight to mortgage-backed securities within the securitized sector, which performed strongly during the semi-annual period, hurt.
Within the corporate bond sector, several issues within the technology industry were especially weak performers. Still, issue selection overall within the corporate bond sector was most beneficial to the Fund’s relative results. In particular, an out-of-benchmark exposure to high yield corporate bonds boosted returns, as high yield corporate bonds outpaced investment grade corporate bonds during the semi-annual period. Also, within the investment grade corporate bond sector, an overweight to the financials industry, which was the best performing segment, and an underweight to the utilities industry, which was the weakest performing segment, helped. The Fund’s significant overweight to commercial mortgage-backed securities (“CMBS”), which performed strongly, was additive to its performance as well.
The poorest performers on an individual basis were technology-related corporate bonds, including positions in computer hardware and storage company Seagate Technology and digital wireless communications equipment manufacturer Qualcomm. The top five performers in the Fund during the semi-annual period were all high yield corporate bonds, with a position in television show and movie Internet subscription service provider Netflix the biggest individual positive contributor.
What was the Fund’s duration strategy?
Duration positioning in the Fund had a positive effect on its performance relative to the Barclays Index during the reporting period. We kept the Fund’s duration short that of the Barclays Index by approximately 1/3 year, which helped, as rates generally rose. Duration is a measure of the Fund’s sensitivity to changes in interest rates.
How did yield curve positioning decisions affect the Fund’s performance?
Yield curve positioning contributed positively to the Fund’s performance. The Fund was underweight compared to the Barclays Index at the long-term end of the U.S. Treasury yield curve. This positioning helped as it was the longer-term segment of the yield curve that saw the steepest rise in rates during the semi-annual period.
How did the Fund use derivatives and similar instruments during the reporting period?
The Fund did not use derivatives during the reporting period.
6
Were there any notable changes in the Fund’s weightings during the semi-annual period?
During the semi-annual period, we reduced the Fund’s allocation to long-term U.S. Treasury securities in anticipation of a rising rate environment. We also reduced the Fund’s exposure to short-term U.S. Treasury securities, reallocating those proceeds into asset-backed securities. We increased the Fund’s position in high yield corporate bonds in anticipation of a strengthening global economy. These shifts in sector weightings were implemented without notable effect on the Fund’s duration but enabled the Fund to gain incremental income.
How was the Fund positioned relative to its benchmark index at the end of June 2015?
At the end of June 2015, the Fund remained overweight relative to the Barclays Index in spread, or non-U.S. Treasury, sectors. The Fund was overweight the investment grade corporate bond sector and maintained exposure to the high yield corporate bond sector. The Fund was also overweight the securitized sector overall, specifically asset-backed securities and CMBS, but had an underweight to mortgage-backed securities. The Fund remained underweight relative to the Barclays Index in U.S. Treasuries given our focus on enhancing investment income.
What is your tactical view and strategy for the months ahead?
At the end of June 2015, the Fund was positioned for a gradual rise in rates. This includes an overweight to spread sectors, as U.S. Treasuries tend to underperform in a rising rate environment. We also maintained a modest presence in high yield corporate bonds given our expectations for a strengthening U.S. economy. Any renewed geopolitical risk might cause us to increase the Fund’s U.S. Treasury holdings in anticipation of a flight to quality by investors. Any surprise actions by the Fed may also cause us to reevaluate the Fund’s positioning.
As we continue to seek to maximize current income, we maintain a long-term investment perspective.
7
Value Line Core Bond Fund
Portfolio Highlights at June 30, 2015 (unaudited)
Portfolio Highlights at June 30, 2015 (unaudited)
Ten Largest Holdings
Issue | | | Principal Amount | | | Value | | | Percentage of Net Assets | | |||||||||
FNMA Pool #MA1107, 3.50%, 7/1/32 | | | | $ | 1,137,157 | | | | | $ | 1,189,574 | | | | | | 1.6% | | |
U.S. Treasury Bonds, 5.25%, 11/15/28 | | | | | 900,000 | | | | | | 1,173,094 | | | | | | 1.5% | | |
U.S. Treasury Notes, 1.50%, 1/31/22 | | | | | 1,000,000 | | | | | | 968,125 | | | | | | 1.3% | | |
U.S. Treasury Bonds, 3.63%, 8/15/43 | | | | | 675,000 | | | | | | 742,605 | | | | | | 1.0% | | |
U.S. Treasury Notes, 1.38%, 3/31/20 | | | | | 700,000 | | | | | | 693,109 | | | | | | 0.9% | | |
U.S. Treasury Bonds, 2.00%, 1/15/26 | | | | | 595,995 | | | | | | 684,184 | | | | | | 0.9% | | |
U.S. Treasury Bonds, 4.38%, 2/15/38 | | | | | 550,000 | | | | | | 676,328 | | | | | | 0.9% | | |
FHLMC Gold PC Pool #A95803, 4.00%, 12/1/40 | | | | | 635,403 | | | | | | 675,513 | | | | | | 0.9% | | |
GNMA II Pool #MA1922, 5.00%, 5/20/44 | | | | | 583,448 | | | | | | 640,412 | | | | | | 0.8% | | |
U.S. Treasury Notes, 2.13%, 6/30/21 | | | | | 600,000 | | | | | | 607,453 | | | | | | 0.8% | | |
Asset Allocation – Percentage of Net Assets
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Sector Weightings – Percentage of Total Investment Securities*
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*
Sector weightings exclude short-term investments.
8
Value Line Core Bond Fund
Portfolio Highlights at June 30, 2015 (unaudited) (continued)
Portfolio Highlights at June 30, 2015 (unaudited) (continued)
Coupon Distribution
| | | Percentage of Fund’s Investments | | |||
Less than 4% | | | | | 54.8% | | |
4 – 4.99% | | | | | 20.2% | | |
5 – 5.99% | | | | | 17.8% | | |
6 – 6.99% | | | | | 4.5% | | |
7 – 7.99% | | | | | 2.7% | | |
9
Value Line Core Bond Fund
Schedule of Investments (unaudited)
Schedule of Investments (unaudited)
| Principal Amount | | | | | | Value | | ||||||
| ASSET-BACKED SECURITIES (4.6%) | | ||||||||||||
| | $ | 231,000 | | | | Ally Master Owner Trust, Series 2012-5, Class A, 1.54%, 9/15/19 | | | | $ | 231,624 | | |
| | | 140,000 | | | | Americredit Automobile Receivables Trust, Series 2014-4, Class A3, 1.27%, 7/8/19 | | | | | 140,307 | | |
| | | 150,000 | | | | Avis Budget Rental Car Funding AESOP LLC, Series 2014-1A, Class A, 2.46%, 7/20/20(1) | | | | | 150,985 | | |
| | | 270,000 | | | | Avis Budget Rental Car Funding AESOP LLC, Series 2013-1A, Class A, 1.92%, 9/20/19(1) | | | | | 269,131 | | |
| | | 194,000 | | | | Capital Auto Receivables Asset Trust, Series 2014-2, Class A3, 1.26%, 5/21/18 | | | | | 194,621 | | |
| | | 275,000 | | | | Capital Auto Receivables Asset Trust, Series 2014-2, Class A4, 1.62%, 10/22/18 | | | | | 277,111 | | |
| | | 200,000 | | | | CarMax Auto Owner Trust, Series 2015-1, Class A4, 1.83%, 7/15/20 | | | | | 200,467 | | |
| | | 150,000 | | | | Chrysler Capital Auto Receivables Trust, Series 2014-BA, Class A3, 1.27%, 5/15/19(1) | | | | | 150,347 | | |
| | | 350,000 | | | | Ford Credit Auto Lease Trust, Series 2014-B, Class A4, 1.10%, 11/15/17 | | | | | 350,374 | | |
| | | 500,000 | | | | Ford Credit Auto Lease Trust, Series 2014-A, Class A4, 0.90%, 6/15/17 | | | | | 499,964 | | |
| | | 150,000 | | | | Ford Credit Auto Owner Trust, Series 2014-A, Class A4, 1.29%, 4/15/19 | | | | | 150,311 | | |
| | | 245,000 | | | | Ford Credit Floorplan Master Owner Trust A, Series 2013-1, Class A1, 0.85%, 1/15/18 | | | | | 245,186 | | |
| | | 300,000 | | | | Synchrony Credit Card Master Note Trust, Series 2012-2, Class A, 2.22%, 1/15/22 | | | | | 303,745 | | |
| Principal Amount | | | | | | Value | | ||||||
| ASSET-BACKED SECURITIES (4.6%) (continued) | | ||||||||||||
| | $ | 110,000 | | | | Synchrony Credit Card Master Note Trust, Series 2012-7, Class A, 1.76%, 9/15/22 | | | | $ | 108,586 | | |
| | | 200,000 | | | | World Financial Network Credit Card Master Trust, Series 2012-A, Class A, 3.14%, 1/17/23 | | | | | 207,870 | | |
| TOTAL ASSET-BACKED SECURITIES (Cost $3,484,946) (4.6%) | | | | | 3,480,629 | | | ||||||
| COMMERCIAL MORTGAGE-BACKED SECURITIES (5.8%) | | ||||||||||||
| | | 150,000 | | | | Bear Stearns Commercial Mortgage Securities Trust, Series 2007-PW17, Class A4, 5.69%, 6/11/50(2) | | | | | 159,900 | | |
| | | 350,000 | | | | Citigroup Commercial Mortgage Trust, Series 2006-C5, Class A4, 5.43%, 10/15/49 | | | | | 364,260 | | |
| | | 362,616 | | | | Commercial Mortgage Trust, Series 2007-GG9, Class A4, 5.44%, 3/10/39 | | | | | 381,232 | | |
| | | 200,000 | | | | FREMF Mortgage Trust, Series 2012-K711, Class B, 3.68%, 8/25/45(1)(2) | | | | | 207,275 | | |
| | | 151,776 | | | | FREMF Mortgage Trust, Series 2013-KF02, Class B, 3.19%, 12/25/45(1)(2) | | | | | 156,232 | | |
| | | 200,000 | | | | FREMF Mortgage Trust, Series 2013-K713, Class B, 3.27%, 4/25/46(1)(2) | | | | | 201,493 | | |
| | | 310,933 | | | | GNMA, Series 2013-12, Class AB, 1.83%, 11/16/52 | | | | | 301,985 | | |
| | | 600,000 | | | | GNMA, Series 2013-12, Class B, 2.32%, 11/16/52(2) | | | | | 577,422 | | |
| | | 403,557 | | | | GNMA, Series 2012-125, Class AB, 2.11%, 2/16/53(2) | | | | | 390,392 | | |
| | | 255,000 | | | | GS Mortgage Securities Trust, Series 2012-GCJ7, Class A4, 3.38%, 5/10/45 | | | | | 264,365 | | |
| Principal Amount | | | | | | Value | | ||||||
| COMMERCIAL MORTGAGE-BACKED SECURITIES (5.8%) (continued) | | ||||||||||||
| | $ | 264,867 | | | | JP Morgan Chase Commercial Mortgage Securities Trust, Series 2007-CB20, Class A1A, 5.75%, 2/12/51(2) | | | | $ | 284,358 | | |
| | | 150,000 | | | | Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C12, Class A2, 3.00%, 10/15/46 | | | | | 155,105 | | |
| | | 400,000 | | | | Morgan Stanley Capital I Trust, Series 2012-C4, Class A4, 3.24%, 3/15/45 | | | | | 410,144 | | |
| | | 167,854 | | | | Sequoia Mortgage Trust, Series 2004-8, Class A1, 0.89%, 9/20/34(2) | | | | | 160,169 | | |
| | | 177,590 | | | | Structured Adjustable Rate Mortgage Loan Trust, Series 2004-6, Class 4A2, 2.45%, 6/25/34(2) | | | | | 170,322 | | |
| | | 241,670 | | | | Thornburg Mortgage Securities Trust, Series 2005-1, Class A3, 2.23%, 4/25/45(2) | | | | | 242,797 | | |
| TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost $4,558,139) (5.8%) | | | | | 4,427,451 | | | ||||||
| CORPORATE BONDS & NOTES (41.8%) | | ||||||||||||
| | | | | | | BASIC MATERIALS (1.6%) | | ||||||
| | | 200,000 | | | | ArcelorMittal, Senior Unsecured Notes, 5.25%, 2/25/17(3) | | | | | 207,750 | | |
| | | 150,000 | | | | Celanese U.S. Holdings LLC, Guaranteed Notes, 4.63%, 11/15/22(3) | | | | | 148,500 | | |
| | | 200,000 | | | | Glencore Funding LLC, Guaranteed Notes, 4.13%, 5/30/23(1) | | | | | 193,483 | | |
| | | 200,000 | | | | LYB International Finance B.V., Guaranteed Notes, 4.00%, 7/15/23 | | | | | 204,670 | | |
| | | 200,000 | | | | Mosaic Co. (The), Senior Unsecured Notes, 5.45%, 11/15/33 | | | | | 212,895 | | |
| | | 250,000 | | | | Steel Dynamics, Inc., Guaranteed Notes, 6.13%, 8/15/19 | | | | | 263,125 | | |
| | | | | | | | | | | | 1,230,423 | | |
See Notes to Financial Statements.
10
June 30, 2015
| Principal Amount | | | | | | Value | | ||||||
| CORPORATE BONDS & NOTES (41.8%) (continued) | | ||||||||||||
| | | | | | | COMMUNICATIONS (3.6%) | | ||||||
| | $ | 150,000 | | | | Baidu, Inc., Senior Unsecured Notes, 2.75%, 6/9/19 | | | | $ | 150,075 | | |
| | | 150,000 | | | | CBS Corp., Guaranteed Notes, 3.70%, 8/15/24 | | | | | 146,572 | | |
| | | 150,000 | | | | Comcast Corp., Guaranteed Notes, 6.45%, 3/15/37 | | | | | 185,369 | | |
| | | 250,000 | | | | DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Guaranteed Notes, 3.80%, 3/15/22 | | | | | 251,438 | | |
| | | 250,000 | | | | Expedia, Inc., Guaranteed Notes, 4.50%, 8/15/24(3) | | | | | 252,157 | | |
| | | 250,000 | | | | Netflix, Inc., Senior Unsecured Notes, 5.75%, 3/1/24(3) | | | | | 256,875 | | |
| | | 150,000 | | | | Scripps Networks Interactive, Inc., Senior Unsecured Notes, 2.80%, 6/15/20 | | | | | 147,769 | | |
| | | 250,000 | | | | T-Mobile USA, Inc., Guaranteed Notes, 6.63%, 11/15/20 | | | | | 260,000 | | |
| | | 250,000 | | | | Telefonica Emisiones SAU, Guaranteed Notes, 5.88%, 7/15/19 | | | | | 282,445 | | |
| | | 300,000 | | | | Tencent Holdings, Ltd., Senior Unsecured Notes, 3.38%, 5/2/19(1) | | | | | 308,016 | | |
| | | 209,000 | | | | Verizon Communications, Inc., Senior Unsecured Notes, 2.50%, 9/15/16 | | | | | 212,391 | | |
| | | 150,000 | | | | Verizon Communications, Inc., Senior Unsecured Notes, 6.55%, 9/15/43 | | | | | 175,463 | | |
| | | 150,000 | | | | Viacom, Inc., Senior Unsecured Notes, 3.88%, 4/1/24 | | | | | 146,872 | | |
| | | | | | | | | | | | 2,775,442 | | |
| | | | | | | CONSUMER, CYCLICAL (4.3%) | | ||||||
| | | 300,000 | | | | CVS Health Corp., Senior Unsecured Notes, 6.60%, 3/15/19 | | | | | 346,839 | | |
| | | 150,000 | | | | D.R. Horton, Inc., Guaranteed Notes, 4.00%, 2/15/20 | | | | | 149,205 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | CONSUMER, CYCLICAL (4.3%) (continued) | | ||||||
| | $ | 250,000 | | | | Ford Motor Co., Senior Unsecured Notes, 7.45%, 7/16/31 | | | | $ | 319,452 | | |
| | | 300,000 | | | | Ford Motor Credit Co. LLC, Senior Unsecured Notes, 1.72%, 12/6/17 | | | | | 298,442 | | |
| | | 250,000 | | | | General Motors Financial Co., Inc., Guaranteed Notes, 2.75%, 5/15/16(3) | | | | | 252,987 | | |
| | | 250,000 | | | | General Motors Financial Co., Inc., Guaranteed Notes, 2.40%, 4/10/18(3) | | | | | 250,621 | | |
| | | 275,000 | | | | Kia Motors Corp., Senior Unsecured Notes, 3.63%, 6/14/16(1) | | | | | 280,873 | | |
| | | 200,000 | | | | L Brands, Inc., Guaranteed Notes, 6.63%, 4/1/21 | | | | | 219,876 | | |
| | | 250,000 | | | | Macy’s Retail Holdings, Inc., Guaranteed Notes, 4.38%, 9/1/23 | | | | | 263,637 | | |
| | | 100,000 | | | | Nissan Motor Acceptance Corp., Senior Unsecured Notes, 2.35%, 3/4/19(1) | | | | | 100,799 | | |
| | | 100,000 | | | | Nordstrom, Inc., Senior Unsecured Notes, 5.00%, 1/15/44 | | | | | 105,395 | | |
| | | 150,000 | | | | Royal Caribbean Cruises, Ltd., Senior Unsecured Notes, 5.25%, 11/15/22 | | | | | 155,146 | | |
| | | 200,000 | | | | Ryland Group, Inc. (The), Guaranteed Notes, 6.63%, 5/1/20 | | | | | 222,000 | | |
| | | 50,000 | | | | Starwood Hotels & Resorts Worldwide, Inc., Senior Unsecured Notes, 3.13%, 2/15/23 | | | | | 47,623 | | |
| | | 250,000 | | | | Wyndham Worldwide Corp., Senior Unsecured Notes, 3.90%, 3/1/23 | | | | | 244,940 | | |
| | | | | | | | | | | | 3,257,835 | | |
| | | | | | | CONSUMER, NON-CYCLICAL (5.8%) | | ||||||
| | | 150,000 | | | | AbbVie, Inc., Senior Unsecured Notes, 4.70%, 5/14/45 | | | | | 147,545 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | CONSUMER, NON-CYCLICAL (5.8%) (continued) | | ||||||
| | $ | 125,000 | | | | Actavis Funding SCS, Guaranteed Notes, 2.35%, 3/12/18 | | | | $ | 125,660 | | |
| | | 200,000 | | | | Actavis Funding SCS, Guaranteed Notes, 2.45%, 6/15/19 | | | | | 199,202 | | |
| | | 200,000 | | | | AmerisourceBergen Corp., Senior Unsecured Notes, 3.25%, 3/1/25 | | | | | 192,405 | | |
| | | 250,000 | | | | Celgene Corp., Senior Unsecured Notes, 4.00%, 8/15/23 | | | | | 255,707 | | |
| | | 100,000 | | | | Constellation Brands, Inc., Guaranteed Notes, 4.25%, 5/1/23(3) | | | | | 98,500 | | |
| | | 300,000 | | | | Edwards Lifesciences Corp., Senior Unsecured Notes, 2.88%, 10/15/18 | | | | | 306,972 | | |
| | | 250,000 | | | | Express Scripts Holding Co., Guaranteed Notes, 4.75%, 11/15/21 | | | | | 271,276 | | |
| | | 250,000 | | | | Gilead Sciences, Inc., Senior Unsecured Notes, 2.35%, 2/1/20 | | | | | 250,896 | | |
| | | 250,000 | | | | HCA, Inc., Guaranteed Notes, 5.38%, 2/1/25 | | | | | 254,075 | | |
| | | 250,000 | | | | HJ Heinz Co., Secured Notes, 4.25%, 10/15/20(3) | | | | | 255,312 | | |
| | | 200,000 | | | | JM Smucker Co. (The), Guaranteed Notes, 4.38%, 3/15/45(1) | | | | | 184,137 | | |
| | | 150,000 | | | | Kroger Co. (The), Senior Unsecured Notes, 2.95%, 11/1/21 | | | | | 149,041 | | |
| | | 350,000 | | | | Kroger Co. (The), Senior Unsecured Notes, 5.15%, 8/1/43 | | | | | 368,971 | | |
| | | 150,000 | | | | LifePoint Health, Inc., Guaranteed Notes, 5.50%, 12/1/21 | | | | | 154,875 | | |
| | | 350,000 | | | | Mylan, Inc., Guaranteed Notes, 1.35%, 11/29/16 | | | | | 348,937 | | |
| | | 150,000 | | | | NYU Hospitals Center, Unsecured Notes, 4.78%, 7/1/44 | | | | | 147,929 | | |
| | | 100,000 | | | | Quest Diagnostics, Inc., Senior Unsecured Notes, 3.50%, 3/30/25 | | | | | 94,898 | | |
See Notes to Financial Statements.
11
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Value | | ||||||
| CORPORATE BONDS & NOTES (41.8%) (continued) | | ||||||||||||
| | | | | | | CONSUMER, NON-CYCLICAL (5.8%) (continued) | | ||||||
| | $ | 250,000 | | | | Service Corp. International, Senior Unsecured Notes, 7.00%, 6/15/17 | | | | $ | 268,750 | | |
| | | 100,000 | | | | UnitedHealth Group, Inc., Senior Unsecured Notes, 2.88%, 12/15/21 | | | | | 99,989 | | |
| | | 244,000 | | | | Wm Wrigley Jr Co., Senior Unsecured Notes, 2.00%, 10/20/17(1) | | | | | 246,132 | | |
| | | | | | | | | | | | 4,421,209 | | |
| | | | | | | ENERGY (2.4%) | | ||||||
| | | 300,000 | | | | Anadarko Petroleum Corp., Senior Unsecured Notes, 6.38%, 9/15/17 | | | | | 329,221 | | |
| | | 250,000 | | | | DCP Midstream Operating L.P., Guaranteed Notes, 2.50%, 12/1/17(3) | | | | | 241,976 | | |
| | | 200,000 | | | | Enterprise Products Operating LLC, Guaranteed Notes, 4.85%, 8/15/42 | | | | | 190,059 | | |
| | | 200,000 | | | | Kinder Morgan Energy Partners L.P., Guaranteed Notes, 2.65%, 2/1/19 | | | | | 198,334 | | |
| | | 150,000 | | | | Marathon Oil Corp., Senior Unsecured Notes, 3.85%, 6/1/25 | | | | | 147,013 | | |
| | | 100,000 | | | | Occidental Petroleum Corp., Senior Unsecured Notes, 4.63%, 6/15/45 | | | | | 99,383 | | |
| | | 200,000 | | | | Phillips 66, Guaranteed Notes, 4.30%, 4/1/22(3) | | | | | 209,893 | | |
| | | 250,000 | | | | Spectra Energy Partners L.P., Senior Unsecured Notes, 4.75%, 3/15/24 | | | | | 264,209 | | |
| | | 150,000 | | | | Valero Energy Corp., Senior Unsecured Notes, 6.63%, 6/15/37 | | | | | 169,412 | | |
| | | | | | | | | | | | 1,849,500 | | |
| | | | | | | FINANCIAL (19.1%) | | ||||||
| | | 100,000 | | | | Aflac, Inc., Senior Unsecured Notes, 3.25%, 3/17/25 | | | | | 96,544 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | FINANCIAL (19.1%) (continued) | | ||||||
| | $ | 250,000 | | | | Aircastle Ltd., Senior Unsecured Notes, 4.63%, 12/15/18 | | | | $ | 257,500 | | |
| | | 200,000 | | | | Ally Financial, Inc., Guaranteed Notes, 4.75%, 9/10/18 | | | | | 206,250 | | |
| | | 250,000 | | | | American Express Co., Senior Unsecured Notes, 0.87%, 5/22/18(2) | | | | | 249,218 | | |
| | | 350,000 | | | | American International Group, Inc., Senior Unsecured Notes, 3.38%, 8/15/20 | | | | | 362,274 | | |
| | | 300,000 | | | | Australia & New Zealand Banking Group Ltd., Subordinated Notes, 4.50%, 3/19/24(1)(3) | | | | | 301,669 | | |
| | | 200,000 | | | | AvalonBay Communities, Inc. MTN, Senior Unsecured Notes, 3.45%, 6/1/25 | | | | | 196,667 | | |
| | | 150,000 | | | | Bancolombia S.A., Senior Unsecured Notes, 5.95%, 6/3/21 | | | | | 164,475 | | |
| | | 200,000 | | | | Bank of America Corp. MTN, Subordinated Notes, 4.20%, 8/26/24 | | | | | 199,518 | | |
| | | 250,000 | | | | Bank of America Corp., Series L, Senior Unsecured Notes, 1.35%, 11/21/16 | | | | | 249,949 | | |
| | | 300,000 | | | | Bank of China Hong Kong Ltd., Senior Unsecured Notes, 3.75%, 11/8/16(1) | | | | | 309,426 | | |
| | | 500,000 | | | | BlackRock, Inc., Series 2, Senior Unsecured Notes, 5.00%, 12/10/19 | | | | | 558,299 | | |
| | | 250,000 | | | | BPCE S.A., Guaranteed Notes, 2.50%, 12/10/18 | | | | | 253,654 | | |
| | | 100,000 | | | | CIT Group, Inc., Senior Unsecured Notes, 5.00%, 8/15/22 | | | | | 99,000 | | |
| | | 250,000 | | | | Citigroup, Inc., Subordinated Notes, 5.30%, 5/6/44 | | | | | 254,507 | | |
| | | 350,000 | | | | CNA Financial Corp., Senior Unsecured Notes, 3.95%, 5/15/24 | | | | | 347,622 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | FINANCIAL (19.1%) (continued) | | ||||||
| | $ | 250,000 | | | | Cooperatieve Centrale Raiffeisen- Boerenleenbank BA, Guaranteed Notes, 3.95%, 11/9/22 | | | | $ | 249,966 | | |
| | | 250,000 | | | | Credit Agricole S.A., Senior Unsecured Notes, 2.13%, 4/17/18(1) | | | | | 251,541 | | |
| | | 300,000 | | | | Deutsche Bank AG, Senior Unsecured Notes, 1.88%, 2/13/18 | | | | | 299,082 | | |
| | | 200,000 | | | | Digital Realty Trust L.P., Guaranteed Notes, 5.25%, 3/15/21 | | | | | 218,872 | | |
| | | 250,000 | | | | Discover Financial Services, Senior Unsecured Notes, 3.95%, 11/6/24 | | | | | 242,917 | | |
| | | 350,000 | | | | EPR Properties, Guaranteed Notes, 5.25%, 7/15/23 | | | | | 366,807 | | |
| | | 250,000 | | | | Essex Portfolio L.P., Guaranteed Notes, 3.38%, 1/15/23 | | | | | 245,809 | | |
| | | 300,000 | | | | First Horizon National Corp., Senior Unsecured Notes, 5.38%, 12/15/15 | | | | | 304,599 | | |
| | | 250,000 | | | | General Electric Capital Corp. MTN, Guaranteed Notes, 1.03%, 8/11/15(2) | | | | | 249,989 | | |
| | | 272,000 | | | | Goldman Sachs Group, Inc. (The), Senior Unsecured Notes, 5.75%, 10/1/16 | | | | | 286,980 | | |
| | | 100,000 | | | | Goldman Sachs Group, Inc. (The), Subordinated Notes, 6.75%, 10/1/37 | | | | | 117,295 | | |
| | | 350,000 | | | | Hospitality Properties Trust, Senior Unsecured Notes, 4.65%, 3/15/24 | | | | | 349,199 | | |
| | | 350,000 | | | | Host Hotels & Resorts L.P., Senior Unsecured Notes, 5.25%, 3/15/22 | | | | | 380,161 | | |
| | | 200,000 | | | | HSBC Holdings PLC, Senior Unsecured Notes, 4.00%, 3/30/22(3) | | | | | 209,395 | | |
| | | 200,000 | | | | International Lease Finance Corp., Senior Secured Notes, 7.13%, 9/1/18(1) | | | | | 223,000 | | |
See Notes to Financial Statements.
12
June 30, 2015
| Principal Amount | | | | | | Value | | ||||||
| CORPORATE BONDS & NOTES (41.8%) (continued) | | ||||||||||||
| | | | | | | FINANCIAL (19.1%) (continued) | | ||||||
| | $ | 200,000 | | | | JPMorgan Chase & Co., Subordinated Notes, 4.13%, 12/15/26 | | | | $ | 196,655 | | |
| | | 300,000 | | | | JPMorgan Chase Bank NA, Subordinated Notes, 6.00%, 10/1/17 | | | | | 327,106 | | |
| | | 250,000 | | | | Korea Development Bank (The), Senior Unsecured Notes, 4.00%, 9/9/16 | | | | | 258,112 | | |
| | | 100,000 | | | | Lloyds Bank PLC, Guaranteed Notes, 3.50%, 5/14/25 | | | | | 98,184 | | |
| | | 160,000 | | | | Macquarie Bank Ltd., Senior Unsecured Notes, 5.00%, 2/22/17(1)(3) | | | | | 168,985 | | |
| | | 250,000 | | | | Macquarie Bank Ltd., Senior Unsecured Notes, 2.60%, 6/24/19(1) | | | | | 251,393 | | |
| | | 100,000 | | | | Mizuho Bank, Ltd., Guaranteed Notes, 3.20%, 3/26/25(1) | | | | | 98,097 | | |
| | | 400,000 | | | | Morgan Stanley, Senior Unsecured Notes, 4.75%, 3/22/17 | | | | | 421,978 | | |
| | | 300,000 | | | | Nomura Holdings, Inc. GMTN, Senior Unsecured Notes, 2.75%, 3/19/19(3) | | | | | 302,772 | | |
| | | 250,000 | | | | PNC Funding Corp., Guaranteed Notes, 5.13%, 2/8/20(3) | | | | | 280,277 | | |
| | | 350,000 | | | | ProLogis L.P., Guaranteed Notes, 2.75%, 2/15/19(3) | | | | | 355,048 | | |
| | | 250,000 | | | | Regions Financial Corp., Senior Unsecured Notes, 2.00%, 5/15/18 | | | | | 249,832 | | |
| | | 250,000 | | | | Royal Bank of Scotland Group PLC, Senior Unsecured Notes, 1.88%, 3/31/17 | | | | | 248,729 | | |
| | | 200,000 | | | | Santander Holdings USA, Inc., Senior Unsecured Notes, 3.00%, 9/24/15(3) | | | | | 200,552 | | |
| | | 300,000 | | | | Santander Holdings USA, Inc., Senior Unsecured Notes, 2.65%, 4/17/20 | | | | | 294,933 | | |
| | | 250,000 | | | | Societe Generale S.A., Senior Unsecured Notes, 5.20%, 4/15/21 | | | | | 280,492 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | FINANCIAL (19.1%) (continued) | | ||||||
| | $ | 300,000 | | | | Standard Chartered PLC, Senior Unsecured Notes, 1.50%, 9/8/17(1) | | | | $ | 299,325 | | |
| | | 350,000 | | | | Stifel Financial Corp., Senior Unsecured Notes, 4.25%, 7/18/24 | | | | | 345,822 | | |
| | | 150,000 | | | | Synchrony Financial, Senior Unsecured Notes, 3.00%, 8/15/19 | | | | | 151,068 | | |
| | | 200,000 | | | | Synchrony Financial, Senior Unsecured Notes, 3.75%, 8/15/21 | | | | | 201,522 | | |
| | | 150,000 | | | | UBS AG MTN, Senior Unsecured Notes, 2.35%, 3/26/20(3) | | | | | 148,956 | | |
| | | 250,000 | | | | US Bancorp MTN, Subordinated Notes, 3.60%, 9/11/24 | | | | | 251,318 | | |
| | | 350,000 | | | | Wells Fargo & Co., Senior Unsecured Notes, 5.63%, 12/11/17 | | | | | 384,552 | | |
| | | 300,000 | | | | Weyerhaeuser Co., Senior Unsecured Notes, 7.38%, 10/1/19 | | | | | 355,118 | | |
| | | 250,000 | | | | XLIT Ltd., Guaranteed Notes, 5.75%, 10/1/21 | | | | | 286,365 | | |
| | | | | | | | | | | | 14,559,375 | | |
| | | | | | | INDUSTRIAL (2.2%) | | ||||||
| | | 100,000 | | | | Ball Corp., Guaranteed Notes, 5.25%, 7/1/25 | | | | | 98,875 | | |
| | | 200,000 | | | | Briggs & Stratton Corp., Guaranteed Notes, 6.88%, 12/15/20 | | | | | 217,000 | | |
| | | 250,000 | | | | Burlington Northern Santa Fe LLC, Senior Unsecured Notes, 3.05%, 3/15/22 | | | | | 249,521 | | |
| | | 150,000 | | | | Burlington Northern Santa Fe LLC, Senior Unsecured Notes, 4.15%, 4/1/45 | | | | | 138,346 | | |
| | | 200,000 | | | | Lafarge S.A., Senior Unsecured Notes, 6.20%, 7/9/15(1) | | | | | 199,910 | | |
| | | 250,000 | | | | Masco Corp., Senior Unsecured Notes, 7.13%, 3/15/20 | | | | | 290,000 | | |
| | | 8,000 | | | | Owens Corning, Inc., Guaranteed Notes, 6.50%, 12/1/16(3) | | | | | 8,508 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | INDUSTRIAL (2.2%) (continued) | | ||||||
| | $ | 250,000 | | | | Packaging Corp. of America, Senior Unsecured Notes, 3.65%, 9/15/24 | | | | $ | 244,983 | | |
| | | 200,000 | | | | Textron, Inc., Senior Unsecured Notes, 3.88%, 3/1/25 | | | | | 196,881 | | |
| | | | | | | | | | | | 1,644,024 | | |
| | | | | | | TECHNOLOGY (1.0%) | | ||||||
| | | 150,000 | | | | Cadence Design Systems, Inc., Senior Unsecured Notes, 4.38%, 10/15/24 | | | | | 150,481 | | |
| | | 150,000 | | | | Micron Technology, Inc., Senior Unsecured Notes, 5.25%, 8/1/23(1) | | | | | 143,813 | | |
| | | 250,000 | | | | QUALCOMM, Inc., Senior Unsecured Notes, 3.45%, 5/20/25 | | | | | 243,620 | | |
| | | 250,000 | | | | Seagate HDD Cayman, Guaranteed Notes, 4.75%, 1/1/25(1) | | | | | 248,463 | | |
| | | | | | | | | | | | 786,377 | | |
| | | | | | | UTILITIES (1.8%) | | ||||||
| | | 200,000 | | | | Consumers Energy Co., 3.13%, 8/31/24 | | | | | 198,633 | | |
| | | 300,000 | | | | Exelon Generation Co. LLC, Senior Unsecured Notes, 5.20%, 10/1/19 | | | | | 329,942 | | |
| | | 380,000 | | | | Florida Power & Light Co., 4.95%, 6/1/35 | | | | | 417,024 | | |
| | | 150,000 | | | | National Fuel Gas Co., Senior Unsecured Notes, 5.20%, 7/15/25 | | | | | 152,048 | | |
| | | 250,000 | | | | Southern Co. (The), Senior Unsecured Notes, 2.75%, 6/15/20 | | | | | 250,603 | | |
| | | | | | | | | | | | 1,348,250 | | |
| TOTAL CORPORATE BONDS & NOTES (Cost $31,808,880) (41.8%) | | | | | 31,872,435 | | | ||||||
| FOREIGN GOVERNMENT OBLIGATIONS (0.9%) | | ||||||||||||
| | | 100,000 | | | | Colombia Government International Bond, Senior Unsecured Notes, 5.00%, 6/15/45 | | | | | 92,500 | | |
| | | 300,000 | | | | Mexico Government International Bond, Senior Unsecured Notes, 5.13%, 1/15/20 | | | | | 330,750 | | |
See Notes to Financial Statements.
13
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Value | | ||||||
| FOREIGN GOVERNMENT OBLIGATIONS (0.9%) (continued) | | ||||||||||||
| | $ | 250,000 | | | | Poland Government International Bond, Senior Unsecured Notes, 4.00%, 1/22/24 | | | | $ | 261,563 | | |
| TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $675,329) (0.9%) | | | | | 684,813 | | | ||||||
| LONG-TERM MUNICIPAL SECURITIES (2.4%) | | ||||||||||||
| | | | | | | CALIFORNIA (0.9%) | | ||||||
| | | 85,000 | | | | University of California, Taxable General Revenue Bonds, Series AG, 4.06%, 5/15/33 | | | | | 86,515 | | |
| | | 200,000 | | | | California Educational Facilities Authority, Revenue Bonds, Loyola Marymount University, Series A, 2.96%, 10/1/21 | | | | | 205,834 | | |
| | | 200,000 | | | | State of California, Build America Bond, General Obligation Unlimited, 5.70%, 11/1/21 | | | | | 235,846 | | |
| | | 125,000 | | | | Los Angeles Unified School District, General Obligation Unlimited, Qualified School Construction Bonds, Series J-1, 5.98%, 5/1/27 | | | | | 150,167 | | |
| | | | | | | | | | | | 678,362 | | |
| | | | | | | NEW YORK (0.4%) | | ||||||
| | | 300,000 | | | | City of New York, General Obligation Unlimited, Subser. D2, 2.60%, 8/1/20 | | | | | 305,184 | | |
| | | | | | | TEXAS (1.0%) | | ||||||
| | | 250,000 | | | | Dallas Independent School District Qualified School Construction Notes, General Obligation Limited, 5.05%, 8/15/33 | | | | | 267,265 | | |
| | | 500,000 | | | | Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds, Baylor Health Care System Project, Series C, 4.45%, 11/15/43 | | | | | 467,080 | | |
| | | | | | | | | | | | 734,345 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | VIRGINIA (0.1%) | | ||||||
| | $ | 100,000 | | | | City of Norfolk, Taxable Build America Bonds, General Obligation Unlimited, Series B, 5.91%, 3/1/29 | | | | $ | 121,156 | | |
| TOTAL LONG-TERM MUNICIPAL SECURITIES (Cost $1,836,045) (2.4%) | | | | | 1,839,047 | | | ||||||
| SHORT-TERM MUNICIPAL SECURITIES (0.3%) | | ||||||||||||
| | | | | | | ILLINOIS (0.3%) | | ||||||
| | | 250,000 | | | | Illinois State, General Obligation Unlimited, 4.96%, 3/1/16 | | | | | 255,823 | | |
| TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $256,485) (0.3%) | | | | | 255,823 | | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) | | ||||||||||||
| | | 69,006 | | | | FHLMC Gold PC Pool #A29526, 5.00%, 1/1/35 | | | | | 75,939 | | |
| | | 56,508 | | | | FHLMC Gold PC Pool #A29633, 5.00%, 1/1/35 | | | | | 62,376 | | |
| | | 39,512 | | | | FHLMC Gold PC Pool #A56491, 5.00%, 1/1/37 | | | | | 43,478 | | |
| | | 635,403 | | | | FHLMC Gold PC Pool #A95803, 4.00%, 12/1/40 | | | | | 675,513 | | |
| | | 148,030 | | | | FHLMC Gold PC Pool #A97264, 4.00%, 2/1/41 | | | | | 156,869 | | |
| | | 15,369 | | | | FHLMC Gold PC Pool #B12822, 5.00%, 3/1/19 | | | | | 16,056 | | |
| | | 6,277 | | | | FHLMC Gold PC Pool #B17398, 4.50%, 12/1/19 | | | | | 6,581 | | |
| | | 35,293 | | | | FHLMC Gold PC Pool #B18034, 4.50%, 4/1/20 | | | | | 36,770 | | |
| | | 91,107 | | | | FHLMC Gold PC Pool #C09004, 3.50%, 7/1/42 | | | | | 93,949 | | |
| | | 19,207 | | | | FHLMC Gold PC Pool #C91413, 3.50%, 12/1/31 | | | | | 20,048 | | |
| | | 433,172 | | | | FHLMC Gold PC Pool #C91749, 4.00%, 1/1/34 | | | | | 462,730 | | |
| | | 1,043 | | | | FHLMC Gold PC Pool #E92226, 5.00%, 11/1/17 | | | | | 1,088 | | |
| | | 1,220 | | | | FHLMC Gold PC Pool #E92829, 5.00%, 12/1/17 | | | | | 1,273 | | |
| Principal Amount | | | | | | Value | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) (continued) | | ||||||||||||
| | $ | 15,469 | | | | FHLMC Gold PC Pool #E93499, 5.00%, 12/1/17 | | | | $ | 16,151 | | |
| | | 2,287 | | | | FHLMC Gold PC Pool #E98960, 5.00%, 9/1/18 | | | | | 2,388 | | |
| | | 225,380 | | | | FHLMC Gold PC Pool #G06224, 3.50%, 1/1/41 | | | | | 232,249 | | |
| | | 31,990 | | | | FHLMC Gold PC Pool #G08184, 5.00%, 1/1/37 | | | | | 35,242 | | |
| | | 3,895 | | | | FHLMC Gold PC Pool #G11986, 5.00%, 4/1/21 | | | | | 4,211 | | |
| | | 5,673 | | | | FHLMC Gold PC Pool #G12319, 5.00%, 6/1/21 | | | | | 6,121 | | |
| | | 31,521 | | | | FHLMC Gold PC Pool #G18044, 4.50%, 3/1/20 | | | | | 33,027 | | |
| | | 6,377 | | | | FHLMC Gold PC Pool #J00118, 5.00%, 10/1/20 | | | | | 6,701 | | |
| | | 93,583 | | | | FHLMC Gold PC Pool #J00139, 5.00%, 10/1/20 | | | | | 97,768 | | |
| | | 28,185 | | | | FHLMC Gold PC Pool #J03233, 5.00%, 8/1/21 | | | | | 29,447 | | |
| | | 295,493 | | | | FHLMC Gold PC Pool #J11587, 4.00%, 1/1/25 | | | | | 314,805 | | |
| | | 29,722 | | | | FHLMC Gold PC Pool #Q01181, 4.50%, 6/1/41 | | | | | 32,203 | | |
| | | 116,110 | | | | FHLMC Gold PC Pool #Q06307, 3.50%, 2/1/42 | | | | | 119,737 | | |
| | | 244,822 | | | | FHLMC Gold PC Pool #Q08656, 4.00%, 6/1/42 | | | | | 259,117 | | |
| | | 186,493 | | | | FHLMC Gold PC Pool #Q08903, 3.50%, 6/1/42 | | | | | 192,309 | | |
| | | 449,274 | | | | FHLMC Gold PC Pool #Q11556, 3.00%, 10/1/42 | | | | | 447,935 | | |
| | | 421,626 | | | | FHLMC Gold PC Pool #Q14593, 3.00%, 1/1/43 | | | | | 420,316 | | |
| | | 21,143 | | | | FHLMC REMIC Trust Series 2643, Class ME, 3.50%, 3/15/18 | | | | | 21,224 | | |
| | | 500,000 | | | | FNMA, 1.63%, 11/27/18 | | | | | 506,051 | | |
See Notes to Financial Statements.
14
June 30, 2015
| Principal Amount | | | | | | Value | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) (continued) | | ||||||||||||
| | $ | 13,798 | | | | FNMA Pool #254383, 7.50%, 6/1/32 | | | | $ | 17,192 | | |
| | | 35,921 | | | | FNMA Pool #254476, 5.50%, 9/1/32 | | | | | 40,460 | | |
| | | 23,034 | | | | FNMA Pool #254684, 5.00%, 3/1/18 | | | | | 24,113 | | |
| | | 80,514 | | | | FNMA Pool #255496, 5.00%, 11/1/34 | | | | | 89,186 | | |
| | | 6,125 | | | | FNMA Pool #255580, 5.50%, 2/1/35 | | | | | 6,889 | | |
| | | 4,401 | | | | FNMA Pool #258149, 5.50%, 9/1/34 | | | | | 4,954 | | |
| | | 25,593 | | | | FNMA Pool #412682, 6.00%, 3/1/28 | | | | | 29,344 | | |
| | | 1,202 | | | | FNMA Pool #511823, 5.50%, 5/1/16 | | | | | 1,205 | | |
| | | 181 | | | | FNMA Pool #568625, 7.50%, 1/1/31 | | | | | 186 | | |
| | | 29,325 | | | | FNMA Pool #571090, 7.50%, 1/1/31 | | | | | 29,802 | | |
| | | 897 | | | | FNMA Pool #573935, 7.50%, 3/1/31 | | | | | 920 | | |
| | | 8,536 | | | | FNMA Pool #622373, 5.50%, 12/1/16 | | | | | 8,701 | | |
| | | 12,488 | | | | FNMA Pool #623503, 6.00%, 2/1/17 | | | | | 12,797 | | |
| | | 86,696 | | | | FNMA Pool #626440, 7.50%, 2/1/32 | | | | | 97,695 | | |
| | | 6,373 | | | | FNMA Pool #631328, 5.50%, 2/1/17 | | | | | 6,525 | | |
| | | 740 | | | | FNMA Pool #638247, 5.50%, 5/1/17 | | | | | 757 | | |
| | | 579 | | | | FNMA Pool #643277, 5.50%, 4/1/17 | | | | | 592 | | |
| | | 6,832 | | | | FNMA Pool #685183, 5.00%, 3/1/18 | | | | | 7,152 | | |
| | | 1,210 | | | | FNMA Pool #688539, 5.50%, 3/1/33 | | | | | 1,357 | | |
| | | 14,352 | | | | FNMA Pool #703936, 5.00%, 5/1/18 | | | | | 15,023 | | |
| | | 30,170 | | | | FNMA Pool #726889, 5.50%, 7/1/33 | | | | | 33,977 | | |
| | | 75,965 | | | | FNMA Pool #735224, 5.50%, 2/1/35 | | | | | 85,677 | | |
| | | 23,737 | | | | FNMA Pool #763393, 5.50%, 2/1/34 | | | | | 26,620 | | |
| | | 3,746 | | | | FNMA Pool #769682, 5.00%, 3/1/34 | | | | | 4,149 | | |
| | | 67,776 | | | | FNMA Pool #769862, 5.50%, 2/1/34 | | | | | 76,407 | | |
| | | 1,057 | | | | FNMA Pool #778141, 5.00%, 5/1/34 | | | | | 1,172 | | |
| | | 835 | | | | FNMA Pool #789150, 5.00%, 10/1/34 | | | | | 922 | | |
| | | 10,589 | | | | FNMA Pool #797154, 5.50%, 11/1/34 | | | | | 12,006 | | |
| Principal Amount | | | | | | Value | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) (continued) | | ||||||||||||
| | $ | 31,511 | | | | FNMA Pool #801063, 5.50%, 11/1/34 | | | | $ | 35,484 | | |
| | | 23,220 | | | | FNMA Pool #803675, 5.50%, 12/1/34 | | | | | 26,152 | | |
| | | 28,160 | | | | FNMA Pool #804683, 5.50%, 12/1/34 | | | | | 31,577 | | |
| | | 10,718 | | | | FNMA Pool #910242, 5.00%, 3/1/37 | | | | | 11,847 | | |
| | | 147,645 | | | | FNMA Pool #919584, 6.00%, 6/1/37 | | | | | 167,604 | | |
| | | 49,669 | | | | FNMA Pool #975116, 5.00%, 5/1/38 | | | | | 54,788 | | |
| | | 20,363 | | | | FNMA Pool #AA2531, 4.50%, 3/1/39 | | | | | 22,014 | | |
| | | 73,014 | | | | FNMA Pool #AB2053, 3.50%, 1/1/26 | | | | | 77,195 | | |
| | | 340,574 | | | | FNMA Pool #AB2346, 4.50%, 2/1/41 | | | | | 369,088 | | |
| | | 249,322 | | | | FNMA Pool #AB5231, 2.50%, 5/1/27 | | | | | 254,202 | | |
| | | 323,214 | | | | FNMA Pool #AB5716, 3.00%, 7/1/27 | | | | | 335,608 | | |
| | | 522,455 | | | | FNMA Pool #AB8144, 5.00%, 4/1/37 | | | | | 578,189 | | |
| | | 365,608 | | | | FNMA Pool #AC8908, 4.50%, 1/1/40 | | | | | 396,168 | | |
| | | 28,906 | | | | FNMA Pool #AD1035, 4.50%, 2/1/40 | | | | | 31,321 | | |
| | | 128,247 | | | | FNMA Pool #AD8536, 5.00%, 8/1/40 | | | | | 141,793 | | |
| | | 180,136 | | | | FNMA Pool #AE1853, 4.00%, 8/1/40 | | | | | 191,455 | | |
| | | 175,250 | | | | FNMA Pool #AH3226, 5.00%, 2/1/41 | | | | | 194,096 | | |
| | | 138,430 | | | | FNMA Pool #AH8932, 4.50%, 4/1/41 | | | | | 149,658 | | |
| | | 41,322 | | | | FNMA Pool #AI0620, 4.50%, 5/1/41 | | | | | 44,778 | | |
| | | 251,112 | | | | FNMA Pool #AI4285, 5.00%, 6/1/41 | | | | | 278,135 | | |
| | | 205,056 | | | | FNMA Pool #AJ5888, 4.50%, 11/1/41 | | | | | 221,697 | | |
| | | 58,578 | | | | FNMA Pool #AJ9278, 3.50%, 12/1/41 | | | | | 60,548 | | |
| | | 165,129 | | | | FNMA Pool #AL3272, 5.00%, 2/1/25 | | | | | 182,147 | | |
| | | 6,937 | | | | FNMA Pool #AL5259, 3.50%, 5/1/29 | | | | | 7,319 | | |
| | | 350,820 | | | | FNMA Pool #AQ0287, 3.00%, 10/1/42 | | | | | 349,890 | | |
| | | 118,652 | | | | FNMA Pool #AR2174, 3.00%, 4/1/43 | | | | | 118,774 | | |
| | | 405,843 | | | | FNMA Pool #AR6394, 3.00%, 2/1/43 | | | | | 406,218 | | |
| | | 484,735 | | | | FNMA Pool #AS2337, 4.50%, 5/1/44 | | | | | 524,052 | | |
| Principal Amount | | | | | | Value | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) (continued) | | ||||||||||||
| | $ | 170,596 | | | | FNMA Pool #AS3155, 4.00%, 8/1/44 | | | | $ | 180,795 | | |
| | | 122,330 | | | | FNMA Pool #AS3157, 4.00%, 8/1/44 | | | | | 129,645 | | |
| | | 291,539 | | | | FNMA Pool #AU1847, 3.00%, 9/1/43 | | | | | 291,568 | | |
| | | 179,688 | | | | FNMA Pool #AU2135, 2.50%, 8/1/28 | | | | | 182,998 | | |
| | | 282,997 | | | | FNMA Pool #AU4279, 3.00%, 9/1/43 | | | | | 283,070 | | |
| | | 203,813 | | | | FNMA Pool #AV6345, 4.50%, 1/1/44 | | | | | 220,687 | | |
| | | 300,694 | | | | FNMA Pool #AW0353, 4.50%, 3/1/44 | | | | | 325,643 | | |
| | | 520,656 | | | | FNMA Pool #AW5055, 3.50%, 7/1/44 | | | | | 537,820 | | |
| | | 173,593 | | | | FNMA Pool #AW6645, 3.00%, 6/1/29 | | | | | 179,970 | | |
| | | 173,218 | | | | FNMA Pool #AW7362, 2.50%, 8/1/29 | | | | | 175,876 | | |
| | | 433,758 | | | | FNMA Pool #AX0416, 4.00%, 8/1/44 | | | | | 459,890 | | |
| | | 296,632 | | | | FNMA Pool #AX1138, 3.50%, 9/1/44 | | | | | 306,037 | | |
| | | 284,462 | | | | FNMA Pool #AX9013, 3.50%, 2/1/45 | | | | | 293,482 | | |
| | | 481,014 | | | | FNMA Pool #AY2728, 2.50%, 2/1/30 | | | | | 487,302 | | |
| | | 396,050 | | | | FNMA Pool #MA0641, 4.00%, 2/1/31 | | | | | 422,781 | | |
| | | 1,137,157 | | | | FNMA Pool #MA1107, 3.50%, 7/1/32 | | | | | 1,189,574 | | |
| | | 16,275 | | | | FNMA REMIC Trust Series 2003-38, Class TC, 5.00%, 3/25/23 | | | | | 16,674 | | |
| | | 158,560 | | | | FNMA REMIC Trust Series 2013-18, Class AE, 2.00%, 3/25/28 | | | | | 157,580 | | |
| | | 336,394 | | | | GNMA, Series 2011-136, Class GB, 2.50%, 5/20/40 | | | | | 341,696 | | |
| | | 1,604 | | | | GNMA I Pool #429786, 6.00%, 12/15/33 | | | | | 1,873 | | |
| | | 30,682 | | | | GNMA I Pool #548880, 6.00%, 12/15/31 | | | | | 34,798 | | |
| | | 27,235 | | | | GNMA I Pool #551762, 6.00%, 4/15/32 | | | | | 31,537 | | |
| | | 3,017 | | | | GNMA I Pool #557681, 6.00%, 8/15/31 | | | | | 3,422 | | |
| | | 12,350 | | | | GNMA I Pool #582415, 6.00%, 11/15/32 | | | | | 14,434 | | |
| | | 50,546 | | | | GNMA I Pool #583008, 5.50%, 6/15/34 | | | | | 58,348 | | |
| | | 44,969 | | | | GNMA I Pool #605025, 6.00%, 2/15/34 | | | | | 52,032 | | |
See Notes to Financial Statements.
15
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Value | | ||||||
| U.S. GOVERNMENT AGENCY OBLIGATIONS (24.0%) (continued) | | ||||||||||||
| | $ | 17,759 | | | | GNMA I Pool #605245, 5.50%, 6/15/34 | | | | $ | 20,181 | | |
| | | 12,869 | | | | GNMA I Pool #610944, 5.50%, 4/15/34 | | | | | 14,516 | | |
| | | 31,706 | | | | GNMA I Pool #622603, 6.00%, 11/15/33 | | | | | 36,073 | | |
| | | 4,590 | | | | GNMA I Pool #626480, 6.00%, 2/15/34 | | | | | 5,321 | | |
| | | 24,811 | | | | GNMA II Pool #3645, 4.50%, 12/20/19 | | | | | 26,012 | | |
| | | 239,628 | | | | GNMA II Pool #5332, 4.00%, 3/20/42 | | | | | 255,411 | | |
| | | 208,456 | | | | GNMA II Pool #MA1520, 3.00%, 12/20/43 | | | | | 211,775 | | |
| | | 193,322 | | | | GNMA II Pool #MA1678, 4.00%, 2/20/44 | | | | | 205,022 | | |
| | | 583,448 | | | | GNMA II Pool #MA1922, 5.00%, 5/20/44 | | | | | 640,412 | | |
| | | 187,740 | | | | GNMA II Pool #MA2445, 3.50%, 12/20/44 | | | | | 195,776 | | |
| TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $18,172,407) (24.0%) | | | | | 18,317,280 | | | ||||||
| U.S. TREASURY OBLIGATIONS (18.0%) | | ||||||||||||
| | | | | | | U.S. TREASURY NOTES & BONDS (18.0%) | | ||||||
| | | 350,000 | | | | U.S. Treasury Bonds, 7.88%, 2/15/21 | | | | | 464,570 | | |
| | | 595,995 | | | | U.S. Treasury Bonds, 2.00%, 1/15/26(4) | | | | | 684,184 | | |
| | | 900,000 | | | | U.S. Treasury Bonds, 5.25%, 11/15/28 | | | | | 1,173,094 | | |
| | | 550,000 | | | | U.S. Treasury Bonds, 4.38%, 2/15/38 | | | | | 676,328 | | |
| | | 300,000 | | | | U.S. Treasury Bonds, 4.38%, 5/15/40 | | | | | 369,398 | | |
| | | 675,000 | | | | U.S. Treasury Bonds, 3.63%, 8/15/43 | | | | | 742,605 | | |
| | | 430,000 | | | | U.S. Treasury Bonds, 3.38%, 5/15/44 | | | | | 451,668 | | |
| | | 150,000 | | | | U.S. Treasury Bonds, 2.50%, 2/15/45(3) | | | | | 132,012 | | |
| | | 70,000 | | | | U.S. Treasury Notes, 0.38%, 10/31/16 | | | | | 69,956 | | |
| | | 250,000 | | | | U.S. Treasury Notes, 0.50%, 11/30/16 | | | | | 250,156 | | |
| | | 450,000 | | | | U.S. Treasury Notes, 0.88%, 12/31/16 | | | | | 452,637 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 0.75%, 3/15/17 | | | | | 200,703 | | |
| | | 150,000 | | | | U.S. Treasury Notes, 0.88%, 10/15/17 | | | | | 150,340 | | |
| | | 300,000 | | | | U.S. Treasury Notes, 0.88%, 11/15/17 | | | | | 300,563 | | |
| Principal Amount | | | | | | Value | | ||||||
| | | | | | | U.S. TREASURY NOTES & BONDS (18.0%) (continued) | | ||||||
| | $ | 500,000 | | | | U.S. Treasury Notes, 0.75%, 12/31/17 | | | | $ | 498,946 | | |
| | | 300,000 | | | | U.S. Treasury Notes, 1.00%, 2/15/18 | | | | | 300,891 | | |
| | | 600,000 | | | | U.S. Treasury Notes, 1.38%, 12/31/18 | | | | | 603,422 | | |
| | | 600,000 | | | | U.S. Treasury Notes, 1.50%, 3/31/19 | | | | | 604,594 | | |
| | | 500,000 | | | | U.S. Treasury Notes, 3.13%, 5/15/19 | | | | | 533,555 | | |
| | | 450,000 | | | | U.S. Treasury Notes, 1.63%, 6/30/19 | | | | | 454,254 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 1.63%, 12/31/19 | | | | | 200,828 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 1.25%, 1/31/20 | | | | | 197,312 | | |
| | | 700,000 | | | | U.S. Treasury Notes, 1.38%, 3/31/20 | | | | | 693,109 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 1.13%, 4/30/20 | | | | | 195,406 | | |
| | | 300,000 | | | | U.S. Treasury Notes, 2.25%, 4/30/21 | | | | | 306,281 | | |
| | | 600,000 | | | | U.S. Treasury Notes, 2.13%, 6/30/21 | | | | | 607,453 | | |
| | | 1,000,000 | | | | U.S. Treasury Notes, 1.50%, 1/31/22 | | | | | 968,125 | | |
| | | 150,000 | | | | U.S. Treasury Notes, 1.75%, 2/28/22 | | | | | 147,387 | | |
| | | 550,000 | | | | U.S. Treasury Notes, 2.75%, 2/15/24 | | | | | 571,012 | | |
| | | 350,000 | | | | U.S. Treasury Notes, 2.25%, 11/15/24 | | | | | 347,867 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 2.00%, 2/15/25(3) | | | | | 194,312 | | |
| | | 200,000 | | | | U.S. Treasury Notes, 2.13%, 5/15/25(3) | | | | | 196,375 | | |
| TOTAL U.S. TREASURY NOTES & BONDS (Cost $13,807,986) (18.0%) | | | | | 13,739,343 | | | ||||||
| TOTAL U.S. TREASURY OBLIGATIONS (Cost $13,807,986) (18.0%) | | | | | 13,739,343 | | |
| Shares | | | | | | Value | | ||||||
| SHORT-TERM INVESTMENTS (6.6%) | | ||||||||||||
| | | | | | | MONEY MARKET FUNDS (6.6%) | | ||||||
| | | 3,746,588 | | | | State Street Navigator Securities Lending Prime Portfolio(5) | | | | | 3,746,588 | | |
| | | 1,237,851 | | | | State Street Institutional Liquid Reserves Fund | | | | | 1,237,851 | | |
| TOTAL SHORT-TERM INVESTMENTS (Cost $4,984,439) (6.6%) | | | | | 4,984,439 | | |
| Shares | | | | | | Value | | |||
| TOTAL INVESTMENT SECURITIES (104.4%) (Cost $79,584,656) | | | | $ | 79,601,260 | | | |||
| EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-4.4%) | | | | | (3,388,948) | | | |||
| NET ASSETS (100%) | | | | $ | 76,212,312 | | | |||
| NET ASSET VALUE OFFERING AND REDEMPTION PRICE, PER OUTSTANDING SHARE ($76,212,312 ÷ 5,155,384 shares outstanding) | | | | $ | 14.78 | | |
(1)
Pursuant to Rule 144A under the Securities Act of 1933, this security can only be sold to qualified institutional investors.
(2)
The rate shown on floating rate and discount securities represents the yield or rate at the end of the reporting period.
(3)
A portion or all of the security was held on loan. As of June 30, 2015, the market value of the securities on loan was $3,669,365.
(4)
Treasury Inflation Protected Security (TIPS).
(5)
Securities with an aggregate market value of $3,669,365 were out on loan in exchange for $3,746,588 of cash collateral as of June 30, 2015. The collateral was invested in a cash collateral reinvestment vehicle as described in Note 1G in the Notes to Financial Statements.
FHLMC
Federal Home Loan Mortgage Corp.
FNMA
Federal National Mortgage Association.
GMTN
Global Medium Term Note.
GNMA
Government National Mortgage Association.
MTN
Medium Term Note.
See Notes to Financial Statements.
16
June 30, 2015
The following table summarizes the inputs used to value the Fund’s investments in securities as of June 30, 2015 (See Note 1B):
Investments in Securities: | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | ||||||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset-Backed Securities | | | | $ | — | | | | | $ | 3,480,629 | | | | | $ | — | | | | | $ | 3,480,629 | | |
Commercial Mortgage-Backed Securities | | | | | — | | | | | | 4,427,451 | | | | | | — | | | | | | 4,427,451 | | |
Corporate Bonds & Notes* | | | | | — | | | | | | 31,872,435 | | | | | | — | | | | | | 31,872,435 | | |
Foreign Government Obligations | | | | | — | | | | | | 684,813 | | | | | | — | | | | | | 684,813 | | |
Long-Term Municipal Securities* | | | | | — | | | | | | 1,839,047 | | | | | | — | | | | | | 1,839,047 | | |
Short-Term Municipal Securities | | | | | — | | | | | | 255,823 | | | | | | — | | | | | | 255,823 | | |
U.S. Government Agency Obligations | | | | | — | | | | | | 18,317,280 | | | | | | — | | | | | | 18,317,280 | | |
U.S. Treasury Obligations | | | | | — | | | | | | 13,739,343 | | | | | | — | | | | | | 13,739,343 | | |
Short-Term Investments | | | | | 4,984,439 | | | | | | — | | | | | | — | | | | | | 4,984,439 | | |
Total Investments in Securities | | | | $ | 4,984,439 | | | | | $ | 74,616,821 | | | | | $ | — | | | | | $ | 79,601,260 | | |
*
See Schedule of Investments for further classification.
See Notes to Financial Statements.
17
THE VALUE LINE TAX EXEMPT FUND, INC.
INVESTMENT OBJECTIVE AND STRATEGY (condensed)
The primary investment objective of the Fund is to provide investors with the maximum income exempt from federal income taxes while avoiding undue risk to principal. Capital appreciation is a secondary objective.
To achieve the Fund’s investment objectives, under normal conditions, EULAV Asset Management (the “Adviser”) invests at least 80% of the Fund’s assets in securities the income of which is exempt from regular federal income taxation and will not subject non-corporate shareholders to the alternative minimum tax. The Fund invests primarily in investment grade municipal bonds and expects to maintain an average maturity of between 7 and 20 years.
Manager Discussion of Fund Performance
Below, Value Line Tax Exempt Fund, Inc. portfolio manager Liane Rosenberg discusses the Fund’s performance and positioning for the six months ended June 30, 2015.
How did the Fund perform during the semi-annual period?
The Fund generated a total return of -0.06% during the six months ended June 30, 2015. This compares to the 0.12% return of the Fund’s benchmark, the Barclays Municipal Bond Index (the “Barclays Municipal Index”), during the same semi-annual period.
What key factors were responsible for the Fund’s performance during the reporting period?
The Fund modestly underperformed its benchmark, the Barclays Municipal Index, after fees and expenses. Issue selection and sector allocation generated mixed results. Yield curve and duration positioning contributed most positively to relative performance.
Which tax-exempt fixed income market segments most significantly affected Fund performance?
Detracting from the Fund’s relative results was having an overweighted allocation to the education sector, which lagged the Barclays Index during the semi-annual period. Having an underweighted allocation to the hospitals sector, which outpaced the Barclays Index during the semi-annual period, also hurt. Exposure to the debt of the State of New Jersey further dampened results, as these bonds were relatively poor performers during the semi-annual period. New Jersey suffered credit rating downgrades from the independent rating agencies, as the state grappled with sizable unfunded pension obligations.
On the positive side, overweighting revenue bonds and underweighting general obligation (“GO”) bonds at the local and state level helped performance, as the Revenue Index (a subset of the Barclays Municipal Index) outperformed the GO Index (another subset of the Barclays Index) during the semi-annual period. Investors searching for yield saw value in the higher yielding revenue bonds that offered some credit protection in the form of regular tax receipts or other revenue streams. Also, having no exposure to the debt of Puerto Rico, which continued to be pressured by serious credit problems, boosted relative returns. Issue selection amongst housing-related bonds and water and sewer bonds added value as well.
What was the Fund’s duration strategy?
Duration positioning in the Fund was additive to its relative performance during the reporting period. We kept the Fund’s duration approximately one-fourth to one-half of a year shorter than that of the Barclays Municipal Index through most of the reporting period. We maintained this stance in anticipation of a rising interest rate environment. Duration is a measure of the Fund’s sensitivity to changes in interest rates.
How did yield curve positioning decisions affect the Fund’s performance?
Yield curve positioning overall contributed most positively to the Fund’s performance during the reporting period. It served the Fund well to be underweight the longer-term segment of the yield curve during a period that saw a steepening yield curve. Interest rates rose for securities maturities of seven years and longer, while shorter-term maturities ended the semi-annual period with lower rates, causing the yield curve to steepen. Much of the shift in rates came from investor expectations for a delay by the Federal Reserve (the Fed) in raising interest rates. The concern was that should rates stay “lower for longer,” the lack of Fed action would serve to increase inflation. Expectations for potentially higher inflation led to an increase in rates at the longer-term end of the yield curve.
How did the Fund use derivatives and similar instruments during the reporting period?
The Fund did not use derivatives during the reporting period.
18
Were there any notable changes in the Fund’s weightings during the semi-annual period?
During the reporting period, there were no notable changes in the Fund’s weightings and little trading. We maintained the Fund’s focus on higher quality issues, as negative credit events continued to surface in several lower-rated states, such as Illinois and New Jersey. We also maintained the Fund’s duration slightly short that of the Barclays Municipal Index and its underweight on the longer-term end of the yield curve in anticipation of gradually higher interest rates. We invested new cash inflows to maintain duration at approximately one-half year shorter than that of the Barclays Municipal Index, with new purchases primarily in higher quality, mostly AA-rated bonds.
How was the Fund positioned relative to its benchmark index at the end of June 2015?
At the end of June 2015, the Fund maintained its conservative focus on credit quality, with a bias toward utilities and housing bonds. We maintained the Fund’s duration shorter than that of the Barclays Municipal Index and its lighter weighting toward the longer-term end of the yield curve.
What is your tactical view and strategy for the months ahead?
At the end of June 2015, we believed new deals would likely increase in the next several months, as maturities edge up. Credit weakness in the already weaker states of New Jersey and Illinois is likely to continue, in our view, as both states continue to struggle with budgetary issues. Given this view, we intend to maintain the Fund’s focus on the higher quality end of the credit spectrum and to favor revenue bonds over general obligation bonds, as we look to enhance investment income. We may also look for opportunities to reduce the Fund’s exposure to New Jersey, as this state remains challenged by its budgetary issues. Of course, any tax law changes or threat of a change and/or any material change in an individual state’s or municipality’s creditworthiness would likely cause us to reevaluate the Fund’s positioning.
As we continue to seek maximum income exempt from federal income taxes while avoiding undue risk to principal, we maintain a long-term investment perspective.
19
The Value Line Tax Exempt Fund, Inc.
Portfolio Highlights at June 30, 2015 (unaudited)
Portfolio Highlights at June 30, 2015 (unaudited)
Ten Largest Holdings
Issue | | | Principal Amount | | | Value | | | Percentage of Net Assets | | |||||||||
Arlington Texas, Special Tax, 5.00%, 8/15/28 | | | | $ | 1,575,000 | | | | | $ | 1,718,246 | | | | | | 2.4% | | |
Harris County Texas, Revenue Bonds, Senior Lien-Toll Road, Ser. A, 5.00%, 8/15/32 | | | | | 1,170,000 | | | | | | 1,319,503 | | | | | | 1.8% | | |
Leander Texas Independent School District, General Obligation Unlimited, Capital Appreciation, Refunding & School Building, PSF-GTD Insured, 0.00%, 8/15/41 | | | | | 5,000,000 | | | | | | 1,159,700 | | | | | | 1.6% | | |
New Jersey State Educational Facilities Authority Revenue, Revenue Bonds, Princeton University, Ser. B, 5.00%, 7/1/35 | | | | | 1,000,000 | | | | | | 1,139,770 | | | | | | 1.6% | | |
Cleveland Ohio Airport System Revenue, Revenue Bonds, Ser. C, Assured GTY Insured, 5.00%, 1/1/22 | | | | | 1,000,000 | | | | | | 1,095,670 | | | | | | 1.5% | | |
Santa Clara County California Financing Authority Lease Revenue, Multiple Facilities Projects, Revenue Bonds, Ser. K, AMBAC Insured, 5.00%, 5/15/25 | | | | | 855,000 | | | | | | 918,723 | | | | | | 1.3% | | |
Wisconsin State, General Obligation Unlimited, Ser. C, 4.50%, 5/1/20 | | | | | 750,000 | | | | | | 855,210 | | | | | | 1.2% | | |
Miami-Dade County Florida Double Barreled Aviation, General Obligation Unlimited, 5.00%, 7/1/27 | | | | | 750,000 | | | | | | 842,738 | | | | | | 1.2% | | |
Delaware Valley Regional Finance Authority, Permanently Fixed Revenue Bonds, AMBAC Insured, 5.50%, 8/1/18 | | | | | 750,000 | | | | | | 833,400 | | | | | | 1.2% | | |
Saint Joseph County Indiana Educational Facilities Revenue, University of Notre Dame Du Lac Project, Revenue Bonds, 5.00%, 3/1/36 | | | | | 750,000 | | | | | | 816,960 | | | | | | 1.1% | | |
Asset Allocation – Percentage of Net Assets
![[MISSING IMAGE: t1501709_pie-vltef.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/t1501709_pie-vltef.jpg)
Sector Weightings – Percentage of Total Investment Securities*
![[MISSING IMAGE: t1501709_bar-vltef.jpg]](https://capedge.com/proxy/N-CSRS/0001571049-15-007469/t1501709_bar-vltef.jpg)
*
Sector weightings exclude short-term investments.
20
The Value Line Tax Exempt Fund, Inc.
Portfolio Highlights at June 30, 2015 (unaudited) (continued)
Portfolio Highlights at June 30, 2015 (unaudited) (continued)
Quality Diversification – Credit Quality Expressed as a Percentage of Net Assets as of 6/30/15
| | | Percentage of Fund’s Investments | | |||
Aaa/AAA | | | | | 13.1% | | |
Aa1/AA+ | | | | | 20.3% | | |
Aa2/AA | | | | | 23.0% | | |
Aa3/AA- | | | | | 14.9% | | |
A1/A+ | | | | | 9.4% | | |
A2/A | | | | | 7.8% | | |
A3/A- | | | | | 8.4% | | |
Baa1 | | | | | 0.8% | | |
NR | | | | | 0.4% | | |
Total Investments | | | | | 98.1% | | |
Cash and other assets in excess of liabilities | | | | | 1.9% | | |
Total Net Assets | | | | | 100.0% | | |
Source:
Moody’s ratings, defaulting to S&P when not rated.
Credit quality is subject to change.
21
The Value Line Tax Exempt Fund, Inc.
Schedule of Investments (unaudited)
Schedule of Investments (unaudited)
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) | | | |||||||||||||||||
| | | | | | | ALABAMA (0.5%) | | ||||||||||||
| | $ | 310,000 | | | | University of Alabama (The), Revenue Bonds, Ser. A, 4.50%, 10/1/40 | | | | | Aa2 | | | | | $ | 324,288 | | |
| | | | | | | ALASKA (0.3%) | | ||||||||||||
| | | 200,000 | | | | North Slope Boro Alaska, General Obligation Unlimited, NATL-RE Insured, Ser. A, 5.00%, 6/30/17 | | | | | Aa2 | | | | | | 217,012 | | |
| | | | | | | ARIZONA (0.6%) | | ||||||||||||
| | | 150,000 | | | | Arizona State Transportation Board Highway Revenue, Revenue Bonds, Ser. A, 5.00%, 7/1/38 | | | | | Aa2 | | | | | | 166,880 | | |
| | | 250,000 | | | | City of Scottsdale Arizona, General Obligation Unlimited, Project 2004-Preserve Acquisition, 3.00%, 7/1/30 | | | | | Aaa | | | | | | 245,837 | | |
| | | | | | | | | | | | | | | | | | 412,717 | | |
| | | | | | | ARKANSAS (0.7%) | | ||||||||||||
| | | 500,000 | | | | Arkansas State Water, Waste Disposal and Pollution, General Obligation Unlimited, Extraordinary Redemption Provision, Ser. A, 4.00%, 7/1/26 | | | | | Aa1 | | | | | | 532,645 | | |
| | | | | | | CALIFORNIA (14.0%) | | ||||||||||||
| | | 150,000 | | | | Berkeley Joint Powers Financing Authority, Revenue Bonds, 5.00%, 10/1/20 | | | | | AA* | | | | | | 173,197 | | |
| | | 100,000 | | | | California Educational Facilities Authority, Revenue Bonds, Pepperdine University, 5.00%, 9/1/33 | | | | | Aa3 | | | | | | 112,743 | | |
| | | 500,000 | | | | California Educational Facilities Authority, Revenue Bonds, University of Southern California, Ser. A, 5.25%, 10/1/38 | | | | | Aa1 | | | | | | 558,660 | | |
| | | 250,000 | | | | California Health Facilities Financing Authority, Revenue Bonds, Lucile Packard Children’s Hospital, Ser. B, 5.00%, 8/15/26 | | | | | Aa3 | | | | | | 284,947 | | |
| | | 270,000 | | | | California Health Facilities Financing Authority, Revenue Bonds, Scripps Health, Ser. A, 4.50%, 11/15/35 | | | | | Aa3 | | | | | | 282,625 | | |
| | | 225,000 | | | | California State Department of Water Resources Center Valley Project Water System, Ser. AG, Refunding Revenue Bonds, 4.38%, 12/1/29 | | | | | Aa1 | | | | | | 238,957 | | |
| | | | | | | California State Public Works Board, Revenue Bonds: | | | | ||||||||||
| | | 500,000 | | | | Department of Corrections and Rehabilitation, 5.00%, 6/1/27 | | | | | A1 | | | | | | 572,785 | | |
| | | 150,000 | | | | Department of Health Services-Richmond Laboratory, Ser. B, 4.00%, 11/1/15 | | | | | A1 | | | | | | 151,899 | | |
| | | 250,000 | | | | Judicial Council Projects, Ser. D, 5.00%, 12/1/18 | | | | | A1 | | | | | | 282,342 | | |
| | | 200,000 | | | | Ser. H, 5.00%, 12/1/24 | | | | | A1 | | | | | | 240,298 | | |
| | | | | | | California State, General Obligation Unlimited: | | | | ||||||||||
| | | 565,000 | | | | 5.00%, 2/1/38 | | | | | Aa3 | | | | | | 627,783 | | |
| | | 500,000 | | | | 5.25%, 11/1/40 | | | | | Aa3 | | | | | | 579,375 | | |
| | | 250,000 | | | | City of Pasadena, California Certificate of Participation, Ser. C, 4.75%, 2/1/38 | | | | | AA+* | | | | | | 259,097 | | |
| | | 500,000 | | | | Dry Creek California Joint Elementary School District, General Obligation Unlimited, Capital Appreciation Election 2008, AGM Insured, 0.00%, 8/1/30(1) | | | | | A2 | | | | | | 265,900 | | |
| | | 230,000 | | | | Inglewood Unified School District, School Facilities Financing Authority, Revenue Bonds, FSA Insured, 5.25%, 10/15/21 | | | | | A2 | | | | | | 266,255 | | |
| | | 150,000 | | | | Long Beach Community College District, General Obligation Unlimited, Ser. B, 3.00%, 8/1/32 | | | | | Aa2 | | | | | | 136,076 | | |
| | | | | | | Los Angeles County Metropolitan Transportation Authority, Refunding Revenue Bonds, Proposition C: | | | | ||||||||||
| | | 60,000 | | | | Senior Ser. B, 5.00%, 7/1/22 | | | | | Aa3 | | | | | | 72,034 | | |
| | | 75,000 | | | | Senior Ser. C, 5.00%, 7/1/21 | | | | | AA+* | | | | | | 89,353 | | |
| | | | | | | Los Angeles Unified School District, General Obligation Unlimited, Ser. B: | | | | ||||||||||
| | | 775,000 | | | | AMBAC Insured, 4.00%, 7/1/18(2) | | | | | Aa2 | | | | | | 798,537 | | |
| | | 135,000 | | | | AMBAC Insured, 5.00%, 7/1/18(2) | | | | | Aa2 | | | | | | 146,582 | | |
| | | 220,000 | | | | Marin Community College District, General Obligation Unlimited, Election 2004, Ser. B, 4.75%, 8/1/34 | | | | | Aa1 | | | | | | 244,803 | | |
| | | | | | | Metropolitan Water District of Southern California, Refunding Revenue Bonds: | | | | ||||||||||
| | | 330,000 | | | | Ser. C, 4.00%, 10/1/22 | | | | | Aa1 | | | | | | 369,323 | | |
| | | 60,000 | | | | Ser. F, 5.00%, 7/1/28 | | | | | Aa1 | | | | | | 70,828 | | |
| | | 150,000 | | | | Sacramento Municipal Utility District, Revenue Bonds, Ser. A, 5.00%, 8/15/41 | | | | | Aa3 | | | | | | 166,235 | | |
| | | 250,000 | | | | San Diego County Regional Transportation Commission, Revenue Bonds, Ser. A, 5.00%, 4/1/42 | | | | | Aa2 | | | | | | 275,845 | | |
| | | 150,000 | | | | San Diego Public Facilities Financing Authority Water Revenue, Revenue Bonds, Ser. A, 5.25%, 8/1/38 | | | | | Aa2 | | | | | | 165,105 | | |
| | | 200,000 | | | | San Jose Unified School District Santa Clara Country, General Obligation Unlimited, Election 2012, Ser. A, 3.80%, 8/1/37 | | | | | Aa2 | | | | | | 196,994 | | |
See Notes to Financial Statements.
22
June 30, 2015
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | CALIFORNIA (14.0%) (continued) | | ||||||||||||
| | $ | 855,000 | | | | Santa Clara County California Financing Authority Lease Revenue, Multiple Facilities Projects, Revenue Bonds, Ser. K, AMBAC Insured, 5.00%, 5/15/25(2) | | | | | A1 | | | | | $ | 918,723 | | |
| | | 150,000 | | | | Santa Monica Public Financing Authority, Lease Revenue Bonds, Ser. A, 4.00%, 6/1/18 | | | | | Aa2 | | | | | | 162,953 | | |
| | | 200,000 | | | | State of California, General Obligation Unlimited, 4.00%, 3/1/25 | | | | | Aa3 | | | | | | 223,258 | | |
| | | | | | | State of California, General Obligation Unlimited, Refunding Bonds: | | | | ||||||||||
| | | 105,000 | | | | 5.00%, 2/1/24 | | | | | Aa3 | | | | | | 122,914 | | |
| | | 250,000 | | | | 5.25%, 2/1/29 | | | | | Aa3 | | | | | | 288,060 | | |
| | | | | | | State of California, General Obligation Unlimited, Various Purpose Bonds: | | | | ||||||||||
| | | 250,000 | | | | 5.00%, 9/1/41 | | | | | Aa3 | | | | | | 276,327 | | |
| | | 260,000 | | | | 5.50%, 4/1/21 | | | | | Aa3 | | | | | | 299,348 | | |
| | | 150,000 | | | | University of California Limited Project, Revenue Bonds, Ser. G, 5.00%, 5/15/37 | | | | | Aa3 | | | | | | 168,904 | | |
| | | | | | | | | | | | | | | | | | 10,089,065 | | |
| | | | | | | COLORADO (0.8%) | | ||||||||||||
| | | 500,000 | | | | University of Colorado, Enterprise Revenue Bonds, 5.00%, 6/1/30 | | | | | Aa2 | | | | | | 560,770 | | |
| | | | | | | CONNECTICUT (0.7%) | | ||||||||||||
| | | 200,000 | | | | Connecticut Housing Finance Authority, Revenue Bonds, Subser. C-1, 3.75%, 11/15/35 | | | | | Aaa | | | | | | 199,710 | | |
| | | 250,000 | | | | South Central Connecticut Regional Water Authority, Revenue Bonds, Twenty-Seventh Series, General Obligation of Authority Insured, 5.00%, 8/1/27 | | | | | Aa3 | | | | | | 282,808 | | |
| | | | | | | | | | | | | | | | | | 482,518 | | |
| | | | | | | DELAWARE (0.3%) | | ||||||||||||
| | | 200,000 | | | | University of Delaware Revenue, Revenue Bonds, Ser. B, 4.00%, 11/1/19 | | | | | AA+* | | | | | | 222,210 | | |
| | | | | | | DISTRICT OF COLUMBIA (0.2%) | | ||||||||||||
| | | 100,000 | | | | District of Columbia Income Tax Secured Revenue, Revenue Bonds, Ser. G, 5.00%, 12/1/36 | | | | | Aa1 | | | | | | 111,375 | | |
| | | | | | | FLORIDA (5.0%) | | ||||||||||||
| | | 650,000 | | | | Cape Coral Florida Utility Special Assessment, Southwest 4 Area, AGM Insured, 4.50%, 7/1/18 | | | | | A2 | | | | | | 684,105 | | |
| | | 250,000 | | | | City of Cape Coral, Florida Water & Sewer Revenue, Revenue Bonds, Ser. A, NATL-RE Insured, 5.00%, 10/1/23 | | | | | A1 | | | | | | 287,875 | | |
| | | | | | | City of Jacksonville, Florida Special Revenue, Revenue Bonds: | | | | ||||||||||
| | | 250,000 | | | | Ser. A, 5.25%, 10/1/30 | | | | | Aa3 | | | | | | 288,197 | | |
| | | 125,000 | | | | Ser. B, 5.00%, 10/1/17 | | | | | Aa3 | | | | | | 136,563 | | |
| | | 75,000 | | | | Hillsborough County Industrial Development Authority, Hospital Revenue Refunding Bonds, Tampa General Hospital Project, Ser. A, 5.00%, 10/1/20 | | | | | A3 | | | | | | 85,421 | | |
| | | 415,000 | | | | Hillsborough County School Board Certificates of Participation, Master Lease Program, NATL-RE Insured, 5.00%, 7/1/22 | | | | | Aa2 | | | | | | 446,955 | | |
| | | 300,000 | | | | Miami-Dade County Expressway Authority, Revenue Bonds, Ser. A, 5.00%, 7/1/23 | | | | | A3 | | | | | | 350,958 | | |
| | | 750,000 | | | | Miami-Dade County Florida Double Barreled Aviation, General Obligation Unlimited, 5.00%, 7/1/27 | | | | | Aa2 | | | | | | 842,737 | | |
| | | 215,000 | | | | Polk County Florida Public Facilities, Revenue Bonds, NATL-RE Insured, 5.00%, 12/1/21 | | | | | Aa3 | | | | | | 219,225 | | |
| | | 250,000 | | | | State of Florida, Department of Transportation, General Obligation Unlimited, 5.00%, 7/1/22 | | | | | Aa1 | | | | | | 297,205 | | |
| | | | | | | | | | | | | | | | | | 3,639,241 | | |
| | | | | | | GEORGIA (3.1%) | | ||||||||||||
| | | 150,000 | | | | Augusta Georgia Water & Sewerage Revenue, Revenue Bonds, 4.00%, 10/1/28 | | | | | A1 | | | | | | 158,029 | | |
| | | 500,000 | | | | City of Atlanta, Georgia Water & Wastewater Revenue, Revenue Bonds, Ser. B, AGM Insured, 5.25%, 11/1/34 | | | | | Aa3 | | | | | | 561,440 | | |
| | | 200,000 | | | | County of DeKalb Georgia Water & Sewerage Revenue, Revenue Bonds, Ser. A, 4.00%, 10/1/15 | | | | | Aa3 | | | | | | 201,942 | | |
| | | | | | | Metropolitan Atlanta Rapid Transit Authority, Revenue Bonds, 3rd Ser.: | | | | ||||||||||
| | | 125,000 | | | | 5.25%, 7/1/36 | | | | | Aa3 | | | | | | 140,683 | | |
| | | 500,000 | | | | Ser. A, 4.00%, 7/1/36 | | | | | Aa3 | | | | | | 511,350 | | |
| | | 630,000 | | | | Valdosta & Lowndes County Hospital Authority, Revenue Bonds, South Medical Center Project, Ser. B, County Guaranteed Insured, 5.00%, 10/1/41 | | | | | Aa2 | | | | | | 685,579 | | |
| | | | | | | | | | | | | | | | | | 2,259,023 | | |
See Notes to Financial Statements.
23
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | GUAM (0.4%) | | ||||||||||||
| | | | | | | Guam Power Authority, Revenue Bonds, Ser. A, AGM Insured: | | | | ||||||||||
| | $ | 150,000 | | | | 5.00%, 10/1/20 | | | | | A2 | | | | | $ | 173,645 | | |
| | | 120,000 | | | | 5.00%, 10/1/39 | | | | | A2 | | | | | | 134,822 | | |
| | | | | | | | | | | | | | | | | | 308,467 | | |
| | | | | | | HAWAII (0.8%) | | ||||||||||||
| | | 485,000 | | | | City & County Honolulu Hawaii Wastewater System Revenue, Revenue Bonds, Senior Ser. A, 5.25%, 7/1/36 | | | | | Aa2 | | | | | | 544,539 | | |
| | | | | | | IDAHO (0.8%) | | ||||||||||||
| | | 250,000 | | | | Idaho Housing & Finance Association, Grant & Revenue Anticipation Bonds, Federal Highway - A, 5.00%, 7/15/29 | | | | | A2 | | | | | | 279,635 | | |
| | | 250,000 | | | | Idaho State Building Authority, Revenue Bonds, 5.00%, 9/1/40 | | | | | Aa2 | | | | | | 276,423 | | |
| | | | | | | | | | | | | | | | | | 556,058 | | |
| | | | | | | ILLINOIS (2.7%) | | ||||||||||||
| | | 100,000 | | | | Cook County Forest Preserve District, General Obligation Unlimited, Ser. C, 5.00%, 12/15/37 | | | | | A2 | | | | | | 107,592 | | |
| | | 200,000 | | | | Cook County, General Obligation Unlimited, Ser. C, 4.25%, 11/15/19 | | | | | A2 | | | | | | 209,714 | | |
| | | 250,000 | | | | Illinois Finance Authority, Revenue Bonds, Loyola University of Chicago, Ser. B, 5.00%, 7/1/26 | | | | | A2 | | | | | | 275,070 | | |
| | | 150,000 | | | | Illinois State Toll Highway Authority, Revenue Bonds, Ser. C, 5.00%, 1/1/37 | | | | | Aa3 | | | | | | 165,504 | | |
| | | 250,000 | | | | Illinois State, General Obligation Unlimited, 5.00%, 3/1/16 | | | | | A3 | | | | | | 256,370 | | |
| | | 190,000 | | | | Kane Kendall Etc Counties Community College District No. 516, General Obligation Unlimited, Ser. A, 5.00%, 12/15/20 | | | | | Aa1 | | | | | | 221,468 | | |
| | | 500,000 | | | | Northern Illinois Municipal Power Agency, Revenue Bonds, Prairie State Project, Ser. A, NATL-RE Insured, 5.00%, 1/1/20 | | | | | A2 | | | | | | 541,545 | | |
| | | 150,000 | | | | University of Illinois, Revenue Bonds, Auxiliary Facilities System, Ser. A, 5.00%, 4/1/17 | | | | | Aa3 | | | | | | 160,669 | | |
| | | | | | | | | | | | | | | | | | 1,937,932 | | |
| | | | | | | INDIANA (2.4%) | | ||||||||||||
| | | 605,000 | | | | Columbus Indiana Renovation School Building Corporation First Mortgage, Revenue Bonds, NATL-RE State Aid Withholding Insured, 5.00%, 7/15/21 | | | | | A3 | | | | | | 606,186 | | |
| | | 295,000 | | | | Franklin Township School Building Corporation Unrefunded First Mortgage, Marion County, Revenue Bonds, NATL-RE State Aid Withholding Insured, 5.00%, 7/15/23 | | | | | A3 | | | | | | 295,575 | | |
| | | 750,000 | | | | Saint Joseph County Indiana Educational Facilities Revenue, University of Notre Dame Du Lac Project, Revenue Bonds, 5.00%, 3/1/36 | | | | | Aaa | | | | | | 816,960 | | |
| | | | | | | | | | | | | | | | | | 1,718,721 | | |
| | | | | | | IOWA (0.7%) | | ||||||||||||
| | | 500,000 | | | | Iowa Finance Authority, State Revolving Fund, Revenue Bonds, 3.38%, 8/1/29 | | | | | Aaa | | | | | | 507,285 | | |
| | | | | | | KANSAS (0.7%) | | ||||||||||||
| | | 500,000 | | | | Johnson County Kansas Unified School District No. 512 Shawnee Mission, General Obligation Unlimited, Ser. A, 4.50%, 10/1/27 | | | | | Aaa | | | | | | 513,020 | | |
| | | | | | | KENTUCKY (0.7%) | | ||||||||||||
| | | 450,000 | | | | Kentucky State Turnpike Authority Economic Development Road Revenue, Revenue Bonds, Revitalization Projects, Ser. A, 5.00%, 7/1/19 | | | | | Aa2 | | | | | | 513,225 | | |
| | | | | | | LOUISIANA (0.8%) | | ||||||||||||
| | | 250,000 | | | | Louisiana Local Government Environmental Facilities & Community Development Authority, Revenue Bonds, Parish of East Baton Rouge Road Improvements, 5.00%, 8/1/24 | | | | | Aa3 | | | | | | 288,728 | | |
| | | 145,000 | | | | State of Louisiana Gasoline & Fuels Tax Revenue, Revenue Bonds, Ser. C-1, 5.00%, 5/1/30 | | | | | Aa2 | | | | | | 165,220 | | |
| | | 85,000 | | | | State of Louisiana Highway Improvement Revenue, Revenue Bonds, Ser. A, 5.00%, 6/15/28 | | | | | Aa3 | | | | | | 98,648 | | |
| | | | | | | | | | | | | | | | | | 552,596 | | |
| | | | | | | MAINE (1.0%) | | ||||||||||||
| | | | | | | Maine Municipal Bond Bank, Revenue Bonds: | | | | ||||||||||
| | | 225,000 | | | | Ser. D, 4.00%, 11/1/20 | | | | | AA+* | | | | | | 251,363 | | |
| | | 100,000 | | | | Ser. E, 5.00%, 11/1/18 | | | | | Aa2 | | | | | | 109,592 | | |
See Notes to Financial Statements.
24
June 30, 2015
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | MAINE (1.0%) (continued) | | ||||||||||||
| | $ | 200,000 | | | | Maine State Health & Higher Educational Facilities Authority Revenue, Refunding Revenue Bonds, Colby College, Ser. A, 5.00%, 7/1/39 | | | | | Aa2 | | | | | $ | 222,670 | | |
| | | 100,000 | | | | Maine Turnpike Authority, Revenue Bonds, Ser. A, 5.00%, 7/1/37 | | | | | Aa3 | | | | | | 110,197 | | |
| | | | | | | | | | | | | | | | | | 693,822 | | |
| | | | | | | MARYLAND (0.8%) | | ||||||||||||
| | | 500,000 | | | | Howard County Maryland Consolidated Public Improvement, General Obligation Unlimited, Ser. A, 4.00%, 2/15/23 | | | | | Aaa | | | | | | 542,490 | | |
| | | 50,000 | | | | University System of Maryland, Auxiliary Facilities & Tuition Revenue, Revenue Bonds, Ser. A, 5.00%, 10/1/16 | | | | | Aa1 | | | | | | 52,884 | | |
| | | | | | | | | | | | | | | | | | 595,374 | | |
| | | | | | | MASSACHUSETTS (5.0%) | | ||||||||||||
| | | 245,000 | | | | Martha’s Vineyard Land Bank, Revenue Bonds, AMBAC Insured, 4.25%, 5/1/36(2) | | | | | A-* | | | | | | 247,898 | | |
| | | 500,000 | | | | Massachusetts Bay Transportation Authority, Revenue Assessment Bonds, Ser. A, 4.00%, 7/1/37 | | | | | Aa1 | | | | | | 509,490 | | |
| | | | | | | Massachusetts Development Finance Agency: | | | | ||||||||||
| | | 500,000 | | | | Harvard University, Revenue Bonds, Ser. B-2, 5.25%, 2/1/34 | | | | | Aaa | | | | | | 582,110 | | |
| | | 75,000 | | | | Partners Healthcare, Revenue Bonds, Ser. L, 5.00%, 7/1/36 | | | | | Aa3 | | | | | | 82,924 | | |
| | | 250,000 | | | | Massachusetts Health & Educational Facilities Authority Revenue, Revenue Bonds, Harvard University, Ser. A, 5.00%, 12/15/30 | | | | | Aaa | | | | | | 286,020 | | |
| | | 500,000 | | | | Massachusetts Health & Educational Facilities Authority Revenue, Revenue Bonds, Tufts University, Ser. M, 5.50%, 2/15/27 | | | | | Aa2 | | | | | | 622,040 | | |
| | | 250,000 | | | | Massachusetts School Building Authority Sales Tax Revenue, Revenue Bonds, Senior Ser. B, 5.00%, 10/15/41 | | | | | Aa2 | | | | | | 276,963 | | |
| | | 350,000 | | | | Massachusetts State, General Obligation Limited, AMBAC Insured, Consolidated Loan, Ser. C, 5.00%, 8/1/37(2) | | | | | Aa1 | | | | | | 379,281 | | |
| | | 115,000 | | | | Town of Nantucket, Massachusetts Municipal Purpose Loan, General Obligation Limited, 4.13%, 2/15/24 | | | | | Aa1 | | | | | | 122,530 | | |
| | | 500,000 | | | | University of Massachusetts Building Authority Project Revenue, Revenue Bonds, Senior Ser. 1, 5.00%, 11/1/15 | | | | | Aa2 | | | | | | 508,135 | | |
| | | | | | | | | | | | | | | | | | 3,617,391 | | |
| | | | | | | MICHIGAN (0.6%) | | ||||||||||||
| | | 250,000 | | | | Grand Rapids Michigan Water Supply, Revenue Bonds, 5.00%, 1/1/17 | | | | | Aa2 | | | | | | 266,275 | | |
| | | 145,000 | | | | Michigan Finance Authority, State Revolving Fund Revenue, Clean Water, Refunding Revenue Bonds, 5.00%, 10/1/20 | | | | | AAA* | | | | | | 170,098 | | |
| | | | | | | | | | | | | | | | | | 436,373 | | |
| | | | | | | MISSISSIPPI (0.5%) | | ||||||||||||
| | | 300,000 | | | | Mississippi Hospital Equipment & Facilities Authority, Revenue Bonds, Forest County General Hospital, 5.25%, 1/1/28 | | | | | A2 | | | | | | 325,599 | | |
| | | | | | | NEBRASKA (0.8%) | | ||||||||||||
| | | 285,000 | | | | Central Plains Energy Project, Revenue Bonds, Project No. 3, 5.00%, 9/1/21 | | | | | A3 | | | | | | 320,460 | | |
| | | 250,000 | | | | University of Nebraska, Lincoln Student, Revenue Bonds, 4.00%, 7/1/33 | | | | | Aa1 | | | | | | 258,647 | | |
| | | | | | | | | | | | | | | | | | 579,107 | | |
| | | | | | | NEVADA (0.8%) | | ||||||||||||
| | | 250,000 | | | | City of Henderson, Nevada Refunding, General Obligation Limited, 4.00%, 6/1/31 | | | | | Aa2 | | | | | | 260,090 | | |
| | | 200,000 | | | | County of Clark, Nevada Refunding, General Obligation Limited, Ser. B, 4.00%, 7/1/17 | | | | | Aa1 | | | | | | 212,896 | | |
| | | 100,000 | | | | County of Washoe, Nevada Refunding, General Obligation Limited, Ser. A, 4.00%, 3/1/17 | | | | | Aa2 | | | | | | 105,331 | | |
| | | | | | | | | | | | | | | | | | 578,317 | | |
| | | | | | | NEW HAMPSHIRE (0.7%) | | ||||||||||||
| | | 500,000 | | | | New Hampshire State, General Obligation Unlimited, Ser. B, 4.00%, 2/1/30 | | | | | Aa1 | | | | | | 528,445 | | |
| | | | | | | NEW JERSEY (3.6%) | | ||||||||||||
| | | 100,000 | | | | New Jersey Institute of Technology, Revenue Bonds, Ser. A, General Obligation of Institution Insured, 5.00%, 7/1/42 | | | | | A1 | | | | | | 108,727 | | |
| | | 1,000,000 | | | | New Jersey State Educational Facilities Authority Revenue, Revenue Bonds, Princeton University, Ser. B, 5.00%, 7/1/35 | | | | | Aaa | | | | | | 1,139,770 | | |
See Notes to Financial Statements.
25
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | NEW JERSEY (3.6%) (continued) | | ||||||||||||
| | | | | | | New Jersey State Health Care Facilities Financing Authority, Revenue Bonds: | | | | ||||||||||
| | $ | 125,000 | | | | AHS Hospital Corp., 5.00%, 7/1/17 | | | | | A1 | | | | | $ | 134,527 | | |
| | | 245,000 | | | | Hospital Asset Transformation, Ser. A, 5.25%, 10/1/18 | | | | | A3 | | | | | | 264,637 | | |
| | | 150,000 | | | | Ser. A, 4.00%, 7/1/26 | | | | | A3 | | | | | | 155,805 | | |
| | | | | | | New Jersey State Transportation Trust Fund Authority, Revenue Bonds, Transportation System: | | | | ||||||||||
| | | 245,000 | | | | Ser. A, AMBAC Insured, 4.75%, 12/15/37(2) | | | | | A3 | | | | | | 246,350 | | |
| | | 250,000 | | | | Ser. B, 5.00%, 6/15/18 | | | | | A3 | | | | | | 267,710 | | |
| | | | | | | New Jersey State Turnpike Authority, Revenue Bonds: | | | | ||||||||||
| | | 165,000 | | | | Ser. A, 5.00%, 1/1/29 | | | | | A3 | | | | | | 184,929 | | |
| | | 100,000 | | | | Ser. F, 5.00%, 1/1/35 | | | | | A3 | | | | | | 109,823 | | |
| | | | | | | | | | | | | | | | | | 2,612,278 | | |
| | | | | | | NEW MEXICO (0.6%) | | ||||||||||||
| | | 140,000 | | | | County of Santa Fe New Mexico Gross Receipts Tax Revenue, Revenue Bonds, Ser. A, 4.00%, 6/1/20 | | | | | Aa3 | | | | | | 155,751 | | |
| | | 250,000 | | | | New Mexico Finance Authority, State Transportation Revenue, Refunding Revenue Bonds, 5.00%, 6/15/18 | | | | | Aa1 | | | | | | 279,400 | | |
| | | | | | | | | | | | | | | | | | 435,151 | | |
| | | | | | | NEW YORK (8.1%) | | ||||||||||||
| | | 150,000 | | | | County of Saratoga, New York Public Improvement Bonds, General Obligation Unlimited, Ser. A, 4.00%, 7/15/21 | | | | | Aa2 | | | | | | 160,587 | | |
| | | 400,000 | | | | County of Westchester, General Obligation Unlimited, Ser. B, 3.00%, 6/1/21 | | | | | Aa1 | | | | | | 420,556 | | |
| | | 400,000 | | | | Housing Finance Agency, Revenue Bonds, Ser. A, 5.00%, 3/15/39 | | | | | Aa1 | | | | | | 440,080 | | |
| | | 110,000 | | | | Long Island Power Authority, Revenue Bonds, Ser. B, 5.00%, 9/1/23 | | | | | Baa1 | | | | | | 126,954 | | |
| | | 200,000 | | | | Metropolitan Transportation Authority, New York, Revenue Bonds, Ser. A, AGM Insured, 5.00%, 11/15/36 | | | | | A2 | | | | | | 221,218 | | |
| | | | | | | New York State Dormitory Authority, Revenue Bonds: | | | | ||||||||||
| | | 170,000 | | | | Albany Medical Center, Ser. A-1, FSA/FHA Insured, 5.00%, 8/15/18 | | | | | A2 | | | | | | 170,663 | | |
| | | 100,000 | | | | Cornell University, Ser. A, 5.00%, 7/1/40 | | | | | Aa1 | | | | | | 112,477 | | |
| | | 50,000 | | | | Memorial Sloan-Kettering Cancer Center, 5.00%, 7/1/25 | | | | | Aa3 | | | | | | 57,638 | | |
| | | 500,000 | | | | State Personal Income Tax Education, Ser. B, 5.00%, 3/15/28 | | | | | Aa1 | | | | | | 558,160 | | |
| | | 150,000 | | | | State Personal Income Tax Revenues General Purpose, Ser. A, 4.50%, 3/15/35 | | | | | Aa1 | | | | | | 159,771 | | |
| | | 250,000 | | | | State Personal Income Tax Revenues General Purpose, Ser. A, 5.00%, 2/15/23 | | | | | Aa1 | | | | | | 298,260 | | |
| | | 100,000 | | | | State Supported Debt, State University Dormitory Facilities, Ser. A, 4.00%, 7/1/15 | | | | | Aa2 | | | | | | 100,011 | | |
| | | 400,000 | | | | New York State Environmental Facilities Corp., Revenue Bonds, Ser. A, 5.00%, 12/15/16 | | | | | Aa1 | | | | | | 426,888 | | |
| | | | | | | New York State Environmental Facilities Corp., Revolving Funds Revenue Bonds: | | | | ||||||||||
| | | 500,000 | | | | Ser. B, 5.00%, 6/15/28 | | | | | Aaa | | | | | | 550,545 | | |
| | | 125,000 | | | | Ser. C, 4.13%, 6/15/22 | | | | | Aaa | | | | | | 130,190 | | |
| | | 150,000 | | | | New York State Urban Development Corp., State Personal Income Tax Revenue, Revenue Bonds, Ser. C, 5.00%, 12/15/17 | | | | | Aa1 | | | | | | 165,097 | | |
| | | 100,000 | | | | Port Authority of New York & New Jersey, Consolidated Bonds, Revenue Bonds, One Hundred Seventy-First Series, 4.00%, 7/15/38 | | | | | Aa3 | | | | | | 102,194 | | |
| | | 100,000 | | | | Port Authority of New York & New Jersey, Consolidated Bonds, Revenue Bonds, One Hundred Sixty-Sixth Series, General Obligation of Authority Insured, 5.00%, 7/15/33 | | | | | Aa3 | | | | | | 112,901 | | |
| | | | | | | Triborough Bridge & Tunnel Authority, Revenue Bonds: | | | | ||||||||||
| | | 250,000 | | | | FSA-CR AGM-CR MBIA Insured, 5.50%, 11/15/19 | | | | | A1 | | | | | | 294,045 | | |
| | | 100,000 | | | | Subser. D, 5.00%, 11/15/15 | | | | | A1 | | | | | | 101,823 | | |
| | | 500,000 | | | | Subser. D, 5.00%, 11/15/26 | | | | | A1 | | | | | | 556,500 | | |
| | | 100,000 | | | | Unrefunded, Ser. C, 5.00%, 11/15/19 | | | | | Aa3 | | | | | | 112,248 | | |
| | | 500,000 | | | | Urban Development Corp., Refunding Service Contract, Revenue Bonds, Ser. B, 5.00%, 1/1/20 | | | | | AA* | | | | | | 511,285 | | |
| | | | | | | | | | | | | | | | | | 5,890,091 | | |
See Notes to Financial Statements.
26
June 30, 2015
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | NEW YORK CITY (6.1%) | | ||||||||||||
| | | | | | | City of New York, General Obligation Unlimited: | | | | ||||||||||
| | $ | 350,000 | | | | Fiscal 2008, Subser. C-1, AGM Insured, 5.00%, 10/1/24 | | | | | Aa2 | | | | | $ | 382,375 | | |
| | | 250,000 | | | | Fiscal 2012, Ser. A-1, 5.00%, 8/1/32 | | | | | Aa2 | | | | | | 283,052 | | |
| | | 250,000 | | | | Housing Development Corp., Revenue Bonds, Ser. D-1-B, 4.20%, 5/1/37 | | | | | Aa2 | | | | | | 253,603 | | |
| | | | | | | Municipal Water Finance Authority, Water and Sewer System Revenue, Revenue Bonds: | | | | ||||||||||
| | | 500,000 | | | | Ser. C, 4.75%, 6/15/33 | | | | | Aa1 | | | | | | 516,525 | | |
| | | 250,000 | | | | Ser. DD, 4.50%, 6/15/38 | | | | | Aa2 | | | | | | 257,675 | | |
| | | 100,000 | | | | Ser. DD, 5.00%, 6/15/34 | | | | | Aa2 | | | | | | 111,960 | | |
| | | 60,000 | | | | Ser. FF, 5.00%, 6/15/45 | | | | | Aa2 | | | | | | 65,283 | | |
| | | | | | | Municipal Water Finance Authority, Water and Sewer System Revenue, Second General Resolution Revenue Bonds: | | | | ||||||||||
| | | 200,000 | | | | Ser. GG-1, 5.00%, 6/15/39 | | | | | Aa2 | | | | | | 224,574 | | |
| | | 150,000 | | | | Ser. GG-1, 5.25%, 6/15/32 | | | | | Aa2 | | | | | | 170,412 | | |
| | | 500,000 | | | | New York City Municipal Water Finance Authority, Water and Sewer Second General Resolution Fiscal 2008, Revenue Bonds, Ser. DD, 4.75%, 6/15/36 | | | | | Aa2 | | | | | | 530,535 | | |
| | | | | | | New York City Transitional Finance Authority Future Tax Secured Revenue, Revenue Bonds: | | | | ||||||||||
| | | 300,000 | | | | Fiscal 2011, Ser. D, 5.00%, 2/1/35 | | | | | Aa1 | | | | | | 338,271 | | |
| | | 265,000 | | | | Prerefunded, Ser. B, 5.00%, 11/1/23 | | | | | ** | | | | | | 285,821 | | |
| | | 150,000 | | | | Subordinated Future Tax Secured, Ser. A, 5.00%, 5/1/30 | | | | | Aa1 | | | | | | 168,405 | | |
| | | 160,000 | | | | Subser. F-1, 5.00%, 5/1/23 | | | | | Aa1 | | | | | | 190,376 | | |
| | | 135,000 | | | | Unrefunded, Ser. B, 5.00%, 11/1/23 | | | | | Aa1 | | | | | | 145,251 | | |
| | | 200,000 | | | | Transitional Finance Authority, Building Aid Revenue Bonds, Fiscal 2012, Subser. S-1A, State Aid Withholding Insured, 4.00%, 7/15/21 | | | | | Aa2 | | | | | | 223,916 | | |
| | | 250,000 | | | | Trust for Cultural Resources Revenue, Refunding Bonds, Museum of Modern Art, Ser. 1A, 5.00%, 4/1/28 | | | | | Aa2 | | | | | | 277,152 | | |
| | | | | | | | | | | | | | | | | | 4,425,186 | | |
| | | | | | | NORTH CAROLINA (2.6%) | | ||||||||||||
| | | 305,000 | | | | Nash Health Care Systems Health Care Facilities Revenue, Revenue Bonds, 4.50%, 11/1/37 | | | | | A-* | | | | | | 309,285 | | |
| | | 385,000 | | | | North Carolina Medical Care Commission, Refunding Revenue Bonds, Wakemed, Ser. A, 4.13%, 10/1/38 | | | | | A2 | | | | | | 386,540 | | |
| | | 250,000 | | | | North Carolina Medical Care Commission, Revenue Bonds, Duke University Health System, Ser. A, 5.00%, 6/1/42 | | | | | Aa2 | | | | | | 276,910 | | |
| | | 85,000 | | | | North Carolina Medical Care Commission, Revenue Bonds, Wake Forest Baptist Obligated Group, Ser. B, 5.00%, 12/1/24 | | | | | A2 | | | | | | 97,060 | | |
| | | | | | | Raleigh Durham Airport Authority, Revenue Bonds: | | | | ||||||||||
| | | 195,000 | | | | Ser. A, 5.00%, 5/1/36 | | | | | Aa3 | | | | | | 218,488 | | |
| | | 250,000 | | | | Ser. B-1, 5.00%, 11/1/28 | | | | | Aa3 | | | | | | 282,475 | | |
| | | 315,000 | | | | State of North Carolina Capital Improvement Obligation, Revenue Bonds, Ser. C, 3.50%, 5/1/27 | | | | | Aa1 | | | | | | 324,107 | | |
| | | | | | | | | | | | | | | | | | 1,894,865 | | |
| | | | | | | NORTH DAKOTA (0.7%) | | ||||||||||||
| | | 290,000 | | | | City of Fargo, North Dakota, Improvement Refunding Bonds, General Obligation Unlimited, Ser. E, 5.00%, 5/1/25 | | | | | Aa1 | | | | | | 349,201 | | |
| | | 135,000 | | | | North Dakota Public Finance Authority, State Revolving Fund Program, Revenue Bonds, Ser. A, 5.00%, 10/1/26 | | | | | Aaa | | | | | | 156,345 | | |
| | | | | | | | | | | | | | | | | | 505,546 | | |
| | | | | | | OHIO (3.5%) | | ||||||||||||
| | | 200,000 | | | | City of Akron, Ohio Community Learning Centers, Refunding Revenue Bonds, Ser. A, 5.00%, 12/1/28 | | | | | AA+* | | | | | | 227,296 | | |
| | | 325,000 | | | | Cleveland Department of Public Utilities Division of Water Revenue, Revenue Bonds, Senior Lien Ser. X, 3.63%, 1/1/37 | | | | | Aa1 | | | | | | 312,162 | | |
| | | 1,000,000 | | | | Cleveland Ohio Airport System Revenue, Revenue Bonds, Ser. C, Assured GTY Insured, 5.00%, 1/1/22 | | | | | A3 | | | | | | 1,095,670 | | |
| | | 350,000 | | | | Cleveland-Cuyahoga County Port Authority, Revenue Bonds, The Cleveland Museum Art Project, 5.00%, 10/1/19 | | | | | AA+* | | | | | | 400,197 | | |
| | | 150,000 | | | | Columbus Ohio Metropolitan Library Special Obligation, Revenue Bonds, Ser. 1, 5.00%, 12/1/23 | | | | | Aa2 | | | | | | 172,370 | | |
| | | 300,000 | | | | Ohio State Water Development Authority Revenue, Revenue Bonds, Water Pollution Control Loan-C, 5.00%, 12/1/18 | | | | | Aaa | | | | | | 339,693 | | |
| | | | | | | | | | | | | | | | | | 2,547,388 | | |
See Notes to Financial Statements.
27
Schedule of Investments (unaudited) (continued)
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | OKLAHOMA (0.4%) | | ||||||||||||
| | $ | 250,000 | | | | Oklahoma Capital Improvement Authority, Revenue Bonds, 5.00%, 10/1/23 | | | | | AA* | | | | | $ | 289,410 | | |
| | | | | | | OREGON (0.8%) | | ||||||||||||
| | | 500,000 | | | | Oregon State, General Obligation Unlimited, Refunding Revenue Bonds, Ser. N, 5.00%, 12/1/21 | | | | | Aa1 | | | | | | 596,715 | | |
| | | | | | | PENNSYLVANIA (4.0%) | | ||||||||||||
| | | 500,000 | | | | Centennial School District Bucks County, General Obligation Limited, Ser. A, State Aid Withholding Insured, 5.00%, 12/15/34 | | | | | Aa2 | | | | | | 575,110 | | |
| | | 200,000 | | | | Central Bradford Progress Authority, Guthrie Healthcare System, Revenue Bonds, 5.00%, 12/1/31 | | | | | AA-* | | | | | | 222,454 | | |
| | | 495,000 | | | | City of Philadelphia Pennsylvania, General Obligation Unlimited, Refunding Bonds, Ser. A, AGM Insured, 5.25%, 12/15/32 | | | | | A2 | | | | | | 543,718 | | |
| | | 750,000 | | | | Delaware Valley Regional Finance Authority, Permanently Fixed Revenue Bonds, AMBAC Insured, 5.50%, 8/1/18(2) | | | | | A2 | | | | | | 833,400 | | |
| | | 300,000 | | | | Pittsburgh Public Schools, General Obligation Limited, Ser. B, State Aid Withholding Insured, 4.00%, 9/1/22 | | | | | Aa3 | | | | | | 323,727 | | |
| | | | | | | University of Pittsburgh-of the Commonwealth System of Higher Education, Capital Project Revenue Bonds, Ser. B: | | | | ||||||||||
| | | 50,000 | | | | 5.00%, 9/15/31 | | | | | Aa1 | | | | | | 55,553 | | |
| | | 100,000 | | | | 5.00%, 9/15/19 | | | | | Aa1 | | | | | | 113,588 | | |
| | | 225,000 | | | | York County Pennsylvania, General Obligation Unlimited, 4.75%, 3/1/36 | | | | | AA* | | | | | | 245,241 | | |
| | | | | | | | | | | | | | | | | | 2,912,791 | | |
| | | | | | | RHODE ISLAND (0.7%) | | ||||||||||||
| | | 500,000 | | | | Rhode Island State & Providence Plantations, General Obligation Unlimited, Consolidated Capital Development Loan, Ser. C, NATL-RE Insured, 5.00%, 11/15/16 | | | | | Aa2 | | | | | | 531,470 | | |
| | | | | | | SOUTH CAROLINA (2.1%) | | ||||||||||||
| | | 500,000 | | | | Charleston County South Carolina, Capital Improvement Transportation Sales Tax, General Obligation Unlimited, State Aid Withholding Insured, 4.00%, 11/1/29 | | | | | Aaa | | | | | | 529,825 | | |
| | | 350,000 | | | | Charleston South Carolina Waterworks & Sewer Revenue, Refunding and Capital Improvement Revenue Bonds, 5.00%, 1/1/35 | | | | | Aa1 | | | | | | 387,026 | | |
| | | 150,000 | | | | Clemson University South Carolina Athletic Facilities, Refunding Revenue Bonds, 3.00%, 5/1/20 | | | | | Aa3 | | | | | | 159,857 | | |
| | | 195,000 | | | | South Carolina Jobs-Economic Development Authority, Refunding and Improvement Revenue Bonds, Palmetto Health, 5.75%, 8/1/39 | | | | | Baa1 | | | | | | 209,717 | | |
| | | 250,000 | | | | South Carolina Jobs-Economic Development Authority, Revenue Bonds, Georgetown Hospital, Ser. B, 3.50%, 2/1/25 | | | | | A3 | | | | | | 250,432 | | |
| | | | | | | | | | | | | | | | | | 1,536,857 | | |
| | | | | | | TENNESSEE (0.5%) | | ||||||||||||
| | | 250,000 | | | | Shelby County Health Educational & Housing Facilities Board, Revenue Bonds, Methodist Le Bonheur Healthcare, 5.00%, 5/1/42 | | | | | A1 | | | | | | 265,733 | | |
| | | 90,000 | | | | Tennessee Housing Development Agency, Revenue Bonds, Ser. 1C, 3.05%, 1/1/24 | | | | | Aa1 | | | | | | 92,241 | | |
| | | | | | | | | | | | | | | | | | 357,974 | | |
| | | | | | | TEXAS (11.2%) | | ||||||||||||
| | | 1,575,000 | | | | Arlington Texas, Special Tax, 5.00%, 8/15/28 | | | | | A1 | | | | | | 1,718,246 | | |
| | | 65,000 | | | | City of Austin Texas, Water & Wastewater System Revenue, Revenue Bonds, 5.00%, 11/15/32 | | | | | Aa2 | | | | | | 73,700 | | |
| | | 100,000 | | | | City of Dallas, Unrefunded General Obligation Limited, Refunding Bonds, 5.00%, 2/15/23 | | | | | Aa1 | | | | | | 117,678 | | |
| | | 160,000 | | | | City of El Paso Texas, Water & Sewer Revenue, Improvement Refunding Revenue Bonds, Ser. A, 5.00%, 3/1/23 | | | | | AA+* | | | | | | 187,651 | | |
| | | 150,000 | | | | City of Houston Texas, Public Improvement Refunding Bonds, General Obligation Limited, Ser. A, 5.00%, 3/1/25 | | | | | Aa2 | | | | | | 168,181 | | |
| | | 70,000 | | | | City of Lubbock, Texas Certificates of Obligation, Waterworks System, General Obligation Limited, 5.00%, 2/15/23 | | | | | Aa2 | | | | | | 83,283 | | |
| | | 200,000 | | | | City of San Antonio Texas, Water System Revenue, Junior Lien, Refunding Revenue Bonds, Ser. B, 5.00%, 5/15/32 | | | | | Aa2 | | | | | | 230,268 | | |
| | | 250,000 | | | | Fort Worth Independent School District, School Building, General Obligation Unlimited, PSF-GTD Insured, 5.00%, 2/15/20 | | | | | Aa1 | | | | | | 290,080 | | |
| | | 1,170,000 | | | | Harris County Texas, Revenue Bonds, Senior Lien-Toll Road, Ser. A, 5.00%, 8/15/32 | | | | | Aa3 | | | | | | 1,319,503 | | |
| | | 500,000 | | | | Hays Texas Consolidated Independent School District, General Obligation Unlimited, Serial CIB, PSF-GTD Insured, 4.50%, 8/15/32 | | | | | AAA* | | | | | | 517,060 | | |
| | | 5,000,000 | | | | Leander Texas Independent School District, General Obligation Unlimited, Capital Appreciation, Refunding & School Building, PSF-GTD Insured, 0.00%, 8/15/41(1) | | | | | AAA* | | | | | | 1,159,700 | | |
See Notes to Financial Statements.
28
June 30, 2015
| Principal Amount | | | | | | Rating | | | Value | | |||||||||
| LONG-TERM MUNICIPAL SECURITIES (98.1%) (continued) | | | |||||||||||||||||
| | | | | | | TEXAS (11.2%) (continued) | | ||||||||||||
| | $ | 250,000 | | | | Lower Colorado River Authority, Revenue Bonds, Ser. A, 5.00%, 5/15/31 | | | | | A1 | | | | | $ | 279,252 | | |
| | | 135,000 | | | | North Fort Bend Water Authority, Revenue Bonds, AGM Insured, Ser. A, 3.00%, 12/15/19 | | | | | A2 | | | | | | 143,334 | | |
| | | 200,000 | | | | Olmos Park Higher Education Facilities Corp., Refunding Revenue Bonds, University of the Incarnate Word, 5.00%, 12/1/23 | | | | | A3 | | | | | | 230,590 | | |
| | | 250,000 | | | | State of Texas, Water Financial Assistance, General Obligation Unlimited, Ser. B, 5.00%, 8/1/16 | | | | | Aaa | | | | | | 262,662 | | |
| | | 275,000 | | | | Tarrant County Cultural Education Facilities Finance Corp., Revenue Bonds, Baylor Health Care System Project, Ser. A, 5.00%, 11/15/38 | | | | | Aa3 | | | | | | 298,240 | | |
| | | 125,000 | | | | University of Texas Financing System, Revenue Bonds, Ser. D, 4.25%, 8/15/19 | | | | | Aaa | | | | | | 140,233 | | |
| | | 515,000 | | | | Upper Trinity Regional Water District, Revenue Refunding Bond, AMBAC Insured, 5.25%, 8/1/21(2) | | | | | A3 | | | | | | 517,220 | | |
| | | 375,000 | | | | Ysleta Texas Independent School District, General Obligation Unlimited, PSF-GTD Insured, 5.00%, 8/15/30 | | | | | AAA* | | | | | | 394,455 | | |
| | | | | | | | | | | | | | | | | | 8,131,336 | | |
| | | | | | | VERMONT (0.7%) | | ||||||||||||
| | | 200,000 | | | | Vermont Educational & Health Buildings Financing Agency, Revenue Bonds, Saint Michael’s College, 5.00%, 10/1/42 | | | | | Baa1 | | | | | | 212,472 | | |
| | | 250,000 | | | | Vermont Municipal Bond Bank, Revenue Bonds, Ser. 1, 5.00%, 12/1/29 | | | | | Aa2 | | | | | | 289,400 | | |
| | | | | | | | | | | | | | | | | | 501,872 | | |
| | | | | | | VIRGINIA (0.4%) | | ||||||||||||
| | | 250,000 | | | | Virginia State Resources Authority, Revenue Bonds, Virginia Pooled Financing Program, Ser. C, 5.00%, 11/1/18 | | | | | Aaa | | | | | | 282,165 | | |
| | | | | | | WASHINGTON (3.0%) | | ||||||||||||
| | | 250,000 | | | | City of Seattle Washington, Limited Tax Improvement Bonds, General Obligation Limited, 4.25%, 3/1/28 | | | | | Aa1 | | | | | | 266,040 | | |
| | | 100,000 | | | | City of Seattle Washington, Water System Revenue, Revenue Bonds, Ser. B, 4.00%, 8/1/15 | | | | | Aa1 | | | | | | 100,332 | | |
| | | 100,000 | | | | County of Pierce Washington, Sewer Revenue, Revenue Bonds, 4.00%, 8/1/37 | | | | | Aa3 | | | | | | 101,168 | | |
| | | | | | | Energy Northwest Washington Electric Refunding-Project 3, Revenue Bonds: | | | | ||||||||||
| | | 300,000 | | | | Ser. A, 5.00%, 7/1/17 | | | | | Aa1 | | | | | | 325,548 | | |
| | | 120,000 | | | | Ser. D, 5.00%, 7/1/16 | | | | | Aa1 | | | | | | 125,618 | | |
| | | 250,000 | | | | Port of Seattle Washington, Revenue Refunding Bonds, Ser. A, 5.00%, 8/1/33 | | | | | A1 | | | | | | 279,553 | | |
| | | 200,000 | | | | Seattle Museum Development Authority, Special Obligation Refunding Bonds, Municipal Government Guaranteed, 5.00%, 4/1/26 | | | | | Aa1 | | | | | | 235,512 | | |
| | | 350,000 | | | | Washington Health Care Facilities Authority, Revenue Bonds, Providence Health & Services, Ser. A, 4.25%, 10/1/37 | | | | | Aa3 | | | | | | 352,810 | | |
| | | 100,000 | | | | Washington State, Motor Vehicle Fuel Tax, General Obligation Unlimited, Ser. B, 5.00%, 7/1/24 | | | | | Aa1 | | | | | | 120,939 | | |
| | | 250,000 | | | | Washington State, Motor Vehicle Tax - Senior 520, General Obligation Unlimited, Ser. C, 5.00%, 6/1/32 | | | | | Aa1 | | | | | | 281,500 | | |
| | | | | | | | | | | | | | | | | | 2,189,020 | | |
| | | | | | | WEST VIRGINIA (0.3%) | | ||||||||||||
| | | 175,000 | | | | West Virginia School Building Authority, Revenue Bonds, 5.00%, 7/1/17 | | | | | A1 | | | | | | 189,355 | | |
| | | | | | | WISCONSIN (2.1%) | | ||||||||||||
| | | 150,000 | | | | City of Madison Wisconsin Water Utility Revenue, Revenue Bonds, 4.00%, 1/1/32 | | | | | Aa2 | | | | | | 155,858 | | |
| | | 200,000 | | | | Wisconsin State Health & Educational Facilities Authority, Revenue Bonds, Froedtert Health, Ser. A, 5.00%, 4/1/23 | | | | | AA-* | | | | | | 229,118 | | |
| | | 250,000 | | | | Wisconsin State Health & Educational Facilities Authority, Revenue Bonds, Marshfield Clinic, Ser. B, 5.00%, 2/15/24 | | | | | A-* | | | | | | 280,470 | | |
| | | 750,000 | | | | Wisconsin State, General Obligation Unlimited, Ser. C, 4.50%, 5/1/20 | | | | | Aa2 | | | | | | 855,210 | | |
| | | | | | | | | | | | | | | | | | 1,520,656 | | |
| | | | | | | WYOMING (0.3%) | | ||||||||||||
| | | 220,000 | | | | Laramie County Wyoming, Revenue Bonds, Cheyenne Regional Medical Center Project, 5.00%, 5/1/42 | | | | | A+* | | | | | | 238,240 | | |
| | | | | | | TOTAL LONG-TERM MUNICIPAL SECURITIES (98.1%) (Cost $68,737,224) | | | | | | | | | | $ | 70,945,501 | | |
| | | | | | | CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%) | | | | | | | | | | | 1,390,684 | | |
| | | | | | | NET ASSETS (100.0%) | | | | | | | | | | $ | 72,336,185 | | |
| | | | | | | NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE ($72,336,185 ÷ 7,280,183 shares outstanding) | | | | | | | | | | $ | 9.94 | | |
See Notes to Financial Statements.
29
Schedule of Investments (unaudited) (continued)
*
Rated by Moody’s Investor Service except for those marked by an asterisk (*) which are rated by Standard & Poor’s.
**
Security no longer rated by Moody’s and Standard & Poor’s.
(1)
Zero coupon bond.
(2)
In November 2010, AMBAC Financial Group, Inc. (AMBAC) filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
AGM
Assured Guaranty Municipal.
AMBAC
American Municipal Bond Assurance Corporation.
Assured GTY
Assured Guaranty Insurance Company.
FHA
Federal Housing Administration.
FSA
Financial Security Assurance.
MBIA
Municipal Bond Investors Assurance Corporation.
NATL-RE
National Public Finance Guarantee Corporation.
PSF-GTD
Permanent School Fund Guaranteed.
The following table summarizes the inputs used to value the Fund’s investments in securities as of June 30, 2015 (See Note 1B):
Investments in Securities: | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | ||||||||||||||||
Assets | | | | | | ||||||||||||||||||||||||
Long-Term Municipal Securities* | | | | $ | — | | | | | $ | 70,945,501 | | | | | $ | — | | | | | $ | 70,945,501 | | | ||||
Total Investments in Securities | | | | $ | — | | | | | $ | 70,945,501 | | | | | $ | — | | | | | $ | 70,945,501 | | | ||||
|
*
See Schedule of Investments for further classification.
See Notes to Financial Statements.
30
Statements of Assets and Liabilities
at June 30, 2015 (unaudited)
at June 30, 2015 (unaudited)
| | | Value Line Core Bond Fund | | | The Value Line Tax Exempt Fund, Inc. | | ||||||
Assets: | | | | ||||||||||
Investments in securities, at value* | | | | $ | 79,601,260 | | | | | $ | 70,945,501 | | |
Cash | | | | | — | | | | | | 671,482 | | |
Receivable for securities sold | | | | | 96,071 | | | | | | 10,000 | | |
Interest and dividends receivable | | | | | 504,847 | | | | | | 898,203 | | |
Receivable for capital shares sold | | | | | 819 | | | | | | 750 | | |
Prepaid expenses | | | | | 8,982 | | | | | | 12,062 | | |
Receivable for securities lending income | | | | | 429 | | | | | | — | | |
Total Assets | | | | | 80,212,408 | | | | | | 72,537,998 | | |
Liabilities: | | | | ||||||||||
Payable upon return of securities on loan (See Note 1G) | | | | | 3,746,588 | | | | | | — | | |
Payable for capital shares redeemed | | | | | 127,465 | | | | | | 8,099 | | |
Dividends payable to shareholders | | | | | 14,549 | | | | | | 31,649 | | |
Accrued expenses: | | | | ||||||||||
Advisory fee | | | | | 19,268 | | | | | | 52,624 | | |
Service and distribution plan fees | | | | | 6,292 | | | | | | — | | |
Directors’ fees and expenses | | | | | 2,281 | | | | | | 1,151 | | |
Other | | | | | 83,653 | | | | | | 108,290 | | |
Total Liabilities | | | | | 4,000,096 | | | | | | 201,813 | | |
Net Assets | | | | $ | 76,212,312 | | | | | $ | 72,336,185 | | |
Net assets consist of: | | | | ||||||||||
Capital stock, at $0.01 par value (authorized unlimited shares and 65,000,000 shares, respectively) | | | | $ | 51,554 | | | | | $ | 72,802 | | |
Additional paid-in capital | | | | | 76,897,347 | | | | | | 76,901,731 | | |
Undistributed/(distributions in excess of) net investment income | | | | | 36,103 | | | | | | (21,604) | | |
Accumulated net realized loss on investments | | | | | (789,296) | | | | | | (6,825,021) | | |
Net unrealized appreciation of: | | | | ||||||||||
Investments | | | | | 16,604 | | | | | | 2,208,277 | | |
Net Assets | | | | $ | 76,212,312 | | | | | $ | 72,336,185 | | |
Shares Outstanding | | | | | 5,155,384 | | | | | | 7,280,183 | | |
Net Asset Value, Offering and Redemption Price per Outstanding Share | | | | $ | 14.78 | | | | | $ | 9.94 | | |
* Includes securities on loan of | | | | $ | 3,669,365 | | | | | $ | — | | |
Cost of investments | | | | $ | 79,584,656 | | | | | $ | 68,737,224 | | |
See Notes to Financial Statements.
31
Statements of Operations
for the Six Months Ended June 30, 2015 (unaudited)
for the Six Months Ended June 30, 2015 (unaudited)
| | | Value Line Core Bond Fund | | | The Value Line Tax Exempt Fund, Inc. | | ||||||
Investment Income: | | | | ||||||||||
Interest | | | | $ | 1,013,477 | | | | | $ | 1,327,445 | | |
Securities lending income | | | | | 1,359 | | | | | | — | | |
Total Income | | | | | 1,014,836 | | | | | | 1,327,445 | | |
Expenses: | | | | ||||||||||
Advisory fee | | | | | 196,670 | | | | | | 184,778 | | |
Service and distribution plan fees | | | | | 98,335 | | | | | | 92,389 | | |
Custodian fees | | | | | 33,134 | | | | | | 28,429 | | |
Auditing and legal fees | | | | | 25,376 | | | | | | 38,688 | | |
Transfer agent fees | | | | | 53,138 | | | | | | 26,810 | | |
Directors’ fees and expenses | | | | | 9,245 | | | | | | 8,689 | | |
Printing and postage | | | | | 13,318 | | | | | | 15,481 | | |
Registration and filing fees | | | | | 14,161 | | | | | | 14,143 | | |
Insurance | | | | | 4,742 | | | | | | 4,867 | | |
Other | | | | | 6,307 | | | | | | 5,401 | | |
Total Expenses Before Fees Waived (See Note 5) | | | | | 454,426 | | | | | | 419,675 | | |
Less: Service and Distribution Plan Fees Waived | | | | | (59,001) | | | | | | (92,389) | | |
Less: Advisory Fees Waived | | | | | (78,668) | | | | | | — | | |
Net Expenses | | | | | 316,757 | | | | | | 327,286 | | |
Net Investment Income | | | | | 698,079 | | | | | | 1,000,159 | | |
Net Realized and Unrealized Gain/(Loss) on Investments: | | | | ||||||||||
Net Realized Gain/(Loss) From: | | | | ||||||||||
Investments | | | | | 148,717 | | | | | | 184,632 | | |
Change in Net Unrealized Appreciation/(Depreciation) of: | | | | ||||||||||
Investments | | | | | (954,771) | | | | | | (1,276,071) | | |
Net Realized Gain and Change in Net Unrealized Appreciation/(Depreciation) on Investments | | | | | (806,054) | | | | | | (1,091,439) | | |
Net Decrease in Net Assets from Operations | | | | $ | (107,975) | | | | | $ | (91,280) | | |
See Notes to Financial Statements.
32
Statement of Changes in Net Assets
for the Six Months Ended June 30, 2015 (unaudited)
and for the Year Ended December 31, 2014
for the Six Months Ended June 30, 2015 (unaudited)
and for the Year Ended December 31, 2014
| | | Value Line Core Bond Fund | | |||||||||
| | | Six Months Ended June 30, 2015 | | | Year Ended December 31, 2014 | | ||||||
Operations: | | | | ||||||||||
Net investment income | | | | $ | 698,079 | | | | | $ | 1,494,047 | | |
Net realized gain/(loss) on investments | | | | | 148,717 | | | | | | (64,745) | | |
Change in net unrealized appreciation/(depreciation) on investments | | | | | (954,771) | | | | | | 2,217,396 | | |
Net increase/(decrease) in net assets from operations | | | | | (107,975) | | | | | | 3,646,698 | | |
Distributions to Shareholders from: | | | | ||||||||||
Net investment income | | | | | (702,767) | | | | | | (1,444,033) | | |
Total distributions | | | | | (702,767) | | | | | | (1,444,033) | | |
Share Transactions: | | | | ||||||||||
Proceeds from sale of shares | | | | | 4,487,058 | | | | | | 1,879,189 | | |
Proceeds from reinvestment of dividends to shareholders | | | | | 613,716 | | | | | | 1,279,870 | | |
Cost of shares redeemed | | | | | (7,374,947) | | | | | | (11,109,656) | | |
Net decrease in net assets from capital share transactions | | | | | (2,274,173) | | | | | | (7,950,597) | | |
Total decrease in net assets | | | | | (3,084,915) | | | | | | (5,747,932) | | |
Net Assets: | | | | ||||||||||
Beginning of period | | | | | 79,297,227 | | | | | | 85,045,159 | | |
End of period | | | | $ | 76,212,312 | | | | | $ | 79,297,227 | | |
Undistributed net investment income included in net assets, at end of period | | | | $ | 36,103 | | | | | $ | 40,791 | | |
Capital Share Transactions: | | | | ||||||||||
Shares sold* | | | | | 299,446 | | | | | | 126,373 | | |
Shares issued to shareholders in reinvestment of dividends* | | | | | 40,856 | | | | | | 86,095 | | |
Shares redeemed* | | | | | (492,810) | | | | | | (747,721) | | |
Net decrease | | | | | (152,508) | | | | | | (535,253) | | |
*
A 3 to 1 reverse stock split occurred on October 17, 2014. The 3 to 1 reverse stock split has been retroactively applied to the capital share transactions listed above that occurred prior to October 17, 2014. Please see Note 6 for further information.
See Notes to Financial Statements.
33
Statement of Changes in Net Assets
for the Six Months Ended June 30, 2015 (unaudited) and
for the Periods Ended December 31, 2014 and February 28, 2014
for the Six Months Ended June 30, 2015 (unaudited) and
for the Periods Ended December 31, 2014 and February 28, 2014
| | | The Value Line Tax Exempt Fund, Inc. | | |||||||||||||||
| | | Six Months Ended June 30, 2015 | | | Period from March 1, 2014 to December 31, 2014* | | | Year Ended February 28, 2014 | | |||||||||
Operations: | | | | | |||||||||||||||
Net investment income | | | | $ | 1,000,159 | | | | | $ | 1,681,279 | | | | | $ | 2,278,417 | | |
Net realized gain/(loss) on investments | | | | | 184,632 | | | | | | 77,137 | | | | | | (181,468) | | |
Change in net unrealized appreciation/(depreciation) on investments | | | | | (1,276,071) | | | | | | 1,580,221 | | | | | | (3,840,197) | | |
Net increase/(decrease) in net assets from operations | | | | | (91,280) | | | | | | 3,338,637 | | | | | | (1,743,248) | | |
Distributions to Shareholders from: | | | | | |||||||||||||||
Net investment income | | | | | (1,000,159) | | | | | | (1,681,279) | | | | | | (2,278,417) | | |
Total distributions | | | | | (1,000,159) | | | | | | (1,681,279) | | | | | | (2,278,417) | | |
Share Transactions: | | | | | |||||||||||||||
Proceeds from sale of shares | | | | | 438,234 | | | | | | 1,151,787 | | | | | | 1,760,117 | | |
Proceeds from reinvestment of dividends to shareholders | | | | | 800,884 | | | | | | 1,327,768 | | | | | | 1,769,627 | | |
Cost of shares redeemed | | | | | (3,344,610) | | | | | | (6,648,898) | | | | | | (12,587,402) | | |
Net decrease in net assets from capital share transactions | | | | | (2,105,492) | | | | | | (4,169,343) | | | | | | (9,057,658) | | |
Total decrease in net assets | | | | | (3,196,931) | | | | | | (2,511,985) | | | | | | (13,079,323) | | |
Net Assets: | | | | | |||||||||||||||
Beginning of period | | | | | 75,533,116 | | | | | | 78,045,101 | | | | | | 91,124,424 | | |
End of period | | | | $ | 72,336,185 | | | | | $ | 75,533,116 | | | | | $ | 78,045,101 | | |
Distributions in excess of net investment income included in net assets, at end of period | | | | $ | (21,604) | | | | | $ | (21,604) | | | | | $ | (21,879) | | |
Capital Share Transactions: | | | | | |||||||||||||||
Shares sold | | | | | 43,744 | | | | | | 114,945 | | | | | | 179,399 | | |
Shares issued to shareholders in reinvestment of dividends | | | | | 79,614 | | | | | | 132,584 | | | | | | 180,304 | | |
Shares redeemed | | | | | (333,694) | | | | | | (664,917) | | | | | | (1,288,893) | | |
Net decrease | | | | | (210,336) | | | | | | (417,388) | | | | | | (929,190) | | |
*
The fund changed its fiscal year end.
See Notes to Financial Statements.
34
Financial Highlights
Selected data for a share of capital stock outstanding throughout each year:
| | | Income/(loss) from investment operations: | | | | Less distributions: | | ||||||||||||||||||||||||||||||||||||||||||||||||
| | | Net Asset value beginning of year | | | Net investment income | | | Net gains/ (losses) on securities (both realized and unrealized) | | | Total from investment operations | | | Redemption fees | | | | Dividends from net investment income | | | Distributions from net realized gains | | | Distributions from return of capital | | | Total distributions | | |||||||||||||||||||||||||||
Value Line Core Bond Fund(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period ended June 30, 2015(2) | | | | $ | 14.94 | | | | | | 0.13 | | | | | | (0.16) | | | | | | (0.03) | | | | | | — | | | | | | | (0.13) | | | | | | — | | | | | | — | | | | | | (0.13) | | |
Year ended December 31, 2014 | | | | | 14.55 | | | | | | 0.27 | | | | | | 0.38 | | | | | | 0.65 | | | | | | — | | | | | | | (0.26) | | | | | | — | | | | | | — | | | | | | (0.26) | | |
Period ended December 31, 2013(5) | | | | | 15.21 | | | | | | 0.18 | | | | | | (0.66) | | | | | | (0.48) | | | | | | — | | | | | | | (0.15) | | | | | | — | | | | | | (0.03) | | | | | | (0.18) | | |
Year ended January 31, 2013 | | | | | 14.76 | | | | | | 0.78 | | | | | | 0.45 | | | | | | 1.23 | | | | | | 0.00(6) | | | | | | | (0.78) | | | | | | (0.00)(6) | | | | | | — | | | | | | (0.78) | | |
Year ended January 31, 2012 | | | | | 14.85 | | | | | | 0.87 | | | | | | (0.09) | | | | | | 0.78 | | | | | | 0.00(6) | | | | | | | (0.87) | | | | | | — | | | | | | — | | | | | | (0.87) | | |
Year ended January 31, 2011 | | | | | 14.10 | | | | | | 0.90 | | | | | | 0.75 | | | | | | 1.65 | | | | | | 0.00(6) | | | | | | | (0.90) | | | | | | — | | | | | | — | | | | | | (0.90) | | |
Year ended January 31, 2010 | | | | | 11.67 | | | | | | 0.84 | | | | | | 2.43 | | | | | | 3.27 | | | | | | 0.00(6) | | | | | | | (0.84) | | | | | | — | | | | | | — | | | | | | (0.84) | | |
The Value Line Tax Exempt Fund, Inc. | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||
Period ended June 30, 2015(2) | | | | | 10.08 | | | | | | 0.14 | | | | | | (0.14) | | | | | | — | | | | | | — | | | | | | | (0.14) | | | | | | — | | | | | | — | | | | | | (0.14) | | |
Period ended December 31, 2014(9) | | | | | 9.87 | | | | | | 0.22 | | | | | | 0.21 | | | | | | 0.43 | | | | | | — | | | | | | | (0.22) | | | | | | — | | | | | | — | | | | | | (0.22) | | |
Year ended February 28, 2014 | | | | | 10.31 | | | | | | 0.27 | | | | | | (0.44) | | | | | | (0.17) | | | | | | — | | | | | | | (0.27) | | | | | | — | | | | | | — | | | | | | (0.27) | | |
Year ended February 28, 2013 | | | | | 10.14 | | | | | | 0.26 | | | | | | 0.17 | | | | | | 0.43 | | | | | | — | | | | | | | (0.26) | | | | | | — | | | | | | — | | | | | | (0.26) | | |
Year ended February 29, 2012 | | | | | 9.43 | | | | | | 0.29 | | | | | | 0.71 | | | | | | 1.00 | | | | | | — | | | | | | | (0.29) | | | | | | — | | | | | | — | | | | | | (0.29) | | |
Year ended February 28, 2011 | | | | | 9.60 | | | | | | 0.33 | | | | | | (0.17) | | | | | | 0.16 | | | | | | — | | | | | | | (0.33) | | | | | | — | | | | | | — | | | | | | (0.33) | | |
Year ended February 28, 2010 | | | | | 9.36 | | | | | | 0.38 | | | | | | 0.24 | | | | | | 0.62 | | | | | | — | | | | | | | (0.38) | | | | | | — | | | | | | — | | | | | | (0.38) | | |
*
Ratio reflects expenses grossed up for the custody credit arrangement, waiver of the advisory fees by the Adviser and the service and distribution plan fees by the Distributor. The custody credit arrangement was discontinued as of January 1, 2013.
**
Ratio reflects expenses net of the custody credit arrangement, waiver of the advisory fees by the Adviser and the service and distribution plan fees by the Distributor. The custody credit arrangement was discontinued as of January 1, 2013.
(1)
A 3 to 1 reverse stock split occurred on October 17, 2014. The 3 to 1 reverse stock split has been retroactively applied to the per share data listed above that occurred prior to October 17, 2014. Please see Note 7 for further information.
(2)
Unaudited for the six month period.
(3)
Not annualized.
(4)
Annualized.
(5)
Period from February 1, 2013 to December 31, 2013.
(6)
Amount is less than $0.01 per share.
(7)
Ratio reflects expenses grossed up for the reimbursement by Value Line, Inc. of certain expenses incurred by the Fund.
(8)
Ratio reflects expenses net of the reimbursement by Value Line, Inc. of certain expenses incurred by the Fund.
(9)
Period from March 1, 2014 to December 31, 2014.
See Notes to Financial Statements.
36
| | | Ratios/Supplemental Data: | | |||||||||||||||||||||||||||||||||||||||
| | | Net asset value, end of year | | | Total return | | | Net assets, end of year (in thousands) | | | Ratio of gross expenses to average net assets* | | | Ratio of net expenses to average net assets** | | | Ratio of net investment income to average net assets | | | Portfolio turnover rate | | |||||||||||||||||||||
Value Line Core Bond Fund(1) | | | | | | | | | |||||||||||||||||||||||||||||||||||
Period ended June 30, 2015(2) | | | | $ | 14.78 | | | | | | (0.19)%(3) | | | | | $ | 76,212 | | | | | | 1.16%(4) | | | | | | 0.81%(4) | | | | | | 1.77%(4) | | | | | | 24%(3) | | |
Year ended December 31, 2014 | | | | | 14.94 | | | | | | 4.49% | | | | | | 79,297 | | | | | | 1.26% | | | | | | 1.01% | | | | | | 1.96% | | | | | | 111% | | |
Period ended December 31, 2013(5) | | | | | | | | | |||||||||||||||||||||||||||||||||||
| | | | | 14.55 | | | | | | (3.13)%(3) | | | | | | 85,045 | | | | | | 1.30%(4) | | | | | | 1.15%(4) | | | | | | 1.17%(4) | | | | | | 61%(3) | | |
Year ended January 31, 2013 | | | | | 15.21 | | | | | | 8.49% | | | | | | 30,550 | | | | | | 1.62% | | | | | | 1.32% | | | | | | 5.18% | | | | | | 103% | | |
Year ended January 31, 2012 | | | | | 14.76 | | | | | | 5.48% | | | | | | 32,203 | | | | | | 1.55% | | | | | | 1.25% | | | | | | 5.95% | | | | | | 50% | | |
Year ended January 31, 2011 | | | | | 14.85 | | | | | | 12.01% | | | | | | 34,885 | | | | | | 1.48%(7) | | | | | | 1.13%(8) | | | | | | 6.20% | | | | | | 42% | | |
Year ended January 31, 2010 | | | | | 14.10 | | | | | | 28.92% | | | | | | 37,787 | | | | | | 1.56% | | | | | | 1.13% | | | | | | 6.51% | | | | | | 51% | | |
The Value Line Tax Exempt Fund, Inc. | | | | | | | | | |||||||||||||||||||||||||||||||||||
Period ended June 30, 2015(2) | | | | | 9.94 | | | | | | (0.06)%(3) | | | | | | 72,336 | | | | | | 1.14%(4) | | | | | | 0.89%(4) | | | | | | 2.71%(4) | | | | | | 3%(3) | | |
Period ended December 31, 2014(9) | | | | | | | | | |||||||||||||||||||||||||||||||||||
| | | | | 10.08 | | | | | | 4.38%(3) | | | | | | 75,533 | | | | | | 1.19%(4) | | | | | | 0.94%(4) | | | | | | 2.61%(4) | | | | | | 4%(3) | | |
Year ended February 28, 2014 | | | | | 9.87 | | | | | | (1.55)% | | | | | | 78,045 | | | | | | 1.08% | | | | | | 0.83% | | | | | | 2.79% | | | | | | 11% | | |
Year ended February 28, 2013 | | | | | 10.31 | | | | | | 4.33% | | | | | | 91,124 | | | | | | 1.24% | | | | | | 0.99% | | | | | | 2.58% | | | | | | 28% | | |
Year ended February 29, 2012 | | | | | 10.14 | | | | | | 10.77% | | | | | | 95,405 | | | | | | 1.13% | | | | | | 0.88% | | | | | | 2.95% | | | | | | 24% | | |
Year ended February 28, 2011 | | | | | 9.43 | | | | | | 1.67% | | | | | | 76,972 | | | | | | 1.01%(7) | | | | | | 0.74%(8) | | | | | | 3.45% | | | | | | 36% | | |
Year ended February 28, 2010 | | | | | 9.60 | | | | | | 6.70% | | | | | | 84,067 | | | | | | 1.02% | | | | | | 0.76% | | | | | | 3.99% | | | | | | 146% | | |
37
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc. (individually a “Fund” and collectively, the “Funds”) are each registered under the Investment Company Act of 1940, as amended, as diversified, open-end management investment companies. The primary investment objective of the Value Line Core Bond Fund is to maximize current income. As a secondary investment objective, the Fund will seek capital appreciation, but only when consistent with its primary objective. The primary investment objective of The Value Line Tax Exempt Fund, Inc. is to provide investors with the maximum income exempt from federal income taxes while avoiding undue risk to principal by investing primarily in investment-grade municipal securities. The Value Line Funds (the “Value Line Funds”) is a family of 12 mutual funds that includes a wide range of solutions designed to meet virtually any investment goal and consists of a variety of equity, fixed income, and hybrid funds.
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results may differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements.
(A) Security Valuation: Securities listed on a securities exchange are valued at the closing sales prices on the date as of which the net asset value (“NAV”) is being determined. Securities traded on the National Association of Securities Dealers Automated Quotations (“NASDAQ”) Stock Market are valued at the NASDAQ Official Closing Price. In the absence of closing sales prices for such securities and for securities traded in the over-the-counter market, the security is valued at the midpoint between the latest available and representative asked and bid prices. Short-term instruments with maturities of 60 days or less at the date of purchase are valued at amortized cost, which approximates fair value. Short-term instruments with maturities greater than 60 days at the date of purchase are valued at the midpoint between the latest available and representative asked and bid prices, and commencing 60 days prior to maturity such securities are valued at amortized cost.
Investments in shares of open-end mutual funds, including money market funds, are valued at their daily NAV which is calculated as of the close of regular trading on the NYSE (usually 4:00 P.M. Eastern Standard Time) on each day on which the NYSE is open for business. NAV per share is determined by dividing the Fund’s total net assets by the Fund’s total number of shares outstanding at the time of calculation.
The Board of Directors (the “Board”) has determined that the value of bonds and other fixed income corporate securities be calculated on the valuation date by reference to valuations obtained from an independent pricing service that determines valuations for normal institutional-size trading units of debt securities, without exclusive reliance upon quoted prices. This service takes into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data in determining valuations. Bonds and fixed income securities are valued at the evaluated bid on the date as of which the NAV is being determined. Securities, other than bonds and other fixed income securities, not priced in this manner are valued at the midpoint between the latest available and representative bid and asked prices, or when stock valuations are used, at the latest quoted sale price as of the regular close of business of the New York Stock Exchange (“NYSE”) on the valuation date.
The Board has adopted procedures for valuing portfolio securities in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Adviser. A valuation committee (the “Valuation Committee”) was established by the Board to oversee the implementation of the Funds’ valuation methods and to make fair value determinations on behalf of the Board, as instructed. The Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee. In addition, the Funds may use the fair value of a security when the closing market price on the primary exchange where the security is traded no longer reflects the value of a security due to factors affecting one or more relevant securities markets or the specific issuer.
38
June 30, 2015
(B) Fair Value Measurements: The Funds follow fair valuation accounting standards (FASB ASC 820-10) which establishes a definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
•
Level 1 — Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date;
•
Level 2 — Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;
•
Level 3 — Inputs that are unobservable.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Funds follow the updated provisions surrounding fair value measurements and disclosures on transfers in and out of all levels of the fair value hierarchy on a gross basis and the reasons for the transfers as well as to disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 of the fair value hierarchy.
For the six months ended June 30, 2015, there were no transfers between Level 1, Level 2, and Level 3 assets for each fund.
The Funds’ policy is to recognize transfers between levels at the beginning of the reporting period.
The amounts and reasons for all transfers in and out of each level within the three-tier hierarchy are disclosed when the Funds had an amount of total transfers during the reporting period that were meaningful in relation to their net assets as of the end of the reporting period (e.g. greater than 1%). An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used.
For the six months ended June 30, 2015, there were no Level 3 investments. The Schedule of Investments includes a breakdown of the Funds’ investments by category.
(C) Repurchase Agreements: Value Line Core Bond Fund may enter into repurchase agreements, under the terms of a Master Repurchase Agreement, with selected commercial banks and broker-dealers, under which the Funds acquire securities as collateral and agrees to resell the securities at an agreed upon time and at an agreed upon price. Each Fund, through the custodian or a sub-custodian, receives delivery of the underlying securities collateralizing repurchase agreements. The Funds’ custodian takes possession of the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, it is the Funds’ policy to mark-to-market the value of the underlying securities daily to ensure the adequacy of the collateral. In the event of default by either the seller or the Funds, the Master Repurchase Agreement may permit the non-defaulting party to net and close out all transactions. The Funds have the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. At period end, there were no open repurchase agreements for the Value Line Funds.
(D) Federal Income Taxes: It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the provisions available to regulated investment companies, as defined in applicable sections of the Internal Revenue Code, and to distribute all of their investment income and capital gains to their shareholders. Therefore, no provision for federal income tax is required.
As of June 30, 2015, and for all open tax years, management has analyzed the Funds’ tax positions taken on federal and state income tax returns, and has concluded that no provision for federal or state income tax is required in the Funds’ financial statements. The Funds’ federal and state income tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and the state departments of revenue.
39
Notes to Financial Statements (unaudited) continued
(E) Security Transactions and Distributions: Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses on sales of securities are calculated for financial accounting and federal income tax purposes on the basis of first in first out convention (“FIFO”). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Interest income, adjusted for the amortization of discount and premium, is earned from settlement date and recognized on the accrual basis. Gains and losses realized on prepayments received on mortgage-related securities are recorded as interest income.
The dividends and distributions were as follows:
| | | Six-Month Period Ended June 30, 2015 | | | Year Ended December 31, 2014 | | ||||||
Value Line Core Bond Fund | | | | ||||||||||
Dividends per share from net investment income | | | | $ | 0.1338 | | | | | $ | 0.2601 | | |
The Value Line Tax Exempt Fund, Inc. | | | | ||||||||||
Dividends per share from net investment income | | | | $ | 0.1351 | | | | | $ | 0.2187* | | |
*
Period from March 1, 2014 to December 31, 2014.
The Value Line Core Bond Fund may purchase mortgage pass-through securities on a to-be-announced (“TBA”) basis, with payment and delivery scheduled for a future date. The Funds may enter into a TBA agreement, sell the obligation to purchase the pools stipulated in the TBA agreement prior to the stipulated settlement date and enter into a new TBA agreement for future delivery of pools of mortgage pass-through securities (a “TBA roll”). A TBA roll is treated by the Funds as a purchase transaction and a sale transaction in which the Funds realize a gain or loss. The Funds’ use of TBA rolls may cause the Funds to experience higher portfolio turnover and higher transaction costs. The Fund could be exposed to possible risk if there is an adverse market action, expenses or delays in connection with TBA transactions, or if the counterparty fails to complete the transaction.
The Value Line Core Bond Fund may invest in Treasury Inflation-Protection Securities (“TIPS”). The principal value and interest payout of TIPS are periodically adjusted according to the rate of inflation based on the Consumer Price Index. The adjustments for principal and income due to inflation are reflected in interest income in the Statements of Operations.
Income dividends and capital gains distributions are automatically reinvested in additional shares of the Fund unless the shareholder has requested otherwise. Income earned by the Fund on weekends, holidays and other days on which the Fund is closed for business is declared as a dividend on the next day on which the Fund is open for business. The Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc. declares and pays dividends monthly. Net realized capital gains if any, are distributed to shareholders annually or more frequently if necessary to comply with the Internal Revenue Code.
(F) Representations and Indemnifications: In the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, management expects the risk of loss to be remote.
(G) Securities Lending: Under an agreement with State Street Bank & Trust (“State Street”), the Funds can lend their securities to brokers, dealers and other financial institutions approved by the Board. By lending their investment securities, the Funds attempt to increase their net investment income through receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur and any interest or dividends declared during the term of the loan would accrue to the account of the Funds. Risks of delay in recovery of the securities or even loss of rights in the collateral may occur should the borrower of the securities fail financially. Generally, in the event of a counter-party default, the Funds have the right to use the collateral to offset the losses incurred. The lending fees received and the Funds’ portion of the interest income earned on the cash collateral are included in the Statements of Operations.
40
June 30, 2015
Upon entering into a securities lending transaction, the Funds receive cash or other securities as collateral in an amount equal to or exceeding 102% of the current market value of the loaned securities. Any cash received as collateral is invested by State Street Global Advisors, acting in its capacity as securities lending agent (the “Agent”), in the Value Line Funds collateral account, which is subsequently invested into joint repurchase agreements and/or State Street Navigator Securities Lending Prime Portfolio. When the Funds invest the cash collateral in the State Street Navigator Securities Lending Prime Portfolio, a portion of the dividends received on the collateral is rebated to the borrower of the securities and the remainder is split between the Agent and the Funds.
The Funds enter into joint repurchase agreements whereby their uninvested cash collateral from securities lending is deposited into a joint cash account with other funds managed by the Adviser and may be used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest in the repurchase agreement. A repurchase agreement is accounted for as a loan by the funds to the seller, collateralized by securities which are delivered to the Fund’s custodian. The market value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked-to-market daily to maintain coverage of at least 100%. Investments made with the cash collateral are disclosed on the Schedules of Investments.
As of June 30, 2015, the Value Line Funds were not invested in joint repurchase agreements.
As of June 30, 2015, the Value Line Core Bond Fund loaned securities which were collateralized by cash which was reinvested into the State Street Navigator Securities Lending Prime Portfolio as disclosed on the Schedule of Investments. The value of the securities on loan and the value of the related collateral were as follows:
Fund | | | Value of Securities Loaned | | | Value of Collateral | | | Total Collateral (including Calculated Mark)* | | |||||||||
Value Line Core Bond Fund | | | | $ | 3,669,365 | | | | | $ | 3,746,588 | | | | | $ | 3,746,306 | | |
*
Balances represent the end of day mark-to-market of securities lending collateral that will be reflected by the Funds as of the next business day.
(H) Subsequent Events: Management has evaluated all subsequent transactions and events through the date on which these financial statements were issued and has determined that no additional items require adjustment to or disclosure in the financial statements.
2. Investment Risks
Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly-owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.
41
Notes to Financial Statements (unaudited) continued
3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, were as follows:
Fund | | | Purchases of Investment Securities | | | Sales of Investment Securities | | | Purchases of U.S. Government Agency Obligations | | | Sales of U.S. Government Agency Obligations | | ||||||||||||
Value Line Core Bond Fund | | | | $ | 10,815,551 | | | | | $ | 8,621,244 | | | | | $ | 9,175,851 | | | | | $ | 9,775,720 | | |
The Value Line Tax Exempt Fund, Inc. | | | | | 1,982,264 | | | | | | 3,971,421 | | | | | | 0 | | | | | | 0 | | |
4. Income Taxes
At June 30, 2015, information on the tax components of capital is as follows:
Fund | | | Cost of investments for tax purposes | | | Gross tax unrealized appreciation | | | Gross tax unrealized depreciation | | | Net tax unrealized appreciation (depreciation) on investments | | ||||||||||||
Value Line Core Bond Fund | | | | $ | 79,584,656 | | | | | $ | 865,169 | | | | | $ | (848,565) | | | | | $ | 16,604 | | |
The Value Line Tax Exempt Fund, Inc. | | | | | 68,737,224 | | | | | | 2,474,504 | | | | | | (266,228) | | | | | | 2,208,276 | | |
5. Investment Advisory Fee, Service and Distribution Fees and Transactions With Affiliates
Advisory fees of $196,670 and $184,778, for the Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc., respectively, were paid or payable to the Adviser for the six months ended June 30, 2015. For the Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc. advisory fees were computed at an annual rate of 0.50% of the Fund’s average daily net assets during the period prior to any fee waivers. The Funds advisory fees are paid monthly. The Adviser provides research, investment programs, and supervision of the investment portfolio and pays costs of administrative services, office space, equipment and compensation of administrative, bookkeeping, and clerical personnel necessary for managing the affairs of the Funds. The Adviser also provides persons, satisfactory to the Funds’ Board, to act as officers and employees of the Funds and pays their salaries. Effective February 1, 2013, and voluntarily renewed annually through June 30, 2015, the Adviser contractually agreed to waive 0.10% of the advisory fee for the Value Line Core Bond Fund. The fees waived amounted to $78,668 for the six months ended June 30, 2015. The Adviser has no right to recoup previously waived amounts.
The Funds have a Service and Distribution Plan (the “Plan”), adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, which compensates EULAV Securities LLC (the “Distributor”) for advertising, marketing and distributing the Funds’ shares and for servicing the Funds’ shareholders at an annual rate of 0.25% of the Funds’ average daily net assets. For the six months ended June 30, 2015, fees amounting to $98,335 and $92,389 before fee waivers for the Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc., respectively, were paid or payable to the Distributor under this plan. Effective June 1, 2007, and voluntarily renewed annually, the Distributor contractually agreed to reduce the 12b-1 fee by 0.10% for the Value Line Core Bond Fund. Effective July 1, 2008, and voluntarily renewed annually, the Distributor contractually agreed to waive the 12b-1 fees for The Value Line Tax Exempt Fund, Inc., for the year ended February 28, 2014 and the period ended December 31, 2014. For the six months ended June 30, 2015, the fees waived amounted to $59,001 and $92,389 for the Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc., respectively. The Distributor has no right to recoup previously waived amounts.
Each Fund bears direct expenses incurred specifically on its behalf while common expenses of the Value Line Funds are allocated proportionately based upon each Fund’s respective net assets. The Funds bear all other costs and expenses.
42
June 30, 2015
Certain officers and a trustee of the Adviser are also officers and a director of the Funds. At June 30, 2015, the officers and directors of Value Line Core Bond Fund and The Value Line Tax Exempt Fund, Inc., as a group owned less than 1% of the outstanding shares of each Fund.
6. Other
The Board of Trustees authorized a 3-for-1 reverse stock split effective October 17, 2014, for the Value Line Core Bond Fund. The transaction had no impact on total return, net assets, or any ratio presented in the Statements of Financial Highlights.
7. New Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-11. Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU changes the accounting for certain repurchase agreements and expands disclosure requirements related to repurchase agreements, securities lending, repurchase-to-maturity and similar transactions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.
In May 2015, the Financial Accounting Standards (“FASB”) issued ASU 2015-07 entitled Fair Value Measurement (Topic 820) – Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) which is intended to address the diversity in practice of how investments measured at the fair value with redemption dates in the future (including periodic redemption dates) are categorized within the fair value hierarchy. ASU 2015-07 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. At this time, management is evaluating the implications of ASU 2015-07 and its impact to financial statements.
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Fund Expenses (unaudited)
Example
As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2015 through June 30, 2015).
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for each Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if transactional costs were included, your costs would have been higher.
| | | Beginning account value 1/1/15 | | | Ending account value 6/30/15 | | | Expenses paid during the period 1/1/15 thru 6/30/15* | | |||||||||
Actual | | | | | |||||||||||||||
Value Line Core Bond Fund | | | | $ | 1,000.00 | | | | | $ | 998.10 | | | | | $ | 4.01 | | |
The Value Line Tax Exempt Fund, Inc. | | | | | 1,000.00 | | | | | | 999.40 | | | | | | 4.41 | | |
Hypothetical (5% return before expenses) | | | | | |||||||||||||||
Value Line Core Bond Fund | | | | | 1,000.00 | | | | | | 1,020.78 | | | | | | 4.06 | | |
The Value Line Tax Exempt Fund, Inc. | | | | | 1,000.00 | | | | | | 1,020.38 | | | | | | 4.46 | | |
*
Expenses are equal to the Funds’ annualized expense ratio of 0.81% and 0.89%, respectively, multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. These expense ratios may differ from the expense ratios shown in the Financial Highlights.
44
Semi-Annual Report
FACTORS CONSIDERED BY THE BOARD IN APPROVING CONTINUANCE
OF THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE CORE BOND FUND AND THE VALUE LINE TAX EXEMPT FUND, INC.
OF THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE CORE BOND FUND AND THE VALUE LINE TAX EXEMPT FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Boards of Directors (the “Board”) of Value Line Core Bond Fund and Value Line Tax Exempt Fund (each, a “Fund” and collectively, the “Funds”), including a majority of each Board’s Trustees or Directors, as applicable, who are not “interested persons,” as that term is defined in the 1940 Act (the “Independent Directors”), to annually consider the continuance of each Fund’s investment advisory agreement (each, an “Agreement”) with its investment adviser, EULAV Asset Management (the “Adviser”).
In considering whether the continuance of a Fund’s Agreement was in the best interests of such Fund and its shareholders, the Board requested, and the Adviser provided, such information as the Board deemed to be reasonably necessary to evaluate the terms of such Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of each Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Funds and any officers of the Adviser. In selecting the Adviser and approving the continuance of each Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meeting specifically focused upon the review of the Agreements and at other meetings, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreements. These materials included information for each Fund regarding: (i) the Fund’s investment performance, performance-related metrics and risk-related related metrics over various periods of time and comparisons thereof to similar information regarding the Fund’s benchmark index, the Fund’s category of comparable funds (the “Category”) (as objectively classified, selected and prepared by Morningstar, Inc., an independent evaluation service (“Morningstar”)), and the Fund’s more narrow peer group of comparable funds (the “Peer Group”) (again, as objectively classified, selected and prepared by Morningstar); (ii) the Fund’s investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements; (iii) purchases and redemptions of the Fund’s shares; (iv) the Adviser’s view of the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser, including EULAV Securities LLC (the “Distributor”)); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of their review, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under each Fund’s Agreement. In a separate executive session, the Independent Directors reviewed information for each Fund, which included data comparing: (i) advisory, administrative, distribution, custody, accounting, audit, legal, transfer agency, and other non-management expenses incurred by the Fund to those incurred by the Fund’s Peer Group and Category; (ii) the Fund’s expense ratio to those of its Peer Group and Category; and (iii) the Fund’s investment performance, performance-related metrics and risk-related related metrics over various time periods to similar information regarding the Fund’s benchmark index, Peer Group and Category.
In classifying a Fund within a Category, Morningstar considered the characteristics of the Fund’s actual portfolio holdings over various periods of time relative to the market and other factors that distinguish a particular investment strategy under Morningstar’s methodology with the objective to permit meaningful comparisons. Morningstar classified the Value Line Core Bond Fund within its Intermediate-Term Bond category and the Value Line Tax Exempt Fund within its Muni National Long category.
In preparing a Peer Group for each Fund, Morningstar considered the Fund’s most recent portfolio holdings in light of the same factors used in classifying a Fund within a Category, as well as additional factors including similarity of expense structure (e.g., same share class characteristics) and net asset size. Generally, the final Peer Group consists of funds that range in net assets from twice-in-size to half-in-size of the Fund and includes roughly equal numbers of funds that are smaller and larger than the Fund. Morningstar prepared the Peer Group for the Value Line Core Bond Fund consisting of 11 other retail, no-load funds with similar investment style, expense structure and asset size as the Fund and the Peer Group for the Value Line Tax Exempt Fund consisting of 13 other retail funds with similar investment style, expense structure and asset size as the Fund.
In their executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser and the Distributor and their profitability from the services that have been performed for each Fund and the Value Line family of funds; (b) the Adviser’s investment management staffing and resources; (c) the ownership, control and day-to-day management of the Adviser; and (d) each Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board discussed with Morningstar the description of the methodology used by Morningstar to determine each Fund’s Peer Group and Category and the results of the statistical information prepared by Morningstar.
The Board observed that there is a range of investment options available to shareholders of the Funds, including other mutual funds, and that each Fund’s shareholders have chosen to invest in the Fund.
The following summarizes matters considered by the Board in connection with its continuance of each of the Agreements. However, the Board did not identify any single factor as all-important or controlling, each Director may have weighed certain factors differently, and the summary does not detail all the matters that were considered.
45
Semi-Annual Report (continued)
Investment Performance. The Board reviewed each Fund’s overall investment performance and compared it to its Peer Group, Category and benchmark index.
Value Line Core Bond Fund. The Board reviewed the Fund’s overall investment performance for various periods of time and compared it to the performance of the Peer Group and Category since the change in the Fund’s investment approach from a high yield fund to a core bond fund on December 3, 2012, which the Board determined was the most relevant time period for these purposes. The Board noted that the Fund outperformed the Peer Group median but not the benchmark index and Category median for the one-year period ended March 31, 2015. The Board also noted that the Fund’s performance for the three-year period ended March 31, 2015 was below the performance of the Category medians but not the Peer Group median or benchmark index. The Board considered the Fund’s performance-related metrics and risk-related related metrics noting that the average credit quality of the Fund’s investments was higher than that of funds in its Peer Group and Category, which may account for at least a portion of the comparatively lower returns of the Fund relative to the Peer Group and Category.
Value Line Tax Exempt Fund. The Board noted that the Fund underperformed the Peer Group and Category medians and the benchmark index for the one-year, three-year, five-year, and ten-year periods ended March 31, 2015. The Board noted that the Fund held a higher allocation of AA-rated and AAA-rated investments than the other funds in its Peer Group and Category. The Adviser stated that its the conservative bias likely accounts for at least a portion of the comparatively lower returns of the Fund during periods in which risk was rewarded in the tax exempt market.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio managers responsible for the daily management of each Fund’s portfolio, seeking to achieve the applicable Fund’s investment objectives and adhering to such Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of each Fund’s investment operations. The Board viewed favorably: (i) the Adviser’s use of analytic tools in support of the portfolio management, compliance and shareholder relation functions which the Adviser previously committed resources to acquire; (ii) the continuity of the Adviser’s staff attributable in part to its actions taken to attract and retain personnel, including its ongoing improvements to employee benefit programs and previous increases in base compensation and merit-based compensation for certain staff members to be more industry competitive; and (iii) that the Adviser continues to receive the Value Line ranking systems without cost. The Board concluded that each Fund’s management team and the Adviser’s overall resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
Management Fee. The Board considered the Adviser’s management fee rate under each Fund’s Agreement relative to the management fee rate applicable to the funds in such Fund’s Peer Group and Category before applicable fee waivers. The Board noted that the Adviser bears the costs of providing fund accounting services for the Fund as part of the management fee. The Board was informed that the management fee rates for funds in the Peer Group and Category most likely did not include the provision of fund accounting services and, if it did, the Fund’s management fee rate would have compared more favorably. After a review of the information provided to the Board, the Board concluded that each Fund’s management fee rate was satisfactory for the purpose of approving continuance of such Fund’s Agreement.
Value Line Core Bond Fund. Before giving effect to the Fund’s existing fee waiver in an amount equal to 0.20% of the Fund’s average daily net assets and fee waivers applicable to certain funds in the Peer Group and Category, the Board noted that, for the most recent fiscal year for which audited financial data is available, the Fund’s management fee rate was lower than that of the Peer Group median but slightly higher than that of the Category median. After considering the foregoing, the Adviser and the Board agreed to eliminate the existing management fee waiver in favor of an expense limitation agreement described under “Expenses” below.
Value Line Tax Exempt Fund. Before giving effect to fee waivers applicable to certain funds in the Peer Group and Category, the Board noted that, for the most recent fiscal year for which audited financial data is available, the Fund’s management fee rate was the same as that of the Peer Group median but slightly greater than that of the Category median.
Expenses. The Board also considered each Fund’s total expense ratio relative to its Peer Group and Category medians. After a review of the information provided to the Board, the Board concluded that each Fund’s average expense ratio was satisfactory for the purpose of approving continuance of the Fund’s Agreement.
Value Line Core Bond Fund. The Board noted that, for the most recent fiscal year for which audited financial data is available, after giving effect to the Fund’s existing fee waivers (composed of a Rule 12b-1 fee waiver in an amount equal to 0.10% of the Fund’s average daily net assets and the management fee waiver described above) and fee waivers applicable certain funds in the Peer Group and Category, the Fund’s expense ratio was the same as that of the Peer Group but higher than that of the Category. The Board further noted that, for the most recent fiscal year for which audited financial data is available, the Fund’s expense ratio was higher than that of the Peer Group and Category medians before giving effect to existing fee waivers applicable to the Fund and certain funds in the Peer Group and Category. After considering the forgoing, the Adviser, the Distributor, and the Board agreed to eliminate the current Rule 12b-1 fee waiver and management fee waiver in favor of an expense limitation agreement pursuant to which the Adviser and the Distributor have agreed to waive a proportionate amount of their advisory fees and Rule 12b-1 fees, respectively, and the Adviser has further agreed to reimburse certain expenses of the Fund, to the extent necessary to limit the Fund’s total annual operating expenses (other than those attributable to interest, taxes, brokerage and futures commissions, and extraordinary expenses not incurred in the ordinary course of the Fund’s business) to 0.99% of the
46
Fund’s average daily net assets (the “Expense Limitation”). The Adviser and the Distributor may subsequently recover from the Fund reimbursed expenses and/or waived fees (within three years after the end of the fiscal year in which the waiver/reimbursement occurred) to the extent that the Fund’s expense ratio is less than the Expense Limitation. The Expense Limitation can be terminated or modified before June 30, 2016 only with the agreement of the Fund’s Board.
Value Line Tax Exempt Fund. The Distributor and the Board agreed that the Distributor will extend the existing contractual waiver of the Fund’s Rule 12b-1 fee for another one period ending June 30, 2016. This waiver effectively reduces the Fund’s Rule 12b-1 fee rate from 0.25% to 0% of the Fund’s average daily net assets. Such waiver cannot be changed during the contractual waiver period without the approval of the Board and the Distributor. The Board noted that, for the most recent fiscal year for which audited financial data is available, the Fund’s expense ratio was higher than that of the Peer Group and Category medians, before and after giving effect to fee waivers applicable to the Fund and certain funds in the Peer Group and Category.
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the resources and effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the additional resources devoted by the Adviser to enhance its and the Funds’ overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with each of the Funds, such as a more robust website. The Board reviewed the services provided by the Adviser and the Distributor in supervising the Fund’s third-party service providers. Based on this review, the Board concluded that the nature, quality, cost, and extent of such other services provided by the Adviser and the Distributor were satisfactory, reliable and beneficial to each Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and the Distributor with respect to each Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of the restructuring of the Adviser and Distributor in 2010 and certain actions taken during prior years. These actions included the reduction (voluntary in some instances, contractual or permanent in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board also considered the Adviser’s continued attention to the rationalization and differentiation of funds within the Value Line group of funds to better identify opportunities for savings and efficiencies among the funds. The Board concluded that the profitability of the Adviser and the Distributor with respect to each Fund, including the financial results derived from each Fund’s Agreement, was within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and the Distributor from their association with each Fund. The Board concluded that potential “fall-out” benefits that the Adviser and the Distributor may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Funds.
Economies of Scale. The Board considered that, given both the current and anticipated size of each Fund, any perceived and potential economies of scale were not yet a significant consideration for either Fund and that the addition of breakpoints to the fee structure was not currently necessary.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser. The Board was informed by the Adviser that the Adviser does not currently manage any non-mutual fund account that has similar objectives and policies as those of the Funds.
Conclusion. The Board examined the totality of the information it was provided at the meeting specifically addressing approval of each Fund’s Agreement and at other meetings held during the past year and did not identify any single controlling factor. Based on its evaluation of all material factors deemed relevant and with the advice of independent counsel, the Board concluded that the rate at which each Fund pays a management fee to the Adviser under its Agreement does not constitute a fee that is so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining. Further, the Board concluded that each Fund’s Agreement, and the management fee rate thereunder, is fair and reasonable and voted to continue each Agreement as in the best interest of that Fund and its shareholders.
47
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The Value Line Family of Funds
In 1950, Value Line started its first mutual fund. Since then, knowledgeable investors have been relying on the Value Line Funds to help them build their financial futures. Over the years, Value Line Funds has evolved into what we are today – a diversified family of no-load mutual funds with a wide range of investment objectives – ranging from small, mid and large capitalization equities to fixed income. We also provide strategies that effectively combine both equities and fixed income, diligently taking into account the potential risk and reward of each investment.
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*
Formerly known as The Value Line Fund, Inc.
**
Formerly known as Value Line Larger Companies Fund, Inc.
***
Only available by purchasing certain variable annuity and variable insurance contracts issued by Guardian Insurance and Annuity Company, Inc.
For more complete information about any of the Value Line Funds, including charges and expenses, send for a prospectus from EULAV Securities LLC, 7 Times Square, New York, New York 10036-6524 or call 1-800-243-2729, 9am-5pm CST, Monday-Friday, or visit us at www.vlfunds.com. Read the prospectus carefully before you invest or send money.
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Item 5. Audit Committee of Listed Registrants
Not Applicable.
Item 6. Investments
Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not Applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not Applicable
Item 10. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 11. Controls and Procedures.
(a)
The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in rule 30a-2(c) under the Act (17 CFR 270.30a-2(c) ) based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report, are appropriately designed to ensure that material information relating to the registrant is made known to such officers and are operating effectively.
(b)
The registrant’s principal executive officer and principal financial officer have determined that there have been no significant changes in the registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including corrective actions with regard to significant deficiencies and material weaknesses.
Item 12. Exhibits.
(a)
(1) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2) attached hereto as Exhibit 99.CERT.
(2)
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906.CERT.
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/ Mitchell E. Appel | |
| | | | Mitchell E. Appel, President | |
| Date: | | | September 10, 2015 | |
|
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/ Mitchell E. Appel | |
| | | | Mitchell E. Appel, President, Principal Executive Officer | |
| By: | | | /s/ Emily D. Washington | |
| | | | Emily D. Washington, Treasurer, Principal Financial Officer | |
| Date: | | | September 10, 2015 | |
|