Item 1. Reports to Stockholders.
BNY Mellon Alcentra Global Credit Income 2024 Target Term
Fund, Inc.
|
ANNUAL REPORT August
31, 2022 |
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BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund,
Inc. Protecting
Your Privacy Our Pledge to You THE FUND IS COMMITTED TO YOUR PRIVACY.
On this page, you will find the fund’s policies and practices for collecting, disclosing, and safeguarding
“nonpublic personal information,” which may include financial or other customer information. These
policies apply to individuals who purchase fund shares for personal, family, or household purposes, or
have done so in the past. This notification replaces all previous statements of the fund’s consumer
privacy policy, and may be amended at any time. We’ll keep you informed of changes as required by law. YOUR ACCOUNT IS PROVIDED IN A SECURE ENVIRONMENT. The fund maintains
physical, electronic and procedural safeguards that comply with federal regulations to guard nonpublic
personal information. The fund’s agents and service providers have limited access to customer information
based on their role in servicing your account. THE FUND COLLECTS INFORMATION
IN ORDER TO SERVICE AND ADMINISTER YOUR ACCOUNT. The fund collects a variety of nonpublic
personal information, which may include: • Information we receive from you, such as your name, address,
and social security number. • Information about your transactions with us, such as the purchase
or sale of fund shares. • Information
we receive from agents and service providers, such as proxy voting information. THE
FUND DOES NOT SHARE NONPUBLIC PERSONAL INFORMATION WITH ANYONE, EXCEPT AS PERMITTED BY LAW. Thank
you for this opportunity to serve you. |
|
The views expressed in this report reflect
those of the portfolio manager(s) only through the end of the period covered and do not necessarily represent
the views of BNY Mellon Investment Adviser, Inc. or any other person in the BNY Mellon Investment Adviser,
Inc. organization. Any such views are subject to change at any time based upon market or other conditions
and BNY Mellon Investment Adviser, Inc. disclaims any responsibility to update such views. These views
may not be relied on as investment advice and, because investment decisions for a fund in the BNY Mellon
Family of Funds are based on numerous factors, may not be relied on as an indication of trading intent
on behalf of any fund in the BNY Mellon Family of Funds. |
|
Not FDIC-Insured • Not Bank-Guaranteed • May Lose Value |
Contents
THE FUND
FOR MORE INFORMATION
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DISCUSSION
OF FUND PERFORMANCE (Unaudited)
For the period from September 1, 2021, through August 31, 2022, as provided by the
fund’s primary portfolio managers, Kevin Cronk, Chris Barris and Hiram Hamilton of Alcentra NY, LLC,
the fund’s sub-adviser
Market and Fund Performance Overview
For the 12-month period ended August 31,
2022, BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc. (the “fund”) produced
a total return of −10.13% on a net-asset-value basis and −16.17% on a market basis.1
Over the same period, the fund provided aggregate income dividends of $.60 per share, which reflects
a distribution rate of 8.02%. In comparison, the ICE BofA Global High Yield Index (the “Index”),
the fund’s benchmark, posted a total return of -16.09% for the same period.2,3
Global credit instruments were generally weaker over the period, with interest-rate-sensitive
issues underperforming as rates rose. While the fund produced a negative total return in the face of
these challenges, it also produced competitive levels of current income during the period and mitigated
some of the market downturn through investments in select floating-rate instruments.
The Fund’s Investment
Approach
The
fund’s investment objectives are to seek high current income and to return at least $9.835 per Common
Share (the initial public offering price per Common Share (as defined below) after deducting a sales
load of $0.165 per Common Share but before deducting offering costs of $0.02 per Common Share (“Original
NAV”)) to holders of record of shares of the fund’s common stock (“Common Shares”) on or about
the December 1, 2024 (subject to certain extensions, the “Termination Date”).4 The
fund will normally invest primarily in credit instruments and other investments with similar economic
characteristics. Such credit instruments include: first lien, secured, floating-rate loans, as well as
investments in participations and assignments of such loans; second lien, senior unsecured, mezzanine
and other collateralized and uncollateralized subordinated loans; corporate debt obligations other than
loans; and structured products, including collateralized bond, loan and other debt obligations, structured
notes and credit-linked notes.
Principal investment strategies include:
• Senior Secured Loans and Other Loans
• Corporate Debt
• Special Situations
• Structured Credit
Yields Rise as Interest
Rates Increase
The reporting period began amid increasing inflationary pressures
due to rising energy and commodity prices and global supply-chain disruptions. The U.S. Federal Reserve
(the “Fed”), which expressed increasingly hawkish sentiments prior to the start of the period, indicated
in September 2021 a willingness to consider reducing accommodative policies sooner rather than later
due to the unexpected level and persistence of inflationary forces affecting the economy. As inflationary
pressures continued to mount, Fed rhetoric grew increasingly emphatic. Increasing tensions between Russia
and Ukraine in early 2022 and the eventual invasion of Ukraine by its larger neighbor further undermined
investor sentiment and pressured international credit markets. The Fed began to take concrete action
soon thereafter, raising the federal funds rate by 0.25% in March, 0.50% in May, 0.75% in June and another
0.75% in July—its most aggressive series of rate increases in decades. The Fed also began the process
of quantitative tightening, scaling back bond purchases as it allowed existing holdings to mature. Many
other central banks
2
in both developed and emerging markets followed suit, implementing a range of
forceful monetary tightening measures designed to combat rising inflation.
Most
U.S. bond prices trended lower, spreads widened, and yields crept higher as interest rates rose throughout
the period, with the sharpest rise in yields occurring in the short end of the yield curve. While the
benchmark 10-year Treasury bond yield rose from 1.5% in late 2021 to just under 3.5% in June 2022, the
two-year Treasury bond yield rose from 0.75% to 3.5% during the same period. Short Treasury yields generally
remained higher than long Treasury yields through the end of the reporting period. Not surprisingly,
given these conditions, short-duration instruments generally outperformed their longer-duration counterparts
during the period. Amid predominantly risk-off investor sentiment, Treasury bonds broadly outperformed
corporate credits of similar duration, while among corporates, higher-quality, higher-rated instruments
generally outperformed their lower-quality, lower-rated peers. Floating-rate bonds, which offer a degree
of protection against rising interest rates, delivered stronger returns than most fixed-income securities.
Collateralized loan obligations (CLOs), which also feature floating rates, outperformed fixed income,
but lagged floating-rate bank loans.
Despite these many challenges, the underlying
technical characteristics of international corporate credits remained strong throughout the period. Corporate
earnings generally outperformed expectations, and default levels remained low as companies practiced
disciplined management of balance sheets. The U.S. economy, while showing signs of slowing in the second
half of the period, continued to benefit from high levels of labor participation and consumer spending.
Floating-Rate
Instruments Outperform Fixed Income
The fund’s global high yield holdings
produced its weakest annual returns during the period as bond prices were pressured by rising interest
rates. At the same time, risk premiums increased, enhancing the fund’s distributions. Floating-rate
global loans, on the other hand, provided positive returns, outperforming most other asset classes. Structured
credit declined mildly, but not as sharply as high yield. The fund found few attractive investments among
special situations as the opportunity set compressed, with the sector having little impact on fund performance.
In response to evolving economic conditions, the fund undertook several meaningful
allocation shifts. From an asset class perspective, we increased the fund’s floating-rate exposure
as the likelihood of future interest-rate hikes increased, correspondingly reducing positions in global
high yield. Geographically, we increased the fund’s bias toward the United States and away from Europe
as the Russian invasion of Ukraine caused European energy prices to spike, with ripples into European
economies. Finally, regarding industry sectors, we shifted exposure from inflation-sensitive industries—such
as metals & mining, chemical and home construction—to more defensive areas—such as health care,
telecommunications & media, technology and gaming.
Seeking Opportunities in the Face of Geopolitical
Risk
As of August 31, 2022, with inflation continuing to mount and interest rates likely
to experience further increases, the fund’s asset allocation mix stands close to 50% in floating-rate
instruments and 50% in fixed income. Russia’s invasion of Ukraine continues to create a challenging
investment environment for virtually all asset classes, driving increased inflation in energy and food
prices with potential impacts in Europe and, to a lesser degree, the United States. While we have begun
shifting the fund to a more U.S.-centric bias, we are also actively seeking opportunities to take advantage
of conflict-related market discounts and dislocations that could enable us to enhance the fund’s net
asset value in advance of the target date.
More fundamentally, we believe corporate
credit fundamentals in the United States and Europe remain strong, with reasonable levels of leverage
and good liquidity. Default levels in both regions
3
DISCUSSION
OF FUND PERFORMANCE (Unaudited) (continued)
remain historically low, a trend we expect to persist even in the face of short-term
economic softness, providing a favorable backdrop for the fund’s investment strategy.
September
15, 2022
1 Total
return includes reinvestment of dividends and any capital gains paid, based upon net asset value per
share or market price per share, as applicable. Past performance is no guarantee of future results. Market
price per share, net asset value per share and investment return fluctuate.
2 Distribution rate per share is based upon dividends per share
paid from net investment income during the period, divided by the market price per share at the end of
the period, adjusted for any capital gain distributions.
3 Source: FactSet - The ICE BofA Global High Yield Index is
a measure of the global high-yield debt market. The index represents the union of the U.S. high yield,
the pan-European high yield and emerging-markets, hard currency, high yield indices. Investors cannot
invest directly in any index.
4 The objective to return at least the fund’s Original NAV
is not an express or implied guarantee obligation of the fund, BNY Mellon Investment Adviser, Inc., Alcentra
NY LLC or any other entity, and an investor may receive less than the Original NAV upon termination of
the fund. There is no assurance the fund will achieve either of its investment objectives. For more information
about the fund’s investment objectives and principal investment strategies, see “Additional Information
– Investment Objectives and Principal Investment Strategies”.
Bonds
are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees. Generally,
all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases
can cause price declines.
Recent market risks include pandemic risks related to COVID-19.
The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect
certain countries, companies, industries and market sectors more dramatically than others. To the extent
the fund may overweight its investments in certain countries, companies, industries or market sectors,
such positions will increase the fund’s exposure to risk of loss from adverse developments affecting
those countries, companies, industries or sectors.
High yield bonds are subject
to increased credit risk and are considered speculative in terms of the issuer’s perceived ability
to continue making interest payments on a timely basis and to repay principal upon maturity.
Credit
risk is the risk that one or more credit instruments in the fund’s portfolio will decline in price
or fail to pay interest or principal when due because the issuer of the instrument experiences a decline
in its financial status.
Collateralized Loan Obligations (“CLOs”) and other types
of Collateralized Debt Obligations (“CDOs”) are typically privately offered and sold, and thus are
not registered under the securities laws. As a result, investments in CLOs and other types of CDOs may
be characterized by the fund as illiquid securities. In addition to the general risks associated with
credit instruments, CLOs and other types of CDOs carry additional risks, including, but not limited to:
(i) the possibility that distributions from collateral securities will not be adequate to make interest
or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the possibility
that the CLO or CDO is subordinate to other classes; and (iv) the complex structure of the security may
not be fully understood at the time of investment and may produce disputes with the issuer or unexpected
investment results.
The Senior Secured Loans in which the fund invests typically
will be below-investment-grade quality. Although, in contrast to other below-investment-grade instruments,
Senior Secured Loans hold senior positions in the capital structure of a business entity, are secured
with specific collateral and have a claim on the assets and/or stock of the borrower that is senior to
that held by unsecured creditors, subordinated debt holders and stockholders of the borrower, the risks
associated with Senior Secured Loans are similar to the risks of below-investment-grade instruments.
Although the Senior Secured Loans in which the fund invests will be secured by collateral, there can
be no assurance that such collateral can be readily liquidated or that the liquidation of such collateral
would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or principal.
Additionally, if a borrower under a Senior Secured Loan defaults, becomes insolvent or goes into bankruptcy,
the fund may recover only a fraction of what is owed on the Senior Secured Loan or nothing at all. In
general, the secondary trading market for Senior Secured Loans is not fully developed. Illiquidity and
adverse market conditions may mean that the fund may not be able to sell certain Senior Secured Loans
quickly or at a fair price.
Subordinated Loans generally are subject to similar risks as
those associated with investments in Senior Secured Loans, except that such loans are subordinated in
payment and/or lower in lien priority to first lien holders. Subordinated Loans are subject to the additional
risk that the cash flow of the borrower and collateral securing the loan or debt, if any, may be insufficient
to meet scheduled payments after giving effect to the senior unsecured or senior secured obligations
of the borrower. This risk is generally higher for subordinated, unsecured loans or debt, which are not
backed by a security interest in any specific collateral. Subordinated Loans generally have greater price
volatility than Senior Secured Loans and may be less liquid.
The use of leverage magnifies
the fund’s investment, market and certain other risks. For derivatives with a leverage component, adverse
changes in the value or level of the underlying asset, reference rate or index can result in a loss substantially
greater than the amount invested in the derivative itself.
The fund may, but is not
required to, use derivative instruments. A small investment in derivatives could have a potentially large
impact on the fund’s performance. The use of derivatives involves risks different from, or possibly
greater than, the risks associated with investing directly in the underlying assets.
4
FUND
PERFORMANCE (Unaudited)
Comparison
of change in value of a $10,000 investment in BNY Mellon Alcentra Global Credit Income 2024 Target Term
Fund, Inc. with a hypothetical investment of $10,000 in the ICE BofA Global High Yield Index (the “Index”).
† Source:
FactSet.
Past performance is not predictive of future performance.
The above graph compares a hypothetical investment of $10,000 made in BNY Mellon
Alcentra Global Credit Income 2024 Target Term Fund, Inc. on 10/27/2017 to a hypothetical investment
of $10,000 made in the Index on that date. All figures for the fund are based on market price. All dividends
and capital gain distributions are reinvested.
The fund invests primarily in fixed-income
securities and its performance shown in the line graph takes into account fees and expenses. The Index
is a measure of the global high-yield debt market. The Index represents the union of the U.S. high yield,
the pan-European high yield and emerging-markets, hard currency, high yield indices. Investors cannot
invest directly in any index. Further information relating to fund performance, including expense reimbursements,
if applicable, is contained in the Financial Highlights in this report.
| | | | | |
Average Annual Total Returns
as of 8/31/2022 | |
| | Inception
Date | 1 Year | From
Inception | |
BNY Mellon Alcentra Global
Credit Income 2024 Target Term, Fund, Inc. -Market Price | 10/27/2017 | -16.17% | 1.06% | |
BNY Mellon Alcentra Global Credit Income 2024 Target Term,
Fund, Inc. -Net Asset Value | 10/27/2017 | -10.13% | 2.50% | |
ICE BofA Global High Yield Index | 10/31/2017 | -16.09% | .64% | |
The performance data quoted
represents past performance, which is no guarantee of future results. Share price and investment return
fluctuate and an investor’s shares may be worth more or less than original cost upon sale of the shares.
Current performance may be lower or higher than the performance quoted. Go to www.im.bnymellon.com for
the fund’s most recent month-end returns.
The fund’s performance shown in the graph
and table does not reflect the deduction of taxes that a shareholder would pay on fund distributions
or the sale of fund shares.
5
FUND
PERFORMANCE (Unaudited) (continued)
DISTRIBUTION INFORMATION
The following information regarding the
fund’s distributions is current as of August 31, 2022, the fund’s fiscal year end. The fund’s returns
during the period were sufficient to meet fund distributions.
The fund’s distribution
policy is intended to provide shareholders with stable, but not guaranteed, cash flow, independent of
the amount or timing of income earned or capital gains realized by the fund. The fund intends to distribute
all or substantially all of its net investment income through its regular monthly distribution and to
distribute realized capital gains at least annually. In addition, in any monthly period, in order to
try to maintain a level distribution amount, the fund may pay out more or less than its net investment
income during the period. As a result, distributions sources may include net investment income, realized
gains and return of capital. You should not draw any conclusions about the fund’s investment performance
from the amount of the distribution or from the terms of the level distribution program. A return of
capital is a non-taxable distribution of a portion of a fund’s capital. A return of capital distribution
does not necessarily reflect a fund’s investment performance and should not be confused with “yield”
or “income.”
For the purpose of pursuing its investment objective of returning
at least the Original NAV, the fund intends to retain a limited portion of its net investment income
continuing until the final liquidating distribution. The fund also may retain a portion of its short-term
capital gains and all or a portion of its long-term capital gains. The extent to which the fund retains
income or capital gains, and the cumulative amount so retained, will depend on, among other things, prevailing
market conditions, portfolio turnover and reinvestment and overall performance of the credit instruments
held by the fund. Adjustments to the amounts of income retained and the resulting distribution rate will
take into account, among other factors, the then-current projections of the fund’s net asset value
on the Termination Date in the absence of income retention. The fund anticipates that the possibility
of some credit losses combined with the potential for declines in income over the term of the fund, as
the duration and weighted average maturity of the portfolio shorten, will likely result in successive
reductions in distributions over the approximate seven-year term of the fund. The timing and amounts
of these reductions cannot be predicted.
While the amounts retained would be included
in the final liquidating distribution of the fund, the fund’s distribution rate over the term of the
fund will be lower, and possibly significantly lower, than if the fund distributed substantially all
of its net investment income and gains in each year. To the extent that the market price of Common Shares
over time is influenced by the fund’s distribution rate, the reduction of the fund’s monthly distribution
rate because of the retention of income is expected to negatively impact the market price of the Common
Shares. Any such negative effect on the market price of the Common Shares may not be offset even though
the fund’s net asset value would be higher as a result of retaining income. In the event that the fund
elects to distribute all of its net investment income or gains (if any) in each year, rather than retaining
such income or gains, there is an increased risk to Common Shareholders that the final liquidating distribution
may be less than Original NAV.
The amounts and sources of distributions reported below are
for financial reporting purposes and are not being provided for tax reporting purposes. The actual amounts
and
6
character of the distributions for tax reporting purposes will be reported to
shareholders on Form 1099-DIV, which will be sent to shareholders shortly after calendar year-end. Because
distribution source estimates are updated throughout the current fiscal year based on the fund’s performance,
those estimates may differ from both the tax information reported to you in your fund’s 1099 statement,
as well as the ultimate economic sources of distributions over the life of your investment. The figures
in the table below provide the sources of distributions and may include amounts attributed to realized
gains and/or returns of capital.
| | | | | | | |
Distributions | |
| Current
Month Percentage of Distributions | Fiscal
Year Ended Per Share Amounts |
| Net Investment Income | Realized
Gains | Return of Capital | Total Distributions | Net
Investment Income | Realized
Gains | Return
of Capital |
BNY
Mellon Alcentra Global Credit Income 2024 Target Term, Fund, Inc. | 100.00% | .00% | .00% | $.60 | $.60 | $.00 | $.00 |
7
SELECTED INFORMATION
August
31, 2022 (Unaudited)
| | | | | | |
|
Market Price per share August 31, 2022 | $7.48 | |
Shares Outstanding
August 31, 2022 | 15,000,727 | |
New
York Stock Exchange Ticker Symbol | DCF | |
| |
MARKET PRICE (NEW YORK
STOCK EXCHANGE) | |
| |
| Fiscal
Year Ended August 31, 2022 |
| Quarter
Ended November 30, 2021 | Quarter
Ended February 28, 2022 | Quarter
Ended May 31, 2022 | Quarter
Ended August 31, 2022 |
High | $9.62 | $9.47 | $8.62 | $7.93 |
Low | 9.27 | 8.75 | 7.59 | 7.29 |
Close | 9.45 | 8.76 | 7.86 | 7.48 |
| |
PERCENTAGE GAIN (LOSS) based
on change in Market Price† | |
October
27, 2017 (commencement of operations) through August 31, 2022 | 5.26% |
September 1, 2021 through
August 31, 2022 | (16.17) |
December
1, 2021 through August 31, 2022 | (16.37) |
March
1, 2022 through August 31, 2022 | (11.25) |
June
1, 2022 through August 31, 2022 | (2.90) |
| |
NET
ASSET VALUE PER SHARE | |
October 27, 2017 (commencement of operations) | $9.84 |
November
30, 2021 | 9.24 |
February
28, 2022 | 8.97 |
May
31, 2022 | 8.30 |
August
31, 2022 | 7.88 |
| |
PERCENTAGE
GAIN (LOSS) based on change in Net Asset Value† | |
October
27, 2017 (commencement of operations) through August 31, 2022 | 12.70% |
September 1, 2021 through
August 31, 2022 | (10.13) |
December
1, 2021 through August 31, 2022 | (9.92) |
March
1, 2022 through August 31, 2022 | (8.73) |
June
1, 2022 through August 31, 2022 | (3.16) |
| |
† With dividends and capital gains reinvested.
8
STATEMENT OF INVESTMENTS
August
31, 2022
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% | | | | | |
Advertising - .7% | | | | | |
Advantage Sales & Marketing Inc., Sr. Scd. Notes | | 6.50 | | 11/15/2028 | | 241,000 | c | 207,618 | |
Clear Channel Outdoor Holdings Inc., Sr. Scd. Notes | | 5.13 | | 8/15/2027 | | 365,000 | c | 327,365 | |
CMG Media Corp., Gtd. Notes | | 8.88 | | 12/15/2027 | | 400,000 | c | 344,648 | |
| 879,631 | |
Aerospace & Defense - .9% | | | | | |
Bombardier Inc., Sr.
Unscd. Notes | | 7.50 | | 12/1/2024 | | 280,000 | c | 277,863 | |
Bombardier Inc., Sr. Unscd. Notes | | 7.50 | | 3/15/2025 | | 70,000 | c | 68,592 | |
TransDigm Inc., Gtd. Notes | | 4.88 | | 5/1/2029 | | 191,000 | | 162,299 | |
TransDigm Inc., Gtd. Notes | | 5.50 | | 11/15/2027 | | 550,000 | | 495,668 | |
| 1,004,422 | |
Airlines
- 1.0% | | | | | |
American Airlines Inc., Sr. Scd. Notes | | 5.50 | | 4/20/2026 | | 571,722 | c | 544,657 | |
American Airlines Inc., Sr. Scd. Notes | | 5.75 | | 4/20/2029 | | 110,000 | c | 99,439 | |
Hawaiian Brand Intellectual Property Ltd., Sr. Scd. Notes | | 5.75 | | 1/20/2026 | | 284,963 | c | 260,499 | |
United Airlines Inc., Sr. Scd. Notes | | 4.38 | | 4/15/2026 | | 270,000 | c | 246,534 | |
| 1,151,129 | |
Automobiles & Components - 1.9% | | | | | |
Clarios Global LP,
Sr. Scd. Bonds | EUR | 4.38 | | 5/15/2026 | | 550,000 | c | 513,965 | |
Dealer Tire LLC, Sr. Unscd. Notes | | 8.00 | | 2/1/2028 | | 422,000 | c | 383,842 | |
Ford Motor Co., Sr. Unscd. Notes | | 4.75 | | 1/15/2043 | | 450,000 | | 337,147 | |
IHO Verwaltungs GmbH, Sr. Scd. Notes | EUR | 3.63 | | 5/15/2025 | | 360,000 | c,d | 333,260 | |
IHO Verwaltungs GmbH, Sr. Scd. Notes | EUR | 3.88 | | 5/15/2027 | | 240,000 | c,d | 200,365 | |
Jaguar Land Rover Automotive PLC, Gtd. Notes | EUR | 5.88 | | 11/15/2024 | | 360,000 | c | 332,464 | |
Standard Profil Automotive Gmbh, Sr. Scd. Bonds | EUR | 6.25 | | 4/30/2026 | | 294,000 | c | 168,923 | |
| 2,269,966 | |
Banks - .2% | | | | | |
Citigroup Inc., Jr. Sub. Notes , Ser. U | | 5.00 | | 9/12/2024 | | 150,000 | e | 139,890 | |
JPMorgan Chase & Co., Jr. Sub. Notes, Ser. HH | | 4.60 | | 2/1/2025 | | 160,000 | e | 141,040 | |
| 280,930 | |
Beverage Products - .2% | | | | | |
Primo Water Holdings
Inc., Gtd. Notes | | 4.38 | | 4/30/2029 | | 270,000 | c | 231,265 | |
Building Materials -
1.0% | | | | | |
CP Atlas Buyer Inc., Sr. Unscd. Notes | | 7.00 | | 12/1/2028 | | 274,000 | c | 224,033 | |
9
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Building Materials - 1.0% (continued) | | | | | |
Eco Material Technologies
Inc., Sr. Scd. Notes | | 7.88 | | 1/31/2027 | | 381,000 | c | 355,871 | |
Griffon Corp., Gtd. Notes | | 5.75 | | 3/1/2028 | | 395,000 | | 366,046 | |
JELD-WEN Inc., Gtd. Notes | | 4.63 | | 12/15/2025 | | 230,000 | c | 198,128 | |
Standard Industries Inc., Sr. Unscd. Notes | | 4.75 | | 1/15/2028 | | 90,000 | c | 78,823 | |
| 1,222,901 | |
Chemicals - 1.7% | | | | | |
Consolidated Energy
Finance SA, Gtd. Notes | EUR | 5.00 | | 10/15/2028 | | 140,000 | c | 114,087 | |
Consolidated Energy Finance SA, Gtd. Notes | | 5.63 | | 10/15/2028 | | 435,000 | c | 358,099 | |
INEOS Quattro Finance 2 PLC, Sr. Scd. Notes | | 3.38 | | 1/15/2026 | | 200,000 | c | 173,352 | |
Iris Holdings Inc., Sr. Unscd. Notes | | 8.75 | | 2/15/2026 | | 250,000 | c,d | 201,718 | |
Italmatch Chemicals SpA, Sr. Scd. Notes, 3 Month EURIBOR +4.75% | EUR | 4.75 | | 9/30/2024 | | 445,000 | c,f | 426,467 | |
Olympus Water US Holding Corp., Sr. Scd. Notes | | 4.25 | | 10/1/2028 | | 279,000 | c | 227,232 | |
Olympus Water US Holding Corp., Sr. Unscd. Notes | | 6.25 | | 10/1/2029 | | 320,000 | c | 242,030 | |
Polar US Borrower LLC, Sr. Unscd. Notes | | 6.75 | | 5/15/2026 | | 212,000 | c | 138,452 | |
SCIL IV LLC, Sr. Scd. Notes | | 5.38 | | 11/1/2026 | | 200,000 | c | 166,311 | |
| 2,047,748 | |
Collateralized Loan Obligations Debt - 28.1% | | | | | |
Carlyle Global Market
Strategies Euro DAC CLO, Ser. 2014-1A, Cl. ER, 3 Month EURIBOR +4.93% | EUR | 4.93 | | 7/15/2031 | | 1,500,000 | c,f | 1,246,026 | |
Carlyle Global Market Strategies Euro DAC CLO, Ser. 2014-1A,
Cl. FR, 3 Month EURIBOR +6.61% | EUR | 6.61 | | 7/15/2031 | | 3,000,000 | c,f | 2,275,528 | |
Carlyle Global Market Strategies Euro DAC CLO, Ser. 2015-3A,
Cl. ER, 3 Month EURIBOR +6.44% | EUR | 6.44 | | 7/15/2030 | | 2,000,000 | c,f | 1,503,142 | |
CIFC European Funding II DAC CLO, Ser. 2A, Cl. F, 3 Month EURIBOR
+7.70% | EUR | 7.70 | | 4/15/2033 | | 1,000,000 | c,f | 766,930 | |
CIFC Funding Ltd. CLO, Ser. 2018-1A, Cl. E, 3 Month LIBOR +5.00% | | 7.74 | | 4/18/2031 | | 1,000,000 | c,f | 865,518 | |
CQS US Ltd. CLO, Ser. 2022-2A, Cl. E1, 3 Month TSFR +6.85% | | 10.20 | | 7/20/2031 | | 2,000,000 | c,f,g | 1,815,270 | |
Crown Point 9 Ltd. CLO, Ser. 2020-9A, Cl. ER, 3 Month LIBOR
+6.76% | | 9.24 | | 7/14/2034 | | 2,375,000 | c,f | 2,136,787 | |
10
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Collateralized Loan Obligations Debt - 28.1% (continued) | | | | | |
Dryden 91 Euro DAC
CLO, Ser. 2021-91A, Cl. E, 3 Month EURIBOR +7.06% | EUR | 7.06 | | 4/18/2035 | | 1,000,000 | c,f | 894,231 | |
Euro-Galaxy IV DAC CLO, Ser. 2015-4A, CI. FRR, 3 Month EURIBOR
+8.88% | EUR | 9.12 | | 7/30/2034 | | 1,750,000 | c,f | 1,383,749 | |
Fidelity Grand Harbour Clo 2022-1 Designated Activity Co.,
Ser. 2022-1A, Cl. E, 3 Month EURIBOR +7.08% | EUR | 7.08 | | 10/15/2036 | | 1,750,000 | c,f,g | 1,591,590 | |
Franklin Park Place I LLC CLO, Ser. 2022-1A, Cl. E, 3 Month
TSFR +7.50% | | 8.27 | | 4/14/2035 | | 1,000,000 | c,f | 899,299 | |
GoldenTree Loan Management EUR 2 DAC CLO, Ser. 2A, Cl. E, 3
Month EURIBOR +5.25% | EUR | 5.30 | | 1/20/2032 | | 1,000,000 | c,f | 823,567 | |
Hayfin Emerald IV DAC CLO, Ser. 4A, Cl. FR, 3 Month EURIBOR
+8.68% | EUR | 8.68 | | 10/15/2034 | | 740,000 | c,f | 575,637 | |
ICG Euro DAC CLO, Ser. 2021-1A, Cl. F, 3 Month EURIBOR +8.82% | EUR | 8.82 | | 10/15/2034 | | 1,000,000 | c,f | 785,469 | |
KKR 23 Ltd. CLO, Ser. 23, Cl. E, 3 Month LIBOR +6.00% | | 8.71 | | 10/20/2031 | | 1,000,000 | c,f | 884,259 | |
Marble Point XII Ltd. CLO, Ser. 2018-1A, Cl. E, 3 Month LIBOR
+6.00% | | 8.74 | | 7/16/2031 | | 750,000 | c,f | 590,602 | |
OZLM Funding II Ltd. CLO, Ser. 2012-2A, Cl. DR2, 3 Month LIBOR
+5.90% | | 8.68 | | 7/30/2031 | | 2,250,000 | c,f | 1,894,529 | |
OZLM VI Ltd. CLO, Ser. 2014-6A, Cl. DS, 3 Month LIBOR +6.05% | | 8.79 | | 4/17/2031 | | 2,000,000 | c,f | 1,586,300 | |
OZLME III DAC CLO, Ser. 3A, Cl. F, 3 Month EURIBOR +6.45% | EUR | 6.90 | | 8/24/2030 | | 1,000,000 | c,f | 767,517 | |
St. Paul's V DAC CLO, Ser. 5A, Cl. FR, 3 Month EURIBOR +6.60% | EUR | 6.99 | | 8/20/2030 | | 4,000,000 | c,f | 3,097,402 | |
TIAA I Ltd. CLO, Ser. 2016-1A, CI. ER, 3 Month LIBOR +6.20% | | 8.91 | | 7/20/2031 | | 2,131,000 | c,f | 1,771,449 | |
Tikehau DAC CLO, Ser. 2015-1A, Cl. FRR, 3 Month EURIBOR +8.75% | EUR | 9.01 | | 8/4/2034 | | 2,000,000 | c,f | 1,626,628 | |
Venture 45 Ltd. CLO, Ser. 2022-45A, CI. D1, 3 Month TSFR +4.00% | | 5.08 | | 7/20/2035 | | 1,500,000 | c,f | 1,369,333 | |
Vibrant III Ltd. CLO, Ser. 2015-3A, Cl. DRR, 3 Month LIBOR
+6.35% | | 9.06 | | 10/20/2031 | | 1,000,000 | c,f | 805,575 | |
Wind River Ltd. CLO, Ser. 2016-1A, CI. FR2, 3 Month LIBOR +7.90% | | 10.41 | | 10/15/2034 | | 1,500,000 | c,f | 1,264,074 | |
| 33,220,411 | |
Collateralized Loan Obligations Equity - .0% | | | | | |
KVK Ltd. CLO, Ser.
2018-1A, Cl. SUB1 | | 0.00 | | 5/20/2029 | | 4,000,000 | c,h | 46,896 | |
11
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Collateralized Loan Obligations Equity - .0% (continued) | | | | | |
Madison Park Funding
X Ltd. CLO, Ser. 2012-10A, Cl. SUB | | 0.00 | | 1/20/2029 | | 3,000,000 | c,h | 3,750 | |
| 50,646 | |
Commercial
& Professional Services - 4.0% | | | | | |
Albion Financing 1 SARL, Sr. Scd. Notes | EUR | 5.25 | | 10/15/2026 | | 350,000 | c | 314,860 | |
Allied Universal Holdco LLC, Sr. Scd. Notes | | 6.63 | | 7/15/2026 | | 570,000 | c | 534,375 | |
APX Group Inc., Gtd. Notes | | 5.75 | | 7/15/2029 | | 419,000 | c | 342,427 | |
BCP V Modular Services Finance II PLC, Sr. Scd. Bonds | EUR | 4.75 | | 11/30/2028 | | 320,000 | c | 268,811 | |
HealthEquity Inc., Gtd. Notes | | 4.50 | | 10/1/2029 | | 374,000 | c | 329,415 | |
Kapla Holding SAS, Sr. Scd. Bonds | EUR | 3.38 | | 12/15/2026 | | 220,000 | c | 192,773 | |
La Financiere Atalian SASU, Gtd. Bonds | EUR | 5.13 | | 5/15/2025 | | 270,000 | | 260,144 | |
La Financiere Atalian SASU, Gtd. Bonds | EUR | 5.13 | | 5/15/2025 | | 270,000 | c | 260,144 | |
MPH Acquisition Holdings LLC, Sr. Scd. Notes | | 5.50 | | 9/1/2028 | | 290,000 | c | 247,696 | |
PECF USS Intermediate Holding III Corp., Sr. Unscd. Notes | | 8.00 | | 11/15/2029 | | 296,000 | c | 249,133 | |
Prime Security Services Borrower LLC, Scd. Notes | | 6.25 | | 1/15/2028 | | 470,000 | c | 414,362 | |
Prime Security Services Borrower LLC, Sr. Scd. Notes | | 5.75 | | 4/15/2026 | | 410,000 | c | 394,996 | |
The Hertz Corp., Gtd. Notes | | 4.63 | | 12/1/2026 | | 522,000 | c | 448,009 | |
The Hertz Corp., Gtd. Notes | | 5.00 | | 12/1/2029 | | 56,000 | c | 45,146 | |
Verisure Midholding AB, Gtd. Notes | EUR | 5.25 | | 2/15/2029 | | 510,000 | c | 414,187 | |
| 4,716,478 | |
Consumer Discretionary - 6.1% | | | | | |
Ashton Woods Finance
Co., Sr. Unscd. Notes | | 6.63 | | 1/15/2028 | | 365,000 | c | 329,002 | |
Banijay Entertainment SASU, Sr. Scd. Bonds | EUR | 3.50 | | 3/1/2025 | | 340,000 | c | 318,876 | |
Banijay Group SAS, Sr. Unscd. Notes | EUR | 6.50 | | 3/1/2026 | | 180,000 | c | 163,743 | |
Caesars Entertainment Inc., Sr. Scd. Notes | | 6.25 | | 7/1/2025 | | 130,000 | c | 127,101 | |
Caesars Entertainment Inc., Sr. Unscd. Notes | | 4.63 | | 10/15/2029 | | 366,000 | c | 294,850 | |
Carnival Corp., Sr. Unscd. Notes | | 7.63 | | 3/1/2026 | | 742,000 | c | 632,703 | |
CCM Merger Inc., Sr. Unscd. Notes | | 6.38 | | 5/1/2026 | | 439,000 | c | 413,195 | |
Everi Holdings Inc., Gtd. Notes | | 5.00 | | 7/15/2029 | | 191,000 | c | 171,807 | |
Hilton Domestic Operating Inc., Gtd. Notes | | 4.00 | | 5/1/2031 | | 100,000 | c | 84,658 | |
12
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Consumer Discretionary - 6.1% (continued) | | | | | |
International Game
Technology PLC, Sr. Scd. Notes | | 4.13 | | 4/15/2026 | | 310,000 | c | 284,580 | |
Maison Finco PLC, Sr. Scd. Bonds | GBP | 6.00 | | 10/31/2027 | | 208,000 | c | 179,787 | |
Melco Resorts Finance, Sr. Unscd. Notes | | 4.88 | | 6/6/2025 | | 630,000 | c | 483,034 | |
NCL Ltd., Gtd. Notes | | 5.88 | | 3/15/2026 | | 118,000 | c | 95,580 | |
NCL Ltd., Sr. Scd. Notes | | 5.88 | | 2/15/2027 | | 204,000 | c | 185,169 | |
NCL Ltd., Sr. Unscd. Notes | | 3.63 | | 12/15/2024 | | 630,000 | c | 546,884 | |
Nobel Bidco BV, Sr. Scd. Bonds | EUR | 3.13 | | 6/15/2028 | | 720,000 | c | 516,661 | |
Pinewood Finance Ltd., Sr. Scd. Bonds | GBP | 3.63 | | 11/15/2027 | | 240,000 | c | 235,593 | |
Royal Caribbean Cruises Ltd., Sr. Unscd. Notes | | 5.50 | | 8/31/2026 | | 229,000 | c | 183,358 | |
Royal Caribbean Cruises Ltd., Sr. Unscd. Notes | | 11.63 | | 8/15/2027 | | 89,000 | c | 87,357 | |
Scientific Games Holdings LP, Sr. Unscd. Notes | | 6.63 | | 3/1/2030 | | 450,000 | c | 400,732 | |
Station Casinos LLC, Gtd. Notes | | 4.50 | | 2/15/2028 | | 180,000 | c | 155,320 | |
TUI Cruises Gmbh, Sr. Unscd. Notes | EUR | 6.50 | | 5/15/2026 | | 389,000 | c | 320,363 | |
Wynn Las Vegas LLC, Gtd. Notes | | 5.50 | | 3/1/2025 | | 631,000 | c | 605,006 | |
Wynn Macau Ltd., Sr. Unscd. Notes | | 4.88 | | 10/1/2024 | | 430,000 | c | 344,274 | |
| 7,159,633 | |
Consumer Staples - .5% | | | | | |
Kronos Acquisition
Holdings Inc., Sr. Scd. Notes | | 5.00 | | 12/31/2026 | | 450,000 | c | 408,285 | |
Newell Brands Inc., Sr. Unscd. Notes | | 4.45 | | 4/1/2026 | | 197,000 | | 185,529 | |
| 593,814 | |
Diversified
Financials - 3.8% | | | | | |
Compass Group Diversified Holdings LLC, Gtd. Notes | | 5.25 | | 4/15/2029 | | 215,000 | c | 183,296 | |
Garfunkelux Holdco 3 SA, Sr. Scd. Bonds | GBP | 7.75 | | 11/1/2025 | | 375,000 | c | 387,615 | |
Garfunkelux Holdco 3 SA, Sr. Scd. Bonds | GBP | 7.75 | | 11/1/2025 | | 500,000 | | 516,820 | |
Icahn Enterprises LP, Gtd. Notes | | 4.38 | | 2/1/2029 | | 330,000 | | 281,150 | |
Nationstar Mortgage Holdings Inc., Gtd. Notes | | 5.13 | | 12/15/2030 | | 500,000 | c | 394,439 | |
Nationstar Mortgage Holdings Inc., Gtd. Notes | | 6.00 | | 1/15/2027 | | 180,000 | c | 160,360 | |
Navient Corp., Sr. Unscd. Notes | | 5.00 | | 3/15/2027 | | 410,000 | | 351,757 | |
Navient Corp., Sr. Unscd. Notes | | 5.50 | | 3/15/2029 | | 146,000 | | 118,480 | |
Navient Corp., Sr. Unscd. Notes | | 6.75 | | 6/15/2026 | | 465,000 | | 441,750 | |
OneMain Finance Corp., Gtd. Notes | | 6.13 | | 3/15/2024 | | 270,000 | | 263,949 | |
OneMain Finance Corp., Gtd. Notes | | 6.63 | | 1/15/2028 | | 250,000 | | 228,848 | |
13
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Diversified Financials - 3.8% (continued) | | | | | |
PennyMac Financial
Services Inc., Gtd. Notes | | 5.38 | | 10/15/2025 | | 390,000 | c | 357,427 | |
PennyMac Financial Services Inc., Gtd. Notes | | 5.75 | | 9/15/2031 | | 758,000 | c | 615,617 | |
Rocket Mortgage LLC, Gtd. Notes | | 3.63 | | 3/1/2029 | | 280,000 | c | 225,813 | |
| 4,527,321 | |
Electronic Components - .4% | | | | | |
Energizer Gamma Acquisition
BV, Gtd. Bonds | EUR | 3.50 | | 6/30/2029 | | 240,000 | c | 192,317 | |
TTM Technologies Inc., Gtd. Notes | | 4.00 | | 3/1/2029 | | 250,000 | c | 216,592 | |
| 408,909 | |
Energy - 3.3% | | | | | |
Antero Midstream Partners LP, Gtd. Notes | | 5.75 | | 3/1/2027 | | 330,000 | c | 313,203 | |
Archrock Partners LP, Gtd. Notes | | 6.25 | | 4/1/2028 | | 368,000 | c | 335,463 | |
Blue Racer Midstream LLC, Sr. Unscd. Notes | | 6.63 | | 7/15/2026 | | 290,000 | c | 274,920 | |
Blue Racer Midstream LLC, Sr. Unscd. Notes | | 7.63 | | 12/15/2025 | | 375,000 | c | 373,794 | |
Colgate Energy Partners III LLC, Sr. Unscd. Notes | | 5.88 | | 7/1/2029 | | 260,000 | c | 241,335 | |
CQP Holdco LP, Sr. Scd. Notes | | 5.50 | | 6/15/2031 | | 500,000 | c | 443,045 | |
Crestwood Midstream Partners LP, Gtd. Notes | | 5.63 | | 5/1/2027 | | 25,000 | c | 23,349 | |
Crestwood Midstream Partners LP, Gtd. Notes | | 5.75 | | 4/1/2025 | | 180,000 | | 173,734 | |
CVR Energy Inc., Gtd. Bonds | | 5.25 | | 2/15/2025 | | 365,000 | c | 344,860 | |
EnLink Midstream LLC, Sr. Unscd. Notes | | 6.50 | | 9/1/2030 | | 176,000 | c | 175,310 | |
EQM Midstream Partners LP, Sr. Unscd. Notes | | 4.75 | | 1/15/2031 | | 125,000 | c | 108,333 | |
EQM Midstream Partners LP, Sr. Unscd. Notes | | 5.50 | | 7/15/2028 | | 239,000 | | 218,904 | |
EQM Midstream Partners LP, Sr. Unscd. Notes | | 7.50 | | 6/1/2027 | | 69,000 | c | 68,313 | |
Rockcliff Energy II LLC, Sr. Unscd. Notes | | 5.50 | | 10/15/2029 | | 484,000 | c | 447,843 | |
USA Compression Partners LP, Gtd. Notes | | 6.88 | | 9/1/2027 | | 220,000 | | 203,720 | |
USA Compression Partners LP, Gtd. Notes | | 6.88 | | 4/1/2026 | | 190,000 | | 178,518 | |
| 3,924,644 | |
Environmental
Control - .7% | | | | | |
Covanta Holding Corp., Gtd. Notes | | 4.88 | | 12/1/2029 | | 312,000 | c | 263,796 | |
Covanta Holding Corp., Gtd. Notes | | 5.00 | | 9/1/2030 | | 155,000 | | 130,975 | |
14
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Environmental Control - .7% (continued) | | | | | |
Harsco Corp., Gtd.
Notes | | 5.75 | | 7/31/2027 | | 315,000 | c | 223,878 | |
Waste Pro USA Inc., Sr. Unscd. Notes | | 5.50 | | 2/15/2026 | | 170,000 | c | 152,626 | |
| 771,275 | |
Food Products - .4% | | | | | |
Albertsons LLC, Gtd.
Notes | | 4.88 | | 2/15/2030 | | 280,000 | c | 245,700 | |
Post Holdings Inc., Gtd. Notes | | 4.63 | | 4/15/2030 | | 195,000 | c | 169,590 | |
United Natural Foods Inc., Gtd. Notes | | 6.75 | | 10/15/2028 | | 54,000 | c | 51,955 | |
| 467,245 | |
Health Care - 3.8% | | | | | |
CHEPLAPHARM Arzneimittel
Gmbh, Sr. Scd. Notes | | 5.50 | | 1/15/2028 | | 470,000 | c | 403,976 | |
Chrome Bidco SASU, Sr. Scd. Bonds | EUR | 3.50 | | 5/31/2028 | | 420,000 | c | 368,819 | |
Cidron Aida Finco SARL, Sr. Scd. Bonds | EUR | 5.00 | | 4/1/2028 | | 640,000 | c | 566,452 | |
Cidron Aida Finco SARL, Sr. Scd. Bonds | GBP | 6.25 | | 4/1/2028 | | 453,000 | c | 447,292 | |
Community Health Systems Inc., Sr. Scd. Notes | | 5.25 | | 5/15/2030 | | 170,000 | c | 128,990 | |
Community Health Systems Inc., Sr. Scd. Notes | | 5.63 | | 3/15/2027 | | 236,000 | c | 200,574 | |
DaVita Inc., Gtd. Notes | | 4.63 | | 6/1/2030 | | 410,000 | c | 330,571 | |
Medline Borrower LP, Sr. Unscd. Notes | | 5.25 | | 10/1/2029 | | 385,000 | c | 324,031 | |
Nidda Healthcare Holding GmbH, Sr. Scd. Notes | EUR | 3.50 | | 9/30/2024 | | 650,000 | c | 604,119 | |
Organon & Co., Sr. Unscd. Notes | | 5.13 | | 4/30/2031 | | 450,000 | c | 394,317 | |
Prime Healthcare Services Inc., Sr. Scd. Notes | | 7.25 | | 11/1/2025 | | 480,000 | c | 425,566 | |
Tenet Healthcare Corp., Gtd. Notes | | 6.13 | | 10/1/2028 | | 290,000 | c | 266,442 | |
| 4,461,149 | |
Industrial - 1.2% | | | | | |
Norican A/S, Sr. Scd.
Bonds | EUR | 4.50 | | 5/15/2023 | | 545,000 | | 503,531 | |
Promontoria Holding
264 BV, Sr. Scd. Bonds | EUR | 6.38 | | 3/1/2027 | | 272,000 | c | 233,574 | |
Titan Acquisition Ltd., Sr. Unscd. Notes | | 7.75 | | 4/15/2026 | | 136,000 | c | 123,904 | |
TK Elevator US Newco Inc., Sr. Scd. Notes | | 5.25 | | 7/15/2027 | | 580,000 | c | 528,557 | |
| 1,389,566 | |
Information Technology - .8% | | | | | |
Boxer Parent Inc.,
Sr. Scd. Notes | EUR | 6.50 | | 10/2/2025 | | 230,000 | c | 225,220 | |
Minerva Merger Sub Inc., Sr. Unscd. Notes | | 6.50 | | 2/15/2030 | | 800,000 | c | 680,208 | |
| 905,428 | |
15
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Insurance - .5% | | | | | |
AssuredPartners Inc., Sr. Unscd. Notes | | 5.63 | | 1/15/2029 | | 165,000 | c | 137,374 | |
AssuredPartners Inc., Sr. Unscd. Notes | | 7.00 | | 8/15/2025 | | 280,000 | c | 269,416 | |
HUB International Ltd., Gtd. Notes | | 7.00 | | 5/1/2026 | | 170,000 | c | 166,762 | |
| 573,552 | |
Internet Software & Services - 1.8% | | | | | |
Cogent Communications
Group Inc., Gtd. Notes | | 7.00 | | 6/15/2027 | | 275,000 | c | 263,142 | |
Match Group Holdings II LLC, Sr. Unscd. Notes | | 3.63 | | 10/1/2031 | | 261,000 | c | 204,513 | |
Northwest Fiber LLC, Sr. Scd. Notes | | 4.75 | | 4/30/2027 | | 152,000 | c | 132,783 | |
Northwest Fiber LLC, Sr. Unscd. Notes | | 6.00 | | 2/15/2028 | | 580,000 | c | 453,516 | |
United Group BV, Sr. Scd. Bonds | EUR | 3.13 | | 2/15/2026 | | 880,000 | c | 728,711 | |
United Group BV, Sr. Scd. Bonds | EUR | 5.25 | | 2/1/2030 | | 250,000 | c | 197,287 | |
United Group BV, Sr. Scd. Notes | EUR | 4.00 | | 11/15/2027 | | 240,000 | c | 196,158 | |
| 2,176,110 | |
Materials - 3.2% | | | | | |
ARD Finance SA, Sr.
Scd. Notes | EUR | 5.00 | | 6/30/2027 | | 270,000 | c,d | 202,105 | |
ARD Finance SA, Sr. Scd. Notes | | 6.50 | | 6/30/2027 | | 365,000 | c,d | 283,629 | |
Ardagh Packaging Finance PLC, Gtd. Notes | GBP | 4.75 | | 7/15/2027 | | 250,000 | c | 215,487 | |
Ardagh Packaging Finance PLC, Sr. Scd. Notes | | 5.25 | | 4/30/2025 | | 200,000 | c | 189,406 | |
Ball Corp., Gtd. Notes | | 3.13 | | 9/15/2031 | | 450,000 | | 365,108 | |
CANPACK SA, Gtd. Notes | | 3.13 | | 11/1/2025 | | 230,000 | c | 207,298 | |
Graham Packaging Inc., Gtd. Notes | | 7.13 | | 8/15/2028 | | 170,000 | c | 146,217 | |
Kleopatra Finco SARL, Sr. Scd. Bonds | EUR | 4.25 | | 3/1/2026 | | 440,000 | c | 377,170 | |
LABL Inc., Sr. Scd. Notes | | 6.75 | | 7/15/2026 | | 155,000 | c | 147,480 | |
LABL Inc., Sr. Unscd. Notes | | 8.25 | | 11/1/2029 | | 304,000 | c | 246,430 | |
LABL Inc., Sr. Unscd. Notes | | 10.50 | | 7/15/2027 | | 56,000 | c | 53,004 | |
Mauser Packaging Solutions Holding Co., Sr. Scd. Bonds | EUR | 4.75 | | 4/15/2024 | | 435,000 | c | 417,282 | |
Mauser Packaging Solutions Holding Co., Sr. Unscd. Notes | | 7.25 | | 4/15/2025 | | 1,028,000 | c | 937,269 | |
| 3,787,885 | |
Media - 6.0% | | | | | |
Altice Financing SA, Sr. Scd. Bonds | | 5.75 | | 8/15/2029 | | 610,000 | c | 492,106 | |
Altice Finco SA, Scd. Notes | EUR | 4.75 | | 1/15/2028 | | 860,000 | c | 686,988 | |
AMC Networks Inc., Gtd. Notes | | 4.75 | | 8/1/2025 | | 380,000 | | 352,405 | |
CCO Holdings LLC, Sr. Unscd. Notes | | 4.75 | | 3/1/2030 | | 390,000 | c | 335,669 | |
CSC Holdings LLC, Gtd. Notes | | 5.38 | | 2/1/2028 | | 320,000 | c | 291,202 | |
CSC Holdings LLC, Gtd. Notes | | 5.50 | | 4/15/2027 | | 380,000 | c | 360,816 | |
16
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Media - 6.0% (continued) | | | | | |
CSC Holdings LLC, Sr. Unscd. Notes | | 5.75 | | 1/15/2030 | | 590,000 | c | 457,884 | |
DISH DBS Corp., Gtd. Notes | | 5.13 | | 6/1/2029 | | 350,000 | | 207,904 | |
DISH DBS Corp., Gtd. Notes | | 5.88 | | 11/15/2024 | | 280,000 | | 253,739 | |
DISH DBS Corp., Sr. Scd. Bonds | | 5.25 | | 12/1/2026 | | 136,000 | c | 112,540 | |
Gray Television Inc., Gtd. Notes | | 4.75 | | 10/15/2030 | | 612,000 | c | 505,206 | |
Nexstar Media Inc., Gtd. Notes | | 5.63 | | 7/15/2027 | | 300,000 | c | 286,014 | |
Radiate Holdco LLC, Sr. Scd. Notes | | 4.50 | | 9/15/2026 | | 190,000 | c | 164,113 | |
Radiate Holdco LLC, Sr. Unscd. Notes | | 6.50 | | 9/15/2028 | | 330,000 | c | 246,262 | |
Scripps Escrow II Inc., Sr. Unscd. Notes | | 5.38 | | 1/15/2031 | | 423,000 | c | 350,720 | |
Sinclair Television Group Inc., Gtd. Notes | | 5.50 | | 3/1/2030 | | 330,000 | c | 259,128 | |
TEGNA Inc., Gtd. Notes | | 5.00 | | 9/15/2029 | | 379,000 | | 363,421 | |
UPC Broadband Finco BV, Sr. Scd. Notes | | 4.88 | | 7/15/2031 | | 320,000 | c | 277,195 | |
Virgin Media Finance PLC, Gtd. Notes | | 5.00 | | 7/15/2030 | | 290,000 | c | 229,590 | |
Virgin Media Secured Finance PLC, Sr. Scd. Notes | GBP | 4.25 | | 1/15/2030 | | 330,000 | c | 322,448 | |
Ziggo Bond Co. BV, Gtd. Notes | | 5.13 | | 2/28/2030 | | 330,000 | c | 264,624 | |
Ziggo BV, Sr. Scd. Notes | | 4.88 | | 1/15/2030 | | 370,000 | c | 312,888 | |
| 7,132,862 | |
Metals & Mining - .4% | | | | | |
Arconic Corp., Scd.
Notes | | 6.13 | | 2/15/2028 | | 300,000 | c | 282,124 | |
Hudbay Minerals Inc., Gtd. Notes | | 4.50 | | 4/1/2026 | | 198,000 | c | 179,982 | |
| 462,106 | |
Real Estate - 1.1% | | | | | |
Brookfield Property
REIT Inc., Sr. Scd. Notes | | 4.50 | | 4/1/2027 | | 280,000 | c | 240,320 | |
Iron Mountain Inc., Gtd. Notes | | 5.25 | | 7/15/2030 | | 380,000 | c | 336,746 | |
Ladder Capital Finance Holdings LLLP, Gtd. Notes | | 5.25 | | 10/1/2025 | | 480,000 | c | 467,462 | |
Starwood Property Trust Inc., Sr. Unscd. Notes | | 3.75 | | 12/31/2024 | | 320,000 | c | 298,753 | |
| 1,343,281 | |
Retailing - 3.2% | | | | | |
Asbury Automotive Group
Inc., Gtd. Notes | | 4.75 | | 3/1/2030 | | 160,000 | | 136,220 | |
B&M European Value
Retail SA, Sr. Scd. Notes | GBP | 3.63 | | 7/15/2025 | | 320,000 | | 331,782 | |
eG Global Finance PLC,
Sr. Scd. Notes | EUR | 4.38 | | 2/7/2025 | | 370,000 | c | 346,385 | |
Fertitta Entertainment LLC, Sr. Scd. Notes | | 4.63 | | 1/15/2029 | | 112,000 | c | 97,800 | |
LBM Acquisition LLC, Gtd. Notes | | 6.25 | | 1/15/2029 | | 136,000 | c | 101,830 | |
17
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Retailing - 3.2% (continued) | | | | | |
Macy's Retail Holdings LLC, Gtd. Notes | | 4.50 | | 12/15/2034 | | 515,000 | | 361,200 | |
Macy's Retail Holdings LLC, Gtd. Notes | | 5.88 | | 4/1/2029 | | 190,000 | c | 164,657 | |
New Red Finance Inc., Sr. Scd. Notes | | 3.88 | | 1/15/2028 | | 353,000 | c | 314,242 | |
Shiba Bidco SpA, Sr. Scd. Bonds | EUR | 4.50 | | 10/31/2028 | | 291,000 | c | 248,399 | |
Staples Inc., Sr. Scd. Notes | | 7.50 | | 4/15/2026 | | 450,000 | c | 380,826 | |
Staples Inc., Sr. Unscd. Notes | | 10.75 | | 4/15/2027 | | 150,000 | c | 110,476 | |
The Michaels Companies, Sr. Scd. Notes | | 5.25 | | 5/1/2028 | | 280,000 | c | 215,138 | |
The Michaels Companies, Sr. Unscd. Notes | | 7.88 | | 5/1/2029 | | 259,000 | c | 172,630 | |
The Very Group Funding PLC, Sr. Scd. Bonds | GBP | 6.50 | | 8/1/2026 | | 358,000 | c | 312,083 | |
White Cap Parent LLC, Sr. Unscd. Notes | | 8.25 | | 3/15/2026 | | 303,000 | c,d | 264,026 | |
Yum! Brands Inc., Sr. Unscd. Notes | | 5.38 | | 4/1/2032 | | 240,000 | | 221,251 | |
| 3,778,945 | |
Telecommunication
Services - 3.7% | | | | | |
Altice France Holding SA, Gtd. Notes | EUR | 4.00 | | 2/15/2028 | | 130,000 | c | 93,636 | |
Altice France Holding SA, Gtd. Notes | | 6.00 | | 2/15/2028 | | 350,000 | c | 237,891 | |
Altice France Holding SA, Sr. Scd. Notes | EUR | 8.00 | | 5/15/2027 | | 460,000 | c | 379,423 | |
Altice France SA, Sr. Scd. Notes | | 5.50 | | 1/15/2028 | | 200,000 | c | 166,023 | |
Altice France SA, Sr. Scd. Notes | | 5.50 | | 10/15/2029 | | 226,000 | c | 178,751 | |
Ciena Corp., Gtd. Notes | | 4.00 | | 1/31/2030 | | 62,000 | c | 53,698 | |
CommScope Inc., Gtd. Notes | | 8.25 | | 3/1/2027 | | 354,000 | c | 303,997 | |
Connect Finco SARL, Sr. Scd. Notes | | 6.75 | | 10/1/2026 | | 915,000 | c | 840,176 | |
Eolo SpA, Sr. Scd. Bonds | EUR | 4.88 | | 10/21/2028 | | 187,000 | c | 169,579 | |
Lorca Telecom Bondco SA, Sr. Scd. Bonds | EUR | 4.00 | | 9/18/2027 | | 450,000 | c | 404,300 | |
PLT VII Finance SARL, Sr. Scd. Notes | EUR | 4.63 | | 1/5/2026 | | 360,000 | c | 334,241 | |
TalkTalk Telecom Group Ltd., Gtd. Notes | GBP | 3.88 | | 2/20/2025 | | 290,000 | | 301,519 | |
Telecom Italia SpA, Sr. Unscd. Notes | | 5.30 | | 5/30/2024 | | 200,000 | c | 192,762 | |
ViaSat Inc., Sr. Unscd. Notes | | 5.63 | | 9/15/2025 | | 800,000 | c | 703,806 | |
| 4,359,802 | |
Transportation - .4% | | | | | |
First Transit Bidco
Inc., Sr. Scd. Notes | | 4.00 | | 7/31/2029 | | 530,000 | c | 458,251 | |
Utilities - 2.2% | | | | | |
Calpine
Corp., Sr. Unscd. Notes | | 4.63 | | 2/1/2029 | | 155,000 | c | 131,870 | |
Calpine Corp., Sr. Unscd. Notes | | 5.00 | | 2/1/2031 | | 545,000 | c | 456,969 | |
Energia Group Ni Financeco PLC, Sr. Scd. Notes | GBP | 4.75 | | 9/15/2024 | | 690,000 | c | 733,219 | |
18
| | | | | | | | | |
|
Description
| Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Bonds and Notes - 83.2% (continued) | | | | | |
Utilities - 2.2% (continued) | | | | | |
Energia Group ROI Holdings, Sr. Scd. Notes | GBP | 4.75 | | 9/15/2024 | | 505,000 | | 536,631 | |
NRG Energy Inc., Gtd. Notes | | 3.63 | | 2/15/2031 | | 290,000 | c | 230,709 | |
Pike Corp., Gtd. Notes | | 5.50 | | 9/1/2028 | | 145,000 | c | 120,087 | |
Vistra Corp., Jr. Sub. Notes | | 7.00 | | 12/15/2026 | | 365,000 | c,e | 337,172 | |
| 2,546,657 | |
Total Bonds
and Notes (cost $115,413,198) | | 98,303,962 | |
| | | | | | | | |
Floating Rate Loan Interests - 58.7% | | | | | |
Advertising - 2.0% | | | | | |
ABG Intermediate Holdings 2, 2021 Refinancing Term Loan, 1
Month LIBOR +3.25% | | 5.77 | | 9/29/2024 | | 539,619 | f | 534,155 | |
Advantage Sales & Marketing, Term Loan B-1, 1 Month LIBOR
+4.50% | | 6.88 | | 10/28/2027 | | 416,235 | f | 392,389 | |
CB Poly Holdings Inc., Initial Term Loan, 3 Month Term SOFR
+5.50% | | 7.55 | | 5/20/2029 | | 283,333 | f | 270,583 | |
Clear Channel Outdoor Holdings, Term Loan B, 1-3 Month LIBOR
+3.50% | | 6.16 | | 8/21/2026 | | 378,470 | f | 351,504 | |
Red Ventures LLC, Term Loan B-2, 1 Month LIBOR +2.50% | | 5.02 | | 11/8/2024 | | 125,414 | f | 123,389 | |
Summer BC Holdco B SARL, USD Additional Facility Term Loan
B-2, 3 Month LIBOR +4.50% | | 6.75 | | 12/4/2026 | | 506,261 | f | 492,339 | |
Terrier Media Buyer Inc., 2021 Refinancing Term Loan B, 1 Month
LIBOR +3.50% | | 6.02 | | 12/17/2026 | | 198,103 | f | 192,833 | |
| 2,357,192 | |
Building Materials - 2.2% | | | | | |
BME Group Holding BV,
Facility Term Loan B, 3 Month EURIBOR +3.50% | EUR | 3.74 | | 10/31/2026 | | 1,000,000 | f | 949,497 | |
Cornerstone Building, New Term Loan B, 1 Month LIBOR +3.25% | | 5.64 | | 4/12/2028 | | 555,303 | f | 500,328 | |
LSF10 XL Bidco SCA, Facility Term Loan B-4, 3 Month EURIBOR
+3.68% | EUR | 3.68 | | 4/9/2028 | | 1,280,206 | f | 1,125,011 | |
| 2,574,836 | |
Chemicals - 1.2% | | | | | |
Aruba Investment Holding,
First Lien Initial Dollar Term Loan, 1 Month LIBOR +4.00% | | 6.44 | | 11/24/2027 | | 167,746 | f | 161,875 | |
Flexsys Holdings Inc., Initial Term Loan, 1 Month LIBOR +5.25% | | 7.77 | | 11/1/2028 | | 468,825 | f | 426,926 | |
19
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Chemicals - 1.2% (continued) | | | | | |
LSF11 Skyscraper Holdco, USD Facility Term Loan B-3, 3 Month
LIBOR +3.50% | | 5.75 | | 9/30/2027 | | 512,678 | f | 503,068 | |
Polar US Borrower LLC, Initial Term Loan, 3 Month LIBOR +4.75% | | 7.21 | | 10/15/2025 | | 322,562 | f | 291,918 | |
| 1,383,787 | |
Commercial & Professional Services - 8.6% | | | | | |
Albion
Acquisitions Ltd., Term Loan B, 3 Month EURIBOR +5.25% | EUR | 5.38 | | 7/31/2026 | | 1,000,000 | f | 972,555 | |
American Auto Auction, First Lien Tranche Term Loan B, 3 Month
Term SOFR +5.15% | | 7.20 | | 12/30/2027 | | 587,050 | f | 548,158 | |
APX Group Inc., Initial Term Loan, 1 Month LIBOR +3.25% &
3 Month PRIME +2.25% | | 6.69 | | 7/9/2028 | | 364,958 | f | 356,546 | |
AVSC Holding Corp., Term Loan B-1, 3 Month LIBOR +3.25% | | 4.86 | | 3/1/2025 | | 226,024 | f | 209,532 | |
Boels Topholding BV, Facility Term Loan B-2, 3 Month EURIBOR
+3.25% | EUR | 3.57 | | 2/5/2027 | | 1,000,000 | f | 977,731 | |
Cast & Crew LLC, First Lien Incremental Facility No. 2
Term Loan, 1 Month Term SOFR +3.75% | | 6.21 | | 12/30/2028 | | 4,305 | f | 4,232 | |
Cast & Crew LLC, First Lien Initial Term Loan, 1 Month
LIBOR +3.50% | | 6.02 | | 2/7/2026 | | 264,584 | f | 260,284 | |
CIBT Global Inc., First Lien Term Loan, 3 Month LIBOR +1.00% | | 2.01 | | 6/1/2024 | | 1,021,601 | f | 802,049 | |
Electro Rent Corp., First Lien Initial Term Loan, 3 Month LIBOR
+5.00% | | 7.73 | | 1/31/2024 | | 218,043 | f | 215,863 | |
Element Materials Technology, Delayed Draw Term Loan B, 3 Month
LIBOR +1.00% | | 1.00 | | 6/24/2029 | | 25,277 | f,i | 24,946 | |
Element Materials Technology, Initial USD Term Loan B, 3 Month
Term SOFR +4.25% | | 6.36 | | 6/24/2029 | | 54,767 | f | 54,049 | |
Employbridge LLC, Term Loan B, 3 Month LIBOR +4.75% | | 7.00 | | 7/19/2028 | | 285,709 | f | 259,209 | |
Indigocyan Holdco 3 Ltd., Facility Term Loan B, 12 Month SONIA
+4.75% | GBP | 6.44 | | 12/31/2024 | | 2,000,000 | f | 2,228,524 | |
Minerva Bidco Ltd., Term Loan B, 12 Month SONIA +4.62% | GBP | 6.31 | | 7/31/2025 | | 1,000,000 | f | 1,062,955 | |
National Intergovernment, First Lien Initial Term Loan, 3 Month
LIBOR +3.50% | | 5.75 | | 5/23/2025 | | 282,832 | f | 277,972 | |
20
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Commercial & Professional Services - 8.6% (continued) | | | | | |
Praesidiad Ltd., Facility
Term Loan B, 3 Month EURIBOR +4.00% | EUR | 4.00 | | 10/4/2024 | | 1,000,000 | f | 856,720 | |
Pre-Paid Legal Services, First Lien Initial Term Loan, 1-3
Month LIBOR +3.75% | | 6.82 | | 12/15/2028 | | 260,320 | f | 253,976 | |
RLG Holdings LLC, First Lien Closing Date Initial Term Loan,
1 Month LIBOR +4.00% | | 6.52 | | 7/8/2028 | | 217,134 | f | 210,348 | |
Team Health Holdings Inc., Extended Term Loan, 1 Month Term
SOFR +5.25% | | 7.71 | | 2/2/2027 | | 288,546 | f | 258,731 | |
Vaco Holdings LLC, Initial Term Loan, 3 Month Term SOFR +5.00% | | 7.20 | | 1/21/2029 | | 290,332 | f,i | 285,614 | |
| 10,119,994 | |
Consumer Discretionary - 6.8% | | | | | |
Allen Media LLC, Term
Loan B, 3 Month Term SOFR +5.50% | | 7.70 | | 2/10/2027 | | 391,601 | f | 345,441 | |
AP Gaming I LLC, Term Loan B, 3 Month Term SOFR +4.00% | | 6.20 | | 2/15/2029 | | 391,068 | f | 382,269 | |
Banijay Entertainment, Facility Term Loan B, 3 Month EURIBOR
+3.75% | EUR | 3.75 | | 3/1/2025 | | 1,000,000 | f | 987,479 | |
Carnival Corp., 2021 Advance Incremental Term Loan B, 6 Month
LIBOR +3.25% | | 6.13 | | 10/18/2028 | | 245,494 | f | 230,151 | |
Center Parcs Europe N.V., Facility Term Loan B-1, 3 Month EURIBOR
+2.00% | EUR | 2.00 | | 9/23/2022 | | 1,074,817 | f | 1,080,137 | |
Center Parcs Europe N.V., Facility Term Loan B-2, 3 Month EURIBOR
+2.00% | EUR | 2.00 | | 9/23/2022 | | 620,440 | f | 623,511 | |
Great Canadian Gaming Co., Term Loan B, 3 Month LIBOR +4.00% | | 6.10 | | 11/1/2026 | | 351,277 | f | 345,129 | |
Scientific Games Holdings, Term Loan B-2, 3 Month Term SOFR
+3.50% | | 5.61 | | 4/4/2029 | | 762,903 | f | 736,945 | |
Silk Bidco AS, Facility Term Loan C, 6 Month EURIBOR +8.00% | EUR | 8.27 | | 6/16/2023 | | 1,000,000 | f | 936,277 | |
Stage Entertainment BV, Facility Term Loan B-2, 3 Month EURIBOR
+3.25% | EUR | 3.55 | | 5/2/2026 | | 1,000,000 | f | 905,711 | |
Tecta America Corp., First Lien Initial Term Loan, 1 Month
LIBOR +4.25% | | 6.77 | | 4/9/2028 | | 1,147,918 | f | 1,114,439 | |
21
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Consumer Discretionary - 6.8% (continued) | | | | | |
Varsity Brands Holding,
First Lien Initial Term Loan, 1 Month LIBOR +3.50% | | 6.02 | | 12/15/2024 | | 346,458 | f | 337,037 | |
| 8,024,526 | |
Consumer Staples - .6% | | | | | |
Kronos Acquisition
Holdings, Tranche Term Loan B-1, 3 Month LIBOR +3.75% | | 6.82 | | 12/22/2026 | | 763,282 | f | 738,857 | |
Diversified Financials
- .9% | | | | | |
BHN Merger Sub Inc., First Lien Term Loan, 3 Month Term SOFR +3.00% | | 5.05 | | 6/15/2025 | | 290,836 | f | 280,475 | |
Russell Investments US, New 2025 Term Loan, 6 Month LIBOR +3.50% | | 5.00 | | 5/30/2025 | | 431,075 | f | 409,388 | |
Tegra118 Wealth Solutions, Initial Term Loan, 3 Month LIBOR
+4.00% | | 6.96 | | 2/18/2027 | | 362,600 | f | 350,815 | |
| 1,040,678 | |
Electronic Components - .8% | | | | | |
ADB Safegate BVBA,
Facility Term Loan B, 3 Month EURIBOR +3.50% | EUR | 3.50 | | 10/2/2024 | | 1,000,000 | f | 898,174 | |
Energy - 1.3% | | | | | |
Freeport
LNG Investments, Initial Term Loan B, 3 Month LIBOR +3.50% | | 6.21 | | 12/21/2028 | | 623,643 | f | 600,344 | |
GIP III Stetson I LP, Initial Term Loan, 1 Month LIBOR +4.25% | | 6.77 | | 7/18/2025 | | 559,615 | f | 538,165 | |
WaterBridge Midstream Operating, Initial Term Loan, 6 Month
LIBOR +5.75% | | 9.13 | | 6/21/2026 | | 465,832 | f | 458,677 | |
| 1,597,186 | |
Environmental Control - 1.2% | | | | | |
Northstar Group Services,
Term Loan B, 1 Month LIBOR +5.50% | | 8.02 | | 11/12/2026 | | 370,209 | f | 363,731 | |
Packers Holdings LLC, Initial Term Loan, 1 Month LIBOR +3.25% | | 5.63 | | 3/9/2028 | | 220,356 | f | 209,448 | |
Waterlogic USA Holdings, Facility Term Loan B-2, 1 Month LIBOR
+4.75% | | 7.27 | | 8/12/2028 | | 861,441 | f | 852,826 | |
| 1,426,005 | |
Food Products - .9% | | | | | |
Sovos Brands Intermediate,
First Lien Initial Term Loan, 1 Month LIBOR +3.50% | | 6.02 | | 6/8/2028 | | 230,856 | f | 223,699 | |
22
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Food Products - .9% (continued) | | | | | |
ZF Invest SAS, Term Loan B, 3 Month EURIBOR +3.93% | EUR | 3.93 | | 7/12/2028 | | 1,000,000 | f | 842,148 | |
| 1,065,847 | |
Food Service - .2% | | | | | |
TKC Holdings Inc.,
Term Loan, 6 Month LIBOR +5.50% | | 7.00 | | 5/14/2028 | | 284,890 | f | 256,535 | |
Health Care - 7.9% | | | | | |
Aenova
Holding GmbH, Facility Term Loan B-2, 6 Month EURIBOR +4.50% | EUR | 5.03 | | 3/31/2026 | | 1,000,000 | f | 880,407 | |
Air Methods Corp., Initial Term Loan, 3 Month LIBOR +3.50% | | 5.75 | | 4/21/2024 | | 592,097 | f | 507,353 | |
Albany Molecular Research, Term Loan, 1-3 Month LIBOR +3.75% | | 6.41 | | 8/30/2026 | | 482,469 | f | 466,555 | |
Auris Luxembourg III SA, Facility Term Loan B-1, 3 Month EURIBOR
+4.00% | EUR | 4.00 | | 2/21/2026 | | 1,000,000 | f | 961,988 | |
Baart Programs Inc., Delayed Draw Term Loan, 1-3 Month LIBOR
+3.00% | | 4.25 | | 6/11/2027 | | 486,527 | f,i | 469,498 | |
Baart Programs Inc., Term Loan, 1 Month LIBOR +5.00% | | 7.49 | | 6/11/2027 | | 532,219 | f | 513,591 | |
Financiere Mendel SASU, Term Loan, 6 Month EURIBOR +4.25% | EUR | 4.25 | | 4/12/2026 | | 1,000,000 | f | 988,132 | |
Financiere Verdi I SASU, Facility Term Loan B, 12 Month SONIA
+4.50% | GBP | 6.19 | | 4/15/2028 | | 1,000,000 | f | 1,034,494 | |
Gainwell Acquisition Corp., Term Loan B, 3 Month LIBOR +4.00% | | 6.25 | | 10/1/2027 | | 564,156 | f | 552,876 | |
Global Medical Response, 2017-2 New Term Loan, 1 Month LIBOR
+4.25% | | 6.77 | | 3/14/2025 | | 286,765 | f | 264,123 | |
Global Medical Response, 2020 Term Loan, 1 Month LIBOR +4.25% | | 6.62 | | 10/2/2025 | | 236,400 | f | 217,414 | |
MED ParentCo LP, First Lien Initial Term Loan, 1 Month LIBOR
+4.25% | | 6.77 | | 8/31/2026 | | 674,018 | f | 602,829 | |
Pathway Vet Alliance LLC, 2021 Replacement Term Loan, 3 Month
LIBOR +3.75% | | 6.00 | | 3/31/2027 | | 226,904 | f | 214,765 | |
Pluto Acquisition I Inc., 2021 First Lien Term Loan, 3 Month
LIBOR +4.00% | | 6.08 | | 6/20/2026 | | 120,135 | f | 104,517 | |
Resonetics LLC, First Lien Initial Term Loan, 3 Month LIBOR
+4.00% | | 6.37 | | 4/28/2028 | | 336,690 | f | 325,327 | |
23
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Health Care - 7.9% (continued) | | | | | |
Sharp Midco LLC, First Lien Initial Term Loan, 3 Month LIBOR
+4.00% | | 6.25 | | 1/20/2029 | | 228,905 | f | 222,610 | |
Surgery Center Holdings Inc., 2021 New Term Loan, 1 Month LIBOR
+3.75% | | 6.14 | | 8/31/2026 | | 592,911 | f | 577,136 | |
WCG Purchaser Corp., First Lien Initial Term Loan, 1-3 Month
LIBOR +4.00% | | 6.39 | | 1/8/2027 | | 482,200 | f | 472,356 | |
| 9,375,971 | |
Industrial - 1.7% | | | | | |
Osmose Utilities Services,
First Lien Initial Term Loan, 3 Month LIBOR +3.25% | | 5.77 | | 6/22/2028 | | 316,643 | f | 302,959 | |
Pro Mach Group Inc., Initial Term Loan, 1 Month LIBOR +4.00% | | 6.45 | | 8/31/2028 | | 263,491 | f | 258,314 | |
Qualtek USA LLC, Tranche Term Loan B, 3 Month LIBOR +6.25% | | 9.06 | | 7/18/2025 | | 295,835 | f | 229,920 | |
SPX FLOW Inc., Term Loan, 1 Month Term SOFR +4.60% | | 7.06 | | 4/5/2029 | | 350,492 | f | 333,405 | |
Titan Acquisition Ltd., Initial Term Loan, 6 Month LIBOR +3.00% | | 5.88 | | 3/28/2025 | | 583,247 | f | 556,354 | |
VAC Germany Holding GmbH, Term Loan B, 3 Month LIBOR +4.00% | | 6.25 | | 3/8/2025 | | 335,368 | f | 309,236 | |
| 1,990,188 | |
Information Technology - 7.7% | | | | | |
Ascend Learning LLC,
Initial Term Loan, 1 Month LIBOR +3.50% | | 6.02 | | 12/10/2028 | | 196,705 | f | 188,148 | |
Boxer Parent Inc., 2021 Replacement Dollar Term Loan, 1 Month
LIBOR +3.75% | | 6.27 | | 10/2/2025 | | 490,822 | f | 475,035 | |
Camelia Bidco Ltd., Facility Term Loan B-1, 3 Month GBPLIBOR
+4.77% | GBP | 5.98 | | 10/5/2024 | | 2,000,000 | f | 2,201,433 | |
CT Technologies, 2021 Reprice Term Loan, 1 Month LIBOR +4.25% | | 6.77 | | 12/16/2025 | | 242,762 | f | 231,459 | |
DCert Buyer Inc., First Lien Initial Term Loan, 3 Month LIBOR
+4.00% | | 6.90 | | 10/16/2026 | | 275,210 | f | 268,598 | |
DCert Buyer Inc., Second Lien Initial Term Loan, 3 Month LIBOR
+7.00% | | 9.90 | | 2/16/2029 | | 300,000 | f | 286,725 | |
DTI Holdco Inc., Initial Term Loan, 3 Month Term SOFR +4.75% | | 7.33 | | 4/26/2029 | | 430,000 | f | 412,456 | |
24
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Information Technology - 7.7% (continued) | | | | | |
EP Purchaser LLC, Closing
Date Term Loan, 3 Month LIBOR +3.50% | | 5.75 | | 11/4/2028 | | 448,875 | f | 442,142 | |
Finthrive Software Intermediate, Term Loan, 1 Month LIBOR +4.00% | | 6.49 | | 12/17/2028 | | 336,448 | f | 325,513 | |
Fintrax International Holdings, Facility New Term Loan B-1,
6 Month EURIBOR +5.25% | EUR | 5.25 | | 5/27/2026 | | 598,086 | f | 596,539 | |
Fintrax International Holdings, New Facility Term Loan B-2,
6 Month EURIBOR +5.25% | EUR | 5.25 | | 5/27/2026 | | 20,096 | f | 20,044 | |
Fintrax International Holdings, New Facility Term Loan B-3,
6 Month EURIBOR +5.25% | EUR | 5.25 | | 5/27/2026 | | 231,100 | f | 230,503 | |
Fintrax International Holdings, New Facility Term Loan B-4,
6 Month EURIBOR +5.25% | EUR | 5.25 | | 5/27/2026 | | 150,718 | f | 150,328 | |
Genesys Cloud Services, Initial Euro Term Loan B-4, 1 Month
EURIBOR +4.25% | EUR | 4.96 | | 12/1/2027 | | 997,468 | f | 987,184 | |
Ivanti Software Inc., First Lien Term Loan B, 3 Month LIBOR
+4.25% | | 5.85 | | 12/1/2027 | | 274,418 | f | 236,042 | |
Mitchell International, Second Lien Initial Term Loan, 3 Month
LIBOR +6.50% | | 9.57 | | 10/15/2029 | | 158,974 | f | 150,099 | |
Mitnick Corporate Purchaser, Initial Term Loan, 3 Month Term
SOFR +4.75% | | 7.39 | | 5/2/2029 | | 430,000 | f | 420,596 | |
Polaris Newco LLC, Sterling Term Loan, 1 Month SONIA +5.25% | GBP | 6.94 | | 6/4/2028 | | 992,500 | f | 1,065,072 | |
TIBCO Software Inc., Term Loan B-3, 1 Month LIBOR +3.75% | | 6.28 | | 7/3/2026 | | 275,742 | f | 274,949 | |
UKG Inc., First Lien Initial Term Loan, 1 Month LIBOR +3.75% | | 6.27 | | 5/3/2026 | | 201,407 | f | 196,599 | |
| 9,159,464 | |
Insurance - 2.5% | | | | | |
Alliant Holdings Intermediate,
2021-2 New Term Loan, 1 Month LIBOR +3.50% | | 5.88 | | 11/12/2027 | | 396,330 | f | 386,521 | |
Asurion LLC, New Term Loan B-4, 1 Month LIBOR +5.25% | | 7.77 | | 1/15/2029 | | 414,791 | f | 356,202 | |
Asurion LLC, Second Lien Term Loan B-3, 1 Month LIBOR +5.25% | | 7.77 | | 2/3/2028 | | 1,068,450 | f | 923,317 | |
Mayfield Agency Borrower, First Lien Term Loan B, 1 Month LIBOR
+4.50% | | 7.02 | | 2/28/2025 | | 767,967 | f | 744,329 | |
25
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Insurance - 2.5% (continued) | | | | | |
Sedgwick Claims Management Services Inc., 2019 New Term Loan,
1 Month LIBOR +3.75% | | 6.27 | | 9/3/2026 | | 220,399 | f | 217,506 | |
Sedgwick Claims Management Services Inc., 2020 Term Loan, 1
Month LIBOR +4.25% | | 6.77 | | 9/3/2026 | | 9,025 | f | 8,927 | |
Sedgwick CMS Inc., Term Loan, 1 Month LIBOR +3.25% | | 5.77 | | 12/31/2025 | | 287,782 | f | 282,386 | |
| 2,919,188 | |
Internet Software & Services - 1.8% | | | | | |
Endure Digital Inc.,
Initial Term Loan, 1 Month LIBOR +3.50% | | 5.87 | | 2/10/2028 | | 653,400 | f | 615,016 | |
ION Trading Finance Ltd., Initial Dollar Term Loan, 3 Month
LIBOR +4.75% | | 7.00 | | 4/1/2028 | | 217,800 | f | 212,536 | |
Proofpoint Inc., Initial Term Loan, 3 Month LIBOR +3.25% | | 6.32 | | 8/31/2028 | | 435,442 | f | 420,310 | |
Weddingwire Inc., Amendment No. 3 Term Loan, 1 Month Term SOFR
+4.50% | | 7.06 | | 12/21/2025 | | 867,027 | f | 860,528 | |
| 2,108,390 | |
Materials - 2.5% | | | | | |
Berlin Packaging LLC,
Tranche Term Loan B-5, 1-3 Month LIBOR +3.75% | | 6.07 | | 3/11/2028 | | 290,447 | f | 281,423 | |
Charter Nex US Inc., 2021 Refinancing Term Loan, 3 Month LIBOR
+3.75% | | 6.56 | | 12/1/2027 | | 117,378 | f | 114,328 | |
Clydesdale Acquisition, Term Loan B, 1 Month Term SOFR +4.18% | | 6.73 | | 4/13/2029 | | 425,521 | f | 411,851 | |
Grinding Media Inc., First Lien Initial Term Loan, 3 Month
LIBOR +4.00% | | 4.80 | | 10/12/2028 | | 431,800 | f | 416,687 | |
MAR Bidco SARL, USD Facility Term Loan B, 3 Month LIBOR +4.05% | | 6.30 | | 6/28/2028 | | 180,357 | f | 170,663 | |
Mauser Packaging Solutions, Initial Term Loan, 1 Month LIBOR
+3.25% | | 5.62 | | 4/3/2024 | | 376,270 | f | 369,080 | |
Pretium PKG Holdings Inc., First Lien Initial Term Loan, 1-3
Month LIBOR +4.00% | | 6.31 | | 10/1/2028 | | 221,881 | f | 209,678 | |
Proampac PG Borrower LLC, 2020-1 Term Loan, 1-3 Month LIBOR
+3.75% | | 6.47 | | 11/3/2025 | | 424,707 | f | 414,620 | |
Tecostar Holdings Inc., 2017 First Lien Term Loan, 3 Month
LIBOR +3.50% | | 5.79 | | 5/1/2024 | | 360,694 | f | 333,642 | |
26
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Materials - 2.5% (continued) | | | | | |
Valcour Packaging LLC, Second Lien Initial Term Loan, 3 Month
LIBOR +7.00% | | 8.47 | | 9/30/2029 | | 350,000 | f | 301,000 | |
| 3,022,972 | |
Media - 1.8% | | | | | |
CSC Holdings LLC, 2017 Refinancing Term Loan, 1 Month LIBOR
+2.25% | | 4.64 | | 7/17/2025 | | 583,938 | f | 568,248 | |
DIRECTV Financing LLC, Closing Date Term Loan, 1 Month LIBOR
+5.00% | | 7.52 | | 8/2/2027 | | 910,261 | f | 873,396 | |
Sinclair Television Group, Term Loan B-2, 1 Month LIBOR +2.50% | | 5.03 | | 9/30/2026 | | 316,177 | f | 304,849 | |
Sinclair Television Group, Term Loan B4, 1 Month Term SOFR
+3.75% | | 6.31 | | 4/13/2029 | | 385,075 | f | 369,190 | |
| 2,115,683 | |
Retailing - 1.0% | | | | | |
Great Outdoors Group
LLC, Term Loan B-2, 1 Month LIBOR +3.75% | | 6.27 | | 3/5/2028 | | 462,151 | f | 449,095 | |
New Look Corporate Limited Shareholder Loan, Term Loan, 6 Month
GBPLIBOR +0.00% | GBP | 0.00 | | 11/9/2029 | | 24,012 | f,j | 5,579 | |
Staples Inc., 2019 Refinancing New Term Loan B-1, 3 Month LIBOR
+5.00% | | 7.78 | | 4/12/2026 | | 237,519 | f | 210,415 | |
Woof Holdings Inc., First Lien Initial Term Loan, 3 Month LIBOR
+3.75% | | 5.81 | | 12/21/2027 | | 553,759 | f | 539,915 | |
| 1,205,004 | |
Semiconductors & Semiconductor Equipment - .7% | | | | | |
Natel
Engineering Inc., Initial Term Loan, 3-6 Month LIBOR +6.25% | | 7.83 | | 4/30/2026 | | 492,061 | f | 460,077 | |
Ultra Clean Holdings Inc., Second Amendment Term Loan B, 1
Month LIBOR +3.75% | | 6.27 | | 8/27/2025 | | 323,045 | f | 319,613 | |
| 779,690 | |
Technology Hardware & Equipment - 2.5% | | | | | |
Access CIG LLC, First
Lien Term Loan B, 3 Month LIBOR +3.75% | | 6.82 | | 2/27/2025 | | 219,224 | f | 213,743 | |
Atlas CC Acquisition Corp., First Lien Term Loan B, 3 Month
LIBOR +4.25% | | 7.32 | | 5/25/2028 | | 473,926 | f | 449,440 | |
Atlas CC Acquisition Corp., First Lien Term Loan C, 3 Month
LIBOR +4.25% | | 7.32 | | 5/25/2028 | | 96,392 | f | 91,412 | |
27
STATEMENT
OF INVESTMENTS (continued)
| | | | | | | | | |
|
Description | Coupon Rate
(%) | | Maturity
Date | | Principal
Amount ($) | a,b | Value
($) | |
Floating Rate Loan Interests - 58.7% (continued) | | | | | |
Technology Hardware & Equipment - 2.5% (continued) | | | | | |
Marnix SAS, Facility
Term Loan B, 3 Month EURIBOR +3.00% | EUR | 3.05 | | 11/19/2026 | | 1,000,000 | f | 956,516 | |
Mcafee Corp., Tranche Term Loan B-1, 1 Month Term SOFR +3.75% | | 6.16 | | 3/1/2029 | | 681,270 | f | 648,484 | |
Surf Holdings LLC, Senior Secured First Lien Dollar Tranche
Term Loan, 3 Month LIBOR +3.50% | | 5.17 | | 3/5/2027 | | 228,792 | f | 223,822 | |
VeriFone Systems Inc., First Lien Initial Term Loan, 3 Month
LIBOR +4.00% | | 7.00 | | 8/20/2025 | | 380,394 | f | 353,291 | |
| 2,936,708 | |
Telecommunication Services - 1.3% | | | | | |
CCI Buyer Inc., First
Lien Initial Term Loan, 3 Month Term SOFR +4.00% | | 6.05 | | 12/17/2027 | | 1,061,683 | f | 1,023,861 | |
Connect Finco SARL, Amendment No. 1 Refinancing Term Loan,
1 Month LIBOR +3.50% | | 6.03 | | 12/12/2026 | | 370,320 | f | 360,368 | |
Crown Subsea Communications, Initial Term Loan, 1 Month LIBOR
+4.75% | | 7.12 | | 4/27/2027 | | 220,757 | f | 216,342 | |
| 1,600,571 | |
Transportation - .3% | | | | | |
OLA Netherlands BV,
Term Loan, 1 Month Term SOFR +6.25% | | 8.66 | | 12/3/2026 | | 221,979 | f | 213,238 | |
Worldwide Express Inc., First Lien Initial Term Loan, 3 Month
LIBOR +4.00% | | 6.25 | | 7/26/2028 | | 132,414 | f | 126,808 | |
| 340,046 | |
Utilities - .3% | | | | | |
Eastern Power LLC,
Term Loan B, 3 Month LIBOR +3.75% | | 6.00 | | 10/2/2025 | | 439,898 | f | 377,384 | |
Total Floating
Rate Loan Interests (cost $75,512,456) | | 69,414,876 | |
| | | | | Sharesb | | | |
Common
Stocks - .1% | | | | | |
Information Technology - .1% | | | | | |
Skillsoft Corp. | | | | | | 17,443 | k | 56,166 | |
Media - .0% | | | | | |
Altice
USA Inc., Cl. A | | | | | | 2,000 | k | 20,000 | |
Retailing - .0% | | | | | |
New
Look, Cl. B | | | | | | 324,001 | j,k | 0 | |
Total Common
Stocks (cost $223,725) | | 76,166 | |
28
| | | | | | | | | |
|
Description | | | | | Sharesb | | Value ($) | |
Exchange-Traded
Funds - .2% | | | | | |
Registered Investment Companies - .2% | | | | | |
iShares iBoxx High
Yield Corporate Bond ETF | | | | | | 1,529 | | 113,956 | |
SPDR Bloomberg High Yield Bond ETF | | | | | | 1,308 | | 120,192 | |
Total Exchange-Traded
Funds (cost $247,132) | | 234,148 | |
|
1-Day Yield (%) | | | | | | | |
Investment Companies - 6.4% | | | | | |
Registered Investment Companies - 6.4% | | | | | |
Dreyfus
Institutional Preferred Government Plus Money Market Fund, Institutional Shares (cost
$7,602,310) | | 2.34 | | | | 7,602,310 | l | 7,602,310 | |
Total Investments (cost $198,998,821) | | 148.6% | 175,631,462 | |
Liabilities, Less Cash and Receivables | | (48.6%) | (57,479,617) | |
Net Assets | | 100.0% | 118,151,845 | |
ETF—Exchange-Traded
Fund
EURIBOR—Euro Interbank Offered Rate
LIBOR—London Interbank Offered Rate
PRIME—Prime Lending Rate
REIT—Real Estate Investment Trust
SONIA—Sterling
Overnight Index Average
TSFR—Term SOFR (Secured
Overnight Financing Rate) Reference Rates
EUR—Euro
GBP—British Pound
a Amount stated in U.S. Dollars unless otherwise noted above.
b Security,
or portion thereof, has been pledged as collateral for the fund’s Revolving Credit and Security Agreement.
c Security
exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may
be resold in transactions exempt from registration, normally to qualified institutional buyers. At August
31, 2022, these securities were valued at $89,172,883 or 75.47% of net assets.
d Payment-in-kind security and interest may be paid in additional
par.
e Security
is a perpetual bond with no specified maturity date. Maturity date shown is next reset date of the bond.
f Variable
rate security—interest rate resets periodically and rate shown is the interest rate in effect at period
end. Security description also includes the reference rate and spread if published and available.
g Security
purchased on a when-issued or delayed basis for which the fund has not taken delivery as of August 31,
2022.
h Collateralized
Loan Obligations equity positions are entitled to recurring distributions which are generally equal to
the remaining cash flow of payments made by underlying securities less contractual payments to debt holders
and fund expenses. The effective yield is estimated based upon the current projection of the amount and
timing of these recurring distributions in addition to the estimated amount of terminal principal payment.
The estimated yield and investment cost may ultimately not be realized.
i Investment, or portion of investment, represents an unfunded
floating note loan interest outstanding.
j The fund held Level 3 securities at August 31, 2022. These
securities were valued at $5,579 or .0% of net assets.
k Non-income producing security.
l Investment in affiliated issuer. The investment objective
of this investment company is publicly available and can be found within the investment company’s prospectus.
29
STATEMENT
OF INVESTMENTS (continued)
| |
Portfolio Summary (Unaudited) † | Value
(%) |
Collateralized Loan Obligations | 28.2 |
Consumer, Non-cyclical | 26.7 |
Consumer, Cyclical | 20.3 |
Communications | 19.3 |
Industrial | 16.3 |
Technology | 11.7 |
Financial | 9.0 |
Investment
Companies | 6.6 |
Energy | 4.7 |
Basic
Materials | 3.3 |
Utilities | 2.5 |
| 148.6 |
† Based
on net assets.
See notes to financial statements.
| | | | | | |
Affiliated
Issuers | | | |
Description | Value ($) 8/31/2021 | Purchases
($)† | Sales ($) | Value ($) 8/31/2022 | Dividends/ Distributions
($) | |
Registered Investment Companies - 6.4% | | |
Dreyfus Institutional Preferred Government Plus Money Market
Fund, Institutional Shares - 6.4% | 332,977 | 88,415,352 | (81,146,019) | 7,602,310 | 38,984 | |
† Includes reinvested dividends/distributions.
See notes to financial statements.
30
| | | | | |
Forward Foreign Currency Exchange Contracts | |
Counterparty/
Purchased Currency | Purchased
Currency Amounts | Currency Sold | Sold
Currency Amounts | Settlement Date | Unrealized
Appreciation (Depreciation) ($) |
Barclays Capital |
United States Dollar | 13,588,505 | Euro | 13,525,000 | 9/30/2022 | (31,102) |
Citigroup |
United
States Dollar | 28,699,934 | Euro | 28,485,000 | 9/23/2022 | 29,446 |
United
States Dollar | 8,012,005 | British Pound | 6,770,000 | 9/23/2022 | 143,789 |
United
States Dollar | 999,210 | Euro | 1,000,000 | 9/23/2022 | (7,302) |
United
States Dollar | 4,712,910 | British Pound | 4,020,000 | 9/30/2022 | 40,142 |
Gross
Unrealized Appreciation | | | 213,377 |
Gross
Unrealized Depreciation | | | (38,404) |
See
notes to financial statements.
31
STATEMENT OF ASSETS AND LIABILITIES
August
31, 2022
| | | | | | |
| | | | | | |
| | | Cost | | Value | |
Assets ($): | | | | |
Investments in securities—See Statement of Investments | | | |
Unaffiliated issuers | 191,396,511 | | 168,029,152
| |
Affiliated issuers | | 7,602,310 | | 7,602,310
| |
Cash | | | | | 161,648 | |
Cash
denominated in foreign currency | | | 3,168,174 | | 3,177,221 | |
Dividends
and interest receivable | | 2,180,037 | |
Receivable for investment securities sold | | 1,997,895 | |
Unrealized
appreciation on forward foreign currency exchange contracts—Note 4 | | 213,377 | |
Prepaid
expenses | | | | | 14,256 | |
| | | | |
183,375,896 | |
Liabilities ($): | | | | |
Due to BNY Mellon Investment Adviser, Inc.
and affiliates—Note 3(b) | | 237,323 | |
Loan payable ($54,000,000
face amount, respectively, report net of unamortized debt issuance cost
of $32,465)—Note 2 | | 53,967,535 | |
Payable for investment securities
purchased | | 10,130,495 | |
Distributions payable | | 750,036 | |
Unrealized
depreciation on forward foreign currency exchange contracts—Note 4 | | 38,404 | |
Interest
and loan fees payable—Note 2 | | 6,101 | |
Directors’ fees and expenses payable | | 2,726 | |
Other
accrued expenses | | | | | 91,431 | |
| | | | |
65,224,051 | |
Net Assets ($) | | |
118,151,845 | |
Composition of Net Assets ($): | | | | |
Paid-in capital | | | | | 146,978,796 | |
Total
distributable earnings (loss) | | | | | (28,826,951) | |
Net Assets ($) | | | 118,151,845
| |
| | | | |
Shares
Outstanding | | |
(100 million shares of $.001
par value Common Stock authorized) |
15,000,727 | |
Net Asset Value Per Share ($) | | 7.88 | |
| | | | |
See notes to financial statements. | | | | |
32
STATEMENT OF OPERATIONS
Year
Ended August 31, 2022
| | | | | | |
| | | | | | |
| | | | | | |
Investment
Income ($): | | | | |
Income: | | | | |
Interest (net of $13,107 foreign taxes withheld
at source) | | | 11,937,699 | |
Dividends: | |
Unaffiliated issuers | | | 20,825 | |
Affiliated issuers | | | 38,984 | |
Total
Income | | |
11,997,508 | |
Expenses: | | | | |
Management fee—Note 3(a) | | | 1,604,755 | |
Interest
expense and loan fees—Note 2 | | | 1,469,031 | |
Custodian
fees—Note 3(b) | | | 283,243 | |
Professional
fees | | | 173,537 | |
Directors’
fees and expenses—Note 3(c) | | | 37,310 | |
Registration
fees | | | 21,822 | |
Shareholders’
reports | | | 20,529 | |
Shareholder
servicing costs | | | 14,297 | |
Chief
Compliance Officer fees—Note 3(b) | | | 10,301 | |
Miscellaneous | | | 142,338 | |
Total
Expenses | | |
3,777,163 | |
Net Investment Income | | |
8,220,345 | |
Realized and Unrealized Gain (Loss) on Investments—Note 4
($): | | |
Net realized gain (loss) on investments and
foreign currency transactions |
(6,444,758) | |
Net realized gain (loss) on
forward foreign currency exchange contracts |
10,837,787 | |
Net Realized Gain (Loss) | | | 4,393,029 | |
Net
change in unrealized appreciation (depreciation) on investments
and foreign currency transactions |
(27,058,179) | |
Net
change in unrealized appreciation (depreciation) on
forward foreign currency exchange contracts |
453,663 | |
Net Change in Unrealized Appreciation (Depreciation) | | | (26,604,516) | |
Net
Realized and Unrealized Gain (Loss) on Investments | | | (22,211,487) | |
Net
(Decrease) in Net Assets Resulting from Operations | | (13,991,142) | |
| | | | | | |
See
notes to financial statements. | | | | | |
33
STATEMENT OF CASH FLOWS
Year
Ended August 31, 2022
| | | | | | |
| | | | | |
| | | | | | |
Cash Flows from Operating Activities ($): | | | | | |
Purchases of portfolio securities | |
(121,225,857) | | | |
Proceeds from sales of portfolio securities | 111,204,273 | | | |
Net purchase (sales) of short-term securities | (8,433,346) | | | |
Dividends and interest income received | | 11,781,661 | | | |
Interest and loan fees paid | | (1,315,671) | | | |
Expenses paid to BNY Mellon Investment
Adviser, Inc. and affiliates | | (1,872,043) | | | |
Operating expenses paid | | (495,758) | | | |
Net realized gain (loss) from forward foreign
currency | | | | | |
| exchange
contracts transactions | | 10,837,787 | | | |
Net Cash Provided (or Used) in Operating Activities | | | | 481,046 | |
Cash
Flows from Financing Activities ($): | | | | | |
Dividends paid to Common Shareholders | | (8,801,591) | | | |
Decrease in loan outstanding | | (4,000,000) | | | |
Net Cash Provided (or Used) in Financing Activities | | (12,801,591) | |
Effect of Foreign Exchange Rate Changes on Cash | |
(37,289) | |
Net Increase
(Decrease) in Cash | | (12,357,834) | |
Cash and cash denominated in foreign currency at beginning
of period | | 15,696,703 | |
Cash and Cash Denominated in Foreign Currency at End of Period | |
3,338,869 | |
Reconciliation
of Net Increase (Decrease) in Net Assets | | | |
| Resulting from Operations to Net Cash Provided | | | |
| by Operating Activities ($): | | | |
Net
(Decrease) in Net Assets Resulting From Operations | | (13,991,142) | |
Adjustments to Reconcile Net Increase (Decrease) in Net Assets | | | |
| Resulting from Operations to Net Cash | | | |
| Provided (or Used) in Operating Activities ($): | | | |
Decrease in investments in securities at cost | | (5,494,178) | |
Increase
in dividends and interest receivable | | (215,847) | |
Decrease in receivable for investment securities
sold | | 1,658,901 | |
Decrease in prepaid expenses | | 13,173
| |
Increase in Due to BNY Mellon Investment
Adviser, Inc. and affiliates | | 26,256 | |
Decrease in payable for investment securities purchased | | (8,174,895) | |
Increase
in interest and loan fees payable | | 3,360
| |
Decrease in unamortized debt issuance cost | | 150,000 | |
Increase
in Directors' fees and expenses payable | | 201
| |
Decrease in other accrued expenses | | (99,299) | |
Net
change in unrealized (appreciation) depreciation on investments | | 26,604,516 | |
Net Cash Provided (or
Used) in Operating Activities | |
481,046 | |
Supplemental Disclosure Cash Flow Information ($): | | | |
Non-cash financing activities: | | | |
Reinvestment of dividends | | 194,987 | |
| | | | | | |
See notes to financial statements. | | | | | |
34
STATEMENT
OF CHANGES IN NET ASSETS
| | | | | | | | | |
| | | | Year
Ended August 31, |
| | | | 2022 | | 2021 | |
Operations ($): | | | | | | | | |
Net investment income | | | 8,220,345 | | | | 9,415,721 | |
Net
realized gain (loss) on investments | | 4,393,029
| | | | 3,470,133 | |
Net
change in unrealized appreciation (depreciation) on investments | | (26,604,516) | | | | 8,139,621 | |
Net Increase
(Decrease) in Net Assets Resulting from Operations | (13,991,142) | | | | 21,025,475 | |
Distributions
($): | |
Distributions to shareholders | | |
(8,997,622) | | | |
(8,980,401) | |
Capital
Stock Transactions ($): | |
Distributions reinvested | | | 194,987 | | | | 156,681 | |
Increase
(Decrease) in Net Assets from Capital Stock Transactions | 194,987 | | | | 156,681 | |
Total Increase
(Decrease) in Net Assets | (22,793,777) | | | | 12,201,755 | |
Net Assets
($): | |
Beginning of Period | | | 140,945,622 | | | | 128,743,867 | |
End
of Period | | | 118,151,845 | | | | 140,945,622 | |
Capital
Share Transactions (Shares): | |
Shares issued for distributions
reinvested | | | 20,879 | | | | 16,715 | |
Net
Increase (Decrease) in Shares Outstanding |
20,879 | | | | 16,715 | |
| | | | | | | | | |
See notes to financial statements. | | | | | | | | |
35
FINANCIAL
HIGHLIGHTS
The
following table describes the performance for the fiscal periods indicated. Market price total return
is calculated assuming an initial investment made at the market price at the beginning of the period,
reinvestment of all dividends and distributions at market price during the period, and sale at the market
price on the last day of the period. These figures have been derived from the fund’s financial statements
and market price data for the fund’s shares.
| | | | | | | | |
| |
| Year Ended August 31, |
| | | | 2022 | 2021 | 2020 | 2019 | 2018a |
Per Share Data ($): | | | | | | | | |
Net
asset value, beginning of period | | | | 9.41 | 8.60 | 9.20 | 9.65 | 9.84b |
Investment
Operations: | | | | | | | | |
Net investment incomec | | | | .55 | .63 | .63 | .69 | .56 |
Net
realized and unrealized gain (loss) on investments | | | | (1.48) | .78 | (.60) | (.49) | (.24) |
Total
from Investment Operations | | | | (.93) | 1.41 | .03 | .20 | .32 |
Distributions: | | | | | | | | |
Dividends from net investment income | | | | (.60) | (.60) | (.63) | (.58) | (.49) |
Dividends from net realized gain
on investments | | | | - | - | - | (.07) | - |
Total
Distributions | | | | (.60) | (.60) | (.63) | (.65) | (.49) |
Offering
costs charged to paid-in capital | | | | - | - | - | - | (.02) |
Net asset value, end of period | | | | 7.88 | 9.41 | 8.60 | 9.20 | 9.65 |
Market value, end of period | | | | 7.48 | 9.58 | 8.12 | 9.29 | 9.17 |
Market Price Total Return
(%) | | | | (16.17) | 26.24 | (5.61) | 9.08 | (3.57)d |
Ratios/Supplemental
Data (%) | | | | | | | | |
Ratio of total expenses to
average net assets | | | | 2.87 | 2.42 | 2.69e | 3.00 | 2.73f |
Ratio
of net expenses to average net assets | | | | 2.87 | 2.42 | 2.69e | 2.99 | 2.73f |
Ratio
of interest expense and loan fees to average net assets | | | | 1.12 | .76 | 1.05e | 1.52 | 1.15f |
Ratio
of net investment income to average net assets | | | | 6.24 | 6.87 | 7.37e | 7.43 | 6.92f |
Portfolio Turnover
Rate | | | | 60.09 | 85.31 | 85.90 | 54.94 | 67.71d |
Net Assets, end of period ($ x 1,000) | | | | 118,152 | 140,946 | 128,744 | 137,587 | 144,411 |
Average
borrowings outstanding ($ x 1,000) | | | | 57,134 | 55,386 | 55,279 | 60,000 | 56,177 |
Weighted average number
of fund shares outstanding ($ x 1,000) | | | | 14,997 | 14,968 | 14,963 | 14,961 | 14,866 |
Average amount of debt per share ($) | | | | 3.81 | 3.70 | 3.69 | 4.01 | 3.78 |
a From October 27, 2017 (commencement of operations) to August
31, 2018.
b Reflects
a deduction of $.16 per share sales load from the initial offering price of $10.00 per share.
c Based
on average shares outstanding.
d Not annualized.
e The ratios have been corrected due to immaterial corrections
within the August 31, 2020 annual shareholder report which reflected a total expense ratio of 1.87%,
a net expense ratio of 1.87%, an interest expense and loan fees ratio of .73% and a net investment income
of 5.14%. The prior ratios were based on managed assets not average net assets.
f Annualized.
See
notes to financial statements.
36
NOTES
TO FINANCIAL STATEMENTS
NOTE
1—Significant Accounting Policies:
BNY Mellon Alcentra Global Credit Income 2024 Target Term
Fund, Inc. (the “fund”) is registered under the Investment Company Act of 1940, as amended
(the “Act”), as a diversified closed-end management investment company. The fund has a limited term
of approximately seven years. The fund’s investment objectives are to seek high current income and
to return at least $9.835 (the “Original NAV”) per share of Common Stock (the public offering price
per Common Stock after deducting a sales load of $0.165 per Common Stock but before deducting offering
costs of $0.02 per Common Stock) to holders of record of Common Shares on or about December 1, 2024 (subject
to certain extensions). The objective to return at least the fund’s Original NAV is not an express
or implied guarantee obligation of the fund, BNY Mellon Investment Adviser, Inc. Alcentra NY, LLC or
any other entity, and an investor may receive less than the Original NAV upon termination of the fund.
There is no assurance the fund will achieve either of its investment objectives.
BNY
Mellon Investment Adviser, Inc. (the “Adviser”), a wholly-owned subsidiary of The Bank of New York
Mellon Corporation (“BNY Mellon”), serves as the fund’s investment adviser. Alcentra NY, LLC (the
“Sub-Adviser”), a wholly-owned subsidiary of BNY Mellon and affiliate of the Adviser, serves as the
fund’s sub-adviser. See Note—5. The fund’s Common Stock trades on the New York Stock Exchange (the
“NYSE”) under the ticker symbol DCF.
The Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) is the exclusive reference of authoritative
U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal laws are also sources of authoritative GAAP for SEC registrants. The fund is an
investment company and applies the accounting and reporting guidance of the FASB ASC Topic 946 Financial
Services-Investment Companies. The fund’s financial statements are prepared in accordance with GAAP,
which may require the use of management estimates and assumptions. Actual results could differ from those
estimates.
The fund enters into contracts that contain a variety
of indemnifications. The fund’s maximum exposure under these arrangements is unknown. The fund does
not anticipate recognizing any loss related to these arrangements.
37
NOTES
TO FINANCIAL STATEMENTS (continued)
(a)
Portfolio valuation: The fair value of a financial instrument is the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes
the inputs of valuation techniques used to measure fair value. This hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3 measurements).
Additionally,
GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly
and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced
disclosures around valuation inputs and techniques used during annual and interim periods.
Various
inputs are used in determining the value of the fund’s investments relating to fair value measurements.
These inputs are summarized in the three broad levels listed below:
Level 1—unadjusted quoted
prices in active markets for identical investments.
Level 2—other significant
observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds,
credit risk, etc.).
Level 3—significant unobservable inputs (including
the fund’s own assumptions in determining the fair value of investments).
The
inputs or methodology used for valuing securities are not necessarily an indication of the risk associated
with investing in those securities.
Changes in valuation techniques may result
in transfers in or out of an assigned level within the disclosure hierarchy. Valuation techniques used
to value the fund’s investments are as follows:
On August 4, 2022 the fund’s Board of
Directors (the “Board”) approved, effective September 8, 2022, the Adviser, as the fund’s valuation
designee to make all fair value determinations with respect to the fund’s portfolio investments, subject
to the Board’s oversight and adopted all other updates pursuant to Rule 2A-5.
Investments
in debt securities and floating rate loan interests, excluding short-term investments (other than U.S.
Treasury Bills), and forward foreign currency exchange contracts (“forward contracts”) are valued
each business day by one or more independent pricing services (each, a “Service”) approved by the
Board. Investments for which quoted bid
38
prices are readily available and are representative of the bid side of the market
in the judgment of a Service are valued at the mean between the quoted bid prices (as obtained by a Service
from dealers in such securities) and asked prices (as calculated by a Service based upon its evaluation
of the market for such securities). Securities are valued as determined by a Service, based on methods
which include consideration of the following: yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market conditions. The Services
are engaged under the general supervision of the Board. These securities are generally categorized within
Level 2 of the fair value hierarchy.
Investments in equity securities are valued
at the last sales price on the securities exchange or national securities market on which such securities
are primarily traded. Securities listed on the National Market System for which market quotations are
available are valued at the official closing price or, if there is no official closing price that day,
at the last sales price. For open short positions, asked prices are used for valuation purposes. Bid
price is used when no asked price is available. Registered investment companies that are not traded on
an exchange are valued at their net asset value. All of the preceding securities are generally categorized
within Level 1 of the fair value hierarchy.
Securities not listed on an exchange or
the national securities market, or securities for which there were no transactions, are valued at the
average of the most recent bid and asked prices. These securities are generally categorized within Level
2 of the fair value hierarchy.
Fair valuing of securities may be determined with the assistance
of a Service using calculations based on indices of domestic securities and other appropriate indicators,
such as prices of relevant American Depository Receipts and futures. Utilizing these techniques may result
in transfers between Level 1 and Level 2 of the fair value hierarchy.
When
market quotations or official closing prices are not readily available, or are determined not to accurately
reflect fair value, such as when the value of a security has been significantly affected by events after
the close of the exchange or market on which the security is principally traded (for example, a foreign
exchange or market), but before the fund calculates its net asset value, the fund may value these investments
at fair value as determined in accordance with the procedures approved by the Board. Certain factors
may be considered when fair valuing investments such as: fundamental analytical data, the nature and
duration of restrictions on disposition, an evaluation of the forces that influence the market in which
the securities are purchased and sold, and public trading in similar
39
NOTES
TO FINANCIAL STATEMENTS (continued)
securities of the issuer or comparable issuers. These securities are either categorized
within Level 2 or 3 of the fair value hierarchy depending on the relevant inputs used.
For
securities where observable inputs are limited, assumptions about market activity and risk are used and
such securities are generally categorized within Level 3 of the fair value hierarchy.
Investments
denominated in foreign currencies are translated to U.S. dollars at the prevailing rates of exchange.
Forward contracts are valued at the forward rate and are generally categorized
within Level 2 of the fair value hierarchy.
The following is a summary of the inputs used as of August
31, 2022 in valuing the fund’s investments:
| | | | | | |
| Level 1-Unadjusted Quoted
Prices | Level
2- Other Significant Observable Inputs | | Level 3-Significant Unobservable
Inputs | Total | |
Assets ($) | | |
Investments
in Securities:† | | |
Collateralized Loan Obligations | - | 33,271,057 | | - | 33,271,057 | |
Corporate Bonds | - | 65,032,905 | | - | 65,032,905 | |
Equity Securities - Common Stocks | 76,166 | - | | - | 76,166 | |
Exchange-Traded Funds | 234,148 | - | | - | 234,148 | |
Floating Rate Loan Interests | - | 69,409,297 | | 5,579 | 69,414,876 | |
Investment Companies | 7,602,310 | - | | - | 7,602,310 | |
Other Financial Instruments: | | |
Forward Foreign Currency Exchange Contracts†† | - | 213,377 | | - | 213,377 | |
Liabilities
($) | | |
Other Financial Instruments: | | |
Forward Foreign Currency Exchange Contracts†† | - | (38,404) | | - | (38,404) | |
† See
Statement of Investments for additional detailed categorizations, if any.
†† Amount shown represents unrealized appreciation (depreciation)
at period end, but only variation margin on exchange-traded and centrally cleared derivatives, if any,
are reported in the Statement of Assets and Liabilities.
40
The following is a reconciliation of Level 3 assets for which significant unobservable
inputs were used to determine fair value:
| |
Floating
Rate Loan Interests & Equity Securities-Common Stocks
($) |
Balance
as of 8/31/2021†† | 2,638,121 |
Net realized gain (loss) | 998 |
Change in unrealized appreciation (depreciation) | (475,559) |
Purchases/Issuances | 816,850 |
Sales/Dispositions | (208,228) |
Transfers into Level 3 | - |
Transfers
out of Level 3† | (2,766,603) |
Balance
as of 8/31/2022†† | 5,579 |
The amount of total
net gains (loss) for the period included in earnings attributable to the change in unrealized appreciation
(depreciation) relating to investments still held at 8/31/2022 | (1,354) |
† The
transfer out of Level 3 for the current period was due to the resumption of trading of a security.
†† Securities
deemed as Level 3 due to the lack of significant observable inputs by management assessment.
(b)
Foreign currency transactions: The fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from the fluctuations arising
from changes in the market prices of securities held. Such fluctuations are included with the net realized
and unrealized gain or loss on investments.
Net realized foreign
exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized on
securities transactions between trade and settlement date, and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the fund’s books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than investments resulting from changes
in exchange rates. Foreign currency gains and losses on foreign currency transactions are also included
with net realized and unrealized gain or loss on investments.
Foreign taxes: The fund may be subject
to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, realized and unrealized
capital gains on investments or certain foreign currency transactions. Foreign taxes are recorded in
accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions
in which the fund invests. These foreign taxes, if any, are paid by the fund and are reflected in the
Statement of Operations, if applicable. Foreign taxes payable or deferred or those subject to reclaims
as of August 31, 2022, if any, are disclosed in the fund’s Statement of Assets and Liabilities.
41
NOTES
TO FINANCIAL STATEMENTS (continued)
(c)
Securities
transactions and investment income: Securities transactions are recorded on a trade date basis.
Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including, where applicable, accretion
of discount and amortization of premium on investments, is recognized on the accrual basis. Interest
income from investments in collateralized loan obligation (“CLO”) equity is recorded based upon an
effective yield to maturity utilizing assumed cash flows. The Adviser monitors the expected cash flows
from its CLO equity investments and effective yield is determined and adjusted as needed. Securities
purchased or sold on a when-issued or delayed delivery basis may be settled a month or more after the
trade date.
(d) Affiliated issuers: Investments in other investment companies
advised by the Adviser are considered “affiliated” under the Act.
(e) Risk:
An investment in the fund is subject to investment risk, including the possible loss of the entire amount
that you invest. Your investment in Common Shares represents an indirect investment in the credit instruments
and other investments and assets owned by the fund. The value of the fund’s portfolio investments may
move up or down, sometimes rapidly and unpredictably. The value of the instruments in which the fund
invests may be affected by political, regulatory, economic and social developments, and developments
that impact specific economic sectors, industries or segments of the market. In addition, turbulence
in financial markets and reduced liquidity in equity, credit and/or fixed income markets may negatively
affect many issuers, which could adversely affect the fund. Global economies and financial markets are
becoming increasingly interconnected, and conditions and events in one country, region or financial market
may adversely impact issuers in a different country, region or financial market. These risks may be magnified
if certain events or developments adversely interrupt the global supply chain; in these and other circumstances,
such risks might affect companies world-wide. Recent examples include pandemic risks related to COVID-19
and aggressive measures taken world-wide in response by governments, including closing borders, restricting
international and domestic travel and imposing prolonged quarantines of large populations, and by businesses,
including changes to operations and reducing staff. The effects of COVID-19 have contributed to increased
volatility in global markets and will likely affect certain countries, companies, industries and market
sectors more dramatically than others. The COVID-19 pandemic has had, and any other outbreak of an infectious
disease or other serious public health concern could have, a significant negative impact on economic
and market conditions and could trigger a prolonged period of global economic
42
slowdown. To the extent the fund has significant investments in certain countries,
regions, companies, industries or market sectors, such positions will increase the risk of loss from
adverse developments affecting those countries, regions, companies, industries or sectors.
The
fund invests primarily in credit instruments, which are subject to credit risk. Credit risk is the risk
that one or more credit instruments in the fund’s portfolio will decline in price or fail to pay interest
or principal when due because the issuer of the instrument experiences a decline in its financial status.
Losses may occur because the market value of a credit instrument is affected by the creditworthiness
or perceived creditworthiness of the issuer and by general economic and specific industry conditions
and the fund’s investments will often be subordinate to other debt in the issuer’s capital structure.
Because the fund generally expects to invest a significant portion of its Managed Assets (as defined
below) in below investment grade instruments, it will be exposed to a greater amount of credit risk than
a fund which invests in investment grade securities. The prices of below investment grade instruments
are more sensitive to negative developments, such as a decline in the issuer’s revenues or a general
economic downturn, than are the prices of investment grade instruments, which may reduce the fund's net
asset value.
The fund invests in floating rate loan interests. The floating rate loans in which
the fund invests typically are below investment grade quality, and inherently speculative.
In the event of the bankruptcy or insolvency of a borrower, the fund could experience delays or limitations
with respect to its ability to realize the benefits of the collateral securing the borrower’s loan.
The fund invests in CDOs, including CLOs. CDOs may be thinly traded or have a
limited trading market. CDOs, such as CLOs, are typically privately offered and sold, and thus are not
registered under the securities laws. As a result, investments in CLOs and other types of CDOs may be
characterized by the fund as illiquid securities, especially investments in mezzanine and subordinated/equity
tranches of CLOs; however, an active dealer market may exist for certain investments and more senior
CLO tranches, which would allow such securities to be considered liquid in some circumstances. In addition
to the general risks associated with credit instruments discussed herein, CLOs and other types of CDOs
carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the quality of the collateral
may decline in value or default; (iii) the possibility that the class of CLO or CDO held by the fund
is subordinate to other classes; and (iv) the complex structure of the
43
NOTES
TO FINANCIAL STATEMENTS (continued)
security may not be fully understood at the time of investment and may produce
disputes with the issuer or unexpected investment results.
(f) Dividends and distributions to Common
Shareholders: Dividends and distributions are recorded on the ex-dividend date. Dividends from
net investment income are normally declared and paid monthly. Dividends from net realized capital gains,
if any, are normally declared and paid annually, but the fund may make distributions on a more frequent
basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the
“Code”). To the extent that net realized capital gains can be offset by capital loss carryovers,
it is the policy of the fund not to distribute such gains. Income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from GAAP.
Common
Shareholders will have their distributions reinvested in additional shares of the fund, unless such Common
Shareholders elect to receive cash, at the lower of the market price or net asset value per share (but
not less than 95% of the market price). If market price is equal to or exceeds net asset value, shares
will be issued at net asset value. If net asset value exceeds market price, Computershare Inc., the transfer
agent, will buy fund shares in the open market and reinvest those shares accordingly.
On
August 25, 2022, the Board declared a cash dividend of $.050 per share from undistributed net investment
income, payable on September 23, 2022 to Common Shareholders of record as of the close of business on
September 9, 2022. The ex-dividend date was September 8, 2022.
(g) Federal income taxes: It is the policy of
the fund to continue to qualify as a regulated investment company, if such qualification is in the best
interests of its shareholders, by complying with the applicable provisions of the Code, and to make distributions
of taxable income and net realized capital gain sufficient to relieve it from substantially all federal
income and excise taxes.
As of and during the period ended August
31, 2022, the fund did not have any liabilities for any uncertain tax positions. The fund recognizes
interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement
of Operations. During the period ended August 31, 2022, the fund did not incur any interest or penalties.
Each tax year in the four-year period ended August 31, 2022 remains subject to
examination by the Internal Revenue Service and state taxing authorities.
44
At August 31, 2022, the components of accumulated earnings on a tax basis were
as follows: ordinary income $2,160,093, accumulated capital losses $4,992,843 and unrealized depreciation
$25,244,165.
The fund is permitted to carry forward capital losses for
an unlimited period. Furthermore, capital loss carryovers retain their character as either short-term
or long-term capital losses.
The accumulated capital loss carryover is available for federal income tax purposes
to be applied against future net realized capital gains, if any, realized
subsequent to August 31, 2022. The fund has $190,828 of short-term capital losses and $4,802,015 of long-term
capital losses which can be carried forward for an unlimited period.
The
tax character of distributions paid to shareholders during the fiscal year ended August 31, 2022 and
August 31, 2021 was as follows: ordinary income $8,997,622 and $8,980,401.
During
the period ended August 31, 2022, as a result of permanent book to tax differences, primarily due to
excise tax paid, the fund increased total distributable earnings (loss) by $93,635 and decreased paid-in
capital by the same amount. Net assets and net asset value per share were not affected by this reclassification.
(h)
New accounting pronouncements: In March 2020, the FASB issued Accounting Standards Update
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (“ASU 2020-04”), and in January 2021, the FASB issued Accounting Standards Update 2021-01,
Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which provides optional, temporary relief
with respect to the financial reporting of contracts subject to certain types of modifications due to
the planned discontinuation of the LIBOR and other interbank offered rates as of the end of 2021. The
temporary relief provided by ASU 2020-04 and ASU 2021-01 is effective for certain reference rate-related
contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management
is evaluating the impact of ASU 2020-04 and ASU 2021-01 on the fund’s investments,
derivatives, debt and other contracts that will undergo reference rate-related modifications as a result
of the reference rate reform. Management is also currently actively working with other financial institutions
and counterparties to modify contracts as required by applicable regulation and within the regulatory
deadlines.
45
NOTES
TO FINANCIAL STATEMENTS (continued)
NOTE
2—Borrowings:
The fund has a $68,000,000 Revolving Credit Facility Credit
Agreement with Societe Generale (the “Agreement”), which terminates on November 18, 2022 (or the
prior business day, as necessary). Under the terms of the Agreement, the fund may borrow “Loans”
on collateralized basis. The interest to be paid by the fund on such Loans is determined with reference
to the principal amount of each Loan outstanding from time to time. The fund also pays additional fees
pursuant to the Agreement.
During the period ended August 31, 2022, total fees pursuant
to the Agreement amounted to $1,469,031 inclusive of $1,284,531 of interest expense and $184,500 of loan
fees. These fees are included in Interest expense and loan fees in the Statement of Operations.
The average amount of borrowings outstanding under the Agreement during the period
ended August 31, 2022 was $57,134,247, with a related weighted average annualized interest rate of 2.25%.
The fund’s borrowings under the Agreement are secured by its portfolio holdings.
NOTE 3—Management Fee,
Sub-Investment Advisory Fee and Other Transactions with Affiliates:
(a) Pursuant to a Management
Agreement with the Adviser, the management fee is computed at the annual rate of .85% of the value of
the fund’s “Managed Assets” and is payable monthly. “Managed Assets” of the fund means the
total assets of the fund, including any assets attributable to leverage (i.e., any loans from certain
financial institutions and/or the issuance of debt securities (collectively, “Borrowings”), preferred
stock or other similar preference securities (“Preferred Shares”), or the use of derivative instruments
that have the economic effect of leverage), minus the fund’s accrued liabilities, other than any liabilities
or obligations attributable to leverage obtained through (i) indebtedness of any type (including, without
limitation, Borrowings), (ii) the issuance of Preferred Shares, and/or (iii) any other means, all as
determined in accordance with generally accepted accounting principles.
Pursuant
to a sub-investment advisory agreement between the Adviser and the Sub-Adviser, the Adviser pays the
Sub-Adviser a fee at the annual rate of .425% of the value of the fund’s average daily Managed Assets
and is payable monthly.
(b) The fund has an arrangement with The Bank of New York Mellon
(the “Custodian”), a subsidiary of BNY Mellon and an affiliate of the Adviser, whereby the fund will
receive interest income or be charged overdraft fees when cash balances are maintained. For financial
reporting purposes, the
46
fund includes this interest income and overdraft fees, if any, as interest income
in the Statement of Operations.
The fund compensates the Custodian under a custody agreement,
for providing custodial services for the fund. These fees are determined based on net assets and transaction
activity. During the period ended August 31, 2022, the fund was charged
$283,243 pursuant to the custody agreement.
During the period ended
August 31, 2022, the fund was charged $10,301 for services performed by the Chief Compliance Officer
and his staff. These fees are included in Chief Compliance Officer fees in the Statement of Operations.
The components of “Due to BNY Mellon Investment Adviser, Inc. and affiliates”
in the Statement of Assets and Liabilities consist of: management fee of $125,800, Custodian fees of
$110,000 and Chief Compliance Officer fees of $1,523.
(c) Each Board member also
serves as a Board member of other funds in the BNY Mellon Family of Funds complex. Annual retainer fees
and attendance fees are allocated to each fund based on net assets.
NOTE 4—Securities Transactions:
The aggregate amount of purchases and sales (including paydowns) of investment
securities, excluding short-term securities and forward contracts, during the period ended August 31,
2022, amounted to $114,475,597 and $110,667,107, respectively.
Floating Rate Loan Interests:
Floating rate instruments are loans and other securities with interest rates that adjust or “float”
periodically. Floating rate loans are made by banks and other financial institutions to their corporate
clients. The rates of interest on the loans adjust periodically by reference to a base lending rate,
plus a premium or credit spread. Floating rate loans reset on periodic set dates, typically 30 to 90
days, but not to exceed one year. The fund may invest in multiple series or tranches of a loan. A different
series or tranche may have varying terms and carry different associated risks.
The
fund may enter into certain credit agreements all or a portion of which may be unfunded. The fund is
obligated to fund these commitments at the borrower’s discretion. The commitments are disclosed in
the accompanying Statement of Investments. At August 31, 2022, the fund had sufficient cash and/or securities
to cover these commitments.
Derivatives: A derivative is a financial instrument whose performance
is derived from the performance of another asset. The fund enters into
47
NOTES
TO FINANCIAL STATEMENTS (continued)
International Swaps and Derivatives Association, Inc. Master Agreements or similar
agreements (collectively, “Master Agreements”) with its over-the-counter (“OTC”) derivative contract
counterparties in order to, among other things, reduce its credit risk to counterparties. Master Agreements
include provisions for general obligations, representations, collateral and events of default or termination.
Under a Master Agreement, the fund may offset with the counterparty certain derivative financial instruments’
payables and/or receivables with collateral held and/or posted and create one single net payment in the
event of default or termination.
Each type of derivative instrument that
was held by the fund during the period ended August 31, 2022 is discussed below.
Forward Foreign Currency
Exchange Contracts: The fund enters into forward contracts in order to hedge its exposure to changes
in foreign currency exchange rates on its foreign portfolio holdings, to settle foreign currency transactions
or as a part of its investment strategy. When executing forward contracts, the fund is obligated to buy
or sell a foreign currency at a specified rate on a certain date in the future. With respect to sales
of forward contracts, the fund incurs a loss if the value of the contract increases between the date
the forward contract is opened and the date the forward contract is closed. The fund realizes a gain
if the value of the contract decreases between those dates. With respect to purchases of forward contracts,
the fund incurs a loss if the value of the contract decreases between the date the forward contract is
opened and the date the forward contract is closed. The fund realizes a gain if the value of the contract
increases between those dates. Any realized or unrealized gains or losses which occurred during the period
are reflected in the Statement of Operations. The fund is exposed to foreign currency risk as a result
of changes in value of underlying financial instruments. The fund is also exposed to credit risk associated
with counterparty non-performance on these forward contracts, which is generally limited to the unrealized
gain on each open contract. This risk may be mitigated by Master Agreements, if any, between the fund
and the counterparty and the posting of collateral, if any, by the counterparty to the fund to cover
the fund’s exposure to the counterparty. Forward Contracts open at August 31, 2022 are set forth in
the Statement of Investments.
The provisions of ASC Topic 210 “Disclosures
about Offsetting Assets and Liabilities” require disclosure on the offsetting of financial assets and
liabilities. These disclosures are required for certain investments, including derivative financial instruments
subject to Master Agreements which are eligible for offsetting in the Statement of Assets and Liabilities
and require the fund to disclose both gross and net information with respect to such
48
investments. For financial reporting purposes, the fund does not offset derivative
assets and derivative liabilities that are subject to Master Agreements in the Statement of Assets and
Liabilities.
At August 31, 2022, derivative assets and liabilities (by
type) on a gross basis are as follows:
| | | | | |
Derivative
Financial Instruments: | | Assets
($) | | Liabilities ($) | |
Forward contracts | | 213,377 | | (38,404) | |
Total
gross amount of derivative | | | | | |
assets and liabilities in the | | | | | |
Statement of Assets and Liabilities | | 213,377 | | (38,404) | |
Derivatives not subject to | | | | | |
Master Agreements | | - | | - | |
Total
gross amount of assets | | | | | |
and liabilities subject to | | | | | |
Master Agreements | | 213,377 | | (38,404) | |
The following tables present derivative assets and liabilities net of amounts
available for offsetting under Master Agreements and net of related collateral received or pledged, if
any, as of August 31, 2022:
| | | | | | |
| | | Financial | | | |
| | | Instruments | | | |
| | | and Derivatives | | | |
| Gross
Amount of | | Available | Collateral | | Net Amount of |
Counterparty | Assets
($) | 1 | for
Offset ($) | Received ($) | 2 | Assets
($) |
Citigroup |
213,377 | |
(7,302) | (206,075) | | - |
| | | | | | |
| | | Financial | | | |
| | | Instruments | | | |
| | | and Derivatives | | | |
| Gross
Amount of | | Available | Collateral | | Net Amount of |
Counterparty | Liabilities
($) | 1 | for
Offset ($) | Pledged ($) | 2 | Liabilities
($) |
Barclays Capital | (31,102) | | - | -
| |
(31,102) |
Citigroup |
(7,302) | |
7,302 | - | | - |
Total | (38,404) | |
7,302 | - | | (31,102) |
| | | | | | |
1
Absent a default event or early termination, OTC derivative assets and liabilities are presented at
gross amounts and are not offset in
the Statement of Assets and Liabilities. |
2
In some instances, the actual collateral received and/or pledged may be more than the amount shown due
to over collateralization. |
The
following summarizes the average market value of derivatives outstanding during the
period ended August 31, 2022:
| | |
| | Average Market Value ($) |
Forward
contracts | |
59,321,328 |
49
NOTES
TO FINANCIAL STATEMENTS (continued)
At
August 31, 2022, the cost of investments for federal income
tax purposes was $201,088,394; accordingly, accumulated net unrealized depreciation on investments was
$25,456,932, consisting of $203,253 gross unrealized appreciation and $25,660,185 gross unrealized depreciation.
NOTE
5—Change in Control of Sub-Adviser:
The Sub-Adviser serves as the sub-adviser
to the fund pursuant to a sub-investment advisory agreement (the “Current Sub-Advisory Agreement”)
between the Adviser and the Sub-Adviser. The Sub-Adviser is currently an indirect subsidiary of BNY Mellon,
the parent company of the Adviser.
On May 30, 2022, BNY Mellon entered into
a definitive agreement to sell all of its indirect equity interest in Alcentra Group Holdings, Inc.,
including its subsidiary the Sub-Adviser (the “Transaction”), to Franklin Resources, Inc., a global
investment management organization operating as Franklin Templeton (“Franklin Templeton”). Franklin
Templeton, through its specialist investment managers, offers boutique specialization on a global scale,
bringing extensive capabilities in fixed income, equity, alternatives, and multi-asset solutions. The
Transaction is expected to be completed on or about November 1, 2022 (the “Closing Date”), subject
to customary closing conditions, including regulatory approvals.
As a result of the
Transaction, there will be a “change in control” of the Sub-Adviser, which will effect an assignment
and automatic termination of the Current Sub-Advisory Agreement, pursuant to its terms and the applicable
provisions of the Act, as of the Closing Date. Consequently, the Board has approved a new sub-investment
advisory agreement (the “New Sub-Advisory Agreement”) between the Adviser and the Sub-Adviser, with
respect to the fund, and called a Special Meeting of Stockholders to be held on October 13, 2022 to seek
stockholder approval of the New Sub-Advisory Agreement.
At the Special Meeting
of Stockholders held on October 13, 2022, stockholders of the fund approved the New Sub-Advisory Agreement.
For the results of the stockholder voting, see “Proxy Results (unaudited)”.
There
will be no increase in the advisory fee payable by the fund to the Adviser as a consequence of the Transaction
and the sub-advisory fee payable by the Adviser to the Sub-Adviser under the New Sub-Advisory Agreement
will be the same as that payable by the Adviser to the Sub-Adviser under the Current Sub-Advisory Agreement.
The New Sub-Advisory Agreement is substantially similar in material respects to the Current Sub-Advisory
Agreement and the fund’s investment strategy and management policies currently are not expected to
change in connection with the implementation of the New Sub-Advisory Agreement.
50
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders of the Fund and Board of Directors of
BNY Mellon Alcentra Global Credit Income
2024 Target Term Fund, Inc.
Opinion on the Financial Statements
We
have audited the accompanying statement of assets and liabilities of BNY Mellon Alcentra
Global Credit Income 2024 Target Term Fund, Inc. (the “Fund”) including the statement
of investments as of August 31, 2022, the related statements of operations and cash flows for the
year then ended, the statements of changes in net assets for each of the years in the two-year period
then ended, and the related notes (collectively, the financial statements) and the financial highlights
for each of the years in the four-year period then ended and for the period from October 27, 2017 (commencement
of operations) to August 31, 2018. In our opinion, the financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund as of August 31, 2022,
the results of its operations and its cash flows for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial highlights for each of the
years in the four-year period then ended and for the period from October 27, 2017 (commencement of operations)
to August 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These financial statements and financial highlights are the responsibility of
the Fund’s management. Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements and financial highlights.
Such procedures also included confirmation of securities owned as of August 31, 2022,
by correspondence with custodian, agent banks and brokers or by other appropriate auditing procedures
when replies from agent banks and brokers were not received. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and financial highlights. We believe that our audits provide
a reasonable basis for our opinion.
We
have served as the auditor of one or more BNY Mellon Investment Adviser, Inc. investment companies since
1994.
New
York, New York
October 24, 2022
51
ADDITIONAL
INFORMATION (Unaudited)
Dividend
Reinvestment Plan
The fund has a dividend reinvestment plan (the “Plan”)
commonly referred to as an “opt-out” plan. Each holder of Common Shares who participates in the Plan
will have all distributions of dividends and capital gains (“Dividends”) automatically reinvested
in additional Common Shares by Computershare Trust Company, N.A. as agent (the “Plan Agent”). Shareholders
who elect not to participate in the plan will receive all Dividends in cash paid by check mailed directly
to the shareholder of record (or if the Common Shares are held in street or other nominee name, then
to the nominee) by the Plan Agent, as dividend disbursing agent. Shareholders whose Common Shares are
held in the name of a broker or nominee should contact the broker or nominee to determine whether and
how they may participate in the Plan.
The Plan Agent serves as agent for the
fund’s shareholders in administering the Plan. After the fund declares a Dividend, the Plan Agent will,
as agent for the shareholders, either (i) receive the cash payment and use it to buy Common Shares in
the open market, on the NYSE or elsewhere, for the participants’ accounts or (ii) distribute newly
issued Common Shares of the fund on behalf of the participants.
A. The Plan Agent will receive cash from the fund with which
to buy Common Shares in the open market if, on the Dividend payment date, the fund’s net asset value
per Common Share exceeds the market price per Common Share plus estimated brokerage commissions on that
date. The Plan Agent will receive the Dividend in newly issued Common Shares of the fund if, on the Dividend
payment date, the market price per Common Share plus estimated brokerage commissions equals or exceeds
the net asset value per Common Share of the fund on that date. The number of Common Shares to be issued
will be computed at a per share rate equal to the greater of (i) the net asset value or (ii) 95% of the
closing market price per Common Share on the Dividend payment date.
B. If the market price per Common Share is less than the net
asset value per Common Share on a Dividend payment date, the Plan Agent will have until the last business
day before the next ex-Dividend date for the Common Shares, but in no event more than 30 days after the
Dividend payment date (as the case may be, the “Purchase Period”), to invest the Dividend amount
in Common Shares acquired in open market purchases. If, at the close of business on any day during the
Purchase Period on which the fund’s net asset value is calculated, the fund’s net asset value on
the Dividend payment date equals or is less than the market price per Common Share plus estimated brokerage
commissions, the Plan Agent will cease making open market purchases and the uninvested portion of such
Dividends shall be filled through the issuance by the fund of new Common Shares at the price set forth
in paragraph A above.
Participants in the Plan may withdraw from the Plan upon notice
to the Plan Agent. Such withdrawal will be effective immediately if received not less than ten days prior
to a Dividend record date; otherwise, it will be effective for all subsequent Dividends. When a participant
withdraws from the Plan or the Plan is terminated, such participant
52
will receive whole Common Shares in his or her account under the Plan and will
receive a cash payment for any fraction of a Common Share credited to such account. If any participant
elects to have the Plan Agent sell all or part of his or her Common Shares and remit the proceeds, the
Plan Agent is authorized to deduct a $2.50 fee plus $0.10 per share brokerage commissions.
The
Plan Agent’s fees for the handling of reinvestment of Dividends will be paid by the fund. However,
each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan
Agent’s open market purchases in connection with the reinvestment of Dividends. The automatic reinvestment
of Dividends will not relieve participants of any income tax that may be payable or required to be withheld
on such Dividends.
The fund reserves the right to amend or terminate the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at 1-800-522-6645.
Investment
Objectives and Principal Investment Strategies
Investment Objectives. The fund’s investment
objectives are to seek high current income and to return at least $9.835 per Common Share (the public
offering price per Common Share (as defined below) after deducting a sales load of $0.165 per Common
Share but before deducting offering costs of $0.02 per Common Share (“Original NAV”)) to holders
of record of shares of the Fund’s common stock (“Common Shares”) on or about the December 1, 2024
(subject to certain extensions, the “Termination Date”). The objective to return at least the fund’s
Original NAV is not an express or implied guarantee obligation of the fund, the Adviser, the Sub-Adviser
or any other entity, and an investor may receive less than the Original NAV upon termination of the fund.
The fund will attempt to strike a balance between its investment objectives, seeking
to provide as high a level of current income as is consistent with the fund’s Credit Strategies (as
defined herein), the declining average maturity of its portfolio and its objective of returning at least
the Original NAV on or about the Termination Date. However, as the fund approaches the Termination Date,
its monthly distributions are likely to decline, and there can be no assurance that the fund will achieve
either of its investment objectives or that the fund’s investment strategies will be successful.
There is no assurance the fund will achieve either of its investment objectives.
The fund’s investment objectives are fundamental and may not be changed without prior approval of the
fund’s shareholders.
Principal Investment Strategies. Under normal market conditions, the fund
invests at least 80% of its Managed Assets in credit instruments and other investments with similar economic
characteristics. Such credit instruments include: first lien secured floating rate loans, as well as
investments in participations and assignments of such loans; second lien, senior unsecured, mezzanine
and other collateralized and uncollateralized subordinated loans; corporate debt obligations other than
loans; and structured products, including collateralized bond, loan and other debt obligations,
53
ADDITIONAL
INFORMATION (Unaudited) (continued)
structured notes and credit-linked notes. To the extent that the fund invests
in derivative instruments with economic characteristics similar to those credit instruments, the value
of such investments will be included for purposes of the fund’s 80% investment policy.
The
fund may invest in credit instruments of any credit quality, including credit instruments that, at the
time of investment, are rated below investment grade (i.e., below BBB- or Baa3) by one or more of the
nationally recognized statistical rating organizations (“NRSROs”) that rate such instruments, or,
if unrated, determined to be of comparable quality by the Sub-Adviser. Instruments of below investment
grade quality, commonly referred to as “junk” or “high yield” instruments, are regarded as having
predominantly speculative characteristics with respect to an obligor’s capacity to pay interest and
repay principal and are more susceptible to default or decline in market value due to adverse economic
and business developments than higher quality instruments. The fund may invest in credit instruments
that, at the time of investment, are distressed or defaulted, or illiquid, unregistered (but are eligible
for purchase and sale by certain qualified institutional buyers) or subject to contractual restrictions
on their resale. The fund also may invest in investment grade credit instruments.
The
fund may invest in credit instruments of any maturity or duration. “Expected maturity” means the
time of expected return of the majority of the instrument’s principal and/or the time when a reasonable
investor would expect to have the majority of the principal returned. The expected maturity of some credit
instruments may be the same as the stated maturity. Certain credit instruments may have mandatory call
features, prepayment features or features obligating the issuer or another party to repurchase or redeem
the instrument at dates that are earlier than the instruments’ respective stated maturity dates. For
these credit instruments, expected maturity is likely to be earlier than the stated maturity.
The
fund focuses its investments in credit instruments of U.S. and European companies, although as a global
fund, the fund may invest in companies located anywhere in the world. Under normal circumstances, the
fund invests in at least three countries, which may include the United States. The fund’s investments
in European companies are generally anticipated to be in companies in Northern and Western European countries,
including the United Kingdom, Ireland, France, Germany, Austria and Switzerland, as well as the Benelux
countries (Belgium, the Netherlands and Luxembourg) and the Scandinavian countries (Sweden, Denmark,
Norway and Finland). Other European countries in which the fund may seek to invest include, but are not
limited, to Spain, Italy, Greece and Portugal. The fund also may invest in other developed countries,
including Canada. The fund will not invest more than 25% of its Managed Assets in securities of issuers
located in any single country outside the United States. Moreover, the fund will not invest more than
25% of its Managed Assets in companies located in emerging market countries. The fund expects that, under
current market conditions, it will seek to hedge substantially all of its exposure to foreign currencies
against the value of the U.S. dollar (i.e., up to 100% of its Managed Assets in the event the fund holds
no U.S. dollar-denominated investments).
54
The fund generally does not intend to invest, at the time of purchase, more than
5% of its Managed Assets in any one issuer (except securities issued by the U.S. Government and its agencies
and instrumentalities). In addition, the fund will not invest more than 25% of its Managed Assets in
issuers in any one particular industry.
The fund may use, to a limited extent,
derivative instruments as a substitute for investing directly in an underlying asset, to increase returns,
to manage credit or interest rate risk, to manage foreign currency risk, or as part of a hedging strategy.
Although the fund is not limited in the types of derivatives it can use, the fund currently expects that
its use of derivatives will consist principally of credit default swaps and foreign currency forward
and futures contracts. The fund will not invest more than 10% of its net assets in derivatives, except
that such limitation will not apply to derivatives used as part of a hedging strategy. The fund’s use
of derivatives will be limited by the Act.
The fund may employ leverage to enhance
its potential for achieving its investment objectives. The fund currently intends to utilized leverage
in an amount equal to 30% of the fund’s total assets, but may borrow up to the limits imposed by the
Act (i.e., for every dollar of indebtedness from Borrowings, the fund is required to have at least three
dollars of total assets, including the proceeds from Borrowings) principally through Borrowings from
certain financial institutions.
In seeking to return at least the Original
NAV on or about the Termination Date, the fund utilizes various portfolio and cash flow management techniques,
including setting aside a portion of its net investment income, possibly retaining capital gains. The
average maturity of the fund’s holdings is generally expected to shorten as the fund approaches its
Termination Date, which may reduce interest rate risk over time but which may also reduce returns and
net income amounts available for distribution to holders of the fund’s Common Shares (“Common Shareholders”).
During any wind-down period, the fund’s portfolio composition will depend on then-current market conditions
and the availability of the types of securities in which the fund may invest. Accordingly, the fund’s
portfolio composition during that period cannot currently be estimated, nor can the fund precisely predict
how its portfolio composition may change as the fund’s Termination Date approaches. There can be no
assurance that the fund’s strategies will be successful.
Credit Strategies
The Sub-Adviser constructs the fund’s investment portfolio by allocating the
fund’s assets to credit instruments and related investments in the following credit strategies: (i)
Senior Secured Loans and Other Loans; (ii) Corporate Debt; (iii) Special Situations; and (iv) Structured
Credit (collectively, the “Credit Strategies”). The Sub-Adviser has considerable latitude in allocating
the fund’s Managed Assets and the composition of the fund’s investment portfolio will vary over time,
based on the allocation to the Credit Strategies and the fund’s exposure to different types of credit
instruments. Under normal market conditions, the Sub-Adviser generally allocates the fund’s Managed
Assets as follows:
● at
least 25% in the Senior Secured Loans and Other Loans Strategy;
55
ADDITIONAL
INFORMATION (Unaudited) (continued)
● at least 25% in the
Corporate Debt Strategy;
● no
more than 15% in the Special Situations Strategy; and
● no more than 30% in both the Special Situations Strategy and
the Structured Credit Strategy.
Allocations among the Credit Strategies
will vary over time, perhaps significantly, and the fund may not be invested in all of the Credit Strategies
at all times and may maintain zero exposure to a particular Credit Strategy or type of credit instrument.
The fund’s primary portfolio managers make all determinations regarding allocations
and reallocations of the fund’s Managed Assets to each Credit Strategy. The fund’s primary portfolio
managers set target allocations for each Credit Strategy, which may be modified at any time. The percentage
allocations among Credit Strategies may, from time to time, be out of balance with the target allocations
set by the fund’s primary portfolio managers due to various factors, such as varying investment performance
among Credit Strategies, illiquidity of certain portfolio investments or a change in the target allocations.
At least quarterly, the fund’s primary portfolio managers review the percentage allocations to each
Credit Strategy and rebalance the fund’s portfolio and/or modify the target allocations as they deem
necessary or appropriate in light of economic and market conditions, available investment opportunities
and the relative returns and risks then represented by each type of security.
Senior Secured Loans
and Other Loans Strategy. The Senior Secured Loans and Other Loans Strategy seeks to generate high current
income by investing in the secured debt of borrowers in the higher credit quality categories of the below
investment grade corporate debt market. As part of this strategy, the fund may invest in first lien secured
floating rate loans (“Senior Secured Loans”), which typically are syndicated. Senior Secured Loans
are loans secured by specific collateral of the borrower and are senior to most other securities of the
borrower (e.g., common stock or debt instruments) in the event of bankruptcy. The fund also may purchase
participations and assignments in, and commitments to purchase, Senior Secured Loans. Investments in
Senior Secured Loans may provide more favorable exposure to the below investment grade corporate debt
market due to their senior position in an issuer’s capital structure, which promotes lower price volatility
and higher recoveries in the event of default. Senior Secured Loans also may provide additional protection
through financial covenants and access to private management accounting information from the borrower.
There also is a more established market for syndicated Senior Secured Loans, which, under normal market
conditions, may facilitate a more liquid trading environment.
As part of this Credit
Strategy, the fund also may invest in second lien, senior unsecured, mezzanine and other collateralized
and uncollateralized subordinated loans (“Subordinated Loans”). Subordinated Loans sit below the
senior secured debt in a company’s capital structure, but have priority over the company’s bonds
and equity securities. The fund, from time to time, also may seek to participate in the upside gain of
a business through the exercise of warrants or other equity securities acquired in connection with its
investment in a Subordinated Loan.
56
Corporate
Debt Strategy. The Corporate Debt Strategy seeks to generate high current income by capturing
the higher yields offered by below investment grade corporate credit instruments while managing the fund’s
exposure to interest rate movements. As part of this strategy, the fund may invest in corporate debt
obligations including corporate bonds, debentures, notes, commercial paper and other similar instruments,
such as certain convertible securities (“Corporate Debt”). The Sub-Adviser expects that most of the
Corporate Debt the fund invests in will be rated below investment grade. The fixed rate Corporate Debt
in which the fund invests typically will be unsecured, while the floating rate Corporate Debt in which
the fund invests typically will be secured.
Special Situations Strategy.
The Special Situations Strategy seeks to generate attractive total return driven by income and capital
appreciation by investing in specialized credit opportunities in the below investment grade debt markets,
on both a long-term and short-term basis. As part of this strategy, the fund may invest in loans and
other credit instruments related to companies engaged in extraordinary transactions, such as mergers
and acquisitions, litigation, rights offerings, liquidations outside of bankruptcy, covenant defaults,
refinancings, recapitalizations and other special situations (collectively, “Special Situations Investments”).
The Sub-Adviser intends to focus the fund’s Special Situations Investments in companies that have experienced,
or are currently experiencing, financial difficulties as a result of deteriorating operations, changes
in macro-economic conditions, changes in governmental monetary or fiscal policies, adverse legal judgments,
or other events which may adversely impact their credit standing. The Sub-Adviser seeks opportunistic
investment opportunities where it believes that the return potential exceeds the downside risk. Consequently,
the fund’s Special Situations Investments will focus on loans and other secured credit instruments
over equity securities, as those credit instruments provide a claim on an issuer’s assets. As part
of this strategy, however, the fund may acquire equity securities incidental to the purchase or ownership
of Special Situations Investments.
Structured Credit Strategy. The Structured Credit
Strategy seeks to generate income with the potential for capital appreciation by investing predominately
in the mezzanine (i.e., rated below the senior tranches but above the most junior tranches) tranches
and most junior tranches of CLOs backed by Senior Secured Loans. When analyzing the value and suitability
of CLO tranches, the Sub-Adviser assesses collateral composition, subordination levels and cash flow
levels. The underlying portfolio is reviewed by the Sub-Adviser, which looks at, among other things:
downgrade and default risk for individual credits; recovery rate expectations and the amount of second
lien and mezzanine exposure in the portfolio; and the pricing on the underlying portfolio.
In addition to investing in CLOs and other collateralized debt obligations (“CDOs”)
backed by Senior Secured Loans, the fund also may invest in structured notes and credit-linked notes
that provide exposure to Senior Secured Loans, as well as investments in asset-backed securities, including
mortgage-backed securities. These instruments collectively are referred to as “Structured Credit Investments.”
The Sub-Adviser believes attractive returns in Structured Credit Investments can be achieved
57
ADDITIONAL
INFORMATION (Unaudited) (continued)
through a combination of current income and price appreciation due to the discounted
valuations of many of these investments.
Non-Principal Investment Strategies. Although not a principal
investment strategy, the fund may invest up to 20% of its Managed Assets in other securities and instruments
including, without limitation: (i) equity securities of issuers that are related to the fund’s investments
in credit instruments, such as common stock, preferred stock and convertible securities (including warrants
or other rights to acquire common or preferred stock); (ii) U.S. and foreign government securities; and
(iii) short-term fixed income securities and money market instruments.
During
temporary defensive periods or in order to keep the fund’s cash fully invested, including during the
wind-down period of the fund, the fund may deviate from its investment objectives and policies. During
such periods, the fund may invest up to 100% of its assets in money market instruments, including U.S.
Government securities, repurchase agreements, bank obligations and commercial paper, as well as cash,
cash equivalents or high quality short-term fixed income and other securities. Accordingly, during such
periods, the fund may not achieve its investment objectives.
Principal Risk Factors
An
investment in the fund involves special risk considerations, which are described below. The fund is a
diversified, closed-end management investment company designed as a long-term investment and not as a
vehicle for short-term trading purposes. An investment in the fund’s Common Shares may be speculative
and it involves a high degree of risk. The fund should not constitute a complete investment program.
Due to the uncertainty in all investments, there can be no assurance that the fund will achieve its investment
objectives. Different risks may be more significant at different times depending on market conditions.
Your Common Shares at any point in time may be worth less than your original investment, even after taking
into account the reinvestment of fund dividends and distributions.
General Risks
of Investing in the Fund
Risk of Market Price Discount From Net Asset Value. Shares of closed-end
funds frequently trade at a market price that is below their net asset value. This is commonly referred
to as “trading at a discount.” This characteristic of shares of closed-end funds is a risk separate
and distinct from the risk that the fund’s net asset value may decrease.
Whether
Common Shareholders will realize a gain or loss upon the sale of the Common Shares will depend upon whether
the market value of those Common Shares at the time of sale is above or below the price the Common Shareholder
paid, taking into account transaction costs, for the Common Shares and is not directly dependent upon
the fund’s net asset value. Because the market value of the Common Shares will be determined by factors
such as the relative demand for and supply of the Common Shares in the market, general market conditions
and other factors beyond the control of the fund, the fund cannot predict whether its Common Shares will
trade at, below or above net asset value, or below or above the initial offering price for such Common
Shares.
58
Management
and Allocation Risk. The fund’s primary portfolio managers make all determinations regarding allocations
and reallocations of the fund’s Managed Assets to each Credit Strategy. The percentage allocations
among Credit Strategies may, from time to time, be out of balance with the target allocations set by
the fund’s primary portfolio managers due to various factors, such as varying investment performance
among Credit Strategies, illiquidity of certain portfolio investments or a change in the target allocations.
Any rebalancing of the fund’s portfolio, whether pursuant to a fixed percentage allocation or otherwise,
may have an adverse effect on the performance of the fund and may be subject to certain additional limits
and constraints. There can be no assurance that the decisions of the fund’s primary portfolio managers
with respect to the allocation and reallocation of the fund’s Managed Assets among the Credit Strategies,
or that an investment within a particular Credit Strategy, will be successful.
Seven-Year Term Risk.
It is anticipated that the fund will terminate on or about December 1, 2024, subject to certain extensions
described herein. As the assets of the fund will be liquidated in connection with its termination, the
fund may be required to sell portfolio securities when it otherwise would not, including at times when
market conditions are not favorable, which may cause the fund to lose money. During any wind-down period,
the fund may deviate from its 80% investment policy and its Credit Strategy allocations and may not achieve
its investment objectives. In addition, the Board of Directors may choose to adopt a plan of termination
prior to the Termination Date upon written notice to all shareholders of the fund.
As
the fund approaches its Termination Date, the portfolio composition of the fund will change as more of
the fund’s investments mature or are called or sold, which may cause the fund’s returns to decrease.
The fund may also shift its portfolio composition to securities the Sub-Adviser believes will provide
adequate liquidity upon termination of the fund, which may also cause the fund’s returns to decrease.
In addition, rather than reinvesting the proceeds of its matured, called or sold credit investments,
the fund may distribute the proceeds in one or more liquidating distributions prior to the final liquidation,
which may cause the fund’s fixed expenses to increase when expressed as a percentage of assets under
management, or the fund may invest the proceeds in lower yielding securities or hold the proceeds in
cash, which may adversely affect the performance of the fund.
The Board of Directors
may choose to commence the liquidation and termination of the fund prior to the Termination Date, which
would cause the fund to miss any market appreciation that occurs after the termination is implemented.
Conversely, the Board of Directors may decide against early termination, after which decision, market
conditions may deteriorate and the fund may experience losses. Upon its termination, it is anticipated
that the fund will have distributed substantially all of its net assets to Common Shareholders, although
securities for which no market exists or securities trading at depressed prices, if any, may be placed
in a liquidating trust. Securities placed in a liquidating trust may be held for an indefinite period
of time until they can be sold or pay out all of their cash flows. The fund cannot predict the amount
of securities that will be required to be placed in a liquidating trust.
59
ADDITIONAL
INFORMATION (Unaudited) (continued)
Investment
and Market Risk. An investment in the fund is subject to investment risk, including the possible
loss of the entire amount that you invest. Your investment in Common Shares represents an indirect investment
in the credit instruments and other investments and assets owned by the fund. The value of the fund’s
portfolio investments may move up or down, sometimes rapidly and unpredictably. The value of the instruments
in which the fund invests may be affected by political, regulatory, economic and social developments,
and developments that impact specific economic sectors, industries or segments of the market. In addition,
turbulence in financial markets and reduced liquidity in equity, credit and/or fixed income markets may
negatively affect many issuers, which could adversely affect the fund. Global economies and financial
markets are becoming increasingly interconnected, and conditions and events in one country, region or
financial market may adversely impact issuers in a different country, region or financial market. These
risks may be magnified if certain events or developments adversely interrupt the global supply chain;
in these and other circumstances, such risks might affect companies world-wide. Recent examples include
pandemic risks related to COVID-19 and aggressive measures taken world-wide in response by governments,
including closing borders, restricting international and domestic travel and imposing prolonged quarantines
of large populations, and by businesses, including changes to operations and reducing staff. The effects
of COVID-19 have contributed to increased volatility in global markets and will likely affect certain
countries, companies, industries and market sectors more dramatically than others. The COVID-19 pandemic
has had, and any other outbreak of an infectious disease or other serious public health concern could
have, a significant negative impact on economic and market conditions and could trigger a prolonged period
of global economic slowdown. To the extent the fund has significant investments in certain countries,
regions, companies, industries or market sectors, such positions will increase the risk of loss from
adverse developments affecting those countries, regions, companies, industries or sectors.
Tax
Risk.
Certain of the fund’s investments will require the fund to recognize taxable income in a taxable year
in excess of the cash generated on those investments during that year. In particular, the fund invests
in loans and other debt obligations that will be treated as having “market discount” and/or original
issue discount for U.S. federal income tax purposes. Because the fund may be required to recognize income
in respect of these investments before, or without receiving, cash representing such income, the fund
may have difficulty satisfying the annual distribution requirements applicable to regulated investment
companies and avoiding fund-level U.S. federal income and/or excise taxes. Accordingly, the fund may
be required to sell assets, including at potentially disadvantageous times or prices, borrow, raise additional
equity capital, make taxable distributions of its shares or debt securities, or reduce new investments,
to obtain the cash needed to make these income distributions. If the fund liquidates assets to raise
cash, the fund may realize gain or loss on such liquidations; in the event the fund realizes net capital
gains from such liquidation transactions, its shareholders may receive larger capital gain distributions
than they would in the absence of such transactions.
Risks of Investing
in Credit Instruments
60
Issuer
Risk.
The market value of credit instruments may decline for a number of reasons that directly relate to the
issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods
and services. The market value of a credit instrument also may be affected by investors’ perceptions
of the creditworthiness of the issuer, the issuer’s performance and perceptions of the issuer in the
market place.
Credit Risk. Credit risk is the risk that one or more credit instruments
in the fund’s portfolio will decline in price or fail to pay interest or principal when due because
the issuer of the instrument experiences a decline in its financial status. Losses may occur because
the market value of a credit instrument is affected by the creditworthiness or perceived creditworthiness
of the issuer and by general economic and specific industry conditions and the fund’s investments will
often be subordinate to other debt in the issuer’s capital structure. Because the fund generally invests
a significant portion of its Managed Assets in below investment grade instruments, it will be exposed
to a greater amount of credit risk than a fund which invests in investment grade securities. The prices
of below investment grade instruments are more sensitive to negative developments, such as a decline
in the issuer’s revenues or a general economic downturn, than are the prices of investment grade instruments,
which may reduce the fund’s net asset value.
Interest Rate Risk. Prices of fixed rate
credit instruments tend to move inversely with changes in interest rates. Typically, a rise in rates
will adversely affect these instruments and, accordingly, will cause the value of the fund’s investments
in these securities to decline. During periods of very low interest rates, which occur from time to time
due to market forces or actions of governments and/or their central banks, including the Board of Governors
of the Federal Reserve System in the United States, the fund may be subject to a greater risk of principal
decline from rising interest rates. The magnitude of these fluctuations in the market price of fixed
rate credit instruments is generally greater for instruments with longer effective maturities and durations
because such instruments do not mature, reset interest rates or become callable for longer periods of
time.
Unlike investment grade instruments, however, the prices of
high yield (“junk”) instruments may fluctuate unpredictably and not necessarily inversely with changes
in interest rates. In addition, the rates on floating rate instruments adjust periodically with changes
in market interest rates. Although these instruments are generally less sensitive to interest rate changes
than fixed rate instruments, the value of floating rate loans and other floating rate instruments may
decline if their interest rates do not rise as quickly, or as much, as general interest rates. Substantial
increases in interest rates could cause an increase in loan defaults as borrowers might lack resources
to meet higher debt service requirements.
Prepayment Risk. During periods of declining interest
rates, the issuer of a credit instrument may exercise its option to prepay principal earlier than scheduled,
forcing the fund to reinvest the proceeds from such prepayment in potentially lower yielding instruments,
which may result in a decline in the fund’s income and distributions to Common Shareholders. This is
known as prepayment or “call” risk. Credit instruments frequently have call features that allow the
issuer to redeem the instrument at dates prior
61
ADDITIONAL
INFORMATION (Unaudited) (continued)
to its stated maturity at a specified price (typically greater than par) only
if certain prescribed conditions are met (“call protection”). An issuer may choose to redeem a fixed
rate credit instrument if, for example, the issuer can refinance the instrument at a lower cost due to
declining interest rates or an improvement in the credit standing of the issuer. For premium bonds (bonds
acquired at prices that exceed their par or principal value) purchased by the fund, prepayment risk may
be enhanced.
Reinvestment Risk. Reinvestment risk is the risk that income from the fund’s
portfolio will decline if and when the fund invests the proceeds from matured, traded or called credit
instruments at market interest rates that are below the portfolio’s current earnings rate. A decline
in income could affect the Common Share price or its overall return.
Spread Risk.
Wider credit spreads and decreasing market values typically represent a deterioration of the fixed income
instrument’s credit soundness and a perceived greater likelihood or risk of default by the issuer.
Fixed income instruments generally compensate for greater credit risk by paying interest at a higher
rate. The difference (or “spread”) between the yield of a security and the yield of a benchmark,
such as a U.S. Treasury security with a comparable maturity, measures the additional interest paid for
credit risk. As the spread on a security widens (or increases), the price (or value) of the security
generally falls. Spread widening may occur, among other reasons, as a result of market concerns over
the stability of the market, excess supply, general credit concerns in other markets, security- or market-specific
credit concerns or general reductions in risk tolerance.
Inflation/Deflation Risk. Inflation risk is
the risk that the value of certain assets or income from the fund’s investments will be worth less
in the future as inflation decreases the value of money. As inflation increases, the real value of the
Common Shares and distributions on the Common Shares can decline. In addition, during any periods of
rising inflation, the costs associated with the fund’s use of leverage through Borrowings would likely
increase, which would tend to further reduce returns to Common Shareholders. Deflation risk is the risk
that prices throughout the economy decline over time—the opposite of inflation. Deflation may have
an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which
may result in a decline in the value of the fund’s portfolio.
Below
Investment Grade Instruments Risk
The fund may invest all of its assets
in below investment grade instruments. Below investment grade instruments are commonly referred to as
“junk” or “high yield” instruments and are regarded as predominantly speculative with respect
to the issuer’s capacity to pay interest and repay principal. Below investment grade instruments, though
generally higher yielding, are characterized by higher risk. These instruments are especially sensitive
to adverse changes in general economic conditions, to changes in the financial condition of their issuers
and to price fluctuation in response to changes in interest rates. During periods of economic downturn
or rising interest rates, issuers of below investment grade instruments may experience financial stress
that could adversely affect their ability to make payments of principal and interest and increase the
possibility
62
of default. The secondary market for below investment grade instruments may not
be as liquid as the secondary market for more highly rated instruments, a factor which may have an adverse
effect on the fund’s ability to dispose of a particular security. There are fewer dealers in the market
for high yield instruments than for investment grade instruments. The prices quoted by different dealers
may vary significantly, and the spread between the bid and asked price is generally much larger for high-yield
securities than for higher quality instruments. Under adverse market or economic conditions, the secondary
market for below investment grade instruments could contract, independent of any specific adverse changes
in the condition of a particular issuer, and these instruments may become illiquid. In addition, adverse
publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of below investment grade instruments, especially in a market characterized by a
low volume of trading.
Default, or the market’s perception that an issuer is likely
to default, could reduce the value and liquidity of below investment grade instruments held by the fund,
thereby reducing the value of an investment in the Common Shares. In addition, default, or the market’s
perception that an issuer is likely to default, may cause the fund to incur expenses, including legal
expenses, in seeking recovery of principal or interest on its portfolio holdings, including litigation
to enforce the fund’s rights. In any reorganization or liquidation proceeding relating to a portfolio
company, the fund may lose its entire investment or may be required to accept cash or securities with
a value less than its original investment. Among the risks inherent in investments in a troubled entity
is the fact that it frequently may be difficult to obtain information as to the true financial condition
of such issuer. The Sub-Adviser’s judgment about the credit quality of an issuer and the relative value
of its securities may prove to be wrong. In addition, not only may the fund lose its entire investment
on one or more instruments, Common Shareholders may also lose their entire investments in the fund. Investments
in below investment grade instruments may present special tax issues for the fund to the extent that
the issuers of these securities default on their obligations pertaining thereto, and the U.S. federal
income tax consequences to the fund as a holder of such distressed securities may not be clear.
Because of the greater number of investment considerations involved in investing
in below investment grade instruments, the ability of the fund to meet its investment objectives depends
more on the Sub-Adviser’s judgment and analytical abilities than would be the case if the portfolio
invested primarily in securities in the higher rating categories. While the Sub-Adviser will attempt
to reduce the risks of investing in below investment grade instruments through active portfolio management,
diversification, credit analysis and attention to current developments and trends in the economy and
the financial markets, there can be no assurance that a broadly diversified portfolio of such instruments
would substantially lessen the risks of defaults brought about by an economic downturn or recession.
Distressed
or Defaulted Issuers. The fund may invest up to 15% of its Managed Assets in credit instruments of
distressed or defaulted issuers. Such instruments may be rated in
63
ADDITIONAL
INFORMATION (Unaudited) (continued)
the lower rating categories (Caa1 or lower by Moody’s Investors Service, Inc.,
or CCC+ or lower by S&P Global Ratings or Fitch Ratings, Inc.) or, if unrated, are considered by
the Sub-Adviser to be of comparable quality. For these securities, the risks associated with below investment
grade instruments are more pronounced. Instruments rated in the lower rating categories are subject to
higher credit risk with extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or economic conditions and/or
to be in default or not current in the payment of interest or principal. Ratings may not accurately reflect
the actual credit risk associated with a corporate security.
Investing in distressed
or defaulted securities is speculative and involves substantial risks. The fund may make such investments
when, among other circumstances, the Sub-Adviser believes it is reasonably likely that the issuer of
the distressed or defaulted securities will make an exchange offer or will be the subject of a plan of
reorganization pursuant to which the fund will receive new securities in return for the distressed or
defaulted securities. There can be no assurance, however, that such an exchange offer will be made or
that such a plan of reorganization will be adopted. In addition, a significant period of time may pass
between the time at which the fund makes its investment in distressed or defaulted securities and the
time that any such exchange offer or plan of reorganization is completed, if at all. During this period,
it is unlikely that the fund would receive any interest payments on the distressed or defaulted securities,
the fund would be subject to significant uncertainty whether the exchange offer or plan of reorganization
will be completed and the fund may be required to bear certain extraordinary expenses to protect and
recover its investment. The fund also will be subject to significant uncertainty as to when, in what
manner and for what value the obligations evidenced by the distressed or defaulted securities will eventually
be satisfied (e.g., through a liquidation of the issuer’s assets, an exchange offer or plan of reorganization
involving the distressed or defaulted securities or a payment of some amount in satisfaction of the obligation).
Even if an exchange offer is made or plan of reorganization is adopted with respect to distressed or
defaulted securities held by the fund, there can be no assurance that the securities or other assets
received by the fund in connection with the exchange offer or plan of reorganization will not have a
lower value or income potential than may have been anticipated when the investment was made, or no value.
Senior Secured Loans Risk
The Senior Secured
Loans in which the fund invests typically will be below investment grade quality. Although, in contrast
to other below investment grade instruments, Senior Secured Loans hold senior positions in the capital
structure of a business entity, are secured with specific collateral and have a claim on the assets and/or
stock of the borrower that is senior to that held by unsecured creditors, subordinated debt holders and
stockholders of the borrower, the risks associated with Senior Secured Loans are similar to the risks
of below investment grade instruments. Additionally, if a borrower under a Senior Secured Loan defaults,
becomes insolvent or goes into bankruptcy, the
64
fund may recover only a fraction of what is owed on the Senior Secured Loan or
nothing at all.
Although the Senior Secured Loans in which the fund invests
will be secured by collateral, there can be no assurance that such collateral can be readily liquidated
or that the liquidation of such collateral would satisfy the borrower’s obligation in the event of
non-payment of scheduled interest or principal.
In the event of the bankruptcy or insolvency
of a borrower, the fund could experience delays or limitations with respect to its ability to realize
the benefits of the collateral securing a Senior Secured Loan. In the event of a decline in the value
of the already pledged collateral, if the terms of a Senior Secured Loan do not require the borrower
to pledge additional collateral, the fund will be exposed to the risk that the value of the collateral
will not at all times equal or exceed the amount of the borrower’s obligations under the Senior Secured
Loan. To the extent that a Senior Secured Loan is collateralized by stock in the borrower or its subsidiaries,
such stock may lose some or all of its value in the event of the bankruptcy or insolvency of the borrower.
Senior Secured Loans that are under-collateralized involve a greater risk of loss. Some Senior Secured
Loans are subject to the risk that a court, pursuant to fraudulent conveyance or other similar laws,
could subordinate a Senior Secured Loan to presently existing or future indebtedness of the borrower
or take other action detrimental to lenders, including the fund. Such court action could, under certain
circumstances, include invalidation of a Senior Secured Loan.
In general, the secondary
trading market for Senior Secured Loans is not fully-developed. No active trading market may exist for
certain Senior Secured Loans, which may make it difficult to value them. Illiquidity and adverse market
conditions may mean that the fund may not be able to sell certain Senior Secured Loans quickly or at
a fair price. To the extent that a secondary market does exist for certain Senior Secured Loans, the
market for them may be subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods. Furthermore, Senior Secured Loans may not be considered securities, and purchasers,
such as the fund, may not be entitled to rely on the anti-fraud protections of the federal securities
laws, including those with respect to the use of material non-public information.
If
legislation or state or federal regulations impose additional requirements or restrictions on the ability
of financial institutions to make Senior Secured Loans, the availability of Senior Secured Loans for
investment by the fund may be adversely affected. In addition, such requirements or restrictions could
reduce or eliminate sources of financing for certain borrowers.
If legislation or federal
or state regulations require financial institutions to increase their capital requirements this may cause
financial institutions to dispose of Senior Secured Loans that are considered highly levered transactions.
Such sales could result in prices that, in the opinion of the Adviser or the Sub-Adviser, do not represent
fair value. If the fund attempts to sell a Senior Secured Loan at a time when a financial institution
is
65
ADDITIONAL
INFORMATION (Unaudited) (continued)
engaging in such a sale, the price the fund could obtain for the Senior Secured
Loan may be adversely affected.
Loan Valuation Risk. Because there may be a lack of centralized
information and trading for certain loans in which the fund may invest, reliable market value quotations
may not be readily available for such loans and their valuation may require more research than for securities
with a more developed secondary market. Moreover, the valuation of such loans may be affected by uncertainties
in the conditions of the financial market, unreliable reference data, lack of transparency and inconsistency
of valuation models and processes. Trades can be infrequent and the market for floating rate loans may
experience substantial volatility. As a result, the fund is subject to the risk that when a loan is sold
in the market, the amount received by the fund may be less than the value that such instrument is carried
at on the fund’s books immediately prior to the sale.
Participations and Assignments Risk.
A participation interest gives the fund an undivided interest in a loan in the proportion that the fund’s
participation interest bears to the total principal amount of the loan, but does not establish any direct
relationship between the fund and the borrower. If a Senior Secured Loan is acquired through a participation,
the fund generally will have no right to enforce compliance by the borrower with the terms of the loan
agreement against the borrower, and the fund may not directly benefit from the collateral supporting
the loan obligation in which it has purchased the participation. The fund may be subject to delays, expenses
and risks that are greater than those that would be involved if the fund would enforce its rights directly
against the borrower. Moreover, under the terms of a participation interest the fund may be regarded
as a creditor of another lender or co-participant (rather than of the borrower), so that the fund may
also be subject to the risk that such party may become insolvent. Similar risks may arise with respect
to the agent for a Senior Secured Loan if, for example, assets held by the agent for the benefit of the
fund were determined by the appropriate regulatory authority or court to be subject to the claims of
the agent’s creditors. Further, in the event of the bankruptcy or insolvency of the borrower, the obligation
of the borrower to repay the loan may be subject to certain defenses that can be asserted by such borrower
as a result of improper conduct by the agent or intermediate participant.
The
fund also may have difficulty disposing of participation interests and assignments because to do so it
will have to sell such securities to a third party. Because there is no established secondary market
for such securities, it is anticipated that such securities could be sold only to a limited number of
institutional investors. The lack of an established secondary market may have an adverse impact on the
value of such securities and the fund’s ability to dispose of particular participation interests or
assignments when necessary to meet the fund’s liquidity needs or in response to a specific economic
event such as a deterioration in the creditworthiness of the borrower. The lack of an established secondary
market for participation interests and assignments also may make it more difficult for the fund to assign
a value to these securities for purposes of valuing the fund’s portfolio.
Covenant-Lite Loan Risk.
The fund may invest in “covenant-lite” loans. Certain financial institutions may define “covenant-lite”
loans differently. Covenant-lite loans may have
66
tranches that contain fewer or no restrictive covenants. The tranche of the covenant-lite
loan that has fewer restrictions typically does not include the legal clauses which allow an investor
to proactively enforce financial tests or prevent or restrict undesired actions taken by the company
or sponsor. Covenant-lite loans also generally give the borrower/issuer more flexibility if they have
met certain loan terms and provide fewer investor protections if certain criteria are breached. The fund
may experience relatively greater realized or unrealized losses or delays in enforcing its rights on
its holdings of certain covenant-lite loans than its holdings of loans with the usual covenants. In the
event of a breach of a covenant in non-covenant-lite loans, lenders may have the ability to intervene
and either prevent or restrict actions that may potentially compromise the borrower’s ability to pay
or lenders may be in a position to obtain concessions from the borrower in exchange for a waiver or amendment
of the specific covenant(s). In contrast, covenant-lite loans do not always or necessarily offer the
same ability to intervene or obtain additional concessions from borrowers. This risk is offset to varying
degrees by the fact that the same financial and performance information may be available with or without
covenants to lenders and the public alike and can be used to detect such early warning signs as deterioration
of a borrower’s financial condition or results. With such information, the Sub-Adviser is normally
able to take appropriate actions without the help of covenants in the loans. Covenant-lite corporate
loans, however, may foster a capital structure designed to avoid defaults by giving borrowers or issuers
increased financial flexibility when they need it the most.
Subordinated Loans Risk. Subordinated Loans
generally are subject to similar risks as those associated with investments in Senior Secured Loans,
except that such loans are subordinated in payment and/or lower in lien priority to first lien holders
(e.g., holders of Senior Secured Loans) in the event of the liquidation or bankruptcy of the issuer.
In the event of default on a Subordinated Loan, the first priority lien holder has first claim to the
underlying collateral of the loan. Subordinated Loans are subject to the additional risk that the cash
flow of the borrower and collateral securing the loan or debt, if any, may be insufficient to meet scheduled
payments after giving effect to the senior unsecured or senior secured obligations of the borrower. This
risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security
interest in any specific collateral. There also is a possibility that originators will not be able to
sell participations in Subordinated Loans, which would create greater credit risk exposure for the holders
of such loans. Subordinated Loans generally have greater price volatility than Senior Secured Loans and
may be less liquid.
Corporate Debt Risk
The market value of
Corporate Debt generally may be expected to rise and fall inversely with interest rates. The market value
of intermediate and longer term Corporate Debt is generally more sensitive to changes in interest rates
than is the market value of shorter term Corporate Debt. The market value of Corporate Debt also may
be affected by factors directly related to the issuer, such as investors’ perceptions of the creditworthiness
of the issuer, the issuer’s financial performance, perceptions of the issuer in the market place, performance
of management of the issuer, the issuer’s capital
67
ADDITIONAL
INFORMATION (Unaudited) (continued)
structure and use of financial leverage and demand for the issuer’s goods and
services. There is a risk that the issuers of Corporate Debt may not be able to meet their obligations
on interest and/or principal payments at the time called for by an instrument. Corporate Debt rated below
investment grade quality is often high risk and has speculative characteristics and may be particularly
susceptible to adverse issuer-specific developments.
Special Situations
Investments Risk
The Sub-Adviser focuses the fund’s Special Situations Investments
in companies that have experienced, or are currently experiencing, financial difficulties as a result
of deteriorating operations, changes in macro-economic conditions, changes in governmental monetary or
fiscal policies, adverse legal judgments, or other events which may adversely impact their credit standing.
These investments are subject to many of the risks discussed elsewhere herein, including risks associated
with investing in high yield fixed income securities. Special Situations Investments generally will be
treated as illiquid securities by the fund.
From time to time, the Sub-Adviser may
take control positions, sit on creditors’ committees or otherwise take an active role in seeking to
influence the management of the issuers of Special Situations Investments, in which case the fund may
be subject to increased litigation risk resulting from its actions and it may obtain inside information
that may restrict its ability to dispose of Special Situations Investments.
Structured
Credit Investments Risk
Holders of Structured Credit Investments bear risks of the
underlying investments, index or reference obligation and are subject to counterparty risk. The fund
may have the right to receive payments only from the issuers of the structured product, and generally
does not have direct rights against the issuer or the entity that sold the assets to be securitized.
While certain Structured Credit Investments enable the investor to acquire interests in a pool of securities
without the brokerage and other expenses associated with directly holding the same securities, investors
in Structured Credit Investments generally pay their share of the investment’s administrative and other
expenses. Although it is difficult to predict whether the prices of indices and securities underlying
structured products will rise or fall, these prices (and, therefore, the prices of structured products)
will be influenced by the same types of political and economic events that affect issuers of securities
and capital markets generally. If the issuer of a Structured Credit Investment uses shorter term financing
to purchase longer term securities, the issuer may be forced to sell its securities at below market prices
if it experiences difficulty in obtaining such financing, which may adversely affect the value of the
Structured Credit Investments owned by the fund.
CDOs may be thinly traded or have a limited
trading market. CDOs, such as CLOs, are typically privately offered and sold, and thus are not registered
under the securities laws. As a result, investments in CLOs and other types of CDOs may be characterized
by the fund as illiquid securities, especially investments in mezzanine and subordinated/equity tranches
of CLOs; however, an active dealer market may exist for certain investments
68
and more senior CLO tranches, which would allow such securities to be considered
liquid in some circumstances. In addition to the general risks associated with credit instruments discussed
herein, CLOs and other types of CDOs carry additional risks, including, but not limited to: (i) the possibility
that distributions from collateral securities will not be adequate to make interest or other payments;
(ii) the quality of the collateral may decline in value or default; (iii) the possibility that the class
of CLO or CDO held by the fund is subordinate to other classes; and (iv) the complex structure of the
security may not be fully understood at the time of investment and may produce disputes with the issuer
or unexpected investment results.
Credit-linked notes, which are used to
transfer credit risk, are typically privately offered and sold. Certain credit-linked notes also may
be thinly traded or have a limited trading market. As a result, investments in credit-linked notes may
be characterized by the fund as illiquid securities. The performance of the notes is linked to the performance
of an underlying reference entity. The main risk of credit-linked notes is the risk of the reference
entity experiencing a credit event that triggers a contingent payment obligation by the special purpose
vehicle (“SPV”) that sold the credit protection. Should such an event occur, the SPV would have to
pay the transaction sponsor and payments to the note holders would be subordinated.
Asset-backed
securities are a form of derivative instrument. Payment of principal and interest may depend largely
on the cash flows generated by the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds or other forms of credit or liquidity enhancements. The value of these
asset-backed securities may be affected by the creditworthiness of the servicing agent for the pool of
assets, the originator of the loans or receivables or the financial institution providing the credit
support.
Zero Coupon, Pay-In-Kind and Step-Up Securities Risk
The
amount of any discount on these securities varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and perceived credit quality of the
issuer. The market prices of these securities generally are more volatile and are likely to respond to
a greater degree to changes in interest rates than the market prices of securities that pay cash interest
periodically having similar maturities and credit qualities. In addition, unlike bonds that pay cash
interest throughout the period to maturity, the fund will realize no cash until the cash payment date
unless a portion of such securities are sold and, if the issuer defaults, the fund may obtain no return
at all on its investment. The interest payments deferred on a PIK security are subject to the risk that
the borrower may default when the deferred payments are due in cash at the maturity of the instrument.
In addition, the interest rates on PIK securities are higher to reflect the time value of money on deferred
interest payments and the higher credit risk of borrowers who may need to defer interest payments. The
deferral of interest on a PIK loan increases its loan to value ratio, which is a measure of the riskiness
of a loan. An election to defer PIK interest payments by adding them to principal increases the fund’s
Managed Assets and, thus, increases future investment management fees to the Adviser (and, indirectly,
the Sub-Adviser). PIK
69
ADDITIONAL
INFORMATION (Unaudited) (continued)
securities also may have unreliable valuations because the accruals require judgments
by the Sub-Adviser about ultimate collectability of the deferred payments and the value of the associated
collateral. Federal income tax law requires the holder of a zero coupon security or of certain pay-in-kind
or step-up bonds to accrue income with respect to these securities prior to the receipt of cash payments.
LIBOR Risk
Many credit instruments, derivatives and
other financial instruments, including those in which the fund may invest, utilize LIBOR as the reference
or benchmark rate for variable interest rate calculations. However, the use of LIBOR started to come
under pressure following manipulation allegations in 2012. Despite increased regulation and other corrective
actions since that time, concerns have arisen regarding its viability as a benchmark, due largely to
reduced activity in the financial markets that it measures. In July 2017, the Financial Conduct Authority
announced plans to phase out the use of LIBOR by the end of 2021. It was subsequently announced that
tenors of US Dollar LIBOR would continue to be published through June 30, 2023, other than one week and
two month USD LIBOR settings which ceased publication on December 31, 2021. Various financial industry
groups around the world have been planning the transition to the use of different benchmarks. In the
United States, the Federal Reserve Board and the New York Fed convened the Alternative Reference Rates
Committee, comprised of a group of private-market participants, which recommended the Secured Overnight
Financing Rate as an alternative reference rate to USD LIBOR. Neither the effect of the transition process,
in the United States or elsewhere, nor its ultimate success, can yet be known. While some instruments
tied to LIBOR may include a replacement rate in the event LIBOR is discontinued, not all instruments
have such fallback provisions and the effectiveness of such replacement rates remains uncertain. The
transition process might lead to increased volatility and illiquidity in markets that currently rely
on the LIBOR to determine interest rates. The potential cessation of LIBOR could affect the value and
liquidity of investments tied to LIBOR, especially those that do not include fallback provisions, and
may result in costs incurred in connection with closing out positions and entering into new trades.
Foreign Investments Risk
Investing in foreign
instruments involve certain risks not involved in domestic investments. Foreign securities markets generally
are not as developed or efficient as those in the United States. There may be a lack of comprehensive
information regarding foreign issuers, and their securities are less liquid and more volatile than securities
of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less
than in the United States and, at times, volatility of price can be greater than in the United States.
The risks of investing in foreign securities also include restrictions that may make it difficult for
the fund to obtain or enforce judgments in foreign courts. These risks also include certain national
policies that may restrict the fund’s investment opportunities, including restrictions on investments
in issuers or industries deemed sensitive to national interests and/or limitations on the total amount
or type of position in any single issuer.
70
Certain foreign countries may impose restrictions on the ability of issuers within
those countries to make payments of principal and interest to investors located outside the country.
In addition, the fund will be subject to risks associated with adverse political and economic developments
in foreign countries, which could cause the fund to lose money on its investments in non-U.S. instruments.
The ability of a foreign sovereign issuer to make timely payments on its debt obligations will also be
strongly influenced by the sovereign issuer’s balance of payments, including export performance, its
access to international credit facilities and investments, fluctuations of interest rates and the extent
of its foreign reserves. The cost of servicing external debt will also generally be adversely affected
by rising international interest rates, as many external debt obligations bear interest at rates which
are adjusted based upon international interest rates.
Some foreign instruments
may be less liquid and more volatile than securities of comparable U.S. issuers. Similarly, there is
less volume and liquidity in most foreign securities markets than in the United States and, at times,
greater price volatility than in the United States. Because evidences of ownership of such instruments
usually are held outside the United States, the fund will be subject to additional risks if it invests
in non-U.S. instruments, which include possible adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental restrictions which might adversely
affect or restrict the payment of principal and interest on the foreign instruments to investors located
outside the country of the issuer, whether from currency blockage or otherwise. Foreign instruments may
trade on days when the Common Shares are not priced.
Foreign government
debt includes bonds that are issued or backed by foreign governments or their agencies, instrumentalities
or political subdivisions or by foreign central banks. The governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal and/or interest when due in accordance
with terms of such debt, and the fund may have limited legal recourse in the event of a default.
The risks associated with investing in foreign securities are often heightened
for investments in emerging market countries. These heightened risks include: (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and economic stability; (ii) the
small size of the markets for securities of emerging market issuers and a low or nonexistent volume of
trading, resulting in lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the investment opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of developed legal structures governing
private or foreign investment and private property. The purchase and sale of portfolio investments in
certain emerging market countries may be constrained by limitations as to daily changes in the prices
of listed securities, periodic trading or settlement volume and/or limitations on aggregate holdings
of foreign investors. In certain cases, such limitations may be computed based upon the aggregate trading
by or holdings of the fund, the Adviser, the Sub-Adviser and their affiliates and their respective clients
and other service providers. The fund may not be able to sell securities
71
ADDITIONAL
INFORMATION (Unaudited) (continued)
in circumstances where price, trading or settlement volume limitations have been
reached.
European Investments Risk
A number of countries
in Europe have experienced severe economic and financial difficulties. Many non-governmental issuers,
and even certain governments, have defaulted on, or been forced to restructure, their debts. Many other
issuers have faced difficulties obtaining credit or refinancing existing obligations. Financial institutions
have in many cases required government or central bank support, have needed to raise capital, and/or
have been impaired in their ability to extend credit, and financial markets in Europe and elsewhere have
experienced significant volatility and declines in asset values and liquidity. These difficulties may
continue, worsen or spread within and without Europe. Responses to the financial problems by European
governments, central banks and others, including austerity measures and reforms, may not be effective,
may result in social unrest and may limit future growth and economic recovery or have other unintended
consequences. Further defaults or restructurings by governments and others of outstanding debt could
have additional adverse effects on economies, financial markets and asset valuations around the world.
Decreasing imports or exports, changes in governmental or European Union (“EU”)
regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an
EU member country on its sovereign debt, and/or an economic recession in an EU member country may have
a significant adverse effect on the securities of EU issuers. The European financial markets have recently
experienced volatility and adversity due to concerns about economic downturns, or rising government debt
levels, in several European countries. These events have adversely affected the exchange rate of the
euro and may continue to significantly affect every country in Europe.
The
risk of investing in Europe may be heightened due to the withdrawal of the United Kingdom from membership
in the EU (known as “Brexit”). Although the effects of Brexit are unknown at this time, Brexit may
result in fluctuations of exchange rates, increased illiquidity, inflation, and changes in legal and
regulatory regimes to which certain of the fund’s assets are subject. These and other geopolitical
developments could have a negative impact on both the United Kingdom’s economy and the economies of
the other countries in Europe, as well as greater volatility in the global financial and currency markets.
The effect on the economies of the United Kingdom and the EU likely will depend on the nature of trade
relations between the United Kingdom and the EU and the other major economies. These events could negatively
affect the value and liquidity of all of the fund’s investments, not only the fund’s investments
in securities of issuers located in Europe.
Foreign Currency Transactions Risk
As the fund invests in securities that trade in, and receives revenues in, foreign
currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the
risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging
positions intended to protect the fund from decline in the
72
value of non-U.S. currencies, that the U.S. dollar will decline in value relative
to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short
periods of time for a number of reasons, including changes in interest rates, intervention (or the failure
to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International
Monetary Fund, or by the imposition of currency controls or other political developments in the United
States or abroad. As a result, the fund’s investments in foreign currency denominated securities may
reduce the returns of the fund. While the fund generally seeks to hedge substantially all of its non-U.S.
dollar-denominated securities into U.S. dollars, hedging may not alleviate all currency risks. Furthermore,
the issuers in which the fund invests may be subject to risks relating to changes in currency rates,
as described above. If a company in which the fund invests suffers such adverse consequences as a result
of such changes, the fund may also be adversely affected as a result.
Continuing
uncertainty as to the status of the euro and the EU has created significant volatility in currency and
financial markets generally. Any partial or complete dissolution of the EU could have significant adverse
effects on currency and financial markets, and on the values of the fund’s portfolio investments. If
one or more EU countries were to stop using the euro as its primary currency, the fund’s investments
in such countries, if any, may be redenominated into a different or newly adopted currency. As a result,
the value of those investments could decline significantly and unpredictably. In addition, instruments
or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and
valuation risk to a greater extent than similar investments currently denominated in euros.
Principal
Risks of the Use of Derivatives
The fund is subject to additional risks
with respect to the use of derivatives. Derivatives can be volatile and involve various types and degrees
of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole.
Derivatives permit the fund to increase or decrease the level of risk, or change the character of the
risk, to which its portfolio is exposed in much the same way as the fund can increase or decrease the
level of risk, or change the character of the risk, of its portfolio by making investments in specific
securities. However, derivatives may entail investment exposures that are greater than their cost would
suggest, meaning that a small investment in derivatives could have a large potential impact on the fund’s
performance. If the fund invests in derivatives at inopportune times or judges market conditions incorrectly,
such investments may lower the fund’s return or result in a loss. The fund also could experience losses
if its derivatives were poorly correlated with the underlying instruments or the fund’s other investments,
or if the fund were unable to liquidate its position because of an illiquid secondary market. The market
for many derivatives is, or suddenly can become, illiquid. Changes in liquidity may result in significant,
rapid and unpredictable changes in the prices for derivatives. If a derivative transaction is particularly
large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate
a position at an advantageous time or price. Additionally, some derivatives the fund may use may involve
economic leverage, which may increase the
73
ADDITIONAL
INFORMATION (Unaudited) (continued)
volatility of these instruments as they may increase or decrease in value more
quickly than the underlying security, index, currency, futures contract, or other economic variable.
Derivatives may be purchased on established exchanges or through privately negotiated
transactions referred to as OTC derivatives. Exchange-traded derivatives generally are guaranteed by
the clearing agency that is the issuer or counterparty to such derivatives. As a result, unless the clearing
agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased
on an exchange. In contrast, no clearing agency guarantees OTC derivatives. Therefore, many of the regulatory
protections afforded participants on organized exchanges for futures contracts and exchange-traded options,
such as the performance guarantee of an exchange clearing house, are not available in connection with
OTC derivative transactions. As a result, each party to an OTC derivative bears the risk that the counterparty
will default. Accordingly, the Sub-Adviser will consider the creditworthiness of counterparties to OTC
derivatives in the same manner as it would review the credit quality of a security to be purchased by
the fund. OTC derivatives are less liquid than exchange-traded derivatives since the other party to the
transaction may be the only investor with sufficient understanding of the derivative to be interested
in bidding for it.
Because many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, reference rate or index can result in a loss substantially
greater than the amount invested in the derivative itself. Certain derivatives, such as written call
options, have the potential for unlimited loss, regardless of the size of the initial investment. If
a derivative transaction is particularly large or if the relevant market is illiquid (as is the case
with many privately-negotiated derivatives, including swap agreements), it may not be possible to initiate
a transaction or liquidate a position at an advantageous time or price.
Credit Derivatives.
The use of credit derivatives is a highly specialized activity which involves strategies and risks different
from those associated with ordinary portfolio security transactions. If the Sub-Adviser is incorrect
in its forecasts of default risks, market spreads or other applicable factors, the investment performance
of the fund would diminish compared with what it would have been if these techniques were not used. Moreover,
even if the Sub-Adviser is correct in its forecasts, there is a risk that a credit derivative position
may correlate imperfectly with the price of the asset or liability being protected.
Swap Agreements.
The fund may enter into swap transactions, including credit default and total return swap agreements.
Such transactions are subject to market risk, risk of default by the other party to the transaction and
risk of imperfect correlation between the value of such instruments and the underlying assets and may
involve commissions or other costs. Swaps generally do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to swaps generally is limited
to the net amount of payments that the fund is contractually obligated to make, or in the case of the
other party to a swap defaulting, the net amount of payments that the fund is contractually entitled
to receive. The fund bears the risk of loss of the amount expected
74
to be received under a swap agreement in the event of the default or bankruptcy
of a swap agreement counterparty. The fund will enter into swap agreements only with counterparties that
meet certain standards of creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the fund’s repurchase agreement guidelines). In addition, it is possible
that developments in the swaps market, including potential government regulation, could adversely affect
the fund’s ability to terminate existing swap agreements or to realize amounts to be received under
such agreements.
The federal income tax treatment of payments in respect of
certain derivatives contracts is unclear. Common Shareholders may receive distributions that are attributable
to derivatives contracts that are treated as ordinary income for federal income tax purposes.
The
SEC recently adopted Rule 18f-4 under the Act, which regulates the use of derivatives by the fund and
is effective as of August 18, 2022. The rule defines “derivatives transactions” as (i) any
swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing,
or any similar instrument (“derivatives instrument”), under which a fund is or may be required to
make any payment or delivery of cash or other assets during the life of the instrument or at maturity
or early termination, whether as margin or settlement payment or otherwise; (ii) investment in a security
on a when-issued or forward-settling basis, or with a non-standard settlement cycle, unless (a) the fund
intends to physically settle the transaction and (b) the transaction will settle within 35 days of its
trade date; (iii) any short sale borrowing; and (iv) any reverse repurchase agreement or similar financing
transactions if a fund relies on Rule 18f-4(d)(1)(ii) and therefore is required to treat its reverse
repurchase agreements and similar financing transactions as derivatives transactions. Funds that use
derivatives, other than “limited” derivatives users, must comply with one of two value-at-risk (“VaR”)
based limits on fund leverage: (1) a default test based on relative VaR (L e., 200% of the VaR of the
fund’s designated reference portfolio, which either may be an index that meets certain requirements,
or the fund’s own securities portfolio (excluding derivatives transactions); or (2) if applicable,
an exception to the default test based on absolute VaR (L e. , 20% of the value of the fund’s net assets).
The rule also requires funds that use derivatives, other than “limited” derivatives users, to adopt
and implement a written derivatives risk management program (a “DRM Program”) administered by a board-approved
derivatives risk manager (a “DRM”). The DRM Program must include the following elements: (1) the
identification and assessment of derivatives risks; (2) the establishment, maintenance, and enforcement
of investment, risk management or related guidelines that provide for quantitative or otherwise measurable
criteria, metrics or thresholds related to the derivatives risks; (3) stress testing of the derivatives
risks; (4) backtesting of the VaR calculation model; (5) internal reporting and escalation of certain
matters to the fund’s portfolio management team and board; and (6) periodic review by the DRM. A fund
that is a “limited” derivatives user is not required to adopt a DRM Program or otherwise comply with
a VaR test if it adopts and implements policies and procedures reasonably designed to manage the fund’s
derivatives risks. A fund will qualify as a “limited” derivatives user if
75
ADDITIONAL
INFORMATION (Unaudited) (continued)
its derivative exposure does not exceed 10% of its net assets, excluding derivatives
transactions used to hedge certain currency and interest rate risks. The rule defines the term “derivatives
exposure” to mean the sum of: (1) the gross notional amounts of a fund’s derivatives transactions
and (2) in the case of short sale borrowings, the value of any asset sold short. Derivatives instruments
that do not involve future payment obligations—and therefore are not a “derivatives transaction”
under the rule—are not included in a fund’s derivatives exposure.
The
fund has been deemed to be “limited” derivatives users and has adopted and implemented policies and
procedures reasonably designed to manage the fund’s derivatives risks, including counterparty risk,
leverage risk, liquidity risk, market risk, operational risk, and legal risk.
Valuation
Risk
Unlike publicly traded common stock which trades on national exchanges, there
is no central place or exchange for loans or other credit instruments in which the fund may invest to
trade. Some credit instruments trade in an OTC market which may be anywhere in the world where the buyer
and seller can settle on a price. Due to the lack of centralized information and trading, the valuation
of credit instruments may carry more risk than that of common stock. Uncertainties in the conditions
of the financial market, unreliable reference data, lack of transparency and inconsistency of valuation
models and processes may lead to inaccurate asset pricing. In addition, other market participants may
value instruments differently than the fund. As a result, the fund may be subject to the risk that when
a credit instrument is sold in the market, the amount received by the fund is less than the value that
such credit instrument is carried at on the fund’s books.
In addition, certain
of the fund’s investments will need to be fair valued in accordance with valuation procedures approved
by the Board of Directors. Those portfolio valuations may be based on unobservable inputs and certain
assumptions about how market participants would price the instrument. As a result, there will be uncertainty
as to the value of certain of the fund’s investments. The fund expects that inputs into the determination
of fair value of those investments will require significant management judgment or estimation. The net
asset value of the fund, as determined based, in part, on the fair value of those investments, may vary
from the amount the fund would realize upon the sale of such investments.
Furthermore,
the fund may use the services of one or more independent valuation firms to aid it in determining the
fair value of certain investments. Because valuations may fluctuate over short periods of time and may
be based on estimates, fair value determinations may differ materially from the value received in an
actual transaction. Additionally, valuations of private securities and private companies are inherently
uncertain. The fund’s net asset value could be adversely affected if the fund’s determinations regarding
the fair value of those investments were materially higher or lower than the values that it ultimately
realize upon the disposal of such investments.
76
The Board has designated the Adviser as the fund’s valuation designee to make
all fair value determinations with respect to the fund’s portolfio investments, subject to the Board’s
oversight.
Liquidity Risk
In addition to the various other risks
associated with investing in credit instruments, to the extent those instruments are determined to be
illiquid or restricted securities, they may be difficult to dispose of at a fair price at the times when
the fund believes it is desirable to do so. The market price of illiquid and restricted securities generally
is more volatile than that of more liquid securities, which may adversely affect the price that the fund
pays for or recovers upon the sale of such securities. Illiquid and restricted securities are also more
difficult to value, especially in challenging markets. The Sub-Adviser’s judgment may play a greater
role in the valuation process. Investment of the fund’s assets in illiquid and restricted securities
may restrict the fund’s ability to take advantage of market opportunities. In order to dispose of an
unregistered security, the fund, where it has contractual rights to do so, may have to cause such security
to be registered. A considerable period may elapse between the time the decision is made to sell the
security and the time the security is registered, thereby enabling the fund to sell it. Contractual restrictions
on the resale of securities vary in length and scope and are generally the result of a negotiation between
the issuer and purchaser of the securities. In either case, the fund would bear market risks during the
restricted period.
Leverage Risk
The fund’s use of
leverage could create the opportunity for a higher return for Common Shareholders, but would also result
in special risks for Common Shareholders and can magnify the effect of any losses. If the income and
gains earned on the securities and investments purchased with leverage proceeds are greater than the
cost of the leverage, the return on the Common Shares will be greater than if leverage had not been used.
Conversely, if the income and gains from the securities and investments purchased
with such proceeds do not cover the cost of leverage, the return on the Common Shares will be less than
if leverage had not been used. There is no assurance that a leveraging strategy will be successful. In
addition, derivative transactions can involve leverage or the potential for leverage because they enable
the fund to magnify the fund’s exposure beyond its investment.
Leverage involves risks
and special considerations compared to a comparable portfolio without leverage including: (i) the likelihood
of greater volatility of the fund’s net asset value; (ii) the risk that fluctuations in interest rates
on Borrowings will reduce the return to the Common Shareholders or will result in fluctuations in the
dividends paid on the Common Shares; (iii) the effect of leverage in a declining market, which is likely
to cause a greater decline in the net asset value of the Common Shares than if the fund were not leveraged;
(iv) when the fund uses leverage, the investment management fees payable to the Adviser (and, indirectly,
the Sub-Adviser) will be higher than if the fund did not use leverage, and may provide a financial incentive
to the Adviser and the Sub-Adviser to
77
ADDITIONAL
INFORMATION (Unaudited) (continued)
increase the fund’s use of leverage and create an inherent conflict of interest;
and (v) leverage may increase expenses, which may reduce total return.
The
fund may continue to use leverage if the benefits to the Common Shareholders of maintaining the leveraged
position are believed to outweigh any current reduced return, but expects to reduce, modify or cease
its leverage if it is believed the costs of the leverage will exceed the return provided from the investments
made with the proceeds of the leverage.
Cybersecurity Risk
The
fund and its service providers are susceptible to operational and information security risks due to cybersecurity
incidents. In general, cybersecurity incidents can result from deliberate attacks or unintentional events.
Cybersecurity attacks include, but are not limited to, gaining unauthorized access to digital systems
(e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or
sensitive information, corrupting data or causing operational disruption. Cyber attacks also may be carried
out in a manner that does not require gaining unauthorized access, such as causing denial-of-service
attacks on websites (i.e., efforts to make services unavailable to intended users). Cybersecurity incidents
affecting the Adviser or other service providers, as well as financial intermediaries, have the ability
to cause disruptions and impact business operations, potentially resulting in financial losses, including
by interference with the fund’s ability to calculate its net asset value; impediments to trading for
the fund’s portfolio; the inability of Common Shareholders to transact business with the fund; violations
of applicable privacy, data security or other laws; regulatory fines and penalties; reputational damage;
reimbursement or other compensation or remediation costs; legal fees; or additional compliance costs.
Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities
in which the fund invests, counterparties with which the fund engages in transactions, governmental and
other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions and other parties. While information risk management
systems and business continuity plans have been developed which are designed to reduce the risks associated
with cybersecurity, there are inherent limitations in any cybersecurity risk management systems or business
continuity plans, including the possibility that certain risks have not been identified.
Recent Changes
The
following information in this annual report is a summary of certain changes since August 31, 2021. This
information may not reflect all of the changes that have occurred since you purchased the fund.
During the period ended August 31, 2022, except as noted above, there were: (i)
no material changes in the fund’s investment objectives or policies that have not been approved by
stockholders, (ii) no changes in the fund’s charter or by-laws that would delay or prevent a change
of control of the fund that have not been approved by stockholders, (iii) no material changes to the
principal risk factors associated with
78
investment in the fund, and (iv) no change in the persons primarily responsible
for the day-to-day management of the fund’s portfolio.
79
PROXY
RESULTS (Unaudited)
The
fund’s stockholders voted on the following proposal presented at the annual stockholders’ meeting
held on June 16, 2022.
| | | | |
| Shares |
| For | | Authority
Withheld |
To
elect two Class III Directors: † | | | |
| Francine J. Bovich | 12,034,724 | | 510,844 |
| Bradley J. Skapyak | 12,027,499 | | 518,069 |
† The
terms of these Class III Directors expire in 2025.
A special meeting of
the fund’s stockholders was held on October 13, 2022. The proposal considered at the meeting and the
results were as follows:
| | | |
| Shares |
| For | Against | Abstain |
To
approve a sub-investment advisory agreement between BNY Mellon Investment Adviser, Inc., on behalf
of the fund, and Alcentra NY, LLC. | 6,402,806 | 315,766 | 791,882 |
80
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited)
At a meeting of the fund’s Board of Directors held on March 2-3, 2022, the Board
considered the renewal of the fund’s Management Agreement, pursuant to which the Adviser provides the
fund with investment advisory and administrative services, and the Sub-Investment Advisory Agreement
(together with the Management Agreement, the “Agreements”), pursuant to which Alcentra NY, LLC (the
“Sub-Adviser”) provides day-to-day management of the fund’s investments. The Board members, a majority
of whom are not “interested persons” (as defined in the Investment Company Act of 1940, as amended)
of the fund, were assisted in their review by independent legal counsel and met with counsel in executive
session separate from representatives of the Adviser and the Sub-Adviser. In considering the renewal
of the Agreements, the Board considered several factors that it believed to be relevant, including those
discussed below. The Board did not identify any one factor as dispositive, and each Board member may
have attributed different weights to the factors considered.
Analysis of Nature, Extent, and Quality
of Services Provided to the Fund. The Board considered information provided to it at the meeting
and in previous presentations from representatives of the Adviser regarding the nature, extent, and quality
of the services provided to funds in the BNY Mellon fund complex, including the fund. The Adviser noted
that the fund is a closed-end fund without daily inflows and outflows of capital and provided the fund’s
asset size.
The Board also considered research support available to, and
portfolio management capabilities of, the fund’s portfolio management personnel and that the Adviser
also provides oversight of day-to-day fund operations, including fund accounting and administration and
assistance in meeting legal and regulatory requirements. The Board also considered the Adviser’s extensive
administrative, accounting and compliance infrastructures, as well as the Adviser’s supervisory activities
over the Sub-Adviser.
Comparative Analysis of the Fund’s Performance and Management Fee and Expense
Ratio. The Board reviewed reports prepared by Broadridge Financial Solutions, Inc.
(“Broadridge”), an independent provider of investment company data based on classifications provided
by Thomson Reuters Lipper, which included information comparing (1) the fund’s performance with the
performance of a group of leveraged closed-end loan participation funds selected by Broadridge as comparable
to the fund (the “Performance Group”) and with a broader group of funds consisting of all leveraged
closed-end loan participation funds (the “Performance Universe”), all for various periods ended December
31, 2021, and (2) the fund’s actual and contractual management fees and total expenses with those of
the same group of funds in the Performance Group (the “Expense Group”) and with a broader group of
funds consisting of all leveraged closed-end loan participation funds, excluding outliers (the “Expense
Universe”), the information for which was derived in part from fund financial statements available
to Broadridge as of the date of its analysis. The Adviser previously had furnished the Board with a description
of the methodology Broadridge used to select the Performance Group and Performance Universe and the Expense
Group and Expense Universe.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
Performance
Comparisons. Representatives of the Adviser stated that the usefulness of performance comparisons
may be affected by a number of factors, including different investment limitations and policies and the
extent and manner in which leverage is employed that may be applicable to the fund and comparison funds
and the end date selected. The Board discussed with representatives of the Adviser and the Sub-Adviser
the results of the comparisons and considered that the fund’s total return performance, on a net asset
value basis, was above the Performance Group and Performance Universe medians for all periods, ranking
first in the Performance Group for all periods, except for the one-year period when the fund ranked second.
The Board also considered that the fund’s total return performance, on a market price basis, was at
or above the Performance Group and Performance Universe medians for all periods, except for the one-year
period ended December 31, 2021. The Board also considered that the fund’s yield performance, on a net
asset value basis, was above the Performance Group and Performance Universe medians for all periods ended
December 31, 2021, and, on a market price basis, was at or above the Performance Group median for all
one-year periods ended December 31, 2021, and at or above the Performance Universe median for two of
the four one-year periods ended December 31, 2021.
Management Fee and Expense Ratio Comparisons.
The Board reviewed and considered the contractual management fee rate payable by the fund to the Adviser
in light of the nature, extent and quality of the management services and the sub-advisory services provided
by the Adviser and the Sub-Adviser, respectively. In addition, the Board reviewed and considered the
actual management fee rate paid by the fund over the fund’s last fiscal year. The Board also reviewed
the range of actual and contractual management fees and total expenses as a percentage of average net
assets of the Expense Group and Expense Universe funds and discussed the results of the comparisons.
The Board considered that the fund’s contractual management fee was higher than
the Expense Group median contractual management fee, the fund’s actual management fee, based on common
assets and leveraged assets together, was higher than the Expense Group median and the Expense Universe
median actual management fee, and, based on common assets alone, was higher than the Expense Group median
and the Expense Universe median actual management fee, was higher than the Expense Group median and lower
than the Expense Universe median actual management fee, and the fund’s total expenses, based on both
common assets alone and on common assets and leveraged assets together, were higher than the Expense
Group and Expense Universe median total expenses.
Representatives of
the Adviser reviewed with the Board the contractual management fee paid by the one other fund advised
by the Adviser that is in the same Lipper category as the fund (the “Similar Fund”), and explained
the nature of the Similar Fund. They discussed differences in fees paid and the relationship of the fees
paid in light of any differences in the services provided and other relevant factors, noting that the
fund is a closed-end fund. The Board considered the relevance of the fee information provided for the
Similar Fund to evaluate the appropriateness of the fund’s management fee.
82
Representatives of the Adviser noted that there were no separate accounts and/or
other types of client portfolios advised by the Adviser or the Sub-Adviser that are considered to have
similar investment strategies and policies as the fund.
The Board considered
the fee payable to the Sub-Adviser in relation to the fee payable to the Adviser by the fund and the
respective services provided by the Sub-Adviser and the Adviser. The Board also took into consideration
that the Sub-Adviser’s fee is paid by the Adviser, out of its fee from the fund, and not the fund.
Analysis
of Profitability and Economies of Scale. Representatives of the Adviser reviewed the expenses allocated
and profit received by the Adviser and its affiliates and the resulting profitability percentage for
managing the fund and the aggregate profitability percentage to the Adviser and its affiliates for managing
the funds in the BNY Mellon fund complex, and the method used to determine the expenses and profit. The
Board concluded that the profitability results were not excessive, given the services rendered and service
levels provided by the Adviser and its affiliates. The Board also had been provided with information
prepared by an independent consulting firm regarding the Adviser’s approach to allocating costs to,
and determining the profitability of, individual funds and the entire BNY Mellon fund complex. The consulting
firm also had analyzed where any economies of scale might emerge in connection with the management of
a fund.
The Board considered, on the advice of its counsel, the profitability
analysis (1) as part of its evaluation of whether the fees under the Agreements, considered in relation
to the mix of services provided by the Adviser and the Sub-Adviser, including the nature, extent and
quality of such services, supported the renewal of the Agreements and (2) in light of the relevant circumstances
for the fund and the extent to which economies of scale would be realized if the fund grows and whether
fee levels reflect these economies of scale for the benefit of fund shareholders. Since the Adviser,
and not the fund, pays the Sub-Adviser pursuant to the Sub-Investment Advisory Agreement, the Board did
not consider the Sub-Adviser’s profitability to be relevant to its deliberations. Representatives of
the Adviser stated that, because the fund is a closed-end fund without daily inflows and outflows of
capital, there were not significant economies of scale at this time to be realized by the Adviser in
managing the fund’s assets. Representatives of the Adviser also stated that, as a result of shared
and allocated costs among funds in the BNY Mellon fund complex, the extent of economies of scale could
depend substantially on the level of assets in the complex as a whole, so that increases and decreases
in complex-wide assets can affect potential economies of scale in a manner that is disproportionate to,
or even in the opposite direction from, changes in the fund’s asset level. The Board also considered
potential benefits to the Adviser and the Sub-Adviser from acting as investment adviser and sub-investment
adviser, respectively, and took into consideration that there were no soft dollar arrangements in effect
for trading the fund’s investments.
At the conclusion of these discussions,
the Board agreed that it had been furnished with sufficient information to make an informed business
decision with respect to the
83
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
renewal of the Agreements. Based on the discussions and considerations as described
above, the Board concluded and determined as follows.
· The Board concluded that the nature, extent and quality of
the services provided by the Adviser and the Sub-Adviser are adequate and appropriate.
· The Board was satisfied with the fund’s performance.
· The
Board concluded that the fees paid to the Adviser and the Sub-Adviser continued to be appropriate under
the circumstances and in light of the factors and the totality of the services provided as discussed
above.
· The
Board determined that the economies of scale which may accrue to the Adviser and its affiliates in connection
with the management of the fund had been adequately considered by the Adviser in connection with the
fee rate charged to the fund pursuant to the Management Agreement and that, to the extent in the future
it were determined that material economies of scale had not been shared with the fund, the Board would
seek to have those economies of scale shared with the fund.
In evaluating the Agreements,
the Board considered these conclusions and determinations and also relied on its previous knowledge,
gained through meetings and other interactions with the Adviser and its affiliates and the Sub-Adviser,
of the Adviser and the Sub-Adviser and the services provided to the fund by the Adviser and the Sub-Adviser.
The Board also relied on information received on a routine and regular basis throughout the year relating
to the operations of the fund and the investment management and other services provided under the Agreements,
including information on the investment performance of the fund in comparison to similar funds and benchmark
performance indices; general market outlook as applicable to the fund; and compliance reports. In addition,
the Board’s consideration of the contractual fee arrangements for the fund had the benefit of a number
of years of reviews of the Agreements for the fund, or substantially similar agreements for other BNY
Mellon funds that the Board oversees, during which lengthy discussions took place between the Board and
representatives of the Adviser. Certain aspects of the arrangements may receive greater scrutiny in some
years than in others, and the Board’s conclusions may be based, in part, on its consideration of the
fund’s arrangements, or substantially similar arrangements for other BNY Mellon funds that the Board
oversees, in prior years. The Board determined to renew the Agreements.
********************************
At a meeting of the fund’s Board of Directors (the “Board”) held on August
4, 2022 (the “August Meeting”), the Board considered and approved an interim sub-investment advisory
agreement (the “Interim Sub-Advisory Agreement”) and a new sub-investment advisory agreement (the
“New Sub-Advisory Agreement”), each between the fund’s investment adviser, BNY Mellon Investment
Adviser, Inc. (“BNYM Adviser”), on behalf of the fund, and Alcentra NY, LLC (“Alcentra NY”),
the fund’s sub-investment adviser, pursuant to which Alcentra NY would continue to provide day-to-day
84
management
of the fund’s portfolio, and agreed to recommend that shareholders of the fund approve the New Sub-Advisory
Agreement at a shareholder meeting to be held on October 13, 2022. Alcentra NY currently provides day-to-day
management of the fund’s portfolio pursuant to a sub-investment advisory agreement (the “Current
Sub-Advisory Agreement”) between BNYM Adviser, on behalf of the fund, and Alcentra NY. Alcentra NY
is a subsidiary of Alcentra Group Holdings, Inc. (together with Alcentra NY, “Alcentra”), which is
currently an indirect, wholly-owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”),
the parent company of BNYM Adviser. At the August Meeting, representatives of BNYM Adviser stated that,
in May 2022, BNY Mellon entered into a definitive agreement with Franklin Resources, Inc., a global investment
management organization operating as Franklin Templeton, pursuant to which Franklin Templeton will, subject
to certain regulatory approvals and satisfaction of other conditions, acquire Alcentra (the “Transaction”).
The Transaction is expected to be completed by or before the first quarter of 2023 (the “Closing Date”),
at which time Alcentra NY will become a subsidiary of Franklin Templeton and there will be a “change
in control” of Alcentra NY, which will effect an assignment and automatic termination of the Current
Sub-Advisory Agreement, pursuant to its terms and the applicable provisions of the Investment Company
Act of 1940, as amended (the “1940 Act”). To enable Alcentra NY to continue to provide day-to-day
management of the fund’s investments after the automatic termination of the Current Sub-Advisory
Agreement,
the Board members present in person at the August Meeting, including a majority of the Board members
who are not “interested persons” (as that term is defined in the 1940 Act) of the fund (“Independent
Board Members”), unanimously approved the New Sub-Advisory Agreement, subject to shareholder approval,
and the Interim Sub-Advisory Agreement, which does not require shareholder approval, that would go into
effect for a limited period of time if shareholders have not approved the New Sub-Advisory Agreement
on or before the Closing Date. As required under the 1940 Act, the Interim Sub-Advisory Agreement expires
upon the earlier of 150 days after the Closing Date or upon shareholder approval and effectiveness of
the New Sub-Advisory Agreement. There are no material differences between the Interim Sub-Advisory Agreement
and the New Sub-Advisory Agreement, except for the term and termination provisions.
The
Current Sub-Advisory Agreement was most recently reapproved by the Board for a one-year continuance at
a meeting held March 2-3, 2022 (the “15(c) Meeting”). At the 15(c) Meeting, the Independent Board
Members requested and received information from BNYM Adviser and Alcentra NY they deemed reasonably necessary
for their review of the Current Sub-Advisory Agreement and the performance and services provided by Alcentra
NY. The information received by the Board included information related to the fees paid by the fund to
BNYM Adviser and by BNYM Adviser to Alcentra NY and the profitability of BNYM Adviser with respect to
the fund, among other items, in accordance with Section 15(c) of the 1940 Act. Management believed that
there were no material changes to the information presented at the 15(c) Meeting relevant to the Board’s
consideration of the New Sub-Advisory Agreement and the
85
INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
Interim Sub-Advisory Agreement, other than the information about the Transaction,
Alcentra NY, Alcentra Group Holdings, Inc. and Franklin Templeton.
In connection with
the August Meeting and in accordance with Section 15(c) of the 1940 Act, the Board requested, and BNYM
Adviser and Alcentra NY provided, materials relating to the Transaction, Alcentra NY, Alcentra Group
Holdings, Inc. and Franklin Templeton in connection with the Board’s consideration of whether to approve
the New Sub-Advisory Agreement and the Interim Sub-Advisory Agreement. This included a description of
the Transaction and its anticipated effects on Alcentra NY, as well as information regarding Alcentra
Group Holdings, Inc. and its business activities, personnel and affiliates. The Board noted that BNYM
Adviser and Alcentra NY represented that there would be no diminution in the nature, extent or quality
of the services provided to the fund in connection with the implementation of the New Sub-Advisory Agreement
or the Interim Sub-Advisory Agreement. Accordingly, the Board also considered information presented to
them as part of the annual agreement review process at the 15(c) Meeting. Additionally, the Board reviewed
materials supplied by counsel that were prepared for use by the Board in fulfilling its duties under
state law and the 1940 Act. It was noted that the Transaction would comply with Section 15(f) of the
1940 Act in that 75% or more of the Board was comprised of Independent Board Members and would remain
so for three years following the Closing Date, and that no “unfair burden” (as defined in the 1940
Act) would be imposed on the fund by Alcentra NY during the two-year period following the Closing Date.
In
voting to approve the New Sub-Advisory Agreement and the Interim Sub-Advisory Agreement, the Board considered
whether the approval of the agreements would be in the best interests of the fund and its shareholders,
an evaluation based on several factors including those discussed below. The Independent Board Members
were represented by legal counsel that is independent of BNYM Adviser and Alcentra NY in connection with
their consideration of approval of the New Sub-Advisory Agreement and the Interim Sub-Advisory Agreement.
The factors discussed below were also considered by the Independent Board Members in executive session
during which such independent legal counsel provided guidance and a written description to the Independent
Board Members of their statutory responsibilities and the legal standards that are applicable to the
approval of investment advisory and sub-investment advisory agreements. Based on their discussions and
considerations described below, the Board, including a majority of the Independent Board
Members, approved the New Sub-Advisory Agreement, subject to shareholder approval, and the Interim Sub-Advisory
Agreement that would go into effect, without shareholder approval, for a limited period of time only
if shareholders have not approved the New Sub-Advisory Agreement on or before the Closing Date. It is
currently anticipated that the New Sub-Advisory Agreement, if approved by shareholders, will be reviewed
by the Board as part of its annual review of advisory arrangements for the fund in the first quarter
of 2023.
Nature, Extent and Quality of Services to be Provided under the New Sub-Advisory
Agreement. In examining the nature, extent and quality of the services to be provided by
Alcentra NY to the fund under the New Sub-Advisory Agreement, the Board considered (i) Alcentra
86
NY’s organization, history, reputation, qualification and background, as well
as the qualifications of its personnel; (ii) Alcentra NY’s expertise in providing portfolio management
services to the fund and the performance history of the fund; (iii) Alcentra NY’s investment strategy
for the fund; (iv) the fund’s long- and short-term performance relative to comparable funds and unmanaged
indices; and (v) Alcentra NY’s compliance program. The Board specifically took into account that there
were currently no long-term or short-term plans to make changes to the investment policies, strategies
or objective of the fund, or to the status of Chris Barris and Kevin Cronk as primary portfolio managers
of the fund, as a result of the Transaction or in connection with the implementation of the New Sub-Advisory
Agreement. The Board members considered the specific responsibilities in all aspects of the day-to-day
management of the fund by Alcentra NY, and the fact that existing management of Alcentra currently expects
that the involvement of Messrs. Barris and Cronk in the portfolio management of the fund will be unaffected
by the Transaction. The Board also considered the financial resources that will be available to Alcentra
NY. The fund’s Chief Compliance Officer discussed the compliance infrastructure of the fund following
the Transaction. The Board also discussed the acceptability of the terms of the New Sub-Advisory Agreement
and the Interim Sub-Advisory Agreement.
The Board concluded that the fund will
continue to benefit from the quality and experience of Alcentra NY’s investment professionals, specifically
including Messrs. Barris and Cronk, who will continue to provide services to the fund after the Transaction.
Based on its consideration and review of the foregoing information, the Board concluded that it was satisfied
with the nature, extent and quality of the sub-investment advisory services expected to be provided by
Alcentra NY.
Fund Investment Performance. Because existing management of Alcentra
currently expects that the involvement of Messrs. Barris and Cronk in the portfolio management of the
fund will be unaffected by the Transaction, the Board members considered the investment performance of
those investment professionals in managing the fund’s portfolio as a factor in evaluating the New Sub-Advisory
Agreement and the Interim Sub-Advisory Agreement.
At the 15(c) Meeting,
the Board received and reviewed reports prepared by Broadridge Financial Solutions, Inc. (“Broadridge”),
an independent provider of investment company data, which included information comparing the fund’s
performance with the performance of a group of funds selected by Broadridge as comparable to the fund
(the “Performance Group”) and with a broader group of funds (the “Performance Universe”), all
for various periods ended December 31, 2021. It was noted that, while the Board has found the Broadridge
data generally useful, the Board members recognized the limitations of such data, including that the
data may vary depending on the end date selected and that the results of the performance comparisons
may vary depending on the selection of the peer group and its composition over time. BNYM Adviser also
provided a comparison of the fund’s calendar year total returns to the returns of the fund’s benchmark
index. The Board concluded that it was generally satisfied with the fund’s overall performance and
portfolio management.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
At the August Meeting, the Board reviewed updated reports prepared by Broadridge
which included information comparing the fund’s performance with its Performance Group and Performance
Universe, all for various periods ended May 31, 2022. BNYM Adviser also provided information comparing
the fund’s performance with its benchmark index and Morningstar category percentile ranking, all for
various periods ended July 31, 2022. The Board discussed with representatives of BNYM Adviser and Alcentra
NY the results of the comparisons and considered the fund’s performance in light of overall financial
market conditions. Where the fund’s total return performance was below the median during specified
periods, the Board noted the explanations from BNYM Adviser and Alcentra NY concerning the fund’s relative
performance versus the Performance Group or Performance Universe for such periods. Based on its review,
the Board concluded that it was generally satisfied with the fund’s overall performance and portfolio
management.
The Board members discussed with representatives of BNYM Adviser
and Alcentra NY that the investment strategies to be employed by Alcentra NY in the management of the
fund’s assets are currently expected to remain the same under the New Sub-Advisory Agreement. The Board
also considered the fact that existing management of Alcentra currently expects that the involvement
of Messrs. Barris and Cronk in the portfolio management of the fund will be unaffected by the Transaction.
Based on its consideration and review of the foregoing, the Board concluded that these factors supported
a decision to approve the New Sub-Advisory Agreement and the Interim Sub-Advisory Agreement.
Management Fee and New
Sub-Advisory Fee and Expense Ratio. The Board considered the proposed fee payable under the
New Sub-Advisory Agreement, noting that the proposed fee would be paid by BNYM Adviser, as is the case
under the Current Sub-Advisory Agreement, and, thus, would not impact the fees paid by the fund. At the
15(c) Meeting, the Board reviewed and considered the contractual management fee payable by the fund to
BNYM Adviser pursuant to the Management Agreement and the fee payable by BNYM Adviser to Alcentra NY
pursuant to the Current Sub-Advisory Agreement. The Board also reviewed reports prepared by Broadridge
which included information comparing the fund’s actual and contractual management fees and total expenses
with those of the same group of funds in the Performance Group (the “Expense Group”) and with a broader
group of funds (the “Expense Universe”), the information for which was derived in part from fund
financial statements available to Broadridge as of the date of its analysis. The Board also reviewed
the range of actual and contractual advisory fees and total expenses of the Expense Group and Expense
Universe funds and discussed the results of the comparisons. The Board concluded that the fees paid to
BNYM Adviser were appropriate under the circumstances and in light of the factors and the totality of
the services provided.
At the August Meeting, the Board considered the proposed fee
payable to Alcentra NY under the New Sub-Advisory Agreement in relation to the fee paid to BNYM Adviser
by the fund and the respective services provided by Alcentra NY and BNYM Adviser. The Board noted that
the proposed fee would be the same as that payable under the
88
Current Sub-Advisory Agreement and that the proposed fee would be paid by BNYM
Adviser, as is the case under the Current Sub-Advisory Agreement, and, thus, would not impact the fees
paid by the fund. The Board reviewed updated reports prepared by Broadridge which included information
comparing the fund’s actual and contractual management fees and total expenses with those of its Expense
Group and Expense Universe, the information for which was derived in part from fund financial statements
available to Broadridge as of the date of its analysis. The Board also reviewed the range of actual and
contractual advisory fees and total expenses of the Expense Group and Expense Universe funds and discussed
the results of the comparisons. The Board determined that the advisory fees and other expenses continued
to be reasonable in light of the nature, extent and quality of the services to be provided to the fund
under the Management Agreement and New Sub-Advisory Agreement. The Board concluded that the proposed
fee payable by BNYM Adviser to Alcentra NY in its capacity as sub-investment adviser was reasonable and
appropriate.
Profitability. The Board recognized that, because the proposed fee payable
under the Sub-Advisory Agreement to Alcentra NY would be paid by BNYM Adviser, and not the fund, an analysis
of profitability was more appropriate in the context of the Board’s consideration of the Management
Agreement. At the 15(c) Meeting, the Board received and considered a profitability analysis of BNYM Adviser
and its affiliates in providing services to the fund. BNYM Adviser representatives reviewed the expenses
allocated and profit received by BNYM Adviser and its affiliates and the resulting profitability percentage
for managing the fund and the aggregate profitability percentage to BNYM Adviser and its affiliates for
managing the funds in the BNY Mellon fund complex, and the method used to determine the expenses and
profit. The Board concluded that the profitability results were not excessive, given the services rendered
and service levels provided by BNYM Adviser and its affiliates.
At
the August Meeting, the Board noted that because Alcentra NY would no longer be an affiliate of BNYM
Adviser after the Closing Date, the fee payable to Alcentra NY by BNYM Adviser under the New Sub-Advisory
Agreement would have the effect of potentially reducing BNYM Adviser’s profitability with respect to
the fund. The Board, therefore, determined that BNYM Adviser’s expected profitability should not be
excessive in light of the nature, extent and quality of the services to be provided to the fund after
the Transaction. Consideration of profitability with respect to Alcentra NY was not relevant to the Board’s
determination to approve the New Sub-Advisory Agreement and the Interim Sub-Advisory Agreement.
Economies
of Scale. The Board recognized that, because the proposed fee payable under the New Sub-Advisory
Agreement to Alcentra NY would be paid by BNYM Adviser, and not the fund, an analysis of economies of
scale was more appropriate in the context of the Board’s consideration of the Management Agreement.
At the 15(c) Meeting, the Board discussed any economies of scale or other efficiencies that may result
from increases in the fund’s assets. The Board noted that there are various ways to share potential
economies of scale with fund shareholders and that it appeared that the benefits of any economies of
scale would be appropriately shared with shareholders.
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INFORMATION ABOUT THE RENEWAL AND APPROVAL OF THE FUND’S
MANAGEMENT AND SUB-INVESTMENT ADVISORY AGREEMENTS (Unaudited) (continued)
At the August Meeting, the Board concluded that no material impact to the analysis
of economies of scale is expected as a result of the Transaction and that, to the extent in the future
it were determined that material economies of scale had not been shared with the fund, the Board would
seek to have those economies of scale shared with the fund.
Other Benefits to Alcentra NY.
At the August Meeting, the Board considered potential benefits to Alcentra NY from acting as sub-investment
adviser and noted that no such ancillary benefits were indicated. At the August Meeting, the Board also
considered the benefits to be received by BNY Mellon and Alcentra NY as a result of the Transaction and
determined that any such ancillary benefits were reasonable.
After full consideration
of the factors discussed above, with no single factor identified as being of paramount importance, the
Board, including a majority of the Independent Board Members, approved the New Sub-Advisory Agreement
and the Interim Sub-Advisory Agreement for the fund.
90
BOARD
MEMBERS INFORMATION (Unaudited)
Independent
Board Members
Joseph
S. DiMartino (78)
Chairman of the Board (2017)
Current term expires in 2024
Principal
Occupation During Past 5 Years:
· Director
or Trustee of funds in the BNY Mellon Family of Funds and certain other entities (as described in the
fund’s Statement of Additional Information) (1995-Present)
Other Public Company
Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(1997-Present)
No. of Portfolios for which Board Member Serves: 94
———————
Francine J. Bovich (71)
Board Member (2017)
Current term expires in 2025
Principal Occupation
During Past 5 Years:
· The
Bradley Trusts, private trust funds, Trustee (2011-Present)
Other
Public Company Board Memberships During Past 5 Years:
· Annaly Capital Management, Inc., a real estate investment
trust, Director (2014-Present)
No. of Portfolios for which Board Member
Serves: 54
———————
Andrew J. Donohue (72)
Board
Member (2019)
Current term expires in
2023
Principal Occupation During Past 5 Years:
· Attorney, Solo Law Practice (2019-Present)
· Shearman
& Sterling LLP. a law firm, Of Counsel (2017-2019)
· Chief of Staff to the Chair of the SEC (2015-2017)
Other Public Company Board Memberships During Past 5 Years:
· Oppenheimer Funds (58 funds), Director
(2017-2019)
No. of Portfolios for which Board Member Serves: 44
———————
91
BOARD
MEMBERS INFORMATION (Unaudited) (continued)
Kenneth A. Himmel (76)
Board Member (2017)
Current term expires in 2024
Principal Occupation
During Past 5 Years:
· Gulf
Related, an international real estate development company, Managing Partner (2010-Present)
· Related
Urban Development, a real estate development company, President and Chief Executive Officer
(1996-Present)
· American
Food Management, a restaurant company, Chief Executive Officer (1983-Present)
· Himmel
& Company, a real estate development company, President and Chief Executive Officer
(1980-Present)
No. of Portfolios for which Board Member Serves: 22
———————
Roslyn M. Watson
(72)
Board Member (2017)
Current term expires in
2023
Principal Occupation During Past 5 Years:
· Watson Ventures, Inc., a real estate investment company, Principal
(1993-Present)
Other Public Company Board Memberships During Past 5 Years:
· American
Express Bank, FSB, Director (1993-2018)
No. of Portfolios for which Board Member
Serves: 44
———————
Benaree Pratt Wiley (76)
Board
Member (2017)
Current term expires in
2023
Principal Occupation During Past 5 Years:
· The Wiley Group, a firm specializing in strategy and business
development, Principal (2005-Present)
Other Public Company
Board Memberships During Past 5 Years:
· CBIZ,
Inc., a public company providing professional business services, products and solutions, Director
(2008-Present)
· Blue
Cross-Blue Shield of Massachusetts, Director (2004-2020)
No. of Portfolios for
which Board Member Serves: 61
———————
92
Interested
Board Member
Bradley Skapyak (63)
Board Member (2021)
Current term expires in 2025
Principal Occupation
During Past 5 Years:
· Chief
Operating Officer and Director of The Dreyfus Corporation (2009-2019)
· Chief Executive Officer and Director of the Distributor (2016-2019)
· Chairman
and Director of The Dreyfus Transfer Agent, Inc. (2011-2019)
· Senior Vice President of The Bank of New York Mellon (2007-2019)
No.
of Portfolios for which Board Member Serves: 22
Mr.
Skapyak is deemed to be an Interested Board Member of the fund as a result of his ownership of unvested
restricted stock units of BNY Mellon.
———————
The
address of the Board Members and Officers is c/o BNY Mellon Investment Adviser, Inc., 240 Greenwich Street,
New York, New York 10286.
93
OFFICERS
OF THE FUND (Unaudited)
DAVID
DIPETRILLO, President since January 2021.
Vice President and Director
of the Adviser since February 2021; Head of North America Product, BNY Mellon Investment Management since
January 2018; and Director of Product Strategy, BNY Mellon Investment Management from January 2016 to
December 2017. He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 44 years old and has been an employee of BNY Mellon since
2005.
JAMES
WINDELS, Treasurer since July 2017.
Vice President of the
Adviser since September 2020; and Director–BNY Mellon Fund Administration. He is an officer of 56 investment
companies (comprised of 129 portfolios) managed by the Adviser or an affiliate of the Adviser. He is
63 years old and has been an employee of the Adviser since April 1985.
PETER M. SULLIVAN, Chief
Legal Officer since July 2021 and Vice President and Assistant Secretary since March 2019.
Chief
Legal Officer of the Adviser and Associate General Counsel of BNY Mellon since July 2021;
Senior
Managing Counsel of BNY Mellon from December 2020 to July 2021; and Managing Counsel of BNY Mellon from
March 2009 to December 2020. He is an officer of 56 investment companies (comprised of 129 portfolios)
managed by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an employee of
BNY Mellon since April 2004.
JAMES BITETTO, Vice President since July 2017 and Secretary
since February 2018.
Senior Managing Counsel of BNY Mellon since
December 2019; Managing Counsel of BNY Mellon from April 2014 to December 2019; and Secretary of the
Adviser. He is an officer of 56 investment companies (comprised of 129 portfolios) managed by the Adviser
or an affiliate of the Adviser. He is 56 years old and has been an employee of the Adviser since December
1996.
DEIRDRE CUNNANE, Vice President and Assistant Secretary since March 2019.
Managing Counsel of BNY Mellon since December 2021, Counsel of BNY Mellon from
August 2018 to December 2021; and Senior Regulatory Specialist at BNY Mellon Investment Management Services
from February 2016 to August 2018. She is an officer of 56 investment companies (comprised of 129 portfolios)
managed by the Adviser or an affiliate of the Adviser. She is 32 years old and has been an employee of
the Adviser since August 2018.
SARAH S. KELLEHER, Vice President and Assistant Secretary since July 2017.
Vice President of BNY Mellon ETF Investment Adviser; LLC since February 2020;
Senior Managing Counsel of BNY Mellon since September 2021; Managing Counsel of BNY Mellon from December
2017 to September 2021; and Senior Counsel of BNY Mellon from March 2013 to December 2017. She is an
officer of 56 investment companies (comprised of 129 portfolios) managed by the Adviser or an affiliate
of the Adviser. She is 46 years old and has been an employee of the Adviser since March 2013.
JEFF PRUSNOFSKY, Vice President
and Assistant Secretary since July 2017.
Senior Managing Counsel
of BNY Mellon. He is an officer of 56 investment companies (comprised of 129 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 57 years old and has been an employee of the Adviser since
October 1990.
AMANDA
QUINN, Vice President and Assistant Secretary since March 2020.
Counsel
of BNY Mellon since June 2019; Regulatory Administration Manager at BNY Mellon Investment Management
Services from September 2018 to May 2019; and Senior Regulatory Specialist at BNY Mellon Investment Management
Services from April 2015 to August 2018. She is an officer of 56 investment companies (comprised of 129
portfolios) managed by the Adviser or an affiliate of the Adviser. She is 37 years old and has been
an employee of the Adviser since June 2019.
94
NATALYA ZELENSKY, Vice President and Assistant Secretary since March 2017.
Chief Compliance Officer since August 2021 and Vice President since February 2020
of BNY Mellon ETF Investment Adviser, LLC; Chief Compliance Officer since August 2021 and Vice President
and Assistant Secretary since February 2020 of BNY Mellon ETF Trust; Managing Counsel of BNY Mellon from
December 2019 to August 2021; Counsel of BNY Mellon from May 2016 to December 2019; and Assistant Secretary
of the Adviser from April 2018 to August 2021. She is an officer of 55 investment companies (comprised
of 128 portfolios) managed by the Adviser or an affiliate of the Adviser. She is 37 years old and has
been an employee of BNY Mellon since May 2016.
DANIEL
GOLDSTEIN, Vice President since March 2022.
Vice President and Head of Product Development of North America Product, BNY Mellon
Investment Management since January 2018; Co-Head of Product Management, Development & Oversight
of North America Product, BNY Mellon Investment Management from January 2010 to January 2018; and Senior
Vice President, Development & Oversight of North America Product, BNY Mellon Investment Management
since 2010. He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the
Adviser or an affiliate of the Adviser. He is 53 years old and has been an employee of the Distributor
since 1991.
JOSEPH MARTELLA, Vice President since
March 2022.
Vice President and Head of Product Management
of North America Product, BNY Mellon Investment Management since January 2018; Director of Product Research
and Analytics of North America Product, BNY Mellon Investment Management from January 2010 to January
2018; and Senior Vice President of North America Product, BNY Mellon Investment Management since 2010.
He is an officer of 55 investment companies (comprised of 108 portfolios) managed by the Adviser or an
affiliate of the Adviser. He is 45 years old and has been an employee of the Distributor since 1999.
GAVIN
C. REILLY, Assistant Treasurer since July 2017.
Tax Manager–BNY Mellon
Fund Administration. He is an officer of 56 investment companies (comprised of 129 portfolios) managed
by the Adviser or an affiliate of the Adviser. He is 54 years old and has been an employee of the Adviser
since April 1991.
ROBERT SALVIOLO, Assistant Treasurer since July 2017.
Senior
Accounting Manager–BNY Mellon Fund Administration. He is an officer of 56 investment companies (comprised
of 129 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 55 years old and has
been an employee of the Adviser since June 1989.
ROBERT SVAGNA, Assistant Treasurer since July 2017.
Senior
Accounting Manager–BNY Mellon Fund Administration. He is an officer of 56 investment companies (comprised
of 129 portfolios) managed by the Adviser or an affiliate of the Adviser. He is 55 years old and has
been an employee of the Adviser since November 1990.
JOSEPH W. CONNOLLY, Chief Compliance Officer
since July 2017.
Chief Compliance Officer of the BNY Mellon
Family of Funds and BNY Mellon Funds Trust since 2004; and Chief Compliance Officer of the Adviser from
2004 until June 2021. He is an officer of 55 investment companies (comprised of 115 portfolios) managed
by the Adviser. He is 65 years old.
95
OFFICERS
AND DIRECTORS
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc.
240
Greenwich Street
New York, NY 10286
| | | |
Directors | | Officers (continued) | |
Independent Board Members: | | Assistant Treasurers
(continued) | |
Joseph S. DiMartino, Chairman | | Robert Salviolo | |
Francine J. Bovich | | Robert Svagna | |
Andrew J. Donohue | | Chief Compliance Officer | |
Kenneth A. Himmel | | Joseph W. Connolly | |
Roslyn M. Watson | | Portfolio Managers | |
Benaree Pratt Wiley | | Chris Barris | |
Interested Board Member: | | Kevin Cronk | |
Bradley Skapyak | | Hiram Hamilton | |
Officers | | | |
President | | Adviser | |
David DiPetrillo | | BNY Mellon Investment Adviser, Inc. | |
Chief Legal Officer | | Sub-Adviser | |
Peter M. Sullivan | | Alcentra NY, LLC | |
Vice President and Secretary | | Custodian | |
James Bitetto | | The Bank of New York Mellon | |
Vice Presidents and Assistant Secretaries | | Counsel | |
Deirdre Cunnane | | Proskauer Rose LLP | |
Sarah S. Kelleher | | Transfer Agent, Registar and | |
Jeff Prusnofsky | | Dividend Disbursing Agent | |
Amanda Quinn | | Computershare Inc. | |
Natalya Zelensky | | Stock Exchange Listing | |
Treasurer | | NYSE Symbol: DCF | |
James Windels | | Initial SEC Effective Date | |
Vice Presidents | | 10/27/17 | |
Daniel Goldstein | | | |
Joseph Martella | | | |
Assistant Treasurers | | | |
Gavin C. Reilly | | | |
| | | |
The
fund’s net asset value per share appears in the following publications: Barron’s, Closed-End Bond
Funds section under the heading “Bond Funds” every Monday; The Wall Street Journal, Mutual Funds
section under the heading “Closed-End Bond Funds” every Monday. |
Notice is hereby given in accordance with Section 23(c) of
the Act that the fund may purchase shares of its common stock in the open market when it can do so at
prices below the then current net asset value per share. |
96
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BNY
Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc.
240 Greenwich Street
New York, NY 10286
Adviser
BNY Mellon
Investment Adviser, Inc.
240 Greenwich Street
New York, NY 10286
Sub-Adviser
Alcentra NY,
LLC
200 Park Avenue
New York, NY 10166
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Transfer
Agent &
Registrar
Computershare Inc.
480 Washington Boulevard
Jersey City, NJ 07310
Dividend Disbursing Agent
Computershare Inc.
P.O. Box 30170
College Station, TX 77842
For more information about the fund, visit
https://im.bnymellon.com/us/en/products/closed-end-funds.jsp. Here you will find the fund’s most recently
available quarterly fact sheets and other information about the fund. The information posted on the fund’s
website is subject to change without notice.
The fund files its complete schedule of
portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT.
The fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
A
description of the policies and procedures that the fund uses to determine how to vote proxies relating
to portfolio securities and information regarding how the fund voted these proxies for the most recent
12-month period ended June 30 is available at www.im.bnymellon.com
and
on the SEC’s website at www.sec.gov and without charge, upon request, by calling 1-800-373-9387.
| |
0822AR0822
| |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
SUMMARY OF THE FUND'S PROXY VOTING POLICY
AND PROCEDURES
The Fund's Board of Directors has adopted the
following procedures with respect to proxy voting by the Fund.
Delegation of Proxy Voting Responsibility
and Adoption of Proxy Voting Procedures
The Board has delegated the authority to vote
proxies of companies held in the Fund's portfolio to Alcentra NY, LLC ("Alcentra NY"), the Fund's sub-investment adviser, as
described below. BNY Mellon Investment Adviser, Inc. ("BNYM Investment Adviser") serves as the Fund's investment adviser.
In addition, the Board has adopted Alcentra
NY's proxy voting procedures pursuant to which proxies of companies held in the Fund's portfolio will be voted.
Proxy Voting Operations
The Fund has engaged ISS as its proxy voting
agent to administer the ministerial, non-discretionary elements of proxy voting and reporting. Each fund in the BNY Mellon Family of Funds
bears an equal share of ISS's fees in connection with the proxy voting and related services that ISS provides in respect of the funds.
Voting Shares of Certain Registered Investment
Companies
Under certain circumstances, when the Fund
owns shares of another registered investment company (an "Acquired Fund"), the Fund may be required by the 1940 Act or the rules
thereunder, or exemptive relief from the 1940 Act and/or the rules thereunder, to vote such Acquired Fund shares in a certain manner,
such as voting the Acquired Fund shares in the same proportion as the vote of all other shareholders of such Acquired Fund.
Policies and Procedures; Oversight
The Fund's Chief Compliance Officer is responsible
for confirming that Alcentra NY has adopted and implemented written policies and procedures that are reasonably designed to ensure that
the Fund's proxies are voted in the best interest of the Fund. In addition, the adequacy of such policies and procedures are reviewed
at least annually, and proxy voting for the Fund is monitored to ensure compliance with Alcentra NY's procedures, such as by sampling
votes cast for the Fund, including routine proposals as well as those that require more analysis, to determine whether they complied with
Alcentra NY's Proxy Voting Procedures.
Review of Proxy Voting
BNYM Investment Adviser reports annually to
the Board on the Fund's proxy voting, including information regarding: (1) proxy voting proposals that were voted; (2) proxy voting proposals
that were voted against the management company's recommended vote, but in accordance with the applicable proxy voting guidelines; and
(3) proxy voting proposals that were not voted, including the reasons the proxy voting proposals were not voted.
Availability of Fund Proxy Voting Records
Pursuant to Rule 30b1-4 under the 1940 Act,
the Fund is required to file its complete proxy voting record with the SEC on Form N-PX not later than August 31st of each
year for the most recent twelve-month period ended June 30th. In addition, this information is available, by August 31st
of each year, at http://www.im.bnymellon.com. The Fund has delegated the responsibility for gathering this information,
filing Form N-PX and posting voting information
to the website to BNYM Investment Adviser, with the assistance of ISS.
SUMMARY OF ALCENTRA'S PROXY VOTING POLICY
AND PROCEDURES
Scope
This Policy applies to all strategies across
both legal entities: Alcentra NY, LLC and Alcentra Limited (collectively, "Alcentra" or the "Firm").
Alcentra generally will not be called upon
to vote proxies for its syndicated loan and direct lending investments because of the nature of the instruments involved in the investment
strategy (i.e. loans rather than securities). An exception is when Alcentra may hold loan investments which could be converted to voting
securities.
Proxy votes are also not generally conducted
for corporate bonds. In addition, proxy votes may take place from time to time on structured credit investments where our fund holds the
equity tranche.
Purpose
When engaged by a client to provide discretionary
advisory services, Alcentra is typically delegated the responsibility to vote on matters considered at portfolio companies' shareholder
meetings, usually by means of a proxy ballot ("proxy voting").
In these instances, Alcentra has a duty to
monitor corporate events and to vote proxies in the best interest of its client and not subrogate the interests of its clients to its
own interests. This generally means voting with a view toward enhancing the economic value of the investment. In the case of social and
political responsibility issues that, in Alcentra's opinion, do not primarily involve financial considerations, it is the Firm's objective
to support shareholder proposals that the Firm believes promote good corporate citizenship while enhancing long-term shareholder value.
When it has voting responsibility, Alcentra
will make every attempt to vote when given an opportunity to do so. However, there may be instances when the Firm is unable or unwilling
to vote because of legal or operational difficulties or because it believes the administrative burden and/or associated cost exceeds the
expected benefit to a client.
Regulatory Context
The SEC has taken the position that proxy voting
is only required where the adviser exercises discretion over advisory assets and the adviser's contract is silent on proxy voting responsibilities
or specifically provides that the adviser will vote proxies.
The ERISA rules of the Department of Labor
("DOL") require an adviser to vote proxies for ERISA clients unless the plan administrator or other fiduciary has expressly
precluded such responsibilities.
For most other clients, unless another service
provider is delegated proxy voting responsibilities, the adviser's role as an adviser with investment discretion would include proxy voting
responsibilities.
Alcentra NY, Advisers Act Requirements
In
line with the requirements of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), it is
Alcentra's policy to
- Adopt and implement written policies and procedures that
are reasonably designed to ensure that the adviser votes client securities in the best interest of clients, which procedures must include
how the adviser addresses material conflicts that may arise between the adviser's interests and those of the adviser's clients;
- Disclose to clients via the Form ADV Part 2A how they may
obtain information from the adviser about how the adviser voted with respect to their securities; and
- Describe to clients via Form ADV Part 2A the adviser's
proxy voting policies and procedures and, upon request, furnish a copy of the policies and procedures to the requesting client.
Alcentra NY, ERISA Requirements
Following from the DOL's guidance on proxy
voting in respect of ERISA pension plan funds, it is Alcentra policy to:
- Clearly delineate responsibility for voting between Alcentra
NY and the trustee or other plan fiduciary that appointed Alcentra NY, possibly through the investment management agreement.
- Take reasonable steps to ensure that it has received all
proxies for which it has voting authority and implemented appropriate reconciliation procedures.
- In voting, act prudently and solely in the interests of
pension plan participants and beneficiaries. In so doing we consider factors that would affect the value of the plan's investments and
may not subordinate the interests of plan participants and beneficiaries in their retirement income to unrelated objectives, such as social
considerations. However, other DOL pronouncements in the context of investment decisions indicate that social considerations may be used
in making investment decisions to select among investments of equal risk and return.
- The plan administrator will periodically monitor Alcentra's
voting activities, and both the client's monitoring activities and Alcentra's voting activities (including the votes cast in each particular
case) must be documented.
Voting
Alcentra reviews the circumstances for each
vote to determine which stance would best serve its clients and votes accordingly. Alcentra votes and documents its vote as follows:
| · | A Voting File has been established to document how Alcentra NY voted on
each proxy vote. |
| · | While Alcentra expects to vote all identical client proxies in the same
manner across each client account, the relevant Portfolio Manager or Investment Committee may vote certain client accounts differently
than others if it is determined that it is in the best interest of the respective clients to do so. |
| · | Alcentra Portfolio Manager or Investment Committee for the particular Investment
Vehicle, or designee, will decide, on a case-by-case, how each vote should be cast in order to best serve the interest of each respective
client. |
| · | A record noting the details of the vote, as well as an assessment as to
whether a material conflict of interest exists, is maintained in the Voting File. |
| · | Copies of actual voting records will be maintained. |
Non-Voting of Proxies
When it has voting responsibility, Alcentra
will make every attempt to vote when given an opportunity to do so. However, there may be instances when the Firm is unable or unwilling
to vote because of legal or operational difficulties or because it believes the administrative burden and/or associated cost exceeds the
expected benefit to a client.
Conflicts of Interest
While Alcentra does not anticipate that it
will regularly face a material conflict of interest in the exercise of its voting responsibilities, Alcentra has developed a Proxy Voting
Form that has been designed to identify and document conflicts of interest. Based on the responses to the Form, the Portfolio Manager
or designee will determine if there is any actual or perceived conflict of interest. If a conflict exists, the Portfolio Manager or designee
will determine whether the conflict is "material" based on the nature of the business or personal relationship, the specific
proxy proposal and such other factors or criteria as the Portfolio Manager or designee determine are relevant.
In the event of any uncertainty relating to
the presence of a conflict of interest or whether a conflict is material, the Portfolio Manager or designee may consult with others as
appropriate. Employees involved in the decision making process or administration of proxy votes are prohibited from revealing how Alcentra
intends to vote on a proposal in order to reduce any attempted influence from interested parties.
If a material conflict of interest is found
to exist, the Chief Investment Officer and Chief Compliance Officer will be consulted to ensure that the vote is cast in a manner that
is in the best interest of the client(s). Alcentra may seek an independent third party to recommend how to vote the proposal. Such recommendation
may be based on the third party's predetermined voting policies (so long as the subject matter of the proposal is specifically addressed
in the guidelines) or independent research conducted by the third party.
In an effort to minimize the appearance that
certain relationships or situations may inappropriately influence its voting decisions, Alcentra has determined that when presented with
the opportunity to vote on shareholder proposals issued by an "Affiliated Fund" (for purposes of this policy, any pooled investment
vehicle that is sponsored by a subsidiary of BNY Mellon shall be considered an "Affiliated Fund"), it will vote in the same
proportion as all other voting shareholders of such Affiliated Fund ("echo voting"). If "echo voting" is not operationally
feasible, the vote recommendations of an independent third party shall be applied. The independent third party shall be ISS, if available,
or Glass Lewis & Co. ("Glass Lewis"), if ISS is not available.
Notwithstanding the foregoing, Alcentra also
may resolve any material conflict in such other manner as Alcentra believes is in the best interest of the client.
Record
Keeping
In line with the record-keeping requirements
in Rule 204-2 under the Advisers Act, it is Alcentra policy to maintain the following books and records:
- Copies of the adviser's proxy voting policies and procedures
- A copy of each proxy statement that the adviser receives
regarding client securities. Advisers may rely upon third-party service providers to maintain such records. For example, if an adviser
uses a third-party proxy voting service to vote client proxies, that company may maintain copies of the proxy statements on behalf of
the adviser. The proxy voting service must agree to provide the statements to the adviser promptly upon request. Alternatively, the adviser
could rely upon obtaining a copy of a proxy statement from the SEC's EDGAR system.
- A record of each vote cast by the adviser on behalf of
a client. Advisers may rely upon the records maintained by a third-party proxy voting service, if the records can be obtained by the adviser
promptly upon request.
- A copy of any document created by the adviser that was
material to making a decision on how to vote proxies on behalf of clients or that memorializes the bases for that decision. For example,
some advisers adopt general policies on how they will vote on certain issues.
A copy of each written client request for information
on how the adviser voted proxies on behalf of the client, and a copy of any written response by the adviser to any written or oral request
for information regarding how the adviser votes proxies on behalf of the requesting client.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) The following information is as of October
26, 2022, the date of the filing of this report:
Chris Barris, Kevin Cronk, CFA, and Hiram Hamilton
are the fund's primary portfolio managers, positions they have held since October 2017, October 2017 and February 2018, respectively.
Mr. Barris joined Alcentra in January 2013
as part of the combination of Alcentra with Standish Mellon Asset Management Company LLC's high yield business, and is the Global Head
of High Yield and Deputy Chief Investment Officer. He is responsible for managing all U.S. and global high yield portfolios, and has extensive
experience managing a broad range of high yield bond strategies for both institutional and retail finds. Mr. Barris also is responsible
for managing Alcentra's multi-asset credit portfolios, including US and European bonds and loans, and has considerable experience in credit
analysis with over 21 years of investment experience. Mr. Barris joined Standish Mellon Asset Management Company LLC, an affiliate of
BNYM Investment Adviser and Alcentra, in 2005, where he served as a Director and Senior Portfolio Manager for U.S. and global high yield
investments.
Mr. Cronk joined Alcentra in January 2013 as
part of the combination of Alcentra with Standish Mellon Asset Management Company LLC's high yield business, and is the Head of U.S. Credit
Research and a member of the U.S. Investment Committee. Mr. Cronk joined Standish Mellon Asset Management Company LLC, an affiliate of
BNYM Investment Adviser and Alcentra, in 2011 from Columbia Management, where he worked for eleven years as a High Yield Analyst and Portfolio
Manager. Prior to that, he worked as a High Yield Investment Associate at Putnam Investments.
Mr. Hamilton is a Managing Director and Global
Head of Structured Credit at Alcentra, which he joined in September 2017 from Alcentra Limited, where he was employed since 2008. Alcentra
Limited is an affiliate of Alcentra and BNYM Investment Adviser and, along with Alcentra, is a subsidiary of BNY Alcentra Group Holdings,
Inc. Mr. Hamilton serves as the portfolio manager for Alcentra's structured credit investments funds, overseeing approximately $4 billion
of investments in structured products, with a particular focus on CLO investments, across Alcentra's funds.
(a)(2) The following information is as of August
31, 2022:
Portfolio Managers. The Registrant's
investment adviser is responsible for investment decisions and provides the Registrant with portfolio managers who are authorized by the
Director's Board to execute purchases and sales of securities. Chris Barris, Kevin Cronk and Hiram Hamilton are the Registrant's primary
portfolio managers. Messrs. Barris, Cronk and Hamilton are employees of Alcentra.
Portfolio Managers Compensation. Portfolio
managers' compensation is comprised primarily of a market-based salary and an incentive compensation plan (annual and long-term).
Alcentra's compensation arrangements include a fixed
salary, discretionary cash bonus and a number of long term incentive plans that are structured to align an employee's interest with the
firm's longer term goals. Portfolio managers are compensated in line with portfolio performance, rather than the growth of assets under
management. Other factors that may be taken into consideration include asset selection and trade execution and management of portfolio
risk.
Additional Information About Portfolio Managers.
The following table lists the number and types of other accounts advised by the primary portfolio manager and assets under management
in those accounts as of August 31, 2022:
Portfolio Manager |
Registered Investment Company Accounts |
Assets Managed |
Pooled Accounts |
Assets Managed |
Other Accounts |
Assets Managed |
Chris Barris |
5 |
$2,325.24 |
5 |
$511.05 |
1 |
$529.88 |
Kevin Cronk |
5 |
$2,325.24 |
5 |
$511.05 |
1 |
$529.88 |
Hiram Hamilton |
3 |
$667.00 |
9 |
$5,632.00 |
1 |
$284.00 |
None of the funds or accounts are subject to a performance-based
advisory fee.
The dollar range of shares of the Registrant beneficially
owned by the primary portfolio manager is as follows as of August 31, 2022:
Portfolio Manager |
Registrant Name |
Dollar Range of Registrant
Shares Beneficially Owned |
Chris Barris |
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc. |
$10,000 - $50,000 |
Kevin Cronk |
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc. |
$10,000 - $50,000 |
Hiram Hamilton |
BNY Mellon Alcentra Global Credit Income 2024 Target Term Fund, Inc. |
None |
Portfolio managers may manage multiple accounts for
a diverse client base, including mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, insurance
companies and foundations), bank common trust accounts and wrap fee programs ("Other Accounts").
Potential conflicts of interest may arise because
of BNYM Investment Adviser's, Alcentra's or a portfolio manager's management of the Fund and Other Accounts. For example, conflicts of
interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities,
as BNYM Investment Adviser or Alcentra may be perceived as causing accounts it manages to participate in an offering to increase BNYM
Investment Adviser's or Alcentra's overall allocation of securities in that offering, or to increase BNYM Investment Adviser's or Alcentra's
ability to participate in
future offerings by the same underwriter or
issuer. Allocations of bunched trades, particularly trade orders that were only partially filled due to limited availability, and allocation
of investment opportunities generally, could raise a potential conflict of interest, as BNYM Investment Adviser and Alcentra may have
an incentive to allocate securities that are expected to increase in value to preferred accounts. Initial public offerings, in particular,
are frequently of very limited availability. Conflicts of interest may also exist with respect to portfolio managers who also manage performance-based
fee accounts, such as deciding which securities to allocated to the Fund versus the performance-based fee account. Additionally, portfolio
managers may be perceived to have a conflict of interest if there are a large number of Other Accounts, in addition to the Fund, that
they are managing on behalf of BNYM Investment Adviser or Alcentra. BNYM Investment Adviser and Alcentra periodically review each portfolio
manager's overall responsibilities to ensure that he or she is able to allocate the necessary time and resources to effectively manage
the Fund. In addition, BNYM Investment Adviser and Alcentra could be viewed as having a conflict of interest to the extent that BNYM Investment
Adviser, Alcentra or their affiliates and/or portfolios managers have a materially larger investment in Other Accounts than their investment
in the Fund.
Other Accounts may have investment objectives,
strategies and risks that differ from those of the Fund. For these or other reasons, the portfolio managers may purchase different securities
for the Fund and the Other Accounts, and the performance of securities purchased for the Fund may vary from the performance of securities
purchased for Other Accounts. The portfolio managers may place transactions on behalf of Other Accounts that are directly or indirectly
contrary to investment decisions made for the Fund, which could have the potential to adversely impact the Fund, depending on market conditions.
In addition, if the Fund's investment is an issuer is at a different level of the issuer's capital structure than an investment in the
issuer by Other Accounts, in the event of credit deterioration of the issuer, there may be a conflict of interest between the Fund's and
such Other Accounts' investment in the issuer.
A potential conflict of interest may be perceived
to arise if transactions in one account closely follow related transactions in another account, such as when a purchase increases the
value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale
by a second account.
BNY Mellon and its affiliates, including BNYM
Investment Adviser, Alcentra and others involved in the management, investment activities or business operations of the Fund, are engaged
in businesses and have interests other than that of managing the Fund. These activities and interesting include potential multiple advisory,
transactional, financial and other interesting in securities, instruments and companies that may be directly or indirectly purchased or
sold by the Fund of the Fund's service providers, which may cause conflicts that could disadvantaged the Fund.
BNY Mellon and its affiliates may have deposit,
loan and commercial banking or other relationships with the issuers of securities purchased by the Fund. BNY Mellon has no obligation
to provide to BNYM Investment Adviser, Alcentra or the Fund or the effect transactions on behalf of the Fund in accordance with, any market
or other information, analysis, or research in its possession. Consequently, BNY Mellon (including, but not limited to, BNY Mellon's central
Risk Management Department) may have information that could be material to the management of the Fund and may not share that information
with relevant personally of BNYM Investment Adviser or Alcentra. Accordingly, BNYM Investment Adviser and Alcentra have informed management
of the Fund that in making investment decisions they do not obtain or use material inside information that BNY Mellon or its affiliated
may possess with respect to such issuers.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. |
Not applicable.
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to
the procedures applicable to Item 10.