N-CSRS 1 d616903dncsrs.htm INSIGHT SELECT INCOME FUND Insight Select Income Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number            811-02201                    

              Insight Select Income Fund              

(Exact name of registrant as specified in charter)

200 Park Avenue, 7th Floor

                                 New York, NY 10166                                

(Address of principal executive offices) (Zip code)

Clifford D. Corso

200 Park Avenue, 7th Floor

                                 New York, NY 10166                                

(Name and address of agent for service)

Registrant’s telephone number, including area code:  212-527-1800

Date of fiscal year end:  March 31

Date of reporting period:  September 30, 2018


Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.


INSIGHT SELECT INCOME FUND SHAREHOLDER LETTER

For the Six-Month Period Ended 09/30/18

October 17, 2018

DEAR SHAREHOLDERS:

Over the last six months, the US economy has grown strongly, underpinned by 4% consumption growth, continued business investment and acceleration in government spending. Alongside this, unemployment has moved below 4% which has helped push wage growth to around 3%. Corporate profitability has also been strong, aided significantly by the 2017 tax cuts. Given this strong domestic economic backdrop, the Federal Reserve (Fed) has raised rates the last three quarters. Conversely, optimism about growth overseas has waned given a slowdown in Europe and the emerging markets. For the full year 2018, we expect US GDP growth to approach 3% which is the fastest pace of growth we have seen in over a decade. Indeed, US growth in this cycle has remained below trend at around 2% since the financial crisis and has exhibited the shallowest growth trajectory post-recession in post-war history. Perhaps the slower growth and elevated skepticism throughout most of this expansion has reduced the potential build-up of excesses in the economy which could help further prolong this expansion.

Looking ahead into 2019, the domestic economy has solid momentum given strong consumption and continued effects of fiscal stimulus. That said, growth may moderate over the course of the year as the effect of the stimulus fades and the lagged impact of higher interest rates is felt. Our base case is one in which the US economy remains in a self-sustaining expansion, although growth will be somewhat slower than in 2018. A further escalation of trade-related tensions and a cyclical slowdown overseas are downside risks to our base case. While they could slow growth, we don’t believe they are likely to tip the US into a recession given the strong domestic economic momentum.

With inflation at the Fed’s target of 2%, we expect continued gradual rate hikes if our expectation for the real economy materializes. The market remains concerned about a policy error, should the Fed continue to tighten before realizing the underlying economy has weakened. While Chairman Jerome Powell is less sensitive to market volatility than his predecessors, we believe this Fed does remain data-dependent and a deterioration to the outlook would result in a slower path for interest rate increases.

Given the strong economy, risk premiums for the domestically-focused and higher yielding credit sectors narrowed during the reporting period, meaning that risk appetite generally improved for investors. Conversely, higher quality sectors that are more dependent on foreign demand lagged. This divergence was beneficial for the Fund’s performance given our bias towards US centric assets including asset-backed securities (ABS), commercial mortgage-backed securities, high yield, and select investment grade corporate sectors like pipelines and insurance.

Looking forward, we maintain a carefully selected overweight to the credit markets, emphasizing improving credits or those that we believe represent stable sources of income. We recognize that high yield valuations are near post-crisis tights and we remain cautious on generic market beta and focused on idiosyncratic opportunities within the sector. Recent shifts in the portfolio have included an increase in allocation to the ABS sectors that potentially benefit from US economic outperformance and offer structural protections. We are also increasingly scrutinizing investment grade credits that have levered up in this cycle due to mergers and acquisitions or share repurchases to ensure their balance sheets are on a sustainable footing. These efforts are aimed at minimizing price effects from negative credit migration. The duration of the portfolio remains near neutral, relative to the index, given macro risk events on the horizon.

As of September 30, 2018, the Fund had a net asset value (NAV) of $20.20 per share. This represents a -1.70% decrease from $20.55 per share on March 31, 2018. On September 30, 2018, the Fund’s closing price on the New York Stock Exchange was $18.62 per share, representing a 7.82% discount to NAV per share, compared with a 5.74% discount as of March 31, 2018. One of the primary objectives of the Fund is to maintain a high level of

 

1


income. On September 19, 2018, the Board of Trustees declared a dividend payment of $0.20 per share payable on October 31, 2018 to shareholders of record on October 3, 2018. On an annualized basis, including the pending dividend, the Fund has paid a total of $0.80 per share in dividends, representing a 4.46% dividend yield based on the market price on October 17, 2018 of $17.94 per share. The dividend is evaluated on a quarterly basis and is based on the income generation capability of the portfolio and is not guaranteed for any period of time.

Total Return-Percentage Change (Annualized for periods longer than 1 year)

In Net Asset Value Per Share with All Distributions Reinvested1

 

     6 Months
to
9/30/18
    1 Year
to
9/30/18
    3 Years
to
9/30/18
    5 Years
to
9/30/18
    10 Years
to
9/30/18
 

Insight Select Income Fund

     0.25     -0.30     4.57     4.96     7.68

Bloomberg Barclays U.S. Credit Index2

     0.01     -1.10     2.98     3.40     5.94

 

1 – This is historical information and should not be construed as indicative of any likely future performance.

2 – Source: Bloomberg Barclays as of September 30, 2018. Comprised primarily of US investment grade corporate bonds (Fund’s Benchmark).

The Fund’s performance for the 10-year historical periods (shown above) reflects the 4.79% dilution of NAV resulting from the rights offering in the third quarter of 2009. After adjusting for the impact of the rights offering, we estimate the 10-year annualized return to be 8.54%. The returns noted in the table above are actual returns as calculated by the fund administrator, BNY Mellon Investment Servicing (US) Inc., and do not adjust for the dilution from the rights offering.

Yield represents the major component of return in most fixed income portfolios. Given this Fund’s emphasis on income and the dividend, we generally will not have material exposure to low yielding US Treasuries and will maintain meaningful exposure to corporate bonds. When it comes to management of credit risk, we try to look through periods of volatility to focus on an investment’s long-term creditworthiness to assess whether it will provide an attractive yield to the Fund over time.

The Fund’s performance will continue to be subject to trends in long-term interest rates and to corporate yield spreads. Consistent with our investment discipline, we continue to emphasize diversification and risk management within the bounds of income stability. The pie chart below summarizes the portfolio quality of the Fund’s assets as of September 30, 2018:

Percent of Total Investment (Lower of S&P and Moody’s Ratings)3

 

LOGO

 

3 

For financial reporting purposes, credit quality ratings shown above reflect the lowest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service (“Moody’s”) if ratings differ. These rating agencies are independent, nationally recognized statistical rating

 

2


  organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated NR are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings and the Fund’s allocation to the ratings categories are subject to change at any time without notice.

We would like to remind shareholders of the opportunities presented by the Fund’s dividend reinvestment plan referred to in the Shareholder Information section of this report. The dividend reinvestment plan affords shareholders a price advantage by allowing them to purchase shares at NAV or market price, whichever is lower. This means that the reinvestment price is at market price when the Fund is trading at a discount to NAV, as is currently the situation, or at NAV per share when market trading is at a premium to that value. To participate in the plan, please contact BNY Mellon Investment Servicing (US) Inc. the Fund’s Transfer Agent and Dividend Paying Agent, at 1-866-333-6685. The Fund’s investment adviser, Insight North America LLC, may be reached at 1-212-527-1800.

 

 

LOGO

Cliff Corso

President

Mr. Corso’s comments reflect the investment adviser’s views generally regarding the market and the economy, and are compiled from the investment adviser’s research. These comments reflect opinions as of the date written and are subject to change at any time.

Opinions expressed herein are current opinions of Insight, and are subject to change without notice. Insight assumes no responsibility to update such information or to notify a client of any changes. Any outlooks, forecasts or portfolio weightings presented herein are as of the date appearing on this material only and are also subject to change without notice. Insight disclaims any responsibility to update such views. No forecasts can be guaranteed.

Information herein may contain, include or is based upon forward-looking statements within the meaning of the federal securities laws, specifically Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements, other than statements of historical fact, that address future activities, events or developments, including without limitation, business or investment strategy or measures to implement strategy, competitive strengths, goals expansion and growth of our business, plans, prospects and references to future or success. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Words such as ‘anticipate,’ ‘estimate,’ ‘expect,’ ‘project,’ ‘intend,’ ‘plan,’ ‘believe,’ and other similar words are intended to identify these forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results or outcomes. Consequently, no forward-looking statement can be guaranteed. Our actual results or outcomes may vary materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Past performance is not a guide to future performance, which will vary. The value of investments and any income from them will fluctuate and is not guaranteed (this may partly be due to exchange rate changes). Future returns are not guaranteed and a loss of principal may occur.

 

3


The quoted benchmarks within this presentation do not reflect deductions for fees, expenses or taxes. These benchmarks are unmanaged and cannot be purchased directly by investors. Benchmark performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison such as differences in volatility, and regulatory and legal restrictions between the indices shown and the strategy.

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports may no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports may be made available on the Fund’s website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary. If you invest directly with the Fund, you can make your preference known through the means below.

Online:

Visit www.computershare.com/investor to log into your account and select “Communication Preferences” to set your preference.

Telephone:

Contact the Fund at 866-333-6685

Overnight Mail:

Computershare Investor Services, 462 South 4th Street, Suite 1600, Louisville, KY, 40202

Regular Mail:

Computershare Investor Services, PO Box 505000, Louisville, KY, 40233-5000

 

4


SCHEDULE OF INVESTMENTS (Unaudited) September 30, 2018

 

     Moody’s/
Standard &
Poor’s
Rating(a)
     Principal
Amount (000’s)
     Value
(Note 1)
 

CORPORATE DEBT SECURITIES (75.94%)

        

AUTOMOTIVE (1.62%)

        

Ford Holdings LLC, Co. Gty., 9.30%, 03/01/30

     Baa3/BBB        1,000      $     1,220,202  

Ford Motor Co., Sr. Unsec. Notes, 8.90%, 01/15/32

     Baa3/BBB        500        612,228  

Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 2.343%, 11/02/20

     Baa3/BBB        1,719        1,670,865  
        

 

 

 
           3,503,295  
        

 

 

 

CHEMICALS (1.62%)

        

Celgene Corp., Sr. Unsec. Notes, 5.00%, 08/15/45(b)

     Baa2/BBB+        60        59,626  

Dow Chemical Co., Sr. Unsec. Notes, 8.55%, 05/15/19

     Baa2/BBB        500        517,073  

OLIN Corp., Sr. Unsec. Notes, 5.00%, 02/01/30(b)

     Ba1/BB+        379        353,418  

Union Carbide Corp., Sr. Unsec. Notes, 7.75%, 10/01/96

     Baa2/BBB        2,000        2,565,424  
        

 

 

 
           3,495,541  
        

 

 

 

COMMERCIAL SERVICES (0.25%)

        

Global Partners LP, Co. Gty., Class Global Partners LP, 6.25%, 07/15/22(b)

     B2/B+        555        552,225  
        

 

 

 

DIVERSIFIED FINANCIAL SERVICES (11.50%)

        

Bank of America Corp., Sr. Unsec. Notes, (3M LIBOR +0.79%), 3.004%, 12/20/23(b),(c)

     A3/A-        758        735,590  

Bank of America Corp., Sr. Unsec. Notes, (3M LIBOR +0.81%), 3.366%, 01/23/26(b),(c)

     A3/A-        559        537,587  

Bank of Nova Scotia, Jr. Sub. Notes, (3M LIBOR +2.648%), 4.65%, 10/12/22(b),(c),(d)

     Baa3/BBB-        586        549,741  

Barclays Bank PLC, Sr. Unsec. Notes, (3M LIBOR +0.46%), 2.793%, 01/11/21(b),(e)

     A2/A        1,233        1,234,295  

Barclays PLC, Sub. Notes, 4.836%, 05/09/28(b)

     Ba1/BB+        906        850,645  

CDP Financial, Inc., Co. Gty., 4.40%, 11/25/19, 144A

     Aaa/AAA        400        406,593  

Citigroup, Inc., Sr. Unsec. Notes, (3M LIBOR +1.563%), 3.887%, 01/10/28(b),(c)

     Baa1/BBB+        1,100        1,067,924  

Citigroup, Inc., Sr. Unsec. Notes, 8.125%, 07/15/39

     Baa1/BBB+        70        101,043  

Citigroup, Inc., Sr. Unsec. Notes, 4.65%, 07/23/48(b)

     Baa1/BBB+        812        821,209  

Citigroup, Inc., Sub. Notes, 4.60%, 03/09/26

     Baa3/BBB        988        994,536  

Citigroup, Inc., Sub. Notes, 5.30%, 05/06/44

     Baa3/BBB        926        968,275  

Credit Agricole SA, Sub. Notes, (5Yr Swap +1.644%), 4.00%, 01/10/33, 144A(b),(c)

     Baa2/BBB        1,025        951,229  

Discover Financial Services, Sr. Unsec. Notes, 10.25%, 07/15/19

     Ba1/BBB-        200        210,079  

GE Capital International Funding, Co. Gty., 4.418%, 11/15/35

     A2/A        588        553,399  

General Electric Co., Jr. Sub. Notes, (3M LIBOR +3.33%), 5.00%, 01/21/21(b),(c),(d)

     Baa1/BBB+        1,009        983,018  

General Electric Co., Sr. Unsec. Notes, 6.875%, 01/10/39

     A2/A        287        358,468  

Goldman Sachs Group, Inc., Sr. Unsec. Notes, 3.50%, 11/16/26(b)

     A3/BBB+        1,040        986,952  

Goldman Sachs Group, Inc., Sr. Unsec. Notes, (3M LIBOR +1.75%), 4.089%, 10/28/27(b),(e)

     A3/BBB+        550        570,426  

HSBC Capital Funding LP, Co. Gty., (3M LIBOR +4.98%), 10.176%, 06/30/30, 144A(b),(c),(d)

     Baa2/BBB-        2,180        3,222,302  

JPMorgan Chase & Co., Jr. Sub. Notes, (3M LIBOR +3.47%), 5.809%, 01/30/19(b),(c),(d)

     Baa3/BBB-        2,000        2,008,500  

JPMorgan Chase & Co., Jr. Sub. Notes, (3M LIBOR +2.58%), 4.625%, 11/01/22(b),(c),(d)

     Baa3/BBB-        1,159        1,095,414  

Lincoln Finance, Ltd., Sr. Sec. Notes, 7.375%, 04/15/21, 144A(b)

     B1/BB+        225        232,330  

PNC Financial Services Group, Inc., Jr. Sub. Notes, (3M LIBOR +3.30%), 5.00%, 11/01/26(b),(c),(d)

     Baa2/BBB-        1,587        1,581,049  

Santander UK PLC, Sr. Unsec. Notes, (3M LIBOR +0.30%), 2.648%, 11/03/20(e)

     Aa3/A        1,623        1,622,805  

UBS AG, Sub. Notes, 7.625%, 08/17/22

     NR/BBB+        2,000        2,228,000  
        

 

 

 
           24,871,409  
        

 

 

 

ENERGY (12.15%)

        

Andeavor Logistics LP, Co. Gty., 4.25%, 12/01/27(b)

     Ba1/BBB-        901        880,360  

Cimarex Energy Co., Sr. Unsec. Notes, 3.90%, 05/15/27(b)

     Baa3/BBB-        413        394,541  

CITGO Petroleum Corp., Sr. Sec. Notes, 6.25%, 08/15/22, 144A(b)

     B3/B+        3,633        3,623,917  

Enbridge Inc., Sr. Unsec. Notes, 5.50%, 12/01/46(b)

     Baa3/BBB+        1,496        1,670,185  

Enbridge Inc., Sub. Notes, (3M LIBOR +3.89%), 6.00%, 01/15/77(b),(c)

     Ba2/BBB-        750        720,632  

 

The accompanying notes are an integral part of these financial statements.

 

5


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

     Moody’s/
Standard &
Poor’s
Rating(a)
     Principal
Amount (000’s)
     Value
(Note 1)
 

CORPORATE DEBT SECURITIES (Continued)

        

ENERGY (Continued)

        

EnLink Midstream Partners LP, Jr. Sub. Notes, (3M LIBOR +4.11%), 6.00%, 12/15/22(b),(c),(d)

     Ba3/B+        641      $     579,504  

Enterprise Products Operating LLC, Co. Gty., (3M LIBOR +2.57%), 5.375%, 02/15/78(b),(c)

     Baa2/BBB-        342        316,747  

Exterran Energy Solutions LP, Co. Gty., 8.125%, 05/01/25(b)

     NA/B+        214        223,630  

Florida Gas Transmission Co. LLC, Sr. Unsec. Notes, 9.19%, 11/01/24, 144A

     Baa2/BBB+        70        77,247  

Kinder Morgan, Inc., Co. Gty., 8.05%, 10/15/30

     Baa3/BBB-        1,000        1,223,258  

Kinder Morgan, Inc., Co. Gty., 5.55%, 06/01/45(b)

     Baa3/BBB-        1,755        1,854,969  

Marathon Petroleum Corp., Sr. Unsec. Notes, 4.75%, 09/15/44(b)

     Baa2/BBB        1,266        1,223,879  

Marathon Petroleum Corp., Sr. Unsec. Notes, 5.85%, 12/15/45(b)

     Baa2/BBB        500        525,449  

MPLX LP, Sr. Unsec. Notes, 5.20%, 03/01/47(b)

     Baa3/BBB        641        642,288  

MPLX LP, Sr. Unsec. Notes, 4.90%, 04/15/58(b)

     Baa3/BBB        561        507,755  

NGPL PipeCo PLC, Sr. Unsec. Notes, 7.768%, 12/15/37, 144A

     Ba1/BBB-        505        618,625  

Panhandle Eastern Pipe Line Co. LP, Sr. Unsec. Notes, 7.00%, 07/15/29

     Baa3/BBB-        1,000        1,039,697  

Parkland Fuel Corp., Sr. Unsec. Notes, 6.00%, 04/01/26, 144A(b)

     B1/BB-        225        225,562  

PBF Holding Co. LLC, Co. Gty., 7.25%, 06/15/25(b)

     B1/BB        2,484        2,608,200  

Petroleos Mexicanos, Co. Gty., 8.00%, 05/03/19

     Baa3/BBB+        250        256,875  

Petroleos Mexicanos, Co. Gty., 6.00%, 03/05/20

     Baa3/BBB+        478        492,101  

Petroleos Mexicanos, Co. Gty., 6.75%, 09/21/47

     Baa3/BBB+        1,415        1,350,179  

Sabal Trail Transmission LLC, Sr. Unsec. Notes, 4.246%, 05/01/28, 144A(b)

     Baa1/NA        589        591,936  

Spectra Energy Partners LP, Sr. Unsec. Notes, 3.375%, 10/15/26(b)

     Baa2/BBB+        803        756,108  

Sunoco LP, Co. Gty., 5.50%, 02/15/26, 144A(b)

     B1/BB-        700        676,200  

Valero Energy Corp., Co. Gty., 8.75%, 06/15/30

     Baa2/BBB        1,000        1,312,726  

Valero Energy Corp., Sr. Unsec. Notes, 10.50%, 03/15/39

     Baa2/BBB        500        780,085  

Williams Cos., Inc., Sr. Unsec. Notes, 7.50%, 01/15/31

     Baa3/BBB        911        1,106,507  
        

 

 

 
           26,279,162  
        

 

 

 

FOOD AND BEVERAGE (1.25%)

        

Anheuser-Busch InBev Finance, Inc., Co. Gty., 4.70%, 02/01/36(b)

     A3/A-        645        645,866  

Anheuser-Busch InBev Finance, Inc., Co. Gty., 4.90%, 02/01/46(b)

     A3/A-        256        258,898  

Anheuser-Busch InBev Worldwide, Inc., Co. Gty., 8.20%, 01/15/39

     A3/A-        27        37,902  

Campbell Soup Co., Sr. Unsec. Notes, 4.15%, 03/15/28(b)

     Baa2/BBB-        551        525,950  

General Mills, Inc., Sr. Unsec. Notes, 3.20%, 04/16/21

     Baa2/BBB        220        218,574  

Grupo Bimbo SAB de CV, Sub. Notes, (H15T5Y +3.280%), 5.95%, 04/17/23, 144A(b),(c),(d)

     Ba1/BB+        1,020        1,022,550  
        

 

 

 
           2,709,740  
        

 

 

 

GAMING, LODGING & LEISURE (0.93%)

        

Wyndham Destinations, Inc., Sr. Unsec. Notes, 5.75%, 04/01/27(b)

     Ba2/BB-        2,140        2,016,950  
        

 

 

 

HEALTHCARE (0.64%)

        

Halfmoon Parent, Inc., Sr. Unsec. Notes, 4.90%, 12/15/48, 144A(b)

     Baa1/A-        702        696,929  

HCA, Inc., Co. Gty., 5.375%, 09/01/26(b)

     Ba2/BB-        171        172,710  

Mylan NV, Co. Gty., 3.95%, 06/15/26(b)

     Baa3/BBB-        397        375,534  

Bausch Health Cos., Inc., Sr. Sec. Notes, 5.50%, 11/01/25, 144A(b)

     Ba3/BB-        132        132,000  
        

 

 

 
           1,377,173  
        

 

 

 

INDUSTRIAL (2.77%)

        

3M Co., Sr. Unsec. Notes, 3.625%, 09/14/28(b)

     A1/AA-        2,580        2,577,237  

General Dynamics Corp. Co. Gty., 2.875%, 05/11/20

     A2/A+        1,217        1,214,060  

Heathrow Funding, Ltd., Sr. Sec. Notes, 4.875%, 07/15/23, 144A

     NA/A-        200        207,397  

Northrop Grumman Space & Mission Systems Corp., Co. Gty., 7.75%, 06/01/29

     Baa1/BBB        500        622,535  

Sydney Airport Finance Co. Property, Ltd., Sr. Sec. Notes, 3.375%, 04/30/25, 144A(b)

     Baa1/BBB+        400        380,756  

United Technologies Corp., Sr. Unsec. Notes, 4.625%, 11/16/48(b)

     Baa1/BBB+        379        381,111  

United Technologies Corp., Sr. Unsec. Notes, 3.75%, 11/01/46(b)

     Baa1/A-        700        612,619  
        

 

 

 
           5,995,715  
        

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

6


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

     Moody’s/
Standard &
Poor’s
Rating(a)
     Principal
Amount (000’s)
     Value
(Note 1)
 

CORPORATE DEBT SECURITIES (Continued)

        

INSURANCE (10.24%)

        

Allstate Corp., Jr. Sub. Notes, (3M LIBOR +2.12%), 6.50%, 05/15/67(b),(c)

     Baa1/BBB        2,200      $     2,442,000  

American International Group, Inc., Jr. Sub. Notes, (3M LIBOR +4.195%), 8.175%, 05/15/68(b),(c)

     Baa2/BBB-        2,500        3,137,500  

Berkshire Hathaway Finance Corp., Co. Gty., 4.20%, 08/15/48(b)

     Aa2/AA        1,104        1,096,603  

Farmers Exchange Capital, Sub. Notes, 7.20%, 07/15/48, 144A

     Baa2/BBB+        2,250        2,679,452  

Guardian Life Insurance Co. of America, Sub. Notes, 4.85%, 01/24/77, 144A

     A1/AA-        148        145,094  

Liberty Mutual Group, Inc., Co. Gty., (3M LIBOR +2.905%), 5.239%, 03/07/67, 144A(b),(c)

     Baa3/BB+        1,530        1,491,750  

Liberty Mutual Group, Inc., Co. Gty., 7.00%, 03/15/34, 144A

     Baa2/BBB        250        304,853  

Liberty Mutual Group, Inc., Co. Gty., (3M LIBOR +7.12%), 10.75%, 06/15/88, 144A(b),(c)

     Baa3/BB+        1,000        1,505,000  

Lincoln National Corp., Sr. Unsec. Notes, 3.80%, 03/01/28(b)

     Baa1/A-        250        241,338  

Massachusetts Mutual Life Insurance Co., Sub. Notes, 4.90%, 04/01/77, 144A

     A1/AA-        980        967,178  

Massachusetts Mutual Life Insurance Co., Sub. Notes, 8.875%, 06/01/39, 144A

     A1/AA-        151        231,897  

MetLife, Inc., Jr. Sub. Notes, 9.25%, 04/08/68, 144A(b)

     Baa2/BBB        500        672,500  

MetLife, Inc., Jr. Sub. Notes, 6.40%, 12/15/66(b)

     Baa2/BBB        637        675,220  

MetLife, Inc., Jr. Sub. Notes, 10.75%, 08/01/69(b)

     Baa2/BBB        1,000        1,535,000  

Nationwide Mutual Insurance Co., Sub. Notes, 8.25%, 12/01/31, 144A

     A3/A-        500        673,339  

Nationwide Mutual Insurance Co., Sub. Notes, 9.375%, 08/15/39, 144A

     A3/A-        215        332,268  

New York Life Insurance Co., Sub. Notes, 6.75%, 11/15/39, 144A

     Aa2/AA-        103        136,412  

Pricoa Global Funding, Inc., Sec. Notes, 2.45%, 09/21/22, 144A

     A1/AA-        608        584,792  

Prudential Financial, Inc., Jr. Sub. Notes, (3M LIBOR +2.665%), 5.70%, 09/15/48(b),(c)

     Baa2/BBB+        1,241        1,236,756  

SAFG Retirement Services, Inc., Sr. Unsec. Notes, 8.125%, 04/28/23

     Baa1/BBB+        1,800        2,059,935  
        

 

 

 
           22,148,887  
        

 

 

 

MEDIA (8.12%)

        

21st Century Fox America, Inc., Co. Gty., 7.90%, 12/01/95

     Baa1/BBB+        1,400        2,081,529  

Altice France SA, Sr. Sec. Notes, 6.25%, 05/15/24, 144A(b)

     B1/B        1,780        1,753,300  

Comcast Corp., Co. Gty., 7.05%, 03/15/33

     A3/A-        2,000        2,484,595  

Cox Communications, Inc., Sr. Unsec. Notes, 6.80%, 08/01/28

     Baa2/BBB        1,500        1,681,604  

Cox Enterprises, Inc., Sr. Unsec. Notes, 7.375%, 07/15/27, 144A

     Baa2/BBB-        500        593,367  

Discovery Communications LLC, Co. Gty., 5.00%, 09/20/37(b)

     Baa3/BBB-        374        364,680  

Grupo Televisa SAB, Sr. Unsec. Notes, 5.00%, 05/13/45(b)

     Baa1/BBB+        557        520,310  

Grupo Televisa SAB, Sr. Unsec. Notes, 6.625%, 01/15/40

     Baa1/BBB+        159        180,115  

RELX, Inc., Sr. Unsec. Notes, 8.875%, 06/01/22

     WR/BBB+        2,000        2,282,592  

Sirius XM Radio, Inc., Co. Gty., 5.00%, 08/01/27, 144A(b)

     Ba3/BB        518        498,425  

Time Warner Entertainment Co. LP, Sr. Sec. Notes, 8.375%, 07/15/33

     Ba1/BBB-        1,360        1,689,052  

Viacom, Inc., Sr. Unsec. Notes, 6.875%, 04/30/36

     Baa3/BBB-        894        1,017,945  

VTR Finance BV, Sr. Sec. Notes, 6.875%, 01/15/24, 144A(b)

     B1/B+        2,375        2,416,563  
        

 

 

 
           17,564,077  
        

 

 

 

MINING (3.02%)

        

BHP Billiton Finance USA, Ltd. Co. Gty., (5Yr Swap +5.093%), 6.75%, 10/19/75, 144A(b),(c)

     Baa2/BBB+        2,749        3,013,591  

Ferroglobe PLC, Co. Gty., 9.375%, 03/01/22, 144A(b)

     B3/NA        652        688,675  

First Quantum Minerals, Ltd., Co. Gty., 7.25%, 04/01/23, 144A(b)

     B3/B        538        514,126  

Teck Resources, Ltd., Co. Gty., 6.00%, 08/15/40(b)

     Ba2/BB+        1,000        1,020,000  

Teck Resources, Ltd., Co. Gty., 5.20%, 03/01/42(b)

     Ba2/BB+        1,415        1,305,338  
        

 

 

 
           6,541,730  
        

 

 

 

PAPER (1.67%)

        

Smurfit Kappa Treasury Funding, Ltd., Co. Gty., 7.50%, 11/20/25

     Ba1/BB+        2,000        2,315,000  

WestRock LLC, Co. Gty., 8.20%, 01/15/30

     Baa2/BBB        1,000        1,298,607  
        

 

 

 
           3,613,607  
        

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

7


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

     Moody’s/
Standard &
Poor’s
Rating(a)
     Principal
Amount (000’s)
     Value
(Note 1)
 

CORPORATE DEBT SECURITIES (Continued)

        

TECHNOLOGY (1.27%)

        

NXP Funding LLC, Co. Gty., 3.875%, 09/01/22, 144A

     Ba1/BBB-        2,213      $     2,190,870  

Pitney Bowes, Inc., Sr. Unsec. Notes, 4.375%, 05/15/22(b),(f)

     Ba1/BB+        591        547,414  
        

 

 

 
           2,738,284  
        

 

 

 

TELECOMMUNICATIONS (5.98%)

        

Altice Financing SA, Sr. Sec. Notes, 6.625%, 02/15/23, 144A(b)

     B1/B+        200        201,500  

AT&T, Inc., Sr. Unsec. Notes, 4.50%, 05/15/35(b)

     Baa2/BBB        1,750        1,634,962  

AT&T, Inc., Sr. Unsec. Notes, 4.75%, 05/15/46(b)

     Baa2/BBB        425        388,295  

Centel Capital Corp., Co. Gty., 9.00%, 10/15/19

     Ba2/BBB-        1,000        1,045,000  

Deutsche Telekom International Finance BV, Co. Gty., 8.75%, 06/15/30(f)

     Baa1/BBB+        2,000        2,685,914  

Frontier Communications Corp., Sr. Unsec. Notes, 8.125%, 10/01/18

     WR/CCC+        500        500,000  

Sprint Capital Corp., Co. Gty., 6.875%, 11/15/28

     B3/B        500        502,500  

Sprint Capital Corp., Co. Gty., 8.75%, 03/15/32

     B3/B        1,000        1,125,000  

Sprint Spectrum Co. LLC, Sr. Unsec. Notes, 4.738%, 09/20/29, 144A

     Baa2/NA        1,100        1,099,505  

Tencent Holdings, Ltd., Sr. Unsec. Notes, 3.595%, 01/19/28, 144A(b)

     A1/A+        1,954        1,849,486  

Verizon Communications, Inc., Sr. Unsec. Notes, 4.812%, 03/15/39

     Baa1/BBB+        1,898        1,913,381  
        

 

 

 
           12,945,543  
        

 

 

 

TRANSPORTATION (4.94%)

        

American Airlines, Pass Through Certs., Series 2013-2, Class B, 5.60%, 01/15/22, 144A

     NA/BBB-        1,579        1,606,515  

American Airlines, Pass Through Certs., Series 2017-1, Class AA, 3.65%, 08/15/30

     Aa3/NA        1,018        991,534  

American Airlines, Pass Through Certs., Series 2017-2, Class AA, 3.35%, 04/15/31

     Aa3/NA        1,587        1,515,498  

BNSF Funding Trust I, Co. Gty., (3M LIBOR +2.35%), 6.613%, 12/15/55(b),(c)

     Baa2/A        250        277,500  

British Airways, Pass Through Certs., Series 2013-1, Class B, 5.625%, 12/20/21, 144A

     A3/A-        553        560,381  

Continental Airlines, Pass Through Certs., Series 2000-1, Class A1, 8.048%, 05/01/22

     Baa1/A        285        295,806  

Continental Airlines, Pass Through Certs., Series 2000-2, Class A1, 7.707%, 10/02/22

     Baa1/BBB+        251        264,522  

ERAC USA Finance LLC, Co. Gty., 7.00%, 10/15/37, 144A

     Baa1/A-        1,500        1,878,506  

JSL Europe SA, Co. Gty., 7.75%, 07/26/24, 144A(b)

     NA/BB-        713        619,426  

Ryder System, Inc., Sr. Unsec. Notes, 3.50%, 06/01/21

     Baa1/NA        941        940,138  

Union Pacific Corp., Sr. Unsec. Notes, 4.50%, 09/10/48(b)

     Baa1/A-        503        513,007  

United Airlines, Pass Through Certs., Series 2013-1, Class B, 5.375%, 02/15/23

     NA/BBB        317        324,132  

United Airlines, Pass Through Certs., Series 2018-1, Class B, 4.60%, 09/01/27

     Baa2/NA        901        899,228  
        

 

 

 
           10,686,193  
        

 

 

 

UTILITIES (7.97%)

        

Black Hills Corp., Sr. Unsec. Notes, 3.95%, 01/15/26(b)

     Baa2/BBB+        1,082        1,059,224  

Cleveland Electric Illuminating Co., Sr. Unsec. Notes, 3.50%, 04/01/28, 144A(b)

     Baa3/BBB        800        754,556  

Duquesne Light Holdings, Inc., Sr. Unsec. Notes, 6.40%, 09/15/20, 144A

     Baa3/BBB-        1,000        1,046,955  

Enel Finance International NV, Co. Gty., 2.75%, 04/06/23, 144A

     Baa2/BBB+        1,082        1,011,097  

Enel Finance International NV, Co. Gty., 4.625%, 09/14/25, 144A

     Baa2/BBB+        1,458        1,426,942  

Exelon Corp., Sr. Unsec. Notes, 3.40%, 04/15/26(b)

     Baa2/BBB-        505        483,226  

FirstEnergy Corp., Sr. Unsec. Notes, 4.85%, 07/15/47(b)

     Baa3/BBB-        1,570        1,597,097  

Hydro-Quebec, 8.25%, 04/15/26

     Aa2/AA-        1,550        2,014,831  

Kansas City Power & Light Co., Sr. Unsec. Notes, 4.20%, 06/15/47(b)

     Baa1/A-        917        879,164  

MidAmerican Funding LLC, Sr. Sec. Notes, 6.927%, 03/01/29

     A2/A-        500        610,830  

NiSource, Inc., Jr. Sub. Notes, (H15T5Y +2.843%), 5.65%, 06/15/23, 144A(b),(c),(d)

     NA/BBB-        696        689,040  

Ohio Power Co., Sr. Unsec. Notes, 5.375%, 10/01/21

     A2/A-        1,000        1,058,489  

South Carolina Electric & Gas, Co., 4.25%, 08/15/28(b)

     Baa1/BBB+        619        616,506  

Southern Co. Gas Capital Corp., Co. Gty., 5.875%, 03/15/41(b)

     Baa1/A-        992        1,131,445  

Southern Co. Gas Capital Corp., Co. Gty., 3.95%, 10/01/46(b)

     Baa1/A-        539        475,261  

Southern Co. Gas Capital Corp., Co. Gty., 4.40%, 05/30/47(b)

     Baa1/A-        1,164        1,108,648  

Toledo Edison Co., 7.25%, 05/01/20

     Baa1/A-        80        84,356  

Transelec SA, Sr. Unsec. Notes, 4.25%, 01/14/25, 144A(b)

     Baa1/BBB        750        742,500  

Transelec SA, Sr. Unsec. Notes, 3.875%, 01/12/29, 144A(b)

     Baa1/BBB        490        451,417  
        

 

 

 
           17,241,584  
        

 

 

 

TOTAL CORPORATE DEBT SECURITIES (Cost of $155,365,218)

           164,281,115  
        

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

8


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

     Moody’s/
Standard &
Poor’s
Rating(a)
   Principal
Amount (000’s)
     Value
(Note 1)
 

ASSET BACKED SECURITIES (11.64%)

        

Antares Ltd., Series 2017-1A, Class C, (3M LIBOR +3.10%), 5.448%, 07/20/28, 144A(b),(e)

   NR/A      1,093      $     1,095,477  

Arbor Realty Collateralized Loan Obligation, Ltd., Series 2017-FL3, Class A, (1M LIBOR +0.99%), 3.148%, 12/15/27, 144A(b),(e)

   Aaa/NA      759        760,205  

Arbor Realty Commercial Real Estate Notes, Ltd., Series 2017-FL2, Class A, (1M LIBOR +0.99%), 3.148%, 08/15/27, 144A(b),(e)

   Aaa/NA      623        623,800  

AVIS Budget Rental Car Funding AESOP LLC, Series 2015-2A, Class A, 2.63%, 12/20/21, 144A(b)

   Aaa/NA      1,605        1,580,870  

BCC Funding LLC, Series 2018-1A, Class A2, 2.96%, 06/20/23, 144A(b)

   Aa2/NA      656        652,743  

CLI Funding LLC, Series 2018-1A, Class A, 4.03%, 04/18/43, 144A(b)

   NA/A      160        158,659  

DB Master Finance LLC, Series 2017-1A, Class A2I, 3.629%, 11/20/47, 144A(b)

   NA/BBB      333        324,936  

DRB Prime Student Loan Trust, Series 2016-B, Class A2, 2.89%, 06/25/40, 144A(b)

   Aaa/NA      312        307,784  

DRB Prime Student Loan Trust, Series 2017-A, Class A2B, 2.85%, 05/27/42, 144A(b)

   Aaa/NA      2,130        2,069,522  

Drive Auto Receivables Trust, Series 2016-CA, Class B, 2.37%, 11/16/20, 144A(b)

   Aaa/AAA      33        33,285  

DT Auto Owner Trust, Series 2018-2A, Class C, 3.67%, 03/15/24, 144A(b)

   NA/A      781        781,230  

Golub Capital Partners Ltd., Series 2017-19RA, Class B, (3M LIBOR +2.55%), 4.885%, 07/26/29, 144A(b),(e)

   A2/NA      1,935        1,936,523  

Golub Capital Partners Ltd., Series 2018-36A, Class C, (3M LIBOR +2.10%), 4.441%, 02/05/31, 144A(b),(e)

   NA/A      2,250        2,210,629  

IVY Hill Middle Market Credit Fund Ltd., Series 12A, Class B, (3M LIBOR +3.00%), 5.348%, 07/20/29, 144A(b),(e)

   A3/NR      866        867,192  

LoanCore Issuer, Ltd., Series 2018-CRE1, Class A, (1M LIBOR +1.13%), 3.288%, 05/15/28, 144A(b),(e)

   Aaa/NA      500        500,190  

Navient Private Education Loan Trust, Series 2017-A, Class A2B, (1M LIBOR+0.900%), 3.058%, 12/16/58, 144A(b),(e)

   NA/AAA      782        787,156  

NextGear Floorplan Master Owner Trust, Series 2017-1A, Class A2, 2.54%, 04/18/22, 144A(b)

   Aaa/AAA      1,460        1,444,815  

Option One Mortgage Loan Trust, Series 2007-FXD2, Class 2A1, 5.90%, 03/25/37(b),(f)

   Ca/AA      33        30,599  

SCF Equipment Leasing LLC, Series 2017-2A, Class A, 3.41%, 12/20/23, 144A(b)

   A2/NA      450        444,304  

Small Business Administration Participation Certificates, Series 2010-20F, Class 1, 3.88%, 06/01/30

   Aaa/AA+      120        121,938  

SMB Private Education Loan Trust, Series 2017-B, Class A2B, (1M LIBOR+0.750%), 2.908%, 10/15/35, 144A(b),(e)

   Aaa/AAA      845        847,676  

Sofi Consumer Loan Program LLC, Series 2017-3, Class A, 2.77%, 05/25/26, 144A(b)

   NA/AA      1,010        1,000,342  

Sofi Consumer Loan Program Trust, Series 2018-1, Class B, 3.65%, 02/25/27, 144A(b)

   NA/A      793        782,014  

Sofi Professional Loan Program Ltd., Series 2017-C, Class B, 3.56%, 07/25/40, 144A(b),(e)

   NA/A+      1,099        1,064,763  

Spirit Master Funding LLC, Series 2014-2A, Class A, 5.76%, 03/20/41, 144A(b)

   NA/A+      1,528        1,569,010  

Textainer Marine Containers Ltd., Series 2017-1A, Class A, 3.72%, 05/20/42, 144A(b)

   NA/A      620        610,772  

Triton Container Finance LLC, Series 2017-2A, Class A, 3.62%, 08/20/42, 144A(b)

   NA/A      1,114        1,089,102  

Willis Engine Structured Trust IV, Series 2018-A, Class A, 4.75%, 09/15/43, 144A(b),(f)

   NA/A      1,488        1,491,356  
        

 

 

 

TOTAL ASSET BACKED SECURITIES (Cost of $25,433,690)

           25,186,892  
        

 

 

 

COMMERCIAL MORTGAGE-BACKED SECURITIES (4.21%)

        

Bancorp Commercial Mortgage Trust, Series 2018-CRE4, Class A, (1M LIBOR +0.90%), 3.07%, 09/15/35, 144A(b),(e)

   Aaa/NA      125        124,993  

Bellemeade Re Ltd., Series 2018-2A, Class M1B, (1M LIBOR +1.35%), 3.566%, 08/25/28, 144A(b),(e)

   NA/NA      484        486,885  

CGMS Commercial Mortgage Trust, Series 2017-MDRB, Class A, (1M LIBOR +1.10%), 3.258%, 07/15/30, 144A(e)

   NA/AAA      89        88,453  

Citigroup Commercial Mortgage Trust, Series 2013-375P, Class D, 3.635%, 05/10/35, 144A(e)

   Baa1/NA      2,000        1,939,789  

Citigroup Commercial Mortgage Trust, Series 2016-P6, Class C, 4.428%, 12/10/49(b),(e)

   NR/NA      367        355,114  

FREMF Mortgage Trust, Series 2015-K44, Class B, 3.809%, 01/25/48, 144A(b),(e)

   Aaa/AA+      535        518,744  

FREMF Mortgage Trust, Series 2015-K45, Class B, 3.714%, 04/25/48, 144A(b),(e)

   Aaa/AA+      1,270        1,224,781  

 

The accompanying notes are an integral part of these financial statements.

 

9


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

     Moody’s/
Standard &
Poor’s
Rating(a)
     Principal
Amount (000’s)
     Value
(Note 1)
 

COMMERCIAL MORTGAGE-BACKED SECURITIES (Continued)

        

LMREC, Inc., Series 2015-CRE1, Class AR, (1M LIBOR +0.98%), 3.192%, 02/22/32, 144A(b),(e)

     Aaa/NA        950      $     950,000  

LMREC, Inc., Series 2016-CRE2, Class A, (1M LIBOR +1.70%), 2.696%, 11/24/31, 144A(b),(e)

     Aaa/NA        689        689,000  

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2012-CKSV, Class C, 4.43%, 10/15/30, 144A(e)

     NA/A+        2,710        2,653,046  

MSDB Trust, Series 2017-712F, Class C, 3.749%, 07/11/39, 144A(e)

     NA/A-        82        77,480  
        

 

 

 

TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(Cost of $9,207,482)

           9,108,285  
        

 

 

 

RESIDENTIAL MORTGAGE-BACKED SECURITIES (0.22%)

        

FHLMC Pool # A15675, 6.00%, 11/01/33

     Aaa/AA+        88        97,503  

FHLMC Pool # G00182, 9.00%, 09/01/22(g)

     Aaa/AA+               69  

FNMA Pool # 754791, 6.50%, 12/01/33

     Aaa/AA+        216        236,736  

FNMA Pool # 763852, 5.50%, 02/01/34

     Aaa/AA+        104        112,136  

GNSF Pool # 194228, 9.50%, 11/15/20

     Aaa/AA+        3        3,374  

GNSF Pool # 307527, 9.00%, 06/15/21

     Aaa/AA+        5        4,845  

GNSF Pool # 417239, 7.00%, 02/15/26

     Aaa/AA+        5        5,712  

GNSF Pool # 780374, 7.50%, 12/15/23

     Aaa/AA+        3        2,986  
        

 

 

 

TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES
(Cost of $393,149)

           463,361  
        

 

 

 

MUNICIPAL BONDS (1.09%)

        

San Francisco City & County Public Utilities Commission, Water Revenue, Build America Bonds, 6.00%, 11/01/40

     Aa3/AA-        145        176,816  

State of California, Build America Bonds, GO, 7.625%, 03/01/40

     Aa3/AA-        1,500        2,184,225  
        

 

 

 

TOTAL MUNICIPAL BONDS (Cost of $1,679,586)

           2,361,041  
        

 

 

 

U.S. TREASURY SECURITIES (4.80%)

        

United States Treasury Bond, 3.50%, 02/15/39

     Aaa/AA+        1,120        1,179,894  

United States Treasury Bond, 3.00%, 02/15/48

     Aaa/AA+        1        962  

United States Treasury Bond, 3.125%, 05/15/48

     Aaa/AA+        228        224,963  

United States Treasury Note, 2.75%, 07/31/23

     Aaa/AA+        1,085        1,075,676  

United States Treasury Note, 2.75%, 06/30/25

     Aaa/AA+        1,065        1,047,902  

United States Treasury Note, 2.875%, 08/15/28

     Aaa/AA+        6,959        6,852,291  
        

 

 

 

TOTAL U.S. TREASURY SECURITIES (Cost of $10,444,128)

           10,381,688  
        

 

 

 
            Shares         

COMMON STOCK (0.00%)

        

MEDIA (0.00%)

        

Quad/Graphics, Inc.

        89        1,855  
        

 

 

 

TOTAL COMMON STOCK (Cost of $2,044)

           1,855  
        

 

 

 

PREFERRED STOCK (1.22%)

        

CoBank ACB, Series F, 6.250%, (3M LIBOR +4.557%), 10/01/22(b),(c),(d)

        20,000        2,065,000  

US BANCORP, Series A, 3.500%, (3M LIBOR +1.02%), 11/23/18(b),(c),(d)

        615        566,719  
        

 

 

 

TOTAL PREFERRED STOCK (Cost of $2,521,650)

           2,631,719  
        

 

 

 

TOTAL INVESTMENTS (99.12%)

        

(Cost $205,046,947)

           214,415,956  
        

 

 

 

OTHER ASSETS AND LIABILITIES (0.88%)

           1,908,708  
        

 

 

 

NET ASSETS (100.00%)

         $ 216,324,664  
        

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

10


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

At September 30, 2018, the Fund had the following open futures contracts:

 

Long Futures Outstanding    Expiration
Month
     Number of
Contracts
     Notional
Amount
    Value     Unrealized
Appreciation
(Depreciation)
 

U.S. Treasury 5-Year Notes

     12/18        51      $ 5,736,703     $ 5,736,304     $ (399

U.S. Treasury 10-Year Notes

     12/18        12        1,433,625       1,425,375       (8,250

U.S. Treasury Ultra 10-Year Notes

     12/18        14        1,773,539       1,764,000       (9,539

U.S. Treasury Ultra Bonds

     12/18        13        2,071,109       2,005,656       (65,453
            

 

 

 
            (83,641
            

 

 

 

Short Futures Outstanding

            

U.S. Treasury 10-Year Notes

     12/18        52        (6,243,309     (6,176,625     66,684  

U.S. Treasury Long Bonds

     12/18        26        (3,765,215     (3,653,000     112,215  
            

 

 

 
            178,899  
            

 

 

 

Net unrealized appreciation on open futures contracts

          $ 95,258  
            

 

 

 

 

(a)  

Ratings for debt securities are unaudited. All ratings are as of September 30, 2018 and may have changed subsequently.

(b) 

This security is callable.

(c) 

Fixed to floating rate security. Fixed rate indicated is rate effective at September 30, 2018. Security will convert at a future date to a floating rate of reference rate and spread in the description above.

(d) 

Security is perpetual. Date shown is next call date.

(e) 

Variable rate security. Rate indicated is rate effective at September 30, 2018.

(f) 

Multi-Step Coupon. Rate disclosed is as of September 30, 2018.

(g) 

Principal amount less than $1,000.

144A

Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. At September 30, 2018, these securities amounted to $82,184,377 or 37.99% of net assets.

Legend

Certs. - Certificates

Co. Gty. - Company Guaranty

FHLMC - Federal Home Loan Mortgage Corp.

FNMA - Federal National Mortgage Association

FREMF - Freddie Multi-Family

GNSF - Government National Mortgage Association (Single Family)

GO - General Obligation

H15T5Y - US Treasury Yield Curve Rate T Note Constant Maturity 5 Year

Jr. - Junior

LIBOR - London Interbank Offered Rate

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

Sec. - Secured

Sr. - Senior

Sub. - Subordinated

Unsec. - Unsecured

 

The accompanying notes are an integral part of these financial statements.

 

11


SCHEDULE OF INVESTMENTS (Unaudited) — continued

 

Following is a description of the valuation techniques applied to the Fund’s major categories of assets measured at fair value on a recurring basis as of September 30, 2018.

 

Assets:    Total Market
Value
    Level 1
Quoted
Price
    Level 2
Significant
Observable
Inputs
     Level 3
Significant
Unobservable
Inputs
 

CORPORATE DEBT SECURITIES

   $ 164,281,115     $             —     $ 164,281,115      $                 —  

ASSET BACKED SECURITIES

     25,186,892             25,186,892         

COMMERCIAL MORTGAGE-BACKED SECURITIES

     9,108,285             9,108,285         

RESIDENTIAL MORTGAGE-BACKED SECURITIES

     463,361             463,361         

MUNICIPAL BONDS

     2,361,041             2,361,041         

U.S. TREASURY SECURITIES

     10,381,688             10,381,688         

COMMON STOCK

     1,855       1,855                 

PREFERRED STOCK

     2,631,719       2,631,719               

FUTURES CONTRACTS

     178,899       178,899               

TOTAL INVESTMENTS

   $ 214,594,855     $ 2,812,473     $ 211,782,382      $  
Liabilities:                              

FUTURES CONTRACTS

   $ (83,641   $ (83,641   $      $  

For the six months ended September 30, 2018, there were no transfers between Level 1, Level 2 and Level 3 for the Fund.

 

The accompanying notes are an integral part of these financial statements.

 

12


STATEMENT OF ASSETS AND LIABILITIES (Unaudited)

September 30, 2018

 

Assets:

  

Investment in securities, at value (amortized cost $205,046,947) (Note 1)

   $ 214,415,956  

Receivables for investments sold

     6,644,595  

Interest receivable

     2,594,352  

Receivable from broker – variation margin on open futures contracts

     97,190  

Dividend receivable

     36,751  

Prepaid expenses

     31,911  

Expense reimbursement due from the Adviser

     2,671  

Deposits with brokers for open futures contracts

     909  
  

 

 

 

TOTAL ASSETS

     223,824,335  
  

 

 

 

Liabilities:

  

Securities purchased

     6,608,927  

Due to custodian

     657,816  

Payable to the Adviser

     79,321  

Payable to administration and accounting

     15,358  

Payable to custodian

     9,558  

Payable to broker – variation margin on open futures contracts

     9,071  

Payable to transfer agency

     7,757  

Payable to CCO

     5,431  

Accrued expenses payable

     106,432  
  

 

 

 

TOTAL LIABILITIES

     7,499,671  
  

 

 

 

Net assets: (equivalent to $20.20 per share based on 10,710,035 shares of capital stock outstanding)

   $ 216,324,664  
  

 

 

 

NET ASSETS consisted of:

  

Par value

   $ 107,100  

Capital paid-in

     206,576,085  

Accumulated net investment loss

     (1,049,616

Accumulated net realized loss on investments and futures contracts

     1,226,828  

Net unrealized appreciation on investments and futures contracts

     9,464,267  
  

 

 

 
   $ 216,324,664  
  

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

13


STATEMENT OF OPERATIONS (Unaudited)

For the six months ended September 30, 2018

 

Investment Income:

     

Interest

 

   $ 5,332,143  

Dividends

 

     73,495  
     

 

 

 

Total Investment Income

 

     5,405,638  
     

 

 

 

Expenses:

     

Investment advisory fees (Note 4)

   $ 484,346     

Administration fees

     92,819     

Trustees’ fees (Note 4)

     59,263     

Legal fees and expenses

     39,340     

Reports to shareholders

     33,452     

Transfer agent fees

     24,088     

Insurance

     20,964     

CCO fees

     16,294     

Audit fees

     13,709     

Custodian fees

     13,484     

NYSE fee

     12,533     

Miscellaneous

     29,385     
  

 

 

    

Total Expenses

 

     839,677  
     

 

 

 

Expense reimbursement from the Adviser

 

     (16,294

Net Expenses

 

     823,383  
     

 

 

 

Net Investment Income

 

     4,582,255  
     

 

 

 

Realized and unrealized gain (loss) from:

 

  

Net realized loss from:

 

  

Investment securities

 

     (282,913

Futures contracts

 

     (62,359
     

 

 

 

Net Realized Loss

 

     (345,272

Change in net unrealized appreciation (depreciation) of:

     

Investment securities

 

     (3,993,048

Futures contracts

 

     223,680  
     

 

 

 

Change in Net Unrealized Appreciation (Depreciation)

 

     (3,769,368

Net loss on investments and futures contracts

 

     (4,114,640
     

 

 

 

Net increase in net assets resulting from operations

 

   $ 467,615  
     

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

14


STATEMENTS OF CHANGES IN NET ASSETS

 

     Six months ended
September 30, 2018
(Unaudited)
    Year ended
March 31, 2018
 

Increase (decrease) in net assets:

    

Operations:

    

Net investment income

   $ 4,582,255     $ 9,337,729  

Net realized gain (loss) (Note 2)

     (345,272     3,316,729  

Change in unrealized depreciation

     (3,769,368     (3,619,953
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     467,615       9,034,505  
  

 

 

   

 

 

 

Distributions:

    

From net investment income

     (4,284,014     (8,568,027

From realized gains

           (2,583,260
  

 

 

   

 

 

 

Total Distributions

     (4,284,014     (11,151,287
  

 

 

   

 

 

 

Decrease in net assets

     (3,816,399     (2,116,782

Net Assets:

    

Beginning of period

     220,141,063       222,257,845  
  

 

 

   

 

 

 

End of period

   $ 216,324,664     $ 220,141,063  
  

 

 

   

 

 

 

Accumulated net investment loss

   $ (1,049,616   $ (1,347,857
  

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

15


FINANCIAL HIGHLIGHTS

The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.

 

     Six months ended
September 30, 2018
(Unaudited)
    Year ended March 31,  
    2018     2017     2016     2015     2014  

Per Share Operating Performance

            

Net asset value, beginning of period

   $ 20.55     $ 20.75     $ 20.20     $ 21.52     $ 21.10     $ 21.53  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

     0.43       0.87       0.88       0.93       0.98       1.05  

Net gain (loss) on investments and futures contracts

     (0.38     (0.03     0.57       (1.23     0.50       (0.42
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

     0.05       0.84       1.45       (0.30     1.48       0.63  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions:

            

Dividends from net investment income

     (0.40     (0.80     (0.90     (1.02     (1.06     (1.06

Dividends from net realized gain (loss)

           (0.24                        
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.40     (1.04     (0.90     (1.02     (1.06     (1.06
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

   $ 20.20     $ 20.55     $ 20.75     $ 20.20     $ 21.52     $ 21.10  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share market price, end of period

   $ 18.62     $ 19.37     $ 19.16     $ 19.14     $ 20.01     $ 19.42  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Investment Return(1)

            

Based on market value

     (1.96 )%      6.43     4.75     0.88     8.67     2.44

Ratios/Supplemental Data

            

Net assets, end of period (in 000’s)

   $ 216,325     $ 220,141     $ 222,258     $ 216,304     $ 230,464     $ 225,979  

Ratio of expenses to average net assets

     0.76 %(2)      0.74     0.75     0.77     0.74     0.75

Ratio of net investment income to average net assets

     4.22 %(2)      4.15     4.24     4.52     4.58     5.08

Portfolio turnover rate

     29.55 %(3)      55.62     44.32     26.60     30.73     16.10

Number of shares outstanding at the end of the period (in 000’s)

     10,710       10,710       10,710       10,709       10,709       10,709  

 

(1)  

Total investment return is calculated assuming a purchase of common shares at the market price on the first day and a sale at the market price on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions. The total investment return, if for less than a full year, is not annualized. Past performance is not a guarantee of future results.

(2) 

Annualized.

(3) 

Not Annualized.

 

The accompanying notes are an integral part of these financial statements.

 

16


NOTES TO FINANCIAL STATEMENTS (Unaudited)

 

Note 1 – Significant Accounting Policies – The Insight Select Income Fund (the “Fund”), a Delaware statutory trust, is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as a diversified closed-end, management investment company. The Fund’s investment objective is to seek a high rate of return, primarily from interest income and trading activity, from a portfolio principally consisting of debt securities. The Fund follows the accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services – Investment Companies”. The following is a summary of significant accounting policies consistently followed by the Fund in preparation of its financial statements. The policies are in conformity with generally accepted accounting principles within the United States of America (“GAAP”).

 

A.

Security Valuation – In valuing the Fund’s net assets, all securities for which representative market quotations are available will be valued at the last quoted sales price on the security’s principal exchange on the day of valuation. If there are no sales of the relevant security on such day, the security will be valued at the bid price at the time of computation. For securities traded in the over-the-counter market, including listed debt and preferred securities, whose primary market is believed to be over-the-counter, the Fund uses recognized industry pricing services – approved by the Board of Trustees (“Board”) and unaffiliated with Insight North America LLC (“INA” or the “Adviser”) – and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources.

In the event that market quotations are not readily available, or when such quotations are deemed not to reflect current market value, the securities will be valued at their respective fair value as determined in good faith by the Adviser pursuant to certain procedures and reporting requirements established by the Board. The Adviser considers all relevant facts that are reasonably available when determining the fair value of a security, including but not limited to the last sale price or initial purchase price (if a when issued security) and subsequently adjusting the value based on changes in company specific fundamentals, changes in an appropriate securities index, or changes in the value of similar securities which may be further adjusted for any discounts related to security-specific resale restrictions. When possible, observable market inputs such as unadjusted quoted prices of similar securities, observable interest rates, currency rates and yield curves are utilized. At September 30, 2018, there were no securities valued using fair value procedures.

Fair Value Measurements – The Fund has adopted authoritative fair value accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value, a discussion in changes in valuation techniques and related inputs during the period and expanded disclosure of valuation levels for major security types. These inputs are summarized in the three broad levels listed below:

 

•   Level 1 –

  Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

•   Level 2 –

  Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

•   Level 3 –

  Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

 

 

17


NOTES TO FINANCIAL STATEMENTS (Unaudited) — continued

 

At the end of each calendar quarter, management evaluates the Level 1, 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Fund’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities. Pursuant to the Fund’s policy, transfers between levels are considered to have occurred at the beginning of the reporting period. As of September 30, 2018, there were no transfers between Level 1, Level 2 and Level 3 for the Fund.

Level 3 investments are categorized as Level 3 with values derived utilizing prices from prior transactions or third party pricing information without adjustment (broker quotes, pricing services and net asset values). A significant change in third party pricing information could result in a significantly lower or higher value in such Level 3 investments. As of September 30, 2018, the Fund did not hold any Level 3 securities.

When-Issued Securities – The Fund may enter into commitments to purchase securities on a forward or when-issued basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield. In the Fund’s case, these securities are subject to settlement within 45 days of the purchase date. The interest rate realized on these securities is fixed as of the purchase date. The Fund does not pay for such securities prior to the settlement date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates. The Fund will enter into these commitments with the intent of buying the security but may dispose of such security prior to settlement. At the time the commitment is entered into, the Fund will establish and maintain a segregated account in an amount sufficient to cover the obligation under the when-issued contract. At the time the Fund makes the commitment to purchase securities on a when-issued basis, it will record the transaction and thereafter reflect the value of such security purchased in determining its NAV. At the time of delivery of the security, its value may be more or less than the fixed purchase price.

Futures Contracts – The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.

 

 

18


NOTES TO FINANCIAL STATEMENTS (Unaudited) — continued

 

Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

The following table sets forth the fair value and the location of the Fund’s derivative financial instruments within the Statement of Assets and Liabilities by primary risk exposure as of September 30, 2018:

Fair Value of Derivative Investments as of September 30, 2018:

 

Derivatives not accounted for as

hedging instruments under ASC 815

  Assets   Liabilities

Futures — Interest Rate Contracts

  $178,899   $(83,641)

The following table sets forth the effect of the Fund’s derivative financial instruments by primary risk exposure on the Statements of Operations for the six months ended September 30, 2018:

The Effect of Derivative Investments on the Statements of Operations for the six months ended September 30, 2018:

 

Derivatives not accounted for as

hedging instruments under ASC 815

 

Realized

Gain (Loss)

on Derivatives

 

Change in Net Unrealized

Appreciation (Depreciation)

of Derivatives

Futures — Interest Rate Contracts

  $(62,359)   $223,680

The average notional value of long and short futures contracts held by the Fund throughout the period was $3,102,503 and 8,574,477, respectively. This is based on amounts held as of each quarter-end throughout the fiscal year.

 

B.

Determination of Gains or Losses on Sale of Securities – Gains or losses on the sale of securities are calculated for financial reporting purposes and for federal tax purposes using the identified cost basis. The identified cost basis for financial reporting purposes differs from that used for federal tax purposes in that the amortized cost of the securities sold is used for financial reporting purposes and the original cost of the securities sold is used for federal tax purposes, except for those instances where tax regulations require the use of amortized cost.

 

C.

Federal Income Taxes – It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no federal income tax provision is required.

 

  

Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (tax years March 31, 2015-2017) or expected to be taken on the Fund’s 2018 tax return, and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

 

19


NOTES TO FINANCIAL STATEMENTS (Unaudited) — continued

 

D.

Other – Security transactions are accounted for on the trade date. Interest income is accrued daily. Premiums and discounts are amortized using the interest method. Paydown gains and losses on mortgage-backed and asset-backed securities are presented as an adjustment to interest income. Dividend income and distributions to shareholders are recorded on the ex-dividend date.

 

E.

Distributions to Shareholders and Book/Tax Differences – Distributions of net investment income will be made quarterly. Distributions of any net realized capital gains will be made annually. Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for amortization of market premium and accretion of market discount.

 

  

Distributions during the fiscal years ended March 31, 2018 and 2017 were characterized as follows for tax purposes:

 

    Ordinary Income  

Return of Capital

 

Capital Gain

 

Total Distribution

FY 2018

  $        10,032,088   $        —   $        1,119,199   $        11,151,287

FY 2017

  $          9,638,349   $        —   $                    —   $          9,638,349

 

  

At March 31, 2018, the components of distributable earnings on a tax basis were as follows:

 

Total

   Accumulated
Ordinary Income
   Undistributed
Long-Term
Capital Gains
   Late Year Losses
Deferred
   Net Unrealized
Appreciation

$13,457,878

   $129,466    $1,443,777    $                    —    $11,884,635
    

 

  

 

  

 

  

 

 

  

Capital loss carryforwards are subject to usage limitations. During the year ended March 31, 2018, capital loss carryforwards in the amount of $61,753 were utilized.

 

  

Under current laws, certain capital losses realized after October 31 and certain ordinary losses realized after December 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended March 31, 2018, no losses were deferred.

 

  

At September 30, 2018, the following table shows for federal tax purposes the aggregate cost of investments, the net unrealized appreciation of those investments, the aggregate gross unrealized appreciation of all securities with an excess of market value over tax cost and the aggregate gross unrealized depreciation of all securities with an excess of tax cost over market value:

 

   

Cost

 

Gross
Unrealized
Appreciation

 

Gross
Unrealized
Depreciation

 

Net Unrealized
Appreciation
(Depreciation)

Securities

  $205,046,947   $12,465,649   $(3,096,640)   $9,369,009

 

  

The difference between book basis and tax-basis unrealized appreciation is attributable primarily to the differing treatments for wash sales, amortization of market premium and accretion of market discount.

 

F.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

20


NOTES TO FINANCIAL STATEMENTS (Unaudited) — continued

 

Note 2 – Portfolio Transactions – The following is a summary of the security transactions, other than short-term investments, for the six months ended September 30, 2018:

 

     Cost of
Purchases
     Proceeds from Sales
or Maturities
 

U.S. Government Securities

   $ 40,139,360      $ 30,367,852  

Other Investment Securities

   $ 26,499,431      $ 31,902,582  

Note 3 – Capital Stock – At September 30, 2018, there were an unlimited number of shares of beneficial interest ($0.01 par value) authorized, with 10,710,035 shares issued and outstanding.

Note 4 – Investment Advisory Contract, Accounting and Administration, Custodian, Transfer Agent and Trustee Compensation – INA serves as investment adviser to the Fund. The Adviser is entitled to a fee at the annual rate of 0.50% on the first $100 million of the Fund’s month-end net assets and 0.40% on the Fund’s month-end net assets in excess of $100 million. As previously disclosed as part of an internal reorganization, Cutwater Investor Services Corp. (“Cutwater”) merged into its affiliate, INA, on July 2, 2018. Effective July 2, 2018, the Fund’s investment management agreement was transferred to INA. The Bank of New York Mellon Corporation remains INA’s ultimate parent company. Historically, the Adviser and INA have operated under the same brand for some time and this merger is not expected to have any material impact on the day-to-day management of the Fund. This reorganization did not result in a change of control of the Adviser under the Investment Advisers Act of 1940, as amended, and the rules thereunder.

BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”), a member of The Bank of New York Mellon Corporation, provides accounting and administrative services to the Fund. The Bank of New York Mellon is the Fund’s custodian responsible for the custody of Fund’s assets. BNY Mellon is the contractual Transfer Agent to the Fund and has subcontracted with Computershare to provide transfer agency services to the Fund.

The Adviser is a wholly owned subsidiary of The Bank of New York Mellon Corporation. The Adviser works closely with and is administered by Insight Investment Management (Global) Limited (“Insight”), another of The Bank of New York Mellon Corporation’s investment management subsidiaries. The Adviser is subject to The Bank of New York Mellon Corporation’s Code of Conduct and various policies and procedures designed to address the potential for conflicts of interest that may arise in connection with the Adviser’s status as an affiliated person of The Bank of New York Mellon Corporation and its subsidiaries.

The Fund entered into a chief compliance officer outsourcing agreement (the “CCO Outsourcing Agreement”) with Lebisky Compliance Consulting LLC pursuant to which the Fund retains its Chief Compliance Officer. For the six months ended September 30, 2018, the Fund incurred $16,294 under the CCO Outsourcing Agreement which was reimbursed by the Adviser. As of September 30, 2018, the amount due from the Adviser under the fee waiver and expense reimbursement was $2,671.

The Trustees of the Fund receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The aggregate remuneration paid to the Trustees by the Fund during the six months ended September 30, 2018 was $59,263. Certain officers of the Fund are also officers and/or employees of the investment adviser. None of the Fund’s officers receives compensation from the Fund. As of September 30, 2018, the amount due to the Trustees was $1,933 included in Accrued Expenses Payable on the Statement of Assets and Liabilities.

 

 

21


NOTES TO FINANCIAL STATEMENTS (Unaudited) — continued

 

Note 5 – Dividend and Distribution Reinvestment – In accordance with the terms of the Amended and Restated Automatic Dividend Investment Plan (the “Plan”), for shareholders who so elect, dividends and distributions are made in the form of previously unissued Fund shares at the net asset value if on the Friday preceding the payment date (the “Valuation Date”) the closing New York Stock Exchange price per share, plus the brokerage commissions applicable to one such share equals or exceeds the net asset value per share. However, if the net asset value is less than 95% of the market price on the Valuation Date, the shares issued will be valued at 95% of the market price. If the net asset value per share exceeds market price plus commissions, the dividend or distribution proceeds are used to purchase Fund shares on the open market for participants in the Plan. During the six months ended September 30, 2018, the Fund did not issue any shares under this Plan.

Note 6 Subsequent Event – Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no additional subsequent events requiring recognition or disclosure in the financial statements.

 

22


SHAREHOLDER INFORMATION (Unaudited)

 

BOARD CONSIDERATION OF RENEWAL OF INVESTMENT ADVISORY CONTRACT

At an in-person meeting held on May 10, 2018, the Board of Trustees (“Board” or “Trustees”), including a majority of those trustees who are not “interested persons” (the “Independent Trustees”) as such term is defined in the Investment Company Act of 1940, as amended (“Investment Company Act”), unanimously approved the continuation for an additional one-year period ending June 30, 2019 of the existing investment advisory agreement effective January 2, 2015 (the “Agreement”) between the Insight Select Income Fund (the “Fund”) and Insight North America, LLC (the “Adviser”). The Adviser is a wholly owned subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”). The continuation of the Agreement was last approved by the Board at a meeting of the Board on September 13, 2017.

Before meeting to determine whether to approve the continuation of the Agreement, the Trustees considered information provided by the Adviser in accordance with Section 15(c) of the Investment Company Act. The Trustees considered information that the Adviser provided regarding (i) the services performed for the Fund, (ii) the size and qualifications of the Adviser’s portfolio management staff, (iii) any potential or actual material conflicts of interest that may arise in connection with a portfolio manager’s management of the Fund, (iv) investment performance of the Fund, (v) the capitalization and financial condition of the Adviser and BNY Mellon, (vi) brokerage selection procedures, (vii) the procedures for allocating investment opportunities between the Fund and other clients of the Adviser, (viii) results of any independent audit or regulatory examination, including any recommendations or deficiencies noted, (ix) any litigation, investigation or administrative proceeding which may have a material impact on the Adviser’s ability to service the Fund, and (x) compliance with the Fund’s investment objective, policies and practices (including codes of ethics and proxy voting policies), federal securities laws and other regulatory requirements. Included with this information was also information regarding the advisory fees received and an analysis of those fees in relation to the delivery of services to the Fund, the costs of providing such services, the profitability of the Adviser in general and as a result of the fees received from the Fund and any other ancillary benefit resulting from the Adviser’s relationship with the Fund. The Trustees also received a copy of the Agreement and the Adviser’s current Form ADV. The Trustees were provided with a memorandum from legal counsel regarding the legal standard applicable to their review of the Agreement. The Trustees reviewed comparative performance data, comparative statistics and advisory fee data for the Fund relative to five other investment grade corporate bond closed-end funds that do not utilize leverage with similar investment objectives, strategies and policies (the “Peer Group”).

Representatives of the Adviser joined the May 10, 2018 meeting to discuss the Adviser’s history, performance, investment strategy, and compliance program in connection with the continuation of the Agreement. The Trustees considered and weighed the above information based upon their accumulated experience in governing the Fund and working with the Adviser on matters relating to the Fund. During its deliberations on whether to approve the continuation of the Agreement, the Trustees considered many factors. In addition to the information provided by the Adviser as described above, the Trustees also considered all other factors they believed to be relevant in evaluating the Agreement. In their deliberations, the Trustees did not identify any particular information as controlling, and different Trustees may have attributed different weights to the various factors. However, the Trustees determined that the overall arrangements with the Adviser with respect to the Fund, as provided in the Agreement, including the investment advisory fees, are fair and reasonable in light of the services performed, expenses incurred and such other matters as the Trustees considered relevant. The following discussion, however, identifies the primary factors taken into account by the Trustees and the conclusions reached in approving the Agreement.

Nature, Extent, and Quality of Services. The Trustees considered the services provided by the Adviser to the Fund. The Trustees considered the Adviser’s personnel and the depth of personnel who possess the experience to provide

 

23


SHAREHOLDER INFORMATION (Unaudited) — continued

 

investment management services to the Fund. Based on the information provided by the Adviser, the Trustees concluded that (i) the nature, extent and quality of the services provided by the Adviser are appropriate and consistent with the terms of the Agreement, (ii) the quality of those services has been consistent with industry norms, (iii) the Fund is likely to benefit from the continued provision of those services by the Adviser, (iv) the Adviser has sufficient personnel, with the appropriate education and experience, to continue to serve the Fund effectively and has demonstrated its ability to attract and retain qualified personnel, and (v) the satisfactory nature, extent, and quality of services currently provided to the Fund and its shareholders is likely to continue.

Investment Performance. The Trustees considered the overall investment performance of the Adviser and the Fund for the one year, three year, five year, 10 year and since inception periods ended March 31, 2018. The Trustees reviewed and considered comparative performance data and the Fund’s performance relative to the average performance of the Peer Group and its respective benchmark index, the Bloomberg Barclays Capital US Credit Index (the “Benchmark”). The Trustees noted that the Fund outperformed its Peer Group average and the Benchmark for the one year, three year, five year, 10 year and since inception periods ended March 31, 2018.

The Trustees also noted that their review included evaluation of the Fund’s investment performance on an on-going basis throughout the year. The Trustees considered the consistency of performance results and the short-term and long-term performance of the Fund. They concluded that it was within an acceptable range of performance relative to other fixed-income closed-end funds with similar investment objectives, strategies and policies.

Comparative Expenses. The Trustees considered the cost of the services provided by the Adviser, the compensation and benefits received by the Adviser in providing services to the Fund, as well as the Adviser’s profitability. The Trustees were provided with and reviewed BNY Mellon’s financial statements for the fiscal year ended December 31, 2017. In addition, the Trustees considered any direct or indirect revenues received by affiliates of the Adviser, noting that BNY Mellon and its affiliates provide custodial, transfer agency, and administrative services to the Fund for which the Fund pays service fees. The Trustees were satisfied that the Adviser’s profits were sufficient to continue as a viable concern generally and as investment adviser to the Fund specifically. The Trustees concluded that the Adviser’s fees and profits (if any) derived from its relationship with the Fund in light of the Fund’s expenses were reasonable in relation to the nature and quality of the services provided, taking into account the fees charged by other investment advisers for managing comparable funds with similar strategies.

The Trustees noted that the Fund’s net expense ratio was higher than the average net expense ratio of the Peer Group and that the Fund’s gross expense ratio was higher than the average gross expense ratio of comparable funds advised or sub-advised by the Adviser. The Trustees concluded that the overall expense ratio of the Fund was reasonable, taking into account the size of the Fund, the quality of services provided by the Adviser, and the investment performance of the Fund. On the basis of these considerations, together, with the other information it considered, the Board determined that the investment advisory fee to be received by the Adviser is reasonable in light of the services provided.

Economies of Scale. The Trustees considered the extent to which economies of scale would be realized relative to fee levels as the Fund grows, and whether the advisory fee levels reflect these economies of scale for the benefit of shareholders. The Trustees noted that the advisory fee included a break-point reduction in the advisory fee of 10 basis points on Fund assets in excess of $100 million, and that the Fund’s assets were above the break-point. As a result, the trustees considered that economies of scale are being realized in the management of the Fund for the benefit of shareholders.

Conclusion. After consideration of all the factors, taking into consideration the information presented at the meetings and deliberating in executive session, the entire Board, including the Independent Trustees, unanimously

 

24


SHAREHOLDER INFORMATION (Unaudited) — continued

 

approved the Agreement for an additional one year period. The Board concluded that the investment advisory fee rate under the Agreement is reasonable in relation to the services provided and that continuation of the Agreement is in the best interests of the shareholders of the Fund. The Trustees also concluded that the investment advisory fees are at acceptable levels in light of the quality of services provided to the Fund. On these bases, the Trustees concluded that the investment advisory fees for the Fund under the Agreement are reasonable. In arriving at their decision, the Trustees did not identify any single matter as controlling, but made their determination in light of all the circumstances.

RESULTS OF SHAREHOLDER VOTES

The Annual Meeting of Shareholders of the Fund was held on June 14, 2018. At the meeting, shareholders voted on the election of all trustees. Forty percent (40%) of the shares entitled to vote on the matter shall constitute a quorum. If a quorum is present, a plurality of all votes cast at the meeting is sufficient for the election of Trustees. A quorum was present and the proposal was approved, the details of which are as follows:

 

      Votes Cast
in Favor
     Withheld  

W. Thacher Brown

     9,385,610        254,616  

Ellen D. Harvey

     9,391,322        248,904  

Thomas E. Spock

     9,396,477        243,749  

Suzanne P. Welsh

     9,384,582        255,644  

HOW TO GET INFORMATION REGARDING PROXIES

The Fund has adopted the Adviser’s proxy voting policies and procedures to govern the voting of proxies relating to the voting securities of the Fund. You may obtain a copy of these proxy voting procedures, without charge, by emailing clientservicena@insightinvestment.com or on the Securities and Exchange Commission website at www.sec.gov.

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available, without charge, by emailing clientservicena@insightinvestment.com or on the SEC’s website at www.sec.gov.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the Security and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at http://www.sec.gov. Form N-Q is being rescinded. Once Form N-Q is rescinded, disclosure of the Fund’s complete holdings will be required to be made monthly on Form N-PORT, with every third month made available to the public by the Commission 60 days after the end of the Fund’s fiscal quarter.

ADDITIONAL TAX INFORMATION

For corporate shareholders, the percentage of investment income (dividend income and short-term gains, if any) for the Fund that qualify for the dividends-received deductions for the year ended March 31, 2018 was 1.49%.

For the year ended March 31, 2018, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions made by the

 

25


SHAREHOLDER INFORMATION (Unaudited) — continued

 

Fund, 1.49% represents the amount of each distribution which may qualify for the 15% dividend income tax rate. Shareholders should not use this tax information to prepare their tax returns. The information will be included with your Form 1099 DIV which will be sent to you separately in January 2019.

For the fiscal year ended March 31, 2018, the Fund designated long-term capital gains of $2,562,976.

DIVIDEND REINVESTMENT PLAN

The Fund has established a plan for the automatic investment of dividends and distributions pursuant to which dividends and capital gain distributions to shareholders will be paid in or reinvested in additional shares of the Fund. All shareholders of record are eligible to join the Plan. BNY Mellon acts as the agent (the “Agent”) for participants under the Plan.

Shareholders whose shares are registered in their own names may elect to participate in the Plan by completing an authorization form and returning it to the Agent. Shareholders whose shares are held in the name of a broker or nominee should contact such broker or nominee to determine whether or how they may participate in the Plan.

Dividends and distributions are reinvested under the Plan as follows. If the market price per share on the Friday before the payment date for the dividend or distribution (the “Valuation Date’’), plus the brokerage commissions applicable to one such share, equals or exceeds the net asset value per share on that date, the Fund will issue new shares to participants valued at the net asset value or, if the net asset value is less than 95% of the market price on the Valuation Date, then valued at 95% of the market price. If net asset value per share on the Valuation Date exceeds the market price per share on that date, plus the brokerage commissions applicable to one such share, the Agent will buy shares on the open market, on the New York Stock Exchange, for the participants’ accounts. If before the Agent has completed its purchases, the market price exceeds the net asset value of shares, the average per share purchase price paid by the Agent may exceed the net asset value of shares, resulting in the acquisition of fewer shares than if the dividend or distribution has been paid in shares issued by the Fund at net asset value.

There is no charge to participants for reinvesting dividends or distributions payable in either shares or cash. The Agent’s fees for handling of reinvestment of such dividends and distributions will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or distributions payable either in shares or cash. However, each participant will be charged by the Agent a pro rata share of brokerage commissions incurred with respect to Agent’s open market purchases in connection with the reinvestment of dividends or distributions payable only in cash.

For purposes of determining the number of shares to be distributed under the Plan, the net asset value is computed on the Valuation Date and compared to the market value of such shares on such date. The Plan may be terminated by a participant by delivery of written notice of termination to the Agent at the address shown below. Upon termination, the Agent will cause a certificate or certificates for the full shares held for a participant under the Plan and a check for any fractional shares to be delivered to the former participant.

Distributions of investment company taxable income that are invested in additional shares generally are taxable to shareholders as ordinary income. A capital gain distribution that is reinvested in shares is taxable to shareholders as long-term capital gain, regardless of the length of time a shareholder has held the shares or whether such gain was realized by the Fund before the shareholder acquired such shares and was reflected in the price paid for the shares.

Plan information and authorization forms are available from BNY Mellon Investment Servicing (US) Inc., P.O. Box 358035, Pittsburgh, PA 15252-8035.

 

26


SHAREHOLDER INFORMATION (Unaudited) — continued

 

PRIVACY POLICY

The Fund has adopted procedures designed to maintain and secure the non-public personal information of its clients from inappropriate disclosure to third parties. The Fund is committed to keeping personal information collected from potential, current, and former clients confidential and secure. The proper handling of personal information is one of our highest priorities. The Fund never sells information relating to its clients to any outside third parties.

Client Information

The Fund will only collect and keep information which is necessary for it to provide the services requested by its shareholders, and to administer a shareholder account.

The Fund may collect nonpublic personal information from clients or potential clients such as name, address, tax identification or social security number, assets, income, net worth, copies of financial documents and other information that we may receive on applications or other forms, correspondence or conversations, or via other methods in order to conduct business.

The Fund may also collect information about your transactions with the Fund, Adviser, Adviser’s affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information.

This information may be obtained as a result of transactions with the Fund, Adviser, Adviser’s affiliates, its clients, or others. This could include transactions completed with affiliates or information received from outside vendors to complete transactions or to effect financial goals.

Sharing Information

The Fund only shares the nonpublic personal information of its shareholders with non-affiliated companies or individuals (i) as permitted by law and as required to provide services to shareholders, such as with representatives within Adviser, securities clearing firms, the Fund or insurance companies, and other financial services providers; or (ii) to comply with legal or regulatory requirements. The Fund may also disclose nonpublic personal information to another financial services provider in connection with the transfer of an account to such financial services provider. Further, in the normal course of business, the Fund may disclose information it collects about shareholders to companies or individuals that contract with the Fund or Adviser to perform servicing functions including, but not limited to, recordkeeping, consulting, and/or technology services.

Companies hired to provide support services are not permitted to use personal information for their own purposes, and are contractually obligated to maintain strict confidentiality. The Fund limits the use of personal information to the performance of the specific service requested.

The Fund does not provide personally identifiable information to mailing list vendors or solicitors for any purpose. When the Fund provides personal information to service providers, it requires these providers to agree to safeguard such information, to use the information only for the intended purpose, and to abide by applicable law.

Employee Access to Information

Only employees with a valid business reason have the ability to access a clients’ personal information. These employees are educated on the importance of maintaining the confidentiality and security of this information. They are required to abide by our information handling practices.

 

27


SHAREHOLDER INFORMATION (Unaudited) — continued

 

Protection of Information

The Fund maintains security standards to protect shareholders’ information, whether written, spoken, physical, or electronic. The Fund updates and checks its physical mechanisms and electronic systems to ensure the protection and integrity of information.

Maintaining Accurate Information

The Fund’s goal is to maintain accurate, up to date client records in accordance with industry standards. The Fund has procedures in place to keep information current and complete, including timely correction of inaccurate information.

Disclosure of our Privacy Policy

The Fund recognizes and respects the privacy concerns of its potential, current, and former shareholders. The Fund, Adviser and Adviser’s affiliates are committed to safeguarding this information and may provide this Privacy Policy for informational purposes to shareholders and employees, and will distribute and update it as required by law. It is also available upon request.

The Fund seeks to carefully safeguard shareholder information and, to that end, restricts access to non-public personal information about our shareholders to those employees and other persons who need to know the information to enable the Fund to provide services to its shareholders. The Fund, Adviser and their service agents maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your non-public personal information. In the event that you maintain an account through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your non-public personal information would be shared with unaffiliated third parties.

 

28


 

 

 

 

 

 

 

 

 

HOW TO GET ASSISTANCE WITH SHARE TRANSFER OR DIVIDENDS

Contact Your Transfer Agent:

BNY Mellon Investment Servicing (US) Inc.

P.O. Box 358035, Pittsburgh, PA 15252-8035, or call 1-866-333-6685


T    R   U   S   T   E   E   S   

 

W. THACHER BROWN

ELLEN D. HARVEY

THOMAS E. SPOCK

SUZANNE P. WELSH

O   F   F   I   C   E   R   S

 

CLIFFORD D. CORSO

President

THOMAS E. STABILE

Treasurer

DAVID C. LEBISKY

Secretary and Chief Compliance Officer

GAUTAM KHANNA

Vice President

I   N   V   E   S   T   M    E   N   T    A   D   V   I   S   E   R

 

INSIGHT NORTH AMERICA LLC

200 PARK AVE, 7TH FLOOR

NEW YORK, NY 10166

C   U   S   T   O   D   I    A   N

 

THE BANK OF NEW YORK MELLON

2 HANSON PLACE

BROOKLYN, NY 11217

T   R   A   N   S   F   E   R    A   G    E   N   T

 

BNY MELLON INVESTMENT SERVICING (US) INC.

P.O. BOX 358035

PITTSBURGH, PA 15252-8035

1-866-333-6685

C   O   U   N   S   E   L

 

PEPPER HAMILTON LLP

3000 TWO LOGAN SQUARE

EIGHTEENTH & ARCH STREETS

PHILADELPHIA, PA 19103

I   N   D   E   P   E   N   D   E   N    T    R   E   G   I   S   T   E   R   E   D

P   U   B   L   I   C     A   C   C   O   U   N   T   I   N   G    F   I   R    M

 

TAIT, WELLER & BAKER LLP

1818 MARKET STREET

SUITE 2400

PHILADELPHIA, PA 19103

 

 

 

 

LOGO

Insight Select Income Fund

Semi-Annual Report

September 30, 2018

 

 

LOGO

 


Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

 

(a)

Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.

 

(b)

Not applicable.

 

Item 7.

  Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Portfolio manager Robert Claiborne retired from Insight North America LLC on June 28, 2018.

 

Item 9.

  Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-


K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.

Item 11. Controls and Procedures.

 

  (a)

The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

 

  (b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12.

  Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable.

Item 13. Exhibits.

 

  (a)(1)

Not applicable.

 

  (a)(2)

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

 

  (a)(3)

Not applicable.

 

  (a)(4)

Not applicable.

 

  (b)

Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.


SIGNATURES

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

 

(Registrant)

  

                    Insight Select Income Fund

  

 

By (Signature and Title)*

  

    /s/ Clifford D. Corso

  
       Clifford D. Corso, President   
  

    (Principal Executive Officer)

  

 

Date

  

                         November 26, 2018

  

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

 

By (Signature and Title)*

  

    /s/ Clifford D. Corso

  
       Clifford D. Corso, President   
       (Principal Executive Officer)   

 

Date

  

                         November 26, 2018

  

 

By (Signature and Title)*

  

    /s/ Thomas E. Stabile

  
       Thomas E. Stabile, Treasurer   
       (Principal Financial Officer)   

 

Date

  

                         November 26, 2018

  

* Print the name and title of each signing officer under his or her signature.