N-Q 1 a16-5974_1nq.htm N-Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-22485

 

Avenue Income Credit Strategies Fund

(Exact name of registrant as specified in charter)

 

399 Park Avenue, 6th Floor
New York, NY

 

10022

(Address of principal executive offices)

 

(Zip code)

 

Randolph Takian
Avenue Capital Group
399 Park Avenue, 6th Floor
New York, NY 10022

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(212) 878-3500

 

 

Date of fiscal year end:

October 31

 

 

Date of reporting period:

January 31, 2016

 

 



 

Item 1. Schedule of Investments. — The schedule of investments for the period ended January 31, 2016, is filed herewith.

 



 

Avenue Income Credit Strategies Fund

SCHEDULE OF INVESTMENTS

January 31, 2016 (Unaudited)

 

Security Description

 

Coupon

 

Maturity

 

Principal
Amount (000)

 

Value

 

 

 

 

 

 

 

 

 

 

 

CORPORATE BONDS & NOTES — 97.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace & Defense — 0.8%

 

 

 

 

 

 

 

 

 

Accudyne Industries Borrower / Accudyne Industries LLC (a)

 

7.75

%

12/15/2020

 

$

1,914

 

$

1,311,090

 

Banks — 1.1%

 

 

 

 

 

 

 

 

 

Royal Bank of Scotland Group PLC

 

7.65

%

 

(b)

1,400

 

1,729,000

 

Chemicals — 4.2%

 

 

 

 

 

 

 

 

 

Hexion, Inc.:

 

 

 

 

 

 

 

 

 

 

 

6.63

%

4/15/2020

 

3,177

 

2,462,175

 

 

 

10.00

%

4/15/2020

 

1,000

 

825,000

 

Perstorp Holding AB (a)

 

8.75

%

5/15/2017

 

2,425

 

2,370,437

 

Platform Specialty Products Corp. (a)

 

10.38

%

5/1/2021

 

1,000

 

932,500

 

 

 

 

 

 

 

 

 

6,590,112

 

 

 

 

 

 

 

 

 

 

 

Commercial Services & Supplies — 1.4%

 

 

 

 

 

 

 

 

 

Light Tower Rentals, Inc. (a)

 

8.13

%

8/1/2019

 

5,017

 

2,220,023

 

Communications Equipment — 1.9%

 

 

 

 

 

 

 

 

 

Avaya, Inc.:

 

 

 

 

 

 

 

 

 

 

 

9.00

%

4/1/2019

(a)

3,700

 

2,506,750

 

 

 

10.50

%

3/1/2021

(a)

2,199

 

549,750

 

 

 

 

 

 

 

 

 

3,056,500

 

Consumer Finance — 2.6%

 

 

 

 

 

 

 

 

 

Springleaf Finance Corp.

 

6.90

%

12/15/2017

 

4,000

 

4,089,600

 

Containers & Packaging — 6.8%

 

 

 

 

 

 

 

 

 

Ardagh Finance Holdings SA (c)

 

8.38

%

6/15/2019

 

EUR

679

 

690,900

 

Ardagh Finance Holdings SA PIK (a)

 

8.63

%

6/15/2019

 

$

5,589

 

5,079,832

 

BWAY Holding Co. (a)

 

9.13

%

8/15/2021

 

6,001

 

4,950,825

 

 

 

 

 

 

 

 

 

10,721,557

 

 

 

 

 

 

 

 

 

 

 

Diversified Telecommunication Services — 4.1%

 

 

 

 

 

 

 

 

 

Frontier Communications Corp.:

 

 

 

 

 

 

 

 

 

 

 

8.88

%

9/15/2020

(a)

181

 

181,679

 

 

 

10.50

%

9/15/2022

(a)

181

 

176,023

 

 

 

11.00

%

9/15/2025

(a)

4,183

 

4,031,366

 

Intelsat Jackson Holdings SA:

 

 

 

 

 

 

 

 

 

 

 

6.63

%

12/15/2022

 

2,398

 

1,552,705

 

 

 

7.50

%

4/1/2021

 

565

 

483,075

 

 

 

 

 

 

 

 

 

6,424,848

 

 

 

 

 

 

 

 

 

 

 

Energy Equipment & Services — 3.4%

 

 

 

 

 

 

 

 

 

CHC Helicopter SA

 

9.38

%

6/1/2021

 

2,007

 

371,212

 

Drill Rigs Holdings, Inc. (a)

 

6.50

%

10/1/2017

 

2,250

 

1,192,500

 

Globe Luxembourg SCA (a)

 

9.63

%

5/1/2018

 

1,015

 

700,350

 

Pacific Drilling V Ltd. (a)

 

7.25

%

12/1/2017

 

1,610

 

563,500

 

Tervita Corp. (a)

 

8.00

%

11/15/2018

 

4,225

 

2,492,750

 

 

 

 

 

 

 

 

 

5,320,312

 

Food & Staples Retailing — 0.9%

 

 

 

 

 

 

 

 

 

Rite Aid Corp. (a)

 

6.13

%

4/1/2023

 

1,350

 

1,424,250

 

Health Care Equipment & Supplies — 4.2%

 

 

 

 

 

 

 

 

 

ConvaTec Finance International SA PIK (a)

 

8.25

%

1/15/2019

 

7,500

 

6,675,000

 

Health Care Providers & Services — 9.9%

 

 

 

 

 

 

 

 

 

HCA, Inc.:

 

 

 

 

 

 

 

 

 

 

 

7.05

%

12/1/2027

 

745

 

726,375

 

 

 

7.50

%

11/6/2033

 

120

 

124,800

 

 

 

7.58

%

9/15/2025

 

555

 

574,425

 

 

 

7.69

%

6/15/2025

 

900

 

958,500

 

inVentiv Health, Inc. (a)

 

9.00

%

1/15/2018

 

5,075

 

5,135,266

 

inVentiv Health, Inc. PIK (a)

 

10.00

%

8/15/2018

 

4,155

 

3,880,712

 

Tenet Healthcare Corp.:

 

 

 

 

 

 

 

 

 

 

 

6.75

%

6/15/2023

 

4,000

 

3,700,000

 

 

See Accompanying Notes to Schedule of Investments.

 



 

Security Description

 

Coupon

 

Maturity

 

Principal
Amount (000)

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

8.13

%

4/1/2022

 

$

525

 

$

526,312

 

 

 

 

 

 

 

 

 

15,626,390

 

Hotels, Restaurants & Leisure — 9.1%

 

 

 

 

 

 

 

 

 

Caesars Entertainment Operating Co, Inc.:

 

 

 

 

 

 

 

 

 

 

 

9.00

%

2/15/2020

(d)(e)

3,245

 

2,417,525

 

 

 

11.25

%

6/1/2017

(d)(e)

2,820

 

2,040,975

 

Gala Electric Casinos PLC (c)

 

11.50

%

6/1/2019

 

GBP

1,845

 

2,749,391

 

Scientific Games International, Inc.:

 

 

 

 

 

 

 

 

 

 

 

7.00

%

1/1/2022

(a)

$

1,589

 

1,493,660

 

 

 

10.00

%

12/1/2022

 

3,723

 

2,587,485

 

The Unique Pub Finance Co. Plc

 

6.46

%

3/30/2032

 

GBP

2,530

 

3,041,390

 

 

 

 

 

 

 

 

 

14,330,426

 

Household Durables — 7.1%

 

 

 

 

 

 

 

 

 

Beazer Homes USA, Inc.:

 

 

 

 

 

 

 

 

 

 

 

7.25

%

2/1/2023

 

$

2,225

 

1,835,625

 

 

 

7.50

%

9/15/2021

 

4,639

 

3,711,200

 

K Hovnanian Enterprises, Inc.:

 

 

 

 

 

 

 

 

 

 

 

7.00

%

1/15/2019

(a)

1,353

 

865,108

 

 

 

8.00

%

11/1/2019

(a)

213

 

125,670

 

 

 

9.13

%

11/15/2020

(a)

7,000

 

4,620,000

 

 

 

 

 

 

 

 

 

11,157,603

 

Independent Power and Renewable Electricity Producers — 1.2%

 

 

 

 

 

 

 

 

 

Illinois Power Generating Co.:

 

 

 

 

 

 

 

 

 

 

 

6.30

%

4/1/2020

 

2,536

 

1,115,840

 

 

 

7.95

%

6/1/2032

 

1,750

 

752,500

 

 

 

 

 

 

 

 

 

1,868,340

 

IT Services — 3.2%

 

 

 

 

 

 

 

 

 

First Data Corp. (a)

 

7.00

%

12/1/2023

 

4,000

 

4,030,000

 

Syniverse Holdings, Inc.

 

9.13

%

1/15/2019

 

2,672

 

1,015,360

 

 

 

 

 

 

 

 

 

5,045,360

 

Machinery — 1.1%

 

 

 

 

 

 

 

 

 

Waterjet Holdings, Inc. (a)

 

7.63

%

2/1/2020

 

1,840

 

1,821,600

 

Marine — 2.2%

 

 

 

 

 

 

 

 

 

Navios Maritime Acquisition Corp. / Navios Acquisition Finance US, Inc.

 

8.13

%

11/15/2021

(a)

1,544

 

1,227,480

 

Navios Maritime Holdings, Inc. / Navios Maritime Finance II US, Inc.:

 

 

 

 

 

 

 

 

 

 

 

7.38

%

1/15/2022

(a)

3,711

 

1,335,960

 

 

 

8.13

%

2/15/2019

 

3,179

 

953,700

 

 

 

 

 

 

 

 

 

3,517,140

 

Media — 12.1%

 

 

 

 

 

 

 

 

 

Altice Finco SA

 

7.63

%

2/15/2025

(a)

1,800

 

1,656,000

 

Altice Luxembourg SA:

 

 

 

 

 

 

 

 

 

 

 

6.25

%

2/15/2025

(a)

EUR

100

 

91,560

 

 

 

7.63

%

2/15/2025

(a)

$

1,540

 

1,370,600

 

Altice SA

 

7.75

%

5/15/2022

(a)

2,030

 

1,892,975

 

Altice US Finance II Corp.

 

7.75

%

7/15/2025

(a)

5,101

 

4,667,415

 

Clear Channel Communications, Inc.:

 

 

 

 

 

 

 

 

 

 

 

10.63

%

3/15/2023

 

410

 

265,475

 

 

 

11.25

%

3/1/2021

 

8,610

 

5,747,175

 

Clear Channel Communications, Inc. PIK

 

14.00

%

2/1/2021

 

1,909

 

479,196

 

Clear Channel Worldwide Holdings, Inc.

 

7.63

%

3/15/2020

 

3,500

 

2,887,500

 

 

 

 

 

 

 

 

 

19,057,896

 

 

See Accompanying Notes to Schedule of Investments.

 



 

Security Description

 

Coupon

 

Maturity

 

Principal
Amount (000)

 

Value

 

 

 

 

 

 

 

 

 

 

 

Metals & Mining — 2.3%

 

 

 

 

 

 

 

 

 

Schmolz & Bickenbach Luxembourg SA (a)

 

9.88

%

5/15/2019

 

EUR

2,157

 

$

2,149,358

 

Wise Metals Group LLC / Wise Alloys Finance Corp. (a)

 

8.75

%

12/15/2018

 

$

820

 

686,750

 

Wise Metals Intermediate Holdings LLC/Wise Holdings Finance Corp. PIK (a)

 

9.75

%

6/15/2019

 

2,263

 

859,940

 

 

 

 

 

 

 

 

 

3,696,048

 

Multiline Retail — 3.9%

 

 

 

 

 

 

 

 

 

JC Penney Corp, Inc.

 

5.65

%

6/1/2020

 

4,595

 

3,790,875

 

The Neiman Marcus Group, Inc. PIK (a)

 

8.75

%

10/15/2021

 

3,645

 

2,314,575

 

 

 

 

 

 

 

 

 

6,105,450

 

Oil, Gas & Consumable Fuels — 2.2%

 

 

 

 

 

 

 

 

 

Halcon Resources Corp. (a)

 

8.63

%

2/1/2020

 

2,411

 

1,518,930

 

Memorial Production Partners LP / Memorial Production Finance Corp.

 

6.88

%

8/1/2022

 

78

 

21,840

 

Northern Oil and Gas, Inc.:

 

 

 

 

 

 

 

 

 

 

 

8.00

%

6/1/2020

 

1,590

 

890,400

 

 

 

8.00

%

6/1/2020

 

872

 

488,320

 

US Shale Solution, Inc.:

 

 

 

 

 

 

 

 

 

 

 

10.00

%

9/15/2018

(a)(f)

215

 

212,432

 

 

 

12.00

%

9/15/2020

(a)(f)

512

 

347,845

 

 

 

 

 

 

 

 

 

3,479,767

 

Pharmaceuticals — 4.2%

 

 

 

 

 

 

 

 

 

JLL/Delta Dutch Pledgeco BV (a)

 

8.75

%

5/1/2020

 

4,926

 

4,359,510

 

Valeant Pharmaceuticals International, Inc. (a)

 

5.88

%

5/15/2023

 

2,500

 

2,237,500

 

 

 

 

 

 

 

 

 

6,597,010

 

Specialty Retail — 1.7%

 

 

 

 

 

 

 

 

 

Argos Merger Sub, Inc. (a)

 

7.13

%

3/15/2023

 

2,708

 

2,728,310

 

Wireless Telecommunication Services — 5.8%

 

 

 

 

 

 

 

 

 

Arqiva Broadcast Finance PLC (a)

 

9.50

%

3/31/2020

 

GBP

3,375

 

5,145,667

 

T-Mobile USA, Inc.:

 

 

 

 

 

 

 

 

 

 

 

6.38

%

3/1/2025

 

$

450

 

451,125

 

 

 

6.50

%

1/15/2026

 

3,630

 

3,630,000

 

 

 

 

 

 

 

 

 

9,226,792

 

TOTAL CORPORATE BONDS & NOTES

 

 

 

 

 

 

 

 

 

(Cost $197,139,643)

 

 

 

 

 

 

 

153,820,424

 

 

 

 

 

 

 

 

 

 

 

SENIOR LOANS — 28.2% (g) (h) 

 

 

 

 

 

 

 

 

 

Aerospace & Defense — 1.0%

 

 

 

 

 

 

 

 

 

AM General LLC Term Loan

 

10.25

%

3/22/2018

 

1,995

 

1,615,646

 

Auto Components — 1.9%

 

 

 

 

 

 

 

 

 

Chassix Holdings Inc. Exit Term Loan

 

12.00

%

7/29/2019

 

2,993

 

2,948,544

 

Chemicals — 2.2%

 

 

 

 

 

 

 

 

 

Solenis International, LP USD 2nd Lien Term Loan

 

7.75

%

7/31/2022

 

4,633

 

3,474,375

 

Containers & Packaging — 2.9%

 

 

 

 

 

 

 

 

 

Mauser Holdings Term Loan

 

8.75

%

7/31/2022

 

5,481

 

4,604,040

 

Diversified Consumer Services — 1.0%

 

 

 

 

 

 

 

 

 

Cengage Learning Acquisitions, Inc. Term Loan

 

7.00

%

3/31/2020

 

1,649

 

1,605,059

 

Electric Utilities — 1.4%

 

 

 

 

 

 

 

 

 

La Paloma Generating Co. LLC 2nd Lien Term Loan (f)

 

9.25

%

2/20/2020

 

4,000

 

2,100,000

 

Health Care Providers & Services — 1.9%

 

 

 

 

 

 

 

 

 

Surgery Center Holdings Inc. 2nd Lien Term Loan

 

8.50

%

11/3/2021

 

3,377

 

3,039,073

 

 

See Accompanying Notes to Schedule of Investments.

 



 

Security Description

 

Coupon

 

Maturity

 

Principal
Amount (000)

 

Value

 

 

 

 

 

 

 

 

 

 

 

Media — 9.4%

 

 

 

 

 

 

 

 

 

Endemol (AP NMT Acquisition) 2nd Lien Term Loan

 

10.00

%

8/13/2022

 

$

6,899

 

$

5,335,203

 

Endemol (AP NMT Acquisition) USD 1st Lien Term Loan

 

6.75

%

8/13/2021

 

3,072

 

2,664,580

 

IMG Worldwide, Inc. 2nd Lien Term Loan

 

8.25

%

5/6/2022

 

7,900

 

6,853,250

 

 

 

 

 

 

 

 

 

14,853,033

 

Oil, Gas & Consumable Fuels — 0.8%

 

 

 

 

 

 

 

 

 

Bennu Oil & Gas LLC Replacement Loans PIK (f)

 

9.75

%

11/1/2018

 

5,410

 

568,067

 

Connacher Oil & Gas Ltd. Term Loan B PIK (f)

 

9.00

%

5/23/2018

 

180

 

121,508

 

Endeavour International Holdings Term Loan (e)

 

11.00

%

1/2/2017

 

2,280

 

379,979

 

Southern Pacific Resource Corp. 1st Lien Term Loan (d) (e) (f)

 

14.25

%

3/31/2019

 

1,519

 

148,056

 

 

 

 

 

 

 

 

 

1,217,610

 

Technology Hardware, Storage & Peripherals — 2.7%

 

 

 

 

 

 

 

 

 

Eastman Kodak Co. 2nd Lien Term Loan

 

10.75

%

9/3/2020

 

5,130

 

4,226,002

 

Trading Companies & Distributors — 3.0%

 

 

 

 

 

 

 

 

 

Neff Rental LLC 2nd Lien Term Loan

 

7.25

%

6/9/2021

 

6,083

 

4,774,893

 

TOTAL SENIOR LOANS

 

 

 

 

 

 

 

 

 

(Cost $62,199,213)

 

 

 

 

 

 

 

44,458,275

 

 

 

 

 

 

 

 

 

 

 

CONVERTIBLE BONDS — 8.2%

 

 

 

 

 

 

 

 

 

Banks — 5.6%

 

 

 

 

 

 

 

 

 

Lloyds Banking Group PLC

 

7.50

%

 

(b)

2,900

 

3,001,500

 

Societe Generale SA (a)(h)

 

7.88

%

 

(b)

2,785

 

2,684,044

 

UniCredit SpA (c)(h)

 

8.00

%

 

(b)

3,755

 

3,164,376

 

 

 

 

 

 

 

 

 

8,849,920

 

Oil, Gas & Consumable Fuels — 0.1%

 

 

 

 

 

 

 

 

 

Connacher Oil and Gas Ltd. (a)(f)

 

12.00

%

8/31/2018

 

201

 

80,320

 

Thrifts & Mortgage Finance — 2.5%

 

 

 

 

 

 

 

 

 

MGIC Investment Corp. (a)

 

9.00

%

4/1/2063

 

3,625

 

4,084,922

 

TOTAL CONVERTIBLE BONDS

 

 

 

 

 

 

 

 

 

(Cost $13,908,119)

 

 

 

 

 

 

 

13,015,162

 

MUNICIPAL BONDS — 0.6%

 

 

 

 

 

 

 

 

 

Puerto Rico — 0.6%

 

 

 

 

 

 

 

 

 

Commonwealth of Puerto Rico

 

8.00

%

7/1/2035

 

1,300

 

931,125

 

TOTAL MUNICIPAL BONDS

 

 

 

 

 

 

 

 

 

(Cost $1,222,458)

 

 

 

 

 

 

 

931,125

 

 

 

 

Shares

 

 

 

EQUITY — 4.0%

 

 

 

 

 

Auto Components — 4.0%

 

 

 

 

 

Chassix Holdings, Inc.

 

224,629

 

6,233,455

 

Oil, Gas & Consumable Fuels — 0.0% (i) 

 

 

 

 

 

Aspire Holdings, LLC (f)

 

1,964,773

 

 

Connacher Oil and Gas Ltd.

 

133,652

 

12,402

 

US Shale Solution, LLC (f)

 

2,984

 

30

 

 

 

 

 

12,432

 

TOTAL EQUITY

 

 

 

 

 

(Cost $9,057,179)

 

 

 

6,245,887

 

 

 

 

 

 

 

WARRANTS — 0.1%

 

 

 

 

 

Auto Components — 0.1%

 

 

 

 

 

Chassix Holdings, Inc. Call Expires 7/29/2020 (f)

 

19,932

 

222,840

 

TOTAL WARRANTS

 

 

 

 

 

(Cost $153,676)

 

 

 

222,840

 

TOTAL LONG-TERM INVESTMENTS — 138.5%

 

 

 

 

 

(Cost $283,680,288)

 

 

 

218,692,608

 

 

See Accompanying Notes to Schedule of Investments.

 



 

Security Description

 

Principal
Amount (000)

 

Value

 

 

 

 

 

 

 

SHORT-TERM INVESTMENTS — 5.9%

 

 

 

 

 

 

 

 

 

 

 

REPURCHASE AGREEMENT — 5.9%

 

 

 

 

 

State Street Repurchase Agreement, dated 1/29/2016, due 2/1/2016 at 0.01%, collateralized by U.S Treasury Note, 2.38% due 6/30/2018 valued at $9,497,754 (repurchase proceeds $9,311,481)

 

$

9,311

 

$

9,311,474

 

TOTAL SHORT-TERM INVESTMENTS — 5.9%

 

 

 

 

 

(Cost $9,311,474)

 

 

 

9,311,474

 

TOTAL INVESTMENTS — 144.4%

 

 

 

 

 

(Cost $292,991,762)

 

 

 

228,005,187

 

OTHER ASSETS & LIABILITIES — (44.4)%

 

 

 

(70,076,175

)

NET ASSETS — 100.0%

 

 

 

$

157,929,012

 

 


Percentages are calculated as a percentage of net assets as of January 31, 2016.

 

(a) Securities exempt from registration under Rule 144a of the Securities Act of 1933.  These securities may be resold in transactions exempt from registration, to Qualified Institutional Investors as defined in Rule 144a promulgated under the Securities Act of 1933, as amended.

(b) Perpetual Maturity.

(c) Security exempt from registration under Regulation S of the Securities Act of 1933, which exempts from registration securities offered and sold outside the United States. Security may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

(d) Defaulted security.  Issuer in bankruptcy.

(e) Non-income producing.

(f) For fair value measurement disclosure purposes, security is categorized as Level 3.

(g) Interest rates on Senior Loans may be fixed or may float periodically.  On floating rate Senior Loans, the interest rates typically are adjusted based on a base rate plus a premium or spread over the base rate.  The base rate usually is a standard inter-bank offered rate, such as a LIBOR, the prime rate offered by one or more major U.S. banks, or the certificate of deposit rate or other base lending rates used by commercial lenders.  Floating rate Senior Loans adjust over different time periods, including daily, monthly, quarterly, semi-annually or annually.

(h) Variable Rate Security.  Rate shown is rate in effect at January 31, 2016.

(i) Amount shown represents less than 0.05% of net assets.

 

PIK - Payment in Kind

PLC - Public Limited Company

SCA - Societe en Commandite par Actions

 

Geographic Allocation of Investments:

 

Country

 

Percentage of Net
Assets

 

Value

 

United States (Includes Short-Term Investments)

 

95.2

%

$

150,519,322

 

Luxembourg

 

16.2

 

25,471,152

 

United Kingdom

 

10.3

 

16,367,298

 

Netherlands

 

8.1

 

12,739,272

 

Germany

 

2.9

 

4,604,040

 

Greece

 

2.2

 

3,517,140

 

Italy

 

2.0

 

3,164,376

 

Canada

 

1.9

 

2,855,036

 

France

 

1.7

 

2,684,044

 

Sweden

 

1.5

 

2,370,437

 

Switzerland

 

1.4

 

2,149,358

 

Cyprus

 

0.8

 

1,192,500

 

Norway

 

0.2

 

371,212

 

Total Investments

 

144.4

%

$

228,005,187

 

 

See Accompanying Notes to Schedule of Investments.

 



 

The geographic allocation is based on where Avenue Capital Management II L.P., the “Investment Adviser”, believes the country of risk to be.  Country of risk is traditionally the country where the majority of the company’s operations are based or where it is headquartered or where the primary source of revenue risk is determined by the Investment Adviser.

 

Forward Foreign Currency Contracts:

 

Settlement
Date

 

Amount

 

Value

 

In Exchange for
U.S. $

 

Net Unrealized
Appreciation
(Depreciation)

 

Counterparty

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Foreign Currency Contracts to Buy:

 

 

 

 

 

 

 

02/10/2016

 

EUR

7,470,445

 

$

8,094,271

 

$

8,035,251

 

$

59,020

 

State Street Bank and Trust Co.

 

02/10/2016

 

GBP

1,391,316

 

1,982,501

 

2,095,477

 

(112,976

)

State Street Bank and Trust Co.

 

 

 

 

 

 

 

 

 

(53,956

)

 

 

Forward Foreign Currency Contracts to Sell:

 

 

 

 

 

 

 

02/10/2016

 

CAD

167,065

 

119,255

 

127,495

 

8,240

 

State Street Bank and Trust Co.

 

02/10/2016

 

EUR

10,975,657

 

11,892,188

 

12,119,046

 

226,858

 

State Street Bank and Trust Co.

 

02/10/2016

 

GBP

9,250,526

 

13,181,177

 

14,252,396

 

1,071,219

 

State Street Bank and Trust Co.

 

 

 

 

 

 

 

 

 

1,306,317

 

 

 

 

 

TOTAL

 

 

 

 

 

$

1,252,361

 

 

 

 

CAD - Canadian Dollar

EUR - Euro Currency

GBP - Great British Pound

 

See Accompanying Notes to Schedule of Investments.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments

January 31, 2016 (unaudited)

 

1. Organization

 

Avenue Income Credit Strategies Fund (the “Fund”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company. The Fund’s primary investment objective is to seek a high level of current income, with a secondary objective of capital appreciation. The Fund commenced operations on January 27, 2011.

 

2. Significant Accounting Policies

 

The following is a summary of significant accounting policies of the Fund in preparation of the Schedule of Investments.

 

SECURITY VALUATION — Corporate Bonds and Notes (including convertible and municipal bonds) and unlisted equities are valued using an evaluated quote provided by independent pricing services. Evaluated quotes provided by the pricing services may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institutional-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term debt securities purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value.

 

Senior Loans are valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institutional-size trading in similar groups of securities and other market data.

 

Credit default swaps are valued using a pricing service, or, if the pricing service does not provide a value, by quotes provided by the selling dealer or financial institution.

 

Equity securities listed on a U.S. stock exchange, including shares of exchange-traded funds, are valued at the latest quoted sales price on valuation date. Securities listed on a foreign exchange are valued at their closing price.

 

Forward foreign currency contracts are valued using quoted foreign exchange rates as of the close of the regular trading session on the New York Stock Exchange (“NYSE”) (generally 4:00 pm Eastern Time) on the days the NYSE is open for business. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. If events materially affecting the price of foreign portfolio securities occur between the time when their price was last determined on such foreign securities exchange or market and the time when the Fund’s net asset value was last calculated, such securities may be valued at their fair value as determined in good faith in accordance with procedures established by the Board of Trustees of the Fund (the “Board”).

 

Where reliable market quotes are not readily available from a third party pricing service, investments are valued, where possible, using independent market indicators provided by independent pricing sources approved by the Board. Any investment and other assets or liabilities for which current market quotations are not readily available are valued at fair value as determined in good faith in accordance with procedures established by the Board.

 

SECURITY TRANSACTIONS AND INVESTMENT INCOME — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest income is determined on the basis of coupon interest accrued using the effective interest method which adjusts for amortization of premiums and accretion of discounts. For those issuers who are not paying in full, interest is recognized only if amounts are reasonably estimable and (considered to be) collectable. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income over the lives of the respective securities, subject to collectability. Dividend income and distributions are recorded on ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividend) net of applicable withholding taxes.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

MUNICIPAL BONDS — The amount of public information available about municipal bonds is generally less than for corporate equities or bonds, meaning that the investment performance of municipal bond investments may be more dependent on the analytical abilities of the investment adviser than stock or corporate bond investments. The secondary market for municipal bonds also tends to be less well-developed and less liquid than many other securities markets, which may limit an owner’s ability to sell its bonds at attractive prices. The spread between the price at which an obligation can be purchased and the price at which it can be sold may widen during periods of market distress. Less liquid obligations can become more difficult to value and be subject to erratic price movements. The increased presence of non-traditional participants or the absence of traditional participants in the municipal markets may lead to greater volatility in the markets.

 

SENIOR LOANS — The Fund purchases assignments of, and participations in, senior secured floating rate and fixed rate loans (“Senior Loans”) originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Agent”) for a lending syndicate of financial institutions (the “Lender”). When purchasing an assignment, the Fund typically succeeds to all the rights and obligations under the loan of the assigning Lender and becomes a lender under the credit agreement with respect to the debt obligation purchased. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more restricted than, those held by the assigning Lender. A participation typically results in a contractual relationship only with the institution participating out the interest, not with the borrower. In purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement or any rights of setoff against the borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the credit risk of both the borrower and the institution selling the participation.

 

FOREIGN CURRENCY TRANSLATION — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately presented.

 

FORWARD FOREIGN CURRENCY CONTRACTS — The Fund may enter into forward foreign currency contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The Fund may enter into such forward contracts for hedging purposes. The forward foreign currency contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. In addition, these contracts may involve market risk in excess of the unrealized appreciation (depreciation) reflected in the Fund’s Schedule of Investments. It is the Fund’s policy to net the unrealized appreciation and depreciation amounts for the same counterparty.

 

Currently, the Fund executes all foreign currency contracts through State Street. Due to the Fund’s custodial contract with State Street, the Fund is able to avoid certain transaction fees and collateral requirements normally incurred with executing foreign currency contracts with third party brokers. It is the Fund’s policy that execution is done through an automated system with transparency as to other market participants and be monitored for best execution purposes.

 

SHORT SALES — The Fund may engage in short sales. A short sale is a transaction in which the Fund sells an instrument that it does not own in anticipation that the market price will decline. To deliver the securities to the buyer, the Fund arranges through a broker to borrow the securities and, in so doing, the Fund becomes obligated to replace the securities borrowed at their market price at the time of replacement.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

When selling short, the Fund intends to replace the securities at a lower price and therefore, profit from the difference between the cost to replace the securities and the proceeds received from the sale of the securities. When the Fund makes a short sale, the proceeds it receives from the sale will be held on behalf of a broker until the Fund replaces the borrowed securities. The Fund may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced. The Fund’s obligation to replace the securities borrowed in connection with a short sale will be secured by collateral deposited with the broker that consists of cash and/or liquid securities. In addition, the Fund will place in a segregated account an amount of cash and/or liquid securities equal to the difference, if any, between (i) the market value of the securities sold at the time they were sold short, and (ii) any cash and/or liquid securities deposited as collateral with the broker in connection with the short sale. Short sales involve certain risks and special considerations. If the Fund incorrectly predicts that the price of the borrowed security will decline, the Fund will have to replace the securities with securities with a greater value than the amount received from the sale. As a result, losses from short sales differ from losses that could be incurred from a purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases can equal only the total amount invested.

 

CREDIT DEFAULT SWAPS — An over the counter (“OTC”) credit default swap is an agreement between two parties to exchange the credit risk of a particular issuer or reference entity. Certain types of credit default swaps are exchange-listed and subject to clearing. In a credit default swap transaction, a buyer pays periodic fees in return for payment by the seller which is contingent upon an adverse credit event occurring in the underlying issuer or reference entity. The seller collects periodic fees from the buyer and profits if the credit of the underlying issuer or reference entity remains stable or improves while the swap is outstanding, but the seller in a credit default swap contract would be required to pay an agreed upon amount to the buyer (which may be the entire notional amount of the swap) in the event of a defined adverse credit event with respect to the reference entity. A buyer of a credit default swap is said to buy protection whereas a seller of a credit default swap is said to sell protection. The Fund uses credit default swaps on corporate issuers to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default.

 

Swaps generally do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to swaps is limited to the net amount of payments that the Fund is contractually obligated to make. However, because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index, among other factors, can result in a loss substantially greater than the amount invested in the swap itself. If the other party to a swap defaults, the Fund’s risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive.

 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end are disclosed in the Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement.Wider credit spreads and increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of January 31, 2016 for which the Fund is a seller of protection are disclosed in the Schedule of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

OTC swap payments received or made at the beginning of the measurement period are reflected as such and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, interest rates, and other relevant factors). These upfront payments are amortized to realized gains or losses over the life of the swap or are recorded as realized gains or losses upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss. Net periodic payments received or paid by the Fund are included as part of realized gains or losses. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/depreciation. The Fund segregates assets in the form of cash or liquid securities (i) in an amount equal to the notional amount of the credit default swaps of which it is the seller and; (ii) in an amount equal to any unrealized depreciation of the credit default swaps of which it is the buyer, marked to market on a daily basis.

 

Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the original counterparty. Central clearing is designed to reduce counterparty risk compared to uncleared swaps because central clearing interposes the CCP as the counterparty to each participant’s swap, but it does not eliminate those risks completely. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. Upfront payments or receipts, if any, are recorded as Premium paid or received, net for OTC swap contracts, respectively, and amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount equal to a certain percentage of the notional amount (initial margin), which is subject to adjustment. Credit default swap transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.

 

REPURCHASE AGREEMENTS — The Fund may engage in repurchase agreements with broker- dealers, banks and other financial institutions to earn incremental income on temporarily available cash which would otherwise be uninvested. A repurchase agreement is a short-term investment in which the purchaser (i.e., the Fund) acquires ownership of a security and the seller agrees to repurchase the obligation at a future time and set price, thereby determining the yield during the holding period. Such agreements are carried at the contract amount, which is considered to represent fair value. It is the Fund’s policy that the value of collateral pledged (the securities received), which consists primarily of U.S. government securities and those of its agencies or instrumentalities, is not less than the repurchase price and is held by the custodian bank for the benefit of the Fund until maturity of the repurchase agreement. Repurchase agreements involve certain risks, including bankruptcy or other default of a seller of a repurchase agreement.

 

UNFUNDED LOAN COMMITMENTS — The Fund may enter into certain credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. These commitments are disclosed in the accompanying Schedule of Investments. At January 31, 2016, the Fund had no unfunded loan commitments.

 

3. Derivative Instruments & Hedging Activities

 

The Fund is subject to foreign exchange risk in the normal course of pursuing its investment objectives. Because the Fund holds foreign currency denominated investments, the value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against this risk, the Fund used forward foreign currency contracts. The derivatives are not accounted for as hedging instruments.

 

At January 31, 2016, the fair value of derivative instruments whose primary underlying risk exposure is foreign exchange risk at January 31, 2016 was as follows:

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

 

 

Fair Value

 

Derivative

 

Asset Derivative

 

Liability Derivative

 

 

 

 

 

 

 

Forward foreign currency contracts

 

$

1,365,337

 

$

(112,976

)

 

The Fund is subject to credit risk in the normal course of pursuing its investment objectives. The Fund enters into credit default swap contracts to manage its credit risk or to enhance return.

 

4. Related Party Transactions

 

Affiliates of the Fund may have lending, brokerage, underwriting, or other business relationships with issuers of securities in which the Fund invests. Morgan Stanley, the global financial services firm, owns an indirect, noncontrolling minority interest in Avenue Capital Group. During the period, the Fund acquired securities in transactions with unaffiliated broker-dealers which were part of underwriting groups in which Morgan Stanley participated.

 

5. Unrealized Appreciation/(Depreciation)

 

The cost and unrealized appreciation (depreciation) of investments in securities of the Fund at January 31, 2016, as determined on a federal income tax basis, were as follows:

 

Aggregate cost of securities held long

 

$

292,991,762

 

 

 

 

 

Gross unrealized appreciation

 

2,346,875

 

Gross unrealized (depreciation)

 

(67,333,450

)

Net unrealized (depreciation) of investments in securities held long

 

$

(64,986,575

)

Net unrealized appreciation (depreciation) on short sales

 

 

Net unrealized (depreciation) on securities

 

$

(64,986,575

)

 

6. Fair Value Measurements

 

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:

 

· Level 1 — Prices are determined using quoted prices in an active market for identical assets.

 

· Level 2 — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others.

 

· Level 3 — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information.

 

The valuation techniques used by the Fund to measure fair value during the period ended January 31, 2016 maximized the use of observable inputs and minimized the use of unobservable inputs.

 

The following are certain inputs and techniques that the Fund generally uses to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with GAAP.

 

Corporate Bonds & Notes — Corporate bonds and notes are generally comprised of two main categories: investment grade bonds and high yield bonds. Investment grade bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, active market trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent pricing services based primarily on broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. To the extent that these inputs are observable, the values of corporate bonds and notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

Municipal Bonds — Municipal bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, active market trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. To the extent that these inputs are observable, the values of municipal bonds are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

Senior Loans — Senior loans are valued using inputs which include broker-dealer quotes or quotes received from independent pricing services that take into account quotes received from broker-dealers or other market sources pertaining to the issuer or security. The Fund may also engage a third party appraiser or other valuation techniques to value these securities. Inputs may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is then discounted to calculate fair values. To the extent that these inputs are observable, the values of senior loans are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

Credit Default Swaps — Credit default swaps are valued by independent pricing services using pricing models that take into account, among other factors, information received from market makers and broker- dealers, default probabilities from index specific credit spread curves, recovery rates, and cash flows. To the extent that these inputs are observable, the values of credit default swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

Forward Foreign Currency Contracts — Forward foreign currency contracts are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, actual trading information and foreign currency exchange rates gathered from leading market makers and foreign currency exchange trading centers throughout the world. To the extent that these inputs are observable, the values of forward foreign currency contracts are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.

 

The following is a summary of the tiered valuation input levels, as of January 31, 2016. The Schedule of Investments includes disclosure of each security type by category and/or industry. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the Schedule of Investments may materially differ from the value received upon actual sale of those investments.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (continued)

January 31, 2016 (unaudited)

 

 

 

Quoted Prices in

 

 

 

Significant

 

 

 

 

 

Active Markets for

 

Other Significant

 

Unobservable

 

 

 

 

 

Identical Assets

 

Observable Inputs

 

Inputs

 

 

 

Investment Securities in an Asset Position

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Corporate Bonds and Notes

 

$

 

$

153,260,147

 

$

560,277

 

$

153,820,424

 

Senior Loans

 

 

41,520,644

 

2,937,631

 

44,458,275

 

Convertible Bonds

 

 

12,934,842

 

80,320

 

13,015,162

 

Municipal Bonds

 

 

931,125

 

 

931,125

 

Equity

 

12,402

 

6,233,455

 

30

 

6,245,887

 

Warrants

 

 

 

222,840

 

222,840

 

Repurchase Agreements

 

 

9,311,474

 

 

9,311,474

 

 

 

 

 

 

 

 

 

 

 

Other Financial Instruments

 

 

 

 

 

 

 

 

 

Forward Foreign Currency Contracts*

 

 

1,365,337

 

 

1,365,337

 

Total Asset Position

 

$

12,402

 

$

225,557,024

 

$

3,801,098

 

$

229,370,524

 

 

 

 

 

 

 

 

 

 

 

Investments in a Liability Position

 

 

 

 

 

 

 

 

 

Forward Foreign Currency Contracts *

 

 

(112,976

)

 

(112,976

)

Total Liability Position

 

$

 

$

(112,976

)

$

 

$

(112,976

)

 


* Other financial instruments such as forward foreign currency contracts are valued at the unrealized appreciation/(depreciation) of the instrument.

 

Quantitative Information about Level 3 Fair Value Inputs

 

 

 

Fair Value At

 

 

 

 

 

 

 

 

 

January 31,

 

Valuation

 

 

 

 

 

 

 

2016

 

Technique

 

Unobservable Input

 

Range

 

 

 

 

 

 

 

 

 

 

 

Corporate Bond and Notes

 

$

560,277

 

Third-Party Vendor

 

Vendor quotes

 

$68.00- $99.00

 

Senior Loans

 

2,937,631

 

Third-Party Vendor

 

Vendor quotes

 

$9.75 - $67.50

 

Convertible Bonds

 

80,320

 

Third-Party Vendor

 

Vendor quotes

 

$40.00

 

Warrants

 

222,840

 

Black Scholes Option

 

Implied Volatility

 

45%

 

 

 

 

 

Pricing Model

 

 

 

 

 

 

The Investment Adviser has established a Valuation Committee (the “Committee”) which is responsible for overseeing the pricing and valuation of all securities held in the Fund. The Committee operates under pricing and valuation policies and procedures established by the Fund and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Fund’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate. The Committee is also responsible for monitoring the implementation of the pricing policies by the Fund and third parties which perform certain pricing functions in accordance with the pricing policies. The Investment Adviser is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Investment Adviser perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by the Committee.

 



 

Avenue Income Credit Strategies Fund

Notes to Schedule of Investments (concluded)

January 31, 2016 (unaudited)

 

 

 

Investments
in
Senior Loans

 

Investments
in Convertible
Bonds

 

Investments in
Corporate Bonds
and Notes

 

Investments
in
Equity

 

Investments
in
Warrants

 

Total

 

Beginning as of October 31, 2015

 

$

3,330,890

 

$

150,601

 

$

5,401,750

 

$

 

$

153,277

 

$

9,036,518

 

Cost of purchases

 

35,348

 

 

214,578

 

 

 

249,926

 

Proceeds from sales

 

(13,955

)

 

(5,352,193

)

 

 

(5,366,148

)

Transfers to Level 3

 

2,155,696

 

 

445,213

 

37

 

 

2,600,946

 

Transfers from Level 3

 

 

 

 

 

 

 

Accrued discount (premium)

 

2,181

 

 

5,206

 

 

 

7,387

 

Realized gains/(losses)

 

(125

)

 

(725,710

)

(115

)

 

 

(725,950

)

Change in net unrealized appreciation (depreciation)

 

(2,572,404

)

(70,281

)

571,433

 

108

 

69,563

 

(2,001,581

)

Balance as of January 31, 2016

 

$

2,937,631

 

$

80,320

 

$

560,277

 

$

30

 

$

222,840

 

$

3,801,098

 

Change in net unrealized appreciation (depreciation) on investments still held as of January 31, 2016

 

$

(2,572,404

)

$

(70,281

)

$

(13,097

)

$

108

 

$

69,563

 

$

(2,586,111

)

 

Transfers are reflected at the value of the securities at the beginning of the period. Transfers from Level 2 to Level 3 were due to a decrease in the availability of significant observable inputs in determining the fair value of these investments.

 

For information related to geographical and industry categorization of investments and types of derivative contracts held, please refer to the Schedule of Investments.

 



 

Item 2. Controls and Procedures.

 

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days prior to the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.

 

(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) 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 3. Exhibits.

 

Certifications of the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act are attached hereto as Exhibit 99CERT.

 



 

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.

 

Avenue Income Credit Strategies Fund

 

 

 

By

/s/ Randolph Takian

 

 

Randolph Takian

 

 

Trustee, Chief Executive Officer and President (Principal Executive Officer)

 

 

 

 

 

 

Date

3/31/2016

 

 

 

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

 

 

By

/s/ Randolph Takian

 

 

Randolph Takian

 

 

Trustee, Chief Executive Officer and President (Principal Executive Officer)

 

 

Date

3/31/2016

 

 

 

 

 

By

/s/ Stephen M. Atkins

 

 

Stephen M. Atkins

 

 

Treasurer and Chief Financial Officer (Principal Financial Officer)

 

 

Date

3/31/2016