N-Q 1 wcm_cef-nq.htm QUARTERLY NOTICE OF PORTFOLIO HOLDINGS


 
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 811-22818

Westchester Capital Funds
(Exact name of registrant as specified in charter)
 
100 Summit Lake Drive
Valhalla, New York  10595
(Address of principal executive offices) (Zip code)
 
Roy Behren and Michael T. Shannon
Westchester Capital Funds
100 Summit Lake Drive
Valhalla, New York  10595
(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-800-343-8959

Date of fiscal year end: December 31, 2018

Date of reporting period:  September 30, 2018




Item 1. Schedule of Investments.
 
WCM Alternatives: Credit Event Fund
     
SCHEDULE OF INVESTMENTS
     
September 30, 2018 (Unaudited)
     
       
       
Shares
   
Value
   
LONG INVESTMENTS - 113.28%
         
   
COMMON STOCKS - 28.19%
         
   
OIL & GAS EXPLORATION & PRODUCTION - 0.14%
         
   
Alta Mesa Resources, Inc. (a)
 
                      1,368
  $
5,718
   
SPECIAL PURPOSE ACQUISITION COMPANIES - 28.05%
         
   
Avista Healthcare Public Acquisition Corporation Class A (a)(b)
 
                      5,474
   
                 55,452
   
Churchill Capital Corporation (a)
 
                    24,142
   
               244,559
   
Constellation Alpha Capital Corporation (a)(b)
 
                      8,300
   
                 83,996
   
Industrea Acquisition Corporation Class A (a)
 
                      9,899
   
               100,970
   
Kayne Anderson Acquisition Corporation Class A (a)
 
                      2,044
   
                 20,767
   
Legacy Acquisition Corporation Class A (a)
 
                      8,245
   
                 80,064
   
Longevity Acquisition Corporation (a)(b)
 
                    18,606
   
               190,525
   
Mudrick Capital Acquisition Corporation Class A (a)(e)
 
                      1,950
   
                 18,944
   
Pensare Acquisition Corporation (a)
 
                    10,631
   
               105,885
   
Pure Acquisition Corporation (a)
 
                    15,882
   
               154,135
   
Thunder Bridge Acquisition Ltd. (a)(b)(e)
 
                      5,911
   
                 60,056
             
            1,115,353
   
TOTAL COMMON STOCKS (Cost $1,104,418)
       
            1,121,071
               
   
CLOSED-END FUNDS - 0.11%
         
   
Apollo Tactical Income Fund, Inc.
 
                           23
   
                      357
   
Ares Dynamic Credit Allocation Fund
 
                         173
   
                   2,687
   
BlackRock Debt Strategies Fund, Inc.
 
                           93
   
                   1,036
   
Nuveen Credit Strategies Income Fund
 
                           58
   
                      462
   
TOTAL CLOSED-END FUNDS (Cost $4,658)
       
                   4,542
               
   
PREFERRED STOCKS - 5.62%
         
   
AllianzGI Convertible & Income Fund, 5.625%, Series A
 
                      7,066
   
               177,639
   
NuStar Logistics LP, 9.073% (3 Month LIBOR + 6.734%), 1/15/2043 (g)
 
                      1,812
   
                 45,753
   
TOTAL PREFERRED STOCKS (Cost $220,463)
       
               223,392
               
   
WARRANTS - 0.30% (a)(e)
         
   
Mudrick Capital Acquisition Corporation Class A
 
                      1,950
   
                   1,287
   
Pure Acquisition Corporation
 
                      7,941
   
                 10,720
   
TOTAL WARRANTS (Cost $11,254)
       
                 12,007
               
       
Principal Amount
     
   
CONVERTIBLE BONDS - 5.64% (b)(e)
         
   
NXP Semiconductors NV
         
   
1.000%, 12/1/2019
$
                215,000
   
               224,402
   
TOTAL CONVERTIBLE BONDS (Cost $262,223)
       
               224,402
               
   
CORPORATE BONDS - 71.45% (e)
         
   
Ardagh Packaging Finance plc / Ardagh Holdings MP USA, Inc.
         
   
7.250%, 5/15/2024 (b)(f)(h)
 
                  225,000
   
               236,250
   
BlueLine Rental Finance Corporation / BlueLine Rental LLC
         
   
9.250%, 3/15/2024 (f)(h)
 
                  219,000
   
               230,360
   
EIG Investors Corporation
         
   
10.875%, 2/1/2024
 
                  182,000
   
               199,517
   
Enbridge, Inc.
         
   
6.000% (Fixed at 6.000% until 2027), 1/15/2077 (b)(g)
 
                  152,000
   
               147,533
   
Envision Healthcare Corporation
         
   
5.625%, 7/15/2022
 
                  221,000
   
               227,343
   
6.250%, 12/1/2024 (f)
 
                    74,000
   
                 79,920
   
LifePoint Health, Inc.
         
   
5.875%, 12/1/2023
 
                    41,000
   
                 42,896
   
5.375%, 5/1/2024
 
                    58,000
   
                 60,538
   
Nationstar Mortgage LLC / Nationstar Capital Corporation
         
   
6.500%, 7/1/2021
 
                    25,000
   
                 25,093
   
6.500%, 6/1/2022
 
                    16,000
   
                 16,010
   
Rent-A-Center, Inc.
         
   
6.625%, 11/15/2020
 
                    12,000
   
                 12,030
   
4.750%, 5/1/2021
 
                  184,000
   
               184,000
   
Rite Aid Corporation
         
   
6.125%, 4/1/2023 (f)
 
                  130,000
   
               117,163
 

   
Sinclair Television Group, Inc.
         
   
6.125%, 10/1/2022
 
                  170,000
   
               173,825
   
Spectrum Brands Holdings, Inc.
         
   
7.750%, 1/15/2022 (h)
 
                  223,000
   
               230,135
   
SUPERVALU, Inc.
         
   
6.750%, 6/1/2021
 
                  115,000
   
               117,588
   
7.750%, 11/15/2022
 
                    75,000
   
                 78,281
   
Tribune Media Company
         
   
5.875%, 7/15/2022
 
                  153,000
   
               157,016
   
Unitymedia GmbH
         
   
6.125%, 1/15/2025 (b)(f)
 
                  148,000
   
               156,140
   
Univar USA, Inc.
         
   
6.750%, 7/15/2023 (f)
 
                  153,000
   
               158,738
   
Xerium Technologies, Inc.
         
   
9.500%, 8/15/2021
 
                  181,000
   
               190,548
   
TOTAL CORPORATE BONDS (Cost $2,845,324)
       
            2,840,924
 
       
Shares
     
   
SHORT-TERM INVESTMENTS - 1.97%
         
   
MONEY MARKET FUNDS - 1.97% (c)(d)
         
   
JPMorgan U.S. Government Money Market Fund, Institutional Share Class, 1.96%
 
                    78,408
   
                 78,408
   
TOTAL SHORT-TERM INVESTMENTS
         
   
(Cost $78,408)
       
                 78,408
   
TOTAL NET INVESTMENTS
         
   
  (Cost $4,526,748) - 113.28%
       
            4,504,746
   
OTHER ASSETS IN EXCESS OF LIABILITIES - (13.28)%
       
(528,006)
   
TOTAL NET ASSETS - 100.00%
      $
  3,976,740
               
 
             
LIBOR 
- London Interbank Offered Rate
         
(a)
 
Non-income producing security.
(b)
 
Foreign security.
(c)
 
The rate quoted is the annualized seven-day yield as of September 30, 2018.
(d)
 
All or a portion of the shares have been committed as collateral for swap contracts.
(e)
 
Level 2 Security. Please see footnote (j) on the Schedule of Investments for more information.
(f)
 
Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration normally to qualified institutional buyers. As of September 30, 2018, these securities represent 24.61% of total net assets.
(g)
 
The coupon rate shown on variable rate securities represents the rate as of September 30, 2018.
(h)
 
All or partial amount transferred for the benefit of the counterparty as collateral for reverse repurchase agreements.
(i)
 
As of September 30, 2018, the components of accumulated earnings (losses) for income tax purposes were as follows*:
 
     
Total Portfolio
 
 
Tax Cost (1)
 
$
3,997,870
 
           
           
 
Gross unrealized appreciation
   
44,144
 
 
Gross unrealized depreciation
   
(76,391
)
 
Net unrealized depreciation
 
$
(32,247
)
 
   
(1) Tax cost represents tax on investments, net of proceeds on reverse repurchase agreements.
     
   
*Because tax adjustments are calculated annually at the end of the Fund’s fiscal year, the above table does not reflect tax adjustments for the current fiscal year.
 
(j)
Investment Valuation
   
The following is a summary of the Fund’s pricing procedures. It is intended to be a general discussion and may not necessarily reflect all pricing procedures followed by the Fund.
           
   
Equity securities, including common and preferred stocks, closed-end funds and ETFs, that trade on an exchange will typically be valued based on the last reported sale price. Securities listed on NASDAQ are typically valued using the NASDAQ Official Closing Price. The securities valued using quoted prices in active markets are classified as Level 1 investments. If, on a particular day, an exchange-listed security does not trade, then the mean between the closing bid and asked prices will typically be used to value the security. These securities are classified as Level 2 investments. Fixed income securities having a maturity of greater than 60 days are typically valued based on evaluations provided by an independent pricing vendor. Investments in United States government securities (other than short-term securities) are valued at the mean between the 4:00 p.m. New York time bid and asked prices supplied by a third party vendor. Short-term fixed-income securities having a maturity of less than 60 days are valued at market quotations or based on valuations supplied by a third party pricing service. If a reliable price from a third party pricing service is unavailable, amortized cost may be used if it is determined that the instrument’s amortized cost value represents approximately the fair value of the security. These are classified as Level 2 investments.
           
   
Investments in Special Purpose Acquisition Companies, including their related units, shares, rights and warrants (each a “SPAC interest”), will typically be valued by reference to the last reported transaction for the composite exchange. If, on a particular day, no reliable market transaction is readily available and reported for the composite exchange, then the mean between the closing bid and asked prices on the composite exchange will be used to value the SPAC interest, or the SPAC interest will be fair valued in accordance with the Fund’s pricing procedures. These securities are classified as Level 2 investments.
           
   
Exchange-traded options are typically valued at the higher of the intrinsic value of the option (i.e., what the Fund would pay or can receive upon the option being exercised) or the last reported composite sale price when such sale falls between the bid and asked prices. When the last sale of an exchange-traded option is outside the bid and asked prices, the Fund will typically value the option at the higher of the intrinsic value of the option or the mean between the highest end of day option bid price and the lowest end of day option ask price. Options for which there is an active market are classified as Level 1 investments, but options not listed on an exchange and/or are fair valued in accordance with the Fund’s pricing procedures are classified as Level 2 investments.
 

           
   
Investments in registered open-end investment companies are typically valued at their reported net asset value (“NAV”) per share. These securities are generally classified as Level 1 investments. Forward currency contracts are valued daily at the prevailing forward exchange rate. These securities are generally classified as Level 2. In general, swap prices are determined using the same methods as would be used to price the underlying security. When the underlying security is the subject of a completed corporate reorganization for which the final deal terms are known, the swap is priced at the value of the consideration to be received by the Fund. The credit quality of counterparties and collateral is monitored and the valuation of a swap may be adjusted if it is believed that the credit quality of the counterparty or collateral affects the market value of the swap position. These securities are generally classified as Level 2 investments.
           
   
The Fund typically fair values securities and assets for which (a) market quotations are not readily available or (b) market quotations are believed to be unrepresentative of market value. For example, the Fund may fair value a security that primarily trades on an exchange that closes before the New York Stock Exchange (“NYSE”) if a significant event occurs after the close of the exchange on which the security primarily trades but before the NYSE closes. Fair valuations are determined in good faith by the Valuation Group (the “Valuation Group”), a committee comprised of persons who are officers of the Trust or representatives of the Adviser, acting pursuant to procedures adopted by the Board. When fair-value pricing is employed, the prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. In addition, due to the subjective nature of fair-value pricing, it is possible that the value determined for a particular asset may be materially different from the value realized upon such asset’s sale. These securities are generally classified as Level 2 or 3 depending on the inputs as described below.
           
   
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination. Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
   
Level 1 — Quoted prices in active markets for identical securities.
   
Level 2 — Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
   
Level 3 — Significant unobservable inputs are those inputs that reflect the applicable Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.
           
   
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
 

 
The following tables provide the fair value measurements of applicable Fund assets and liabilities by level within the fair value hierarchy for the Fund as of September 30, 2018. These assets and liabilities are measured on a recurring basis.
 
 
Investments at Fair Value         
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Common Stocks*
 
$
1,042,071
   
$
79,000
   
$
-
   
$
1,121,071
 
 
Closed End Funds
   
4,542
     
-
     
-
     
4,542
 
 
Preferred Stock
   
223,392
     
-
     
-
     
223,392
 
 
Warrants
   
-
     
12,007
     
-
     
12,007
 
 
Convertible Bonds
   
-
     
224,402
     
-
     
224,402
 
 
Corporate Bonds
   
-
     
2,840,924
     
-
     
2,840,924
 
 
Short-Term Investments
   
78,408
     
-
     
-
     
78,408
 
 
Total
 
$
1,348,413
   
$
3,156,333
   
$
-
   
$
4,504,746
 
                                   
                                   
 
Liabilities
                               
 
Swap Contracts**
 
$
-
   
$
10,245
   
$
-
   
$
10,245
 
 
Reverse Repurchase Agreements
   
-
     
528,878
     
-
     
528,878
 
 
Total
 
$
-
   
$
539,123
   
$
-
   
$
539,123
 
 
 
                               
 
Please refer to the Schedules of Investments to view long common stocks segregated by industry type.
** 
Swap contracts are valued at the net unrealized appreciation (depreciation) on the instrument by counterparty.
                 
 
The Level 2 securities are priced using inputs such as current yields, discount rates, credit quality, yields on comparable securities, trading volume, maturity date, market bid and asked prices, prices on comparable securities and other significant inputs.
 
There were no transfers to Level 3 during the nine months ended September 30, 2018.
   
(k) 
Disclosures about Derivative Instruments and Hedging Activities at September 30, 2018.
 
 
The Fund has adopted authoritative standards regarding disclosure about derivatives and hedging activities. Fair values of derivative instruments as of September 30, 2018 are as follows:
 
   
Asset Derivatives
 
Liability Derivatives
 
 
Derivatives
Description
 
Fair Value
 
Description
 
Fair Value
 
 
Equity Contracts:
               
 
    Swap Contracts
 Schedule of Swap
Contracts
 
$
-
 
 Schedule of Swap
Contracts
 
$
10,245
 
 
Total
   
$
-
     
$
10,245
 
                       
  The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.     

 
WCM Alternatives: Credit Event Fund
                 
SCHEDULE OF SWAP CONTRACTS
                 
September 30, 2018 (Unaudited)
                 
                 
     
Pay/Receive
           
Unrealized
Counterparty
Security
Termination Date
on Financing
Rate
Financing Rate
Payment Frequency
Shares
Notional Amount
   
Appreciation
(Depreciation)*
LONG TOTAL RETURN SWAP CONTRACTS
                 
JPM
BlackRock Debt Strategies Fund, Inc.
5/23/2019
Pay
0.800% +3 Month LIBOR
Quarterly
4,352
$               49,395
 
 (974)
JPM
BlackRock Floating Rate Income Strategies Fund, Inc.
8/30/2019
Pay
0.300% +3 Month LIBOR
Quarterly
2,905
                  40,145
   
  (126)
JPM
Colony Capital, Inc., 8.750%, Series E
4/27/2019
Pay
0.826% +3 Month LIBOR
Quarterly
6,970
                177,240
   
  1,113
JPM
Eaton Vance Floating-Rate Income Trust
3/16/2019
Pay
0.800% +3 Month LIBOR
Quarterly
2,101
                  31,366
   
 (730)
JPM
Eaton Vance Senior Floating-Rate Trust
8/30/2019
Pay
1.000% +3 Month LIBOR
Quarterly
2,841
                  40,087
   
  (194)
JPM
First Trust Senior Floating Rate Income Fund II
3/16/2019
Pay
0.800% +3 Month LIBOR
Quarterly
5,272
                  68,452
   
   (1,476)
JPM
Invesco Dynamic Credit Opportunities Fund
5/23/2019
Pay
0.803% +3 Month LIBOR
Quarterly
7,698
                  89,610
   
 (1,423)
JPM
Invesco Senior Income Trust
3/16/2019
Pay
1.000% +3 Month LIBOR
Quarterly
27,652
                121,333
   
   (2,586)
JPM
Nuveen Credit Strategies Income Fund
5/23/2019
Pay
0.800% +3 Month LIBOR
Quarterly
6,084
                  49,463
   
 (1,034)
JPM
Voya Prime Rate Trust
3/16/2019
Pay
1.000% +3 Month LIBOR
Quarterly
24,016
                122,256
   
  (2,815)
                 
 (10,245)
JPM
- JPMorgan Chase & Co., Inc.
                 
LIBOR
- London Interbank Offered Rate
                 
*
Based on the net swap value held at each counterparty, unrealized appreciation (depreciation) is a receivable (payable).
     

 
WCM Alternatives: Credit Event Fund
                   
SCHEDULE OF REVERSE REPURCHASE AGREEMENTS
                   
September 30, 2018 (Unaudited)
                   
                             
                             
   
Counterparty
 
Rate
 
Trade Date
 
Maturity Date
 
Principle
   
Principle & Interest
 
   
 JPM
   
2.833%
 
   9/6/2018
 
10/5/2018
 
$
40,276
   
$
40,352
 
   
 JPM
   
2.839%
 
9/10/2018
 
10/5/2018
   
141,041
     
141,264
 
   
 JPM
   
3.012%
 
9/20/2018
 
10/5/2018
   
173,126
     
173,271
 
   
 JPM
   
2.912%
 
9/20/2018
 
10/5/2018
   
174,435
     
174,576
 
                         
$
528,878
   
$
529,463
 
                                   
   
JPM - JPMorgan Chase & Co., Inc.
                       
                                   
   
The weighted average daily balance of reverse repurchase agreements during the reporting period ended September 30, 2018 was $26,605, at a weighted average interest rate of 2.90%. Total market value of underlying collateral (refer to the Schedule of Investments for positions transferred for the benefit of the counterparty as collateral) for open reverse repurchase agreements at September 30, 2018 was $696,745.
 
                                   
   
Securities Accounted for as Secured Borrowings
                       
        
Remaining Contractual Maturity of the Agreements
         
        
Overnight and Continuous
 
Up to 30 Days
 
31-90 Days
 
Greater than 90 Days
   
Total
 
   
Reverse Repurchase Agreements
                       
   
Corporate Bonds
 
$
-
 
 $                    528,878
 
 $                       -
 
$
-
   
$
528,878
 
   
Total Borrowings
 
$
-
 
 $                    528,878
 
 $                       -
 
$
-
   
$
528,878
 
   
Gross amount of recognized liabilities for reverse repurchase agreements
             
$
528,878
 
 


Item 2. Controls and Procedures.
(a)
The Registrant’s President/Principal Executive Officer and Treasurer/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 (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 the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d 15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(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 have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 3. Exhibits.
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)). Filed herewith.
 

 
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)  Westchester Capital Funds                                                     

 
By (Signature and Title        /s/ Michael T. Shannon                                    
  Michael T. Shannon, Co-President

Date         11/21/2018          


By (Signature and Title)          /s/ Roy Behren                                             
  Roy Behren, Co-President and Treasurer

Date         11/21/2018          


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/ Michael T. Shannon                                 
 Michael T. Shannon, Co-President

Date         11/21/2018          


By (Signature and Title)*        /s/ Roy Behren                                             
  Roy Behren, Co-President and Treasurer


Date         11/21/2018          
 
* Print the name and title of each signing officer under his or her signature.