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2022-11-01
2023-04-30
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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 811-21309
Advent Convertible and Income Fund
(Exact name of registrant as specified in charter)
888 Seventh Ave, 31st Floor, New York, NY 10019
(Address of principal executive offices) (Zip code)
Robert White, Treasurer
888 Seventh Ave, 31st Floor, New York,
NY 10019
(Name and address of agent for service)
Registrant's telephone number, including area
code: (212) 482-1600
Date of fiscal year end: October 31
Date of reporting period: November 1, 2022
– April 30, 2023
Item 1. Reports to Stockholders.
The registrant's semi-annual report transmitted to shareholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), is as follows:
GUGGENHEIMINVESTMENTS.COM/AVK
...YOUR BRIDGE TO THE LATEST, MOST UP-TO-DATE INFORMATION ABOUT
THE ADVENT CONVERTIBLE AND INCOME FUND
The shareholder report you are reading right now is just the beginning
of the story.
Online at guggenheiminvestments.com/avk, you will find:
• Daily, weekly and monthly data on share prices, net asset
values, dividends and more
• Portfolio overviews and performance analyses
• Announcements, press releases and special notices
• Fund and adviser contact information
Advent Capital Management and Guggenheim Investments are continually
updating and expanding shareholder information services on the Fund’s website in an ongoing effort to provide you with the most
current information about how your Fund’s assets are managed and the results of our efforts. It is just one more small way we are
working to keep you better informed about your investment in the Fund.
|
|
(Unaudited) |
April 30, 2023 |
DEAR SHAREHOLDER
We thank you for your investment in the Advent Convertible and
Income Fund (the “Fund” or “AVK”). This report covers the Fund’s performance for the semiannual period ended
April 30, 2023 (the “Reporting Period”).
Advent Capital Management, LLC (“Advent” or the “Investment
Adviser”) serves as the Fund’s investment adviser. Based in New York, New York, with additional investment personnel in London,
England, Advent is a credit-oriented firm specializing in the management of global convertible, high-yield and equity securities across
three lines of business—long-only strategies, hedge funds and closed-end funds. As of April 30, 2023, Advent managed approximately
$8.6 billion in assets.
Guggenheim Funds Distributors, LLC (the “Servicing Agent”)
serves as the servicing agent to the Fund. The Servicing Agent is an affiliate of Guggenheim Partners, LLC, a global diversified financial
services firm.
The Fund’s investment objective is to provide total return
through a combination of capital appreciation and current income. Under normal market conditions, the Fund invests at least 80% of its
managed assets in a diversified portfolio of convertible securities and non-convertible income securities. Under normal market conditions,
the Fund will invest at least 30% of its managed assets in convertible securities and may invest up to 70% of its managed assets in non-convertible
income securities. The Fund may invest without limitation in foreign securities. The Fund also uses a strategy of writing (selling) covered
call options on up to 25% of the securities held in the portfolio, thus generating option writing premiums.
All Fund returns cited – whether based on net asset value
(“NAV”) or market price – assume the reinvestment of all distributions. For the Reporting Period, the Fund generated
a total return based on market price of 6.41% and a total return based on NAV of 5.11%. As of April 30, 2023, the Fund’s market
price of $11.75 per share represented a discount of 4.70% to its NAV of $12.33 per share. As of October 31, 2022, the Fund’s market
price of $11.71 per share represented a discount of 5.56% to its NAV of $12.40 per share.
Past performance is not a guarantee of future results. All NAV
returns include the deduction of management fees, operating expenses, and all other Fund expenses. The market price of the Fund’s
shares fluctuates from time to time, and may be higher or lower than the Fund’s NAV per share.
During the Reporting Period, the Fund paid a monthly distribution
of $0.1172 per share. The most recent distribution represents an annualized distribution rate of 11.97% based on the Fund’s closing
market price of $11.75 per share on April 30, 2023.
The Fund’s distribution rate is not constant and the amount
of distributions, when declared by the Fund’s Board of Trustees, is subject to change. There is no guarantee of any future distribution
or that the current returns and distribution rate will be maintained. Please see the Distributions to
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 3
|
|
DEAR SHAREHOLDER (Unaudited) continued |
April 30, 2023 |
Shareholders & Annualized Distribution Rate table on page 16,
and Note 2(h) on page 47 for more information on distributions for the period.
We encourage shareholders to consider the opportunity to reinvest
their distributions from the Fund through the Dividend Reinvestment Plan (“DRIP”), which is described in detail on page 85
of this report. When shares trade at a discount to NAV, the DRIP takes advantage of the discount by reinvesting the monthly dividend distribution
in common shares of the Fund purchased in the market at a price less than NAV. Conversely, when the market price of the Fund’s common
shares is at a premium above NAV, the DRIP reinvests participants’ dividends in newly issued common shares at the greater of NAV
per share or 95% of the market price per share. The DRIP provides a cost-effective means to accumulate additional shares and enjoy the
benefits of compounding returns over time. The DRIP effectively provides an income averaging technique which causes shareholders to accumulate
a larger number of Fund shares when the market price is depressed than when the price is higher.
The Fund is managed by a team of experienced and seasoned professionals
led by myself in my capacity as Chief Investment Officer (as well as President and Founder) of Advent Capital Management, LLC. To learn
more about the Fund’s performance and investment strategy over the Reporting Period, we encourage you to read the Economic and Market
Overview and the Management’s Discussion of Fund Performance, which begins on page 5.
We thank you for your investment in the Fund and we are honored
that you have chosen the Advent Convertible and Income Fund as part of your investment portfolio. For the most up-to-date information
regarding your investment, including related investment risks, please visit the Fund’s website at guggenheiminvestments.com/avk.
Sincerely,
Tracy
V. Maitland
President and Chief Executive Officer of the
Advent Convertible and Income Fund
May 31, 2023
4 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
ECONOMIC AND MARKET OVERVIEW (Unaudited) |
April 30, 2023 |
The Reporting Period began with considerable economic uncertainty.
The Federal Reserve (the “Fed”) had raised the Federal Funds rate from 0% to 3%; inflation had shown next-to-no signs of decelerating,
and corporate earnings were expected to decline on a combination of weakened demand, falling profit margins or both. Abroad, a difficult
winter in Europe with gas supplies uncertain in the wake of the Russia-Ukraine conflict, and continued COVID restrictions in China as
the nation conducted its Communist Party Congress, contributed to pessimistic forecasts for global growth.
However, as the Reporting Period progressed many of these fears
were not realized. U.S. gross domestic product (“GDP”) growth came in at a finalized 2.6% in the fourth calendar quarter of
2022 and a 1.1% preliminary annualized pace in the first calendar quarter of 2023. Although many sectors showed demand declines, services
and consumer spending remained robust, and the housing market showed preliminary signs of recovery. Interest rates fell as inflation slowed
down, partly helped by falling commodity prices; this led the Fed to slow down its monetary policy tightening. European GDP growth also
stayed positive, as warm weather reduced gas needs and many industries shifted to other energy sources. China pivoted quickly to reopening
the economy in the late fall, leading to a meaningful equity rally.
As of the end of the Reporting Period, recession fears have not
ended, and the impact of regional bank stresses could lead to intermediate-term credit availability headwinds for sectors that depend
on bank lending. The European Central Bank remains on strong hawkish policy, as inflation has not decelerated as in the U.S. That said,
the chances of a soft landing have improved as Western economies have weathered the impact of the first batch of rate hikes well so far.
The opinions and forecasts expressed may not actually come to
pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation
of any specific security or strategy.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 5
|
|
MANAGEMENT DISCUSSION OF FUND |
|
PERFORMANCE (Unaudited) |
April 30, 2023 |
MANAGEMENT TEAM
Advent Capital Management, LLC (“Advent” or the “Investment
Adviser”) serves as the investment adviser of Advent Convertible and Income Fund (the “Fund” or “AVK”).
The individuals who are primarily responsible for the day-to-day management of the portfolio (the “Portfolio Managers”) of
the Fund include Tracy Maitland (President and Chief Investment Officer of Advent), Paul Latronica (Managing Director of Advent) and Tony
Huang (Director of Advent). Mr. Maitland and Mr. Latronica are portfolio managers and Mr. Huang is an associate portfolio manager. The
Portfolio Managers are supported by teams of investment professionals who make investment decisions for the Fund’s core portfolios
of convertible bonds, the Fund’s high yield securities investments and the Fund’s leverage allocation, respectively. In the
following interview, the management team discusses Fund performance for the Reporting Period.
How did the Fund perform during the Reporting Period?
All Fund returns cited – whether based on Net Asset Value
(“NAV”) or market price – assume the reinvestment of all distributions. For the Reporting Period, the Fund generated
a total return based on market price of 6.41% and a total return based on NAV of 5.11%. As of April 30, 2023, the Fund’s market
price of $11.75 per share represented a discount of 4.70% to its NAV of $12.33 per share. As of October 31, 2022, the Fund’s market
price of $11.71 per share represented a discount of 5.56% to its NAV of $12.40 per share.
Past performance is not a guarantee of future results. All NAV
returns include the deduction of management fees, operating expenses, and all other Fund expenses. The market price of the Fund’s
shares fluctuates from time to time, and may be higher or lower than the Fund’s NAV.
Please refer to the graphs and tables included within the Fund
Summary, beginning on page 13 for additional information about the Fund’s performance.
How did comparative indices perform for the Reporting Period?
For the Reporting Period, numerous asset classes related to the
corporate bond and equity markets, domestic and worldwide, had positive performance as most economies dodged recession, inflation slowed
and there were limited central bank interest rate hikes, and the geopolitical environment remained relatively free of negative surprises.
The returns for the Reporting Period of indices tracking performance of the asset classes to which the Fund allocates the largest of its
investments were:
|
|
Index* |
Total Return |
Bloomberg U.S. Aggregate Bond Index |
6.91% |
ICE Bank of America (“BofA”) U.S. Convertible Index |
0.66% |
ICE BofA U.S. High Yield Index |
5.88% |
MSCI World 100% Hedged to USD Index |
10.03% |
Refinitiv Global Focus Convertible U.S. Dollar Hedged Index |
3.66% |
Standard & Poor’s 500 (“S&P 500”) Index |
8.61% |
* Please see Page 12 for Index definitions.
6 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
MANAGEMENT DISCUSSION OF FUND |
|
PERFORMANCE (Unaudited) continued |
April 30, 2023 |
What were the Fund’s distributions for the Reporting Period?
During the Reporting Period, the Fund paid a monthly distribution
of $0.1172 per share. The most recent distribution represents an annualized distribution of 11.97% based upon the Fund’s closing
market price of $11.75 per share on April 30, 2023.
|
|
Payable Date |
Amount |
November 30, 2022 |
$0.1172 |
December 30, 2022 |
$0.1172 |
January 31, 2023 |
$0.1172 |
February 28, 2023 |
$0.1172 |
March 31, 2023 |
$0.1172 |
April 28, 2023 |
$0.1172 |
Total |
$0.7032 |
The Fund’s distribution rate is not constant and the amount
of distributions, when declared by the Fund’s Board of Trustees, is subject to change. There is no guarantee of any future distribution
or that the current returns and distribution rate will be maintained.
Distributions may be paid from sources of income other than ordinary
income, such as short-term capital gains, long-term capital gains or return of capital. The final determination of the source and tax
characteristics of all distributions in a particular year will be reported to shareholders in January following that year on form 1099-DIV.
While the Fund generally seeks to pay distributions that will consist
primarily of investment company taxable income and net capital gain, because of the nature of the Fund’s investments and changes
in market conditions from time to time, or in order to maintain a more stable distribution level over time, the distributions paid by
the Fund for any particular period may be more or less than the amount of net investment income from that period. If the Fund’s
total distributions in any year exceed the amount of its investment company taxable income and net capital gain for the year, any such
excess would generally be characterized as a return of capital for U.S. federal income tax purposes.
A return of capital distribution is in effect a partial return
of the amount a shareholder invested in the Fund. A return of capital does not necessarily reflect the Fund’s investment performance
and should not be confused with “yield” or “income.” A return of capital distribution decreases the Fund’s
total assets and, therefore, could have the effect of increasing the Fund’s expense ratio. Please see Note 2(h) on page 47 for more
information on distributions for the Reporting Period.
What factors contributed or detracted from the Fund’s
performance during the Reporting Period?
The Fund’s NAV returns were in the middle of the wide range
defined by the comparative indices above. Convertible indices had returns in the low-single-digits for the six months while other asset
classes generally had higher returns for a variety of reasons. General bond indices advanced as U.S. interest rates fell, with the 10-year
U.S. Treasury bond falling in yield from 4.05% to 3.42% over the
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 7
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|
MANAGEMENT DISCUSSION OF FUND |
|
PERFORMANCE (Unaudited) continued |
April 30, 2023 |
Reporting Period, and most bond indices have greater durations
than the convertible universe. Both the convertible and high-yield universes benefit from corporate spreads compressing, although that
effect was minor in the period with the ICE BofA U.S. High-Yield Index spread falling from 482 basis points to 460.
The equity indices shown above performed well, as economies in
the developed world avoided recession. Although corporate earnings stalled, and in many cases fell, as profit margins compressed, falling
interest rates and the eventual ceasing of hawkish monetary policy helped support equity valuations. The effect of rising equity prices
was not uniform across the entire equity universe. For example, the Russell 2000 Index of small-capitalization stocks fell 3.49% in the
Reporting Period. The convertible universe is a mixture of large-cap, mid-cap, and small-cap issuers.
The Fund’s exposure to international issuers was a positive
to returns as global convertibles outperformed domestic U.S. convertibles in the Reporting Period. Europe avoiding recession and avoiding
more negative economic outcomes of the Russia-Ukraine conflict led to strong equity returns in the region. In Asia, optimism over a reopening
Chinese economy post-pandemic and moves to enhance valuations of Japanese equities trading at discounts to book helped valuations in that
region.
How did the Fund use derivatives during the Reporting Period?
The Fund may use covered call options on individual equity holdings
as a means of generating income. Exposure to equities was generally limited in the Reporting Period as the Fund began the period with
6.7% of total investments in equities and ended the period with 5.3% of total investments in equities. Equity volatility, which governs
the premium garnered from writing call options, was reasonably high in the Reporting Period as the Chicago Board Options Exchange Market
Volatility Index averaged 20.9 and began the Reporting Period at 25.9. Earlier in the Reporting Period, the Fund engaged in some call-writing
given the higher premiums. However, equity markets generally rose in the six months which led to some equities surpassing the option strike
prices and limiting gains in the equities until expiration or the option was covered. Overall, the use of covered call options detracted
from performance in the Reporting Period compared to not writing options at all, though writing the options did contribute to the Fund’s
income stream which is an important part of the Fund’s investment objective.
The Fund continues to use reverse repurchase agreements as a tool
for leverage to increase the Fund’s positions in income-generating securities in pursuit of its investment objective. The Fund has
elected to treat these reverse repurchase agreements as derivatives for purposes of complying with the Securities Exchange Commission’s
(the “SEC”) Rule 18f-4 concerning the use of derivatives by registered investment companies. The Fund began complying with
Rule 18f-4 during fiscal 2022 and has continued to maintain compliance with its Derivatives Risk Management Program. Given that the Fund’s
return was higher than the reverse repurchase agreements’ interest expense, which is the cost of this leverage, on this simple metric,
the impact of this derivative usage was positive to the Fund.
8 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
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MANAGEMENT DISCUSSION OF FUND |
|
PERFORMANCE (Unaudited) continued |
April 30, 2023 |
Finally, the Fund continues to use forward foreign currency contracts
to hedge the impact of investment positions denominated in foreign currencies. Foreign currencies rose against the U.S. dollar in the
Reporting Period with the U.S. Dollar Index falling from 111.5 to 101.7 during the Reporting Period. Thus, these contracts detracted from
Fund performance and offset what in an unhedged portfolio would have been gains from foreign currency valuations increasing.
How was the Fund positioned at the end of the Reporting Period?
On April 30, 2023, the Fund’s total investments were invested
approximately 46.9% in convertible bonds, convertible preferred securities, and mandatory convertibles; 38.9% in corporate bonds; 5.3%
in equities; 4.8% in asset-backed securities; 3.1% in cash and cash equivalents; and 1.0% in senior floating rate interests.
Changes in asset allocation for the Reporting Period was highlighted
by the increase in asset-backed securities discussed below. Within convertible securities, the allocation to mandatory convertibles and
convertible preferred stocks, which have higher price volatility than traditional convertible bonds, fell over the Reporting Period from
5% to 4% of long-term investments. Equity-linked securities such as convertible instruments and common stocks have a larger level of price
volatility than income instruments such as corporate bonds, loans, and asset-backed securities. The increase in market interest rates
during the last few quarters has made the straight bond market more appealing from a yield standpoint and raised the threshold for forecasting
possible equity returns to make them more favorable than bonds. Thus far in calendar 2023, issuance has improved in the convertible market,
bringing more higher-coupon issues to the universe. These two effects separately have raised the portfolio yield of the Fund.
International investments over the Reporting Period went from 19.0%
to 23.0% of long-term investments. The Fund’s exposure to foreign issuers rose primarily as a result of the falling U.S. dollar
in the Reporting Period. The ICE U.S. Dollar Index, a trade-weighted value of the U.S. dollar against a trade-weighted basket of foreign
currencies, fell over the Reporting Period from 111.5 to 101.7. This decline came about as a result of U.S. interest rates beginning to
fall and some central banks, notably in Europe, still on a hawkish regime of tightening monetary policy to combat inflation. With the
rise of foreign currencies relative to the U.S. dollar, positions denominated in foreign currencies were thus valued at higher values
in U.S. dollars. The profit impact of the currency translation difference was little, as the Fund hedges its foreign currency exposures.
In the convertible markets, issuance that was slow during much of 2022 rebounded more so overseas relative to the U.S. in the Reporting
Period and thus led the Fund to more opportunities in foreign countries.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 9
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|
MANAGEMENT DISCUSSION OF FUND |
|
PERFORMANCE (Unaudited) continued |
April 30, 2023 |
The Fund’s investments in non-convertible income securities
may include investments in collateralized loan obligation ("CLO") securities. A CLO vehicle generally is an entity that is formed
to hold a portfolio consisting principally (typically, 80% or more of its assets) of loan obligations. The loan obligations within the
CLO vehicle are limited to loans which meet established credit criteria and are subject to concentration limitations in order to limit
a CLO vehicle's exposure to a single credit. The transaction documents relating to the issuance of CLO securities impose eligibility criteria
on the assets of the CLO, restrict the ability of the CLO's investment manager to trade investments and impose certain portfolio-wide
asset quality requirements.
The Fund invested in a number of investment grade-rated CLO debt
tranches both in the primary and secondary markets that have attractive yield, and the Adviser believes this asset allocation will be
beneficial to shareholders. As of April 30, 2023, approximately 4.9% of the Fund’s long-term investments were invested in CLO debt
securities.
Among strong contributors to performance, convertibles and high-yield
bonds of cruise company Royal Caribbean Cruises Ltd. (0.4% of long-term investments at period-end) surged as the company gave several
updates in the period with strong bookings, improved profitability, and a confident outlook on the sustainability of consumer demand.
As the stock rose, the Fund took profits in the convertible bonds. Stock in industrial company Parker Hannifin Corp. (0.6% of long-term
investments at period-end) performed well as the company experienced stronger demand than gloomy recession-fearing forecasts and has numerous
margin expansion opportunities including the recent acquisition of Meggitt. Convertibles of Exact Sciences Corp. (0.4% of long-term investments
at period-end), an oncology diagnostics company, performed well after reporting better-than-expected earnings and increasing guidance
on strong demand for its Cologuard solution screening for colorectal cancer risk. The stock further benefitted after competing liquid
biopsy blood test results from Guardant Health did not show as much sensitivity as hoped. ZTO Express Cayman, Inc. and its convertibles
(0.2% of long-term investments at period-end) advanced as the parcel shipper benefitted from China reopening its economy and continued
margin gains as the company gains share from smaller competitors.
Among detractors, convertibles in semiconductor maker Wolfspeed,
Inc. (0.4% of long-term investments at period-end) fell after delaying the ramp of its new upstate New York manufacturing plant on materials
delays. Wolfspeed’s inverters and the raw materials powering them are major enablers of electric vehicle adoption as they extend
the travelling power of a fixed battery charge and we have remained invested in the long-term potential. Convertibles in oil services
supplier Nabors Industries, Inc. (0.9% of long-term investments at period-end) declined as warm U.S. winter weather reduced natural gas
demand which is key for a land driller such as Nabors. Southwest Airlines Co. and its convertibles (0.9% of long-term investments at period-end)
declined after struggling with systems issues during the holiday travel season; the company also gave higher cost guidance in its first
quarter earnings report. Airlines in-general also experienced headwinds as a high-leverage sector in a credit-tightening environment.
Convertibles in residential solar inverter maker Enphase
10 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
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|
MANAGEMENT DISCUSSION OF FUND |
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PERFORMANCE (Unaudited) continued |
April 30, 2023 |
Energy, Inc. (0.5% of long-term investments at period-end) fell
after the company made cautious comments about installation demand in a higher interest-rate environment and the transition to new regulations
in its largest market of California. Demand in Europe and the subsidies in the Inflation Reduction Act are catalysts that we believe will
benefit Enphase Energy in the coming quarters.
This material is not intended as a recommendation or as
investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in
a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a
solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and
is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or
legal professional regarding your specific situation.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 11
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|
MANAGEMENT DISCUSSION OF FUND |
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PERFORMANCE (Unaudited) continued |
April 30, 2023 |
Index Definitions
The following indices are referenced throughout this report. It
is not possible to invest directly in an index. These indices are intended as measures of broad market returns. The Fund’s mandate
differs materially from each of the individual indices. The Fund also maintains leverage and incurs transaction costs, advisory fees,
and other expenses, while these indices do not.
Bloomberg U.S. Aggregate Bond Index is a broad-based flagship
benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related
and corporate securities, mortgage-backed securities or “MBS” (agency fixed-rate and hybrid adjustable-rate mortgage, or “ARM”,
pass-throughs), asset-backed securities (“ABS”), and commercial mortgage-backed securities (“CMBS”) (agency and
non-agency).
ICE BofA U.S. Convertible Index consists of convertible
bonds traded in the U.S. dollar-denominated investment grade and noninvestment grade convertible securities sold into the U.S. market
and publicly traded in the U.S. The index constituents are market-value weighted based on the convertible securities prices and outstanding
shares, and the underlying index is rebalanced daily.
ICE BofA U.S High Yield Index includes U.S. dollar-denominated,
high yield, fixed-rate corporate securities. Securities are classified as high yield if the rating of Moody’s, Fitch, or S&P
is Ba1/BB +/BB + or below.
ICE U.S. Dollar Index is an index that determines the relative
value of the U.S. dollar to a basket of foreign currencies. This formulated “basket” of currencies comprises the weighting
of six other currencies as follows: Euro (EUR), 57.6% + Japanese Yen (JPY), 13.6% + Pound Sterling (GBP), 11.9% + Canadian Dollar (CAD),
9.1% + Swedish Krona (SEK), 4.2% + Swiss Franc (CHF) 3.6%.
MSCI World 100% Hedged to USD Index represents a close estimation
of the performance that can be achieved by hedging the currency exposures of its parent index, the MSCI World Index, to the U.S. dollar,
the “home” currency for the hedged index. The index is 100% hedged to the U.S. dollar by selling each foreign currency forward
at the one-month forward weight. The parent index is composed of large and mid-cap stocks designed to measure the equity market performance
of 23 Developed Markets (“DM”) countries.
Refinitiv Global Focus Convertible U.S. Dollar Hedged Index
is a market-weighted index with a minimum size for inclusion of $500 million (U.S.), €375 million (Europe), ¥22 billion (Japan),
and $275 million (Other) of convertible bonds with an equity link.
Russell 2000 Index measures the performance of the small-cap
segment of the U.S. equity universe.
S&P 500® Index is a broad-based index,
the performance of which is based on the performance of 500 widely held common stocks chosen for market size, liquidity, and industry
group representation.
VIX is the ticker symbol for the Chicago Board Options Exchange
Market Volatility Index, a popular measure of the implied volatility of S&P 500 Index options. It is a weighted blend of prices
for a range of options on the S&P 500 Index.
12 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
FUND SUMMARY (Unaudited) |
April 30, 2023 |
|
|
Fund Statistics |
|
Share Price |
$11.75 |
Net Asset Value |
$12.33 |
Discount to NAV |
-4.70% |
Net Assets ($000) |
$426,714 |
|
|
|
|
|
|
AVERAGE ANNUAL TOTAL RETURNS |
|
|
|
|
FOR THE PERIOD ENDED APRIL 30, 2023 |
|
|
|
|
|
Six month |
One |
Three |
Five |
Ten |
|
(non-annualized) |
Year |
Year |
Year |
Year |
Advent Convertible & Income Fund |
|
|
|
|
|
NAV |
5.11% |
(7.40%) |
8.25% |
4.13% |
4.28% |
Market |
6.41% |
(8.47%) |
10.80% |
6.17% |
5.36% |
Bloomberg U.S. Aggregate Bond Index |
6.91% |
(0.43%) |
(3.15%) |
1.18% |
1.32% |
Performance data quoted represents past performance, which is
no guarantee of future results and current performance may be lower or higher than the figures shown. All NAV returns include the deduction
of management fees, operating expenses and all other Fund expenses. The deduction of taxes that a shareholder would pay on Fund distributions
or the redemption of Fund shares is not reflected in the total returns. For the most recent month-end performance figures, please visit
guggenheiminvestments.com/avk. The investment return and principal value of an investment will fluctuate with changes in market conditions
and other factors so that an investor’s shares, when sold, may be worth more or less than their original cost.
The referenced index is an unmanaged index and not available for
direct investment. Index performance does not reflect transaction costs, fees or expenses.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 13
|
|
FUND SUMMARY (Unaudited) continued |
April 30, 2023 |
|
|
Portfolio Breakdown |
% of Net Assets |
Convertible Bonds |
77.4% |
Corporate Bonds |
70.4% |
Asset-Backed Securities |
8.7% |
Common Stocks |
8.6% |
Convertible Preferred Stocks |
7.3% |
Money Market Fund |
5.6% |
Senior Floating Rate Interests |
1.8% |
Closed-End Funds |
1.0% |
Total Investments |
180.8% |
Other Assets & Liabilities, net |
(80.8%) |
Net Assets |
100.0% |
14 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
FUND SUMMARY (Unaudited) continued |
April 30, 2023 |
|
|
|
Country Diversification |
|
Country |
|
% of Long-Term Investments |
United States |
|
77.0% |
Cayman Islands |
|
7.1% |
Bermuda |
|
1.9% |
Canada |
|
1.8% |
United Kingdom |
|
1.3% |
Netherlands |
|
1.1% |
Japan |
|
1.0% |
Italy |
|
1.0% |
France |
|
0.9% |
Jersey |
|
0.9% |
Spain |
|
0.8% |
Virgin Islands (UK) |
|
0.7% |
Israel |
|
0.6% |
Germany |
|
0.5% |
Panama |
|
0.5% |
Ireland |
|
0.5% |
Liberia |
|
0.4% |
Luxembourg |
|
0.3% |
Mauritius |
|
0.3% |
Vietnam |
|
0.3% |
Australia |
|
0.3% |
India |
|
0.2% |
Republic of Korea |
|
0.2% |
New Zealand |
|
0.2% |
Singapore |
|
0.1% |
Switzerland |
|
0.1% |
Total Long-Term Investments |
|
100.0% |
The above summaries are provided for informational purposes only
and should not be viewed as recommendations.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 15
|
|
FUND SUMMARY (Unaudited) continued |
April 30, 2023 |
All or a portion of the above distributions may be characterized
as a return of capital. As of April 30, 2023, 24% of the distributions were estimated to be characterized as ordinary income and 76% of
the distributions were estimated to be characterized as return of capital. For the year ended October 31, 2022, 18% of the distributions
were characterized as ordinary income, 50% of the distributions were characterized as long-term capital gains and 32% of the distributions
were characterized as return of capital. The final determination of the tax character of the distributions paid by the Fund in 2023 will
be reported to shareholders in January 2024.
16 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) |
April 30, 2023 |
|
|
|
|
Shares |
Value |
COMMON STOCKS† – 8.6% |
|
|
Energy – 2.0% |
|
|
Halliburton Co.1 |
100,000 |
$ 3,275,000 |
Occidental Petroleum Corp.1 |
50,000 |
3,076,500 |
Equities Corp.1 |
60,000 |
2,090,400 |
Total Energy |
|
8,441,900 |
Industrial – 1.9% |
|
|
Parker-Hannifin Corp.1 |
14,000 |
4,548,320 |
Johnson Controls International plc1 |
60,000 |
3,590,400 |
Total Industrial |
|
8,138,720 |
Consumer, Non-cyclical – 1.4% |
|
|
AbbVie, Inc.1 |
20,000 |
3,022,400 |
Amgen, Inc.1 |
7,000 |
1,678,180 |
Bristol-Myers Squibb Co.1 |
20,000 |
1,335,400 |
Total Consumer, Non-cyclical |
|
6,035,980 |
Financial – 1.3% |
|
|
Morgan Stanley1 |
25,000 |
2,249,250 |
PNC Financial Services Group, Inc.1 |
13,000 |
1,693,250 |
Comerica, Inc.1 |
35,000 |
1,517,950 |
Total Financial |
|
5,460,450 |
Technology – 0.9% |
|
|
International Business Machines Corp.1 |
30,000 |
3,792,300 |
Communications – 0.7% |
|
|
Verizon Communications, Inc.1 |
75,000 |
2,912,250 |
Basic Materials – 0.3% |
|
|
ArcelorMittal S.A.1 |
50,000 |
1,423,500 |
Consumer, Cyclical – 0.1% |
|
|
Thor Industries, Inc.1 |
6,700 |
529,434 |
Total Common Stocks |
|
|
(Cost $37,681,152) |
|
36,734,534 |
CONVERTIBLE PREFERRED STOCKS† – 7.3% |
|
|
Financial – 3.9% |
|
|
Bank of America Corp. |
|
|
7.25%1 |
8,125 |
9,619,431 |
Wells Fargo & Co. |
|
|
7.50%1 |
5,074 |
5,926,584 |
KKR & Company, Inc. |
|
|
6.00% due 09/15/231 |
17,716 |
1,131,521 |
Total Financial |
|
16,677,536 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 17
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Shares |
Value |
CONVERTIBLE PREFERRED STOCKS† – 7.3% (continued) |
|
|
Utilities – 1.4% |
|
|
NextEra Energy, Inc. |
|
|
6.22% due 09/01/231 |
57,664 |
$ 2,830,149 |
6.93% due 09/01/251 |
28,736 |
1,360,362 |
AES Corp. |
|
|
6.88% due 02/15/241 |
10,249 |
922,512 |
Algonquin Power & Utilities Corp. |
|
|
7.75% due 06/15/241 |
26,595 |
805,031 |
Total Utilities |
|
5,918,054 |
Communications – 0.9% |
|
|
Paramount Global |
|
|
5.75% due 04/01/241 |
100,000 |
3,183,000 |
2020 Cash Mandatory Exchangeable Trust |
|
|
5.25% due 06/01/23*,1,2 |
642 |
749,253 |
Total Communications |
|
3,932,253 |
Industrial – 0.9% |
|
|
Chart Industries, Inc. |
|
|
6.75% due 12/15/251 |
64,971 |
3,642,924 |
Consumer, Cyclical – 0.2% |
|
|
Aptiv plc |
|
|
5.50% due 06/15/231 |
6,329 |
717,554 |
Consumer, Non-cyclical – 0.0% |
|
|
Boston Scientific Corp. |
|
|
5.50% due 06/01/231 |
1,234 |
155,151 |
Total Convertible Preferred Stocks |
|
|
(Cost $31,381,255) |
|
31,043,472 |
CLOSED-END FUNDS† – 1.0% |
|
|
PGIM Global High Yield Fund, Inc.1 |
200,000 |
2,212,000 |
First Trust High Yield Opportunities 2027 Term Fund1 |
150,000 |
2,118,000 |
Total Closed-End Funds |
|
|
(Cost $4,443,427) |
|
4,330,000 |
MONEY MARKET FUND† – 5.6% |
|
|
Morgan Stanley Institutional Liquidity Government Portfolio – Institutional Class, |
|
|
4.77%1,3 |
24,051,910 |
24,051,910 |
Total Money Market Fund |
|
|
(Cost $24,051,910) |
|
24,051,910 |
See notes to financial statements.
18 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% |
|
|
Consumer, Cyclical – 16.1% |
|
|
NCL Corporation Ltd. |
|
|
5.38% due 08/01/251 |
5,216,000 |
$ 5,591,552 |
1.13% due 02/15/271 |
5,676,000 |
4,144,506 |
Ford Motor Co. |
|
|
due 03/15/261,4 |
8,160,000 |
8,000,880 |
Southwest Airlines Co. |
|
|
1.25% due 05/01/251 |
6,521,000 |
7,005,184 |
Marriott Vacations Worldwide Corp. |
|
|
3.25% due 12/15/271,2 |
7,084,000 |
6,945,862 |
Pirelli & C SpA |
|
|
due 12/22/251,4 |
EUR 4,300,000 |
4,749,464 |
Wynn Macau Ltd. |
|
|
4.50% due 03/07/291,2 |
2,749,000 |
3,131,111 |
Live Nation Entertainment, Inc. |
|
|
3.13% due 01/15/291,2 |
2,882,000 |
2,792,658 |
ANLLIAN Capital Ltd. |
|
|
due 02/05/251,4 |
EUR 1,900,000 |
2,301,584 |
Royal Caribbean Cruises Ltd. |
|
|
6.00% due 08/15/251,2 |
1,473,000 |
2,254,427 |
Carnival Corp. |
|
|
5.75% due 12/01/271,2 |
2,042,000 |
2,107,344 |
Sail Vantage Ltd. |
|
|
due 01/13/271,4 |
HKD 18,000,000 |
2,030,472 |
DraftKings Holdings, Inc. |
|
|
due 03/15/281,4 |
2,376,000 |
1,724,976 |
Burlington Stores, Inc. |
|
|
2.25% due 04/15/251 |
1,500,000 |
1,696,875 |
Zhongsheng Group Holdings Ltd. |
|
|
due 05/21/251,4 |
HKD 12,000,000 |
1,667,027 |
Spirit Airlines, Inc. |
|
|
1.00% due 05/15/261 |
2,000,000 |
1,632,000 |
American Airlines Group, Inc. |
|
|
6.50% due 07/01/251 |
1,393,000 |
1,551,105 |
ANA Holdings, Inc. |
|
|
due 12/10/311 |
JPY 180,000,000 |
1,455,771 |
Peloton Interactive, Inc. |
|
|
due 02/15/261,4 |
1,845,000 |
1,376,310 |
JetBlue Airways Corp. |
|
|
0.50% due 04/01/261 |
1,357,000 |
1,064,023 |
WH Smith plc |
|
|
1.63% due 05/07/261 |
GBP 900,000 |
1,044,649 |
H World Group Ltd. |
|
|
3.00% due 05/01/261 |
790,000 |
1,021,075 |
Vinpearl JSC |
|
|
3.25% due 09/21/261 |
1,200,000 |
909,000 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 19
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Consumer, Cyclical – 16.1% (continued) |
|
|
National Vision Holdings, Inc. |
|
|
2.50% due 05/15/251 |
758,000 |
$ 753,073 |
Penn Entertainment, Inc. |
|
|
2.75% due 05/15/261 |
518,000 |
740,481 |
Topgolf Callaway Brands Corp. |
|
|
2.75% due 05/01/261 |
493,000 |
687,981 |
Singapore Airlines Ltd. |
|
|
1.63% due 12/03/251 |
SGD 500,000 |
407,938 |
Total Consumer, Cyclical |
|
68,787,328 |
Consumer, Non-cyclical – 15.0% |
|
|
Shift4 Payments, Inc. |
|
|
due 12/15/251,4 |
6,042,000 |
6,619,011 |
Sarepta Therapeutics, Inc. |
|
|
1.25% due 09/15/271,2 |
5,439,000 |
6,146,098 |
QIAGEN N.V. |
|
|
1.00% due 11/13/241 |
4,400,000 |
4,750,883 |
Dexcom, Inc. |
|
|
0.25% due 11/15/251 |
2,959,000 |
3,243,739 |
0.75% due 12/01/231 |
281,000 |
829,372 |
Affirm Holdings, Inc. |
|
|
due 11/15/261,4 |
6,040,000 |
3,843,252 |
Jazz Investments I Ltd. |
|
|
2.00% due 06/15/261 |
2,980,000 |
3,251,925 |
Exact Sciences Corp. |
|
|
0.38% due 03/15/271 |
1,770,000 |
1,621,375 |
0.38% due 03/01/281 |
1,594,000 |
1,389,660 |
Chegg, Inc. |
|
|
0.13% due 03/15/251 |
3,000,000 |
2,683,500 |
Halozyme Therapeutics, Inc. |
|
|
1.00% due 08/15/281,2 |
3,041,000 |
2,670,378 |
Block, Inc. |
|
|
0.13% due 03/01/251 |
2,774,000 |
2,597,851 |
Omnicell, Inc. |
|
|
0.25% due 09/15/251 |
2,708,000 |
2,556,352 |
Integer Holdings Corp. |
|
|
2.13% due 02/15/281,2 |
1,814,000 |
2,067,960 |
Amadeus IT Group S.A. |
|
|
1.50% due 04/09/251 |
EUR 1,500,000 |
2,038,670 |
Carrefour S.A. |
|
|
due 06/14/231,4 |
2,000,000 |
1,983,630 |
Lantheus Holdings, Inc. |
|
|
2.63% due 12/15/271,2 |
1,325,000 |
1,761,657 |
Haemonetics Corp. |
|
|
due 03/01/261,4 |
1,682,000 |
1,441,303 |
See notes to financial statements.
20 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Consumer, Non-cyclical – 15.0% (continued) |
|
|
Post Holdings, Inc. |
|
|
2.50% due 08/15/271,2 |
1,293,000 |
$ 1,360,624 |
Cytokinetics, Inc. |
|
|
3.50% due 07/01/271,2 |
1,325,000 |
1,334,938 |
Elis S.A. |
|
|
2.25% due 09/22/291 |
EUR 800,000 |
1,091,661 |
Chefs’ Warehouse, Inc. |
|
|
2.38% due 12/15/281,2 |
988,000 |
999,115 |
Herbalife Ltd. |
|
|
2.63% due 03/15/241 |
966,000 |
925,428 |
Mirum Pharmaceuticals, Inc. |
|
|
4.00% due 05/01/291,2 |
772,000 |
883,554 |
BioMarin Pharmaceutical, Inc. |
|
|
1.25% due 05/15/271 |
738,000 |
765,341 |
Insulet Corp. |
|
|
0.38% due 09/01/261 |
493,000 |
738,267 |
Cerevel Therapeutics Holdings, Inc. |
|
|
2.50% due 08/15/271,2 |
770,000 |
724,888 |
Livongo Health, Inc. |
|
|
0.88% due 06/01/251 |
790,000 |
714,749 |
Guardant Health, Inc. |
|
|
due 11/15/271,4 |
1,041,000 |
703,204 |
Alnylam Pharmaceuticals, Inc. |
|
|
1.00% due 09/15/271,2 |
669,000 |
667,195 |
CONMED Corp. |
|
|
2.25% due 06/15/271,2 |
604,000 |
656,246 |
Cutera, Inc. |
|
|
4.00% due 06/01/291,2 |
806,000 |
582,533 |
Natera, Inc. |
|
|
2.25% due 05/01/271 |
281,000 |
422,343 |
Total Consumer, Non-cyclical |
|
64,066,702 |
Technology – 14.0% |
|
|
Tyler Technologies, Inc. |
|
|
0.25% due 03/15/261 |
5,193,000 |
5,238,417 |
Five9, Inc. |
|
|
0.50% due 06/01/251 |
5,337,000 |
4,923,521 |
CyberArk Software Ltd. |
|
|
due 11/15/241,4 |
3,991,000 |
4,166,953 |
BILL Holdings, Inc. |
|
|
due 12/01/251,4 |
3,598,000 |
3,302,964 |
Wolfspeed, Inc. |
|
|
1.88% due 12/01/291,2 |
3,624,000 |
2,694,444 |
0.25% due 02/15/281 |
815,000 |
594,575 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 21
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Technology – 14.0% (continued) |
|
|
Lumentum Holdings, Inc. |
|
|
0.50% due 06/15/281 |
2,656,000 |
$ 2,004,152 |
0.50% due 12/15/261 |
1,405,000 |
1,196,357 |
RingCentral, Inc. |
|
|
due 03/01/251,4 |
3,550,000 |
3,177,250 |
Splunk, Inc. |
|
|
1.13% due 09/15/251 |
3,350,000 |
3,169,100 |
Health Catalyst, Inc. |
|
|
2.50% due 04/15/251 |
3,000,000 |
2,811,515 |
Zscaler, Inc. |
|
|
0.13% due 07/01/251 |
2,822,000 |
2,740,162 |
Dropbox, Inc. |
|
|
due 03/01/281,4 |
2,932,000 |
2,517,122 |
DigitalOcean Holdings, Inc. |
|
|
due 12/01/261,4 |
2,876,000 |
2,262,356 |
Datadog, Inc. |
|
|
0.13% due 06/15/251 |
1,951,000 |
2,042,697 |
Akamai Technologies, Inc. |
|
|
0.38% due 09/01/271 |
2,120,000 |
2,006,580 |
MongoDB, Inc. |
|
|
0.25% due 01/15/261 |
1,388,000 |
1,831,952 |
Bentley Systems, Inc. |
|
|
0.13% due 01/15/261 |
1,772,000 |
1,675,858 |
ON Semiconductor Corp. |
|
|
0.50% due 03/01/291,2 |
1,544,000 |
1,494,737 |
STMicroelectronics N.V. |
|
|
due 08/04/271,4 |
1,200,000 |
1,352,833 |
Xero Investments Ltd. |
|
|
due 12/02/251,4 |
1,359,000 |
1,151,753 |
Lenovo |
|
|
2.50% due 08/26/291 |
1,031,000 |
1,143,637 |
Evolent Health, Inc. |
|
|
1.50% due 10/15/251 |
844,000 |
1,082,246 |
Unity Software, Inc. |
|
|
due 11/15/261,4 |
1,378,000 |
1,078,285 |
Box, Inc. |
|
|
due 01/15/261,4 |
877,000 |
1,024,774 |
Nutanix, Inc. |
|
|
0.25% due 10/01/271 |
1,119,000 |
928,211 |
BigCommerce Holdings, Inc. |
|
|
0.25% due 10/01/261 |
1,024,000 |
791,040 |
See notes to financial statements.
22 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Technology – 14.0% (continued) |
|
|
Cloudflare, Inc. |
|
|
due 08/15/261,4 |
907,000 |
$ 752,810 |
Rohm Company Ltd. |
|
|
due 12/05/241,4 |
JPY 100,000,000 |
751,845 |
Total Technology |
|
59,908,146 |
Communications – 11.5% |
|
|
Zillow Group, Inc. |
|
|
1.38% due 09/01/261 |
5,482,000 |
6,452,314 |
Wayfair, Inc. |
|
|
3.25% due 09/15/271,2 |
5,047,000 |
4,264,715 |
0.63% due 10/01/251 |
1,102,000 |
836,266 |
Match Group Financeco 3, Inc. |
|
|
2.00% due 01/15/301,2 |
5,305,000 |
4,539,425 |
Palo Alto Networks, Inc. |
|
|
0.38% due 06/01/251 |
2,117,000 |
3,920,684 |
Liberty Media Corp. |
|
|
3.75% due 03/15/281,2 |
3,659,000 |
3,713,885 |
Lyft, Inc. |
|
|
1.50% due 05/15/251 |
3,813,000 |
3,397,383 |
Snap, Inc. |
|
|
0.75% due 08/01/261 |
3,322,000 |
2,876,022 |
Farfetch Ltd. |
|
|
3.75% due 05/01/271 |
2,921,000 |
2,212,657 |
Etsy, Inc. |
|
|
0.13% due 09/01/271 |
2,469,000 |
2,177,211 |
America Movil BV |
|
|
due 03/02/241,4 |
EUR 1,600,000 |
1,898,688 |
Meituan |
|
|
due 04/27/281,4 |
2,300,000 |
1,895,200 |
Sea Ltd. |
|
|
0.25% due 09/15/261 |
1,348,000 |
1,075,030 |
2.38% due 12/01/251 |
525,000 |
602,175 |
Delivery Hero SE |
|
|
3.25% due 02/21/301 |
EUR 1,500,000 |
1,545,187 |
Viavi Solutions, Inc. |
|
|
1.63% due 03/15/261,2 |
1,501,000 |
1,462,537 |
Bharti Airtel Ltd. |
|
|
1.50% due 02/17/251 |
1,050,000 |
1,382,850 |
Uber Technologies, Inc. |
|
|
due 12/15/251,4 |
1,335,000 |
1,167,795 |
Cable One, Inc. |
|
|
1.13% due 03/15/281 |
1,387,000 |
1,070,071 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 23
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Communications – 11.5% (continued) |
|
|
MakeMyTrip Ltd. |
|
|
due 02/15/281,4 |
973,000 |
$ 943,810 |
Nice Ltd. |
|
|
due 09/15/251,4 |
670,000 |
625,110 |
Q2 Holdings, Inc. |
|
|
0.75% due 06/01/261 |
685,000 |
557,932 |
Booking Holdings, Inc. |
|
|
0.75% due 05/01/251 |
272,000 |
406,774 |
Total Communications |
|
49,023,721 |
Financial – 8.0% |
|
|
Citigroup Global Markets Holdings Incorporated/United States |
|
|
0.25% due 03/22/281 |
2,702,000 |
2,864,139 |
0.25% due 01/13/281 |
2,745,000 |
2,817,487 |
Pebblebrook Hotel Trust |
|
|
1.75% due 12/15/261 |
5,596,000 |
4,839,209 |
Realogy Group LLC / Realogy Company-Issuer Corp. |
|
|
0.25% due 06/15/261 |
5,415,000 |
4,000,331 |
JPMorgan Chase Financial Company LLC |
|
|
0.50% due 06/15/271 |
2,927,000 |
3,560,696 |
SoFi Technologies, Inc. |
|
|
due 10/15/261,2,4 |
4,000,000 |
2,874,000 |
Morgan Stanley Finance LLC |
|
|
0.25% due 01/27/281 |
2,882,000 |
2,812,400 |
JPMorgan Chase Bank North America |
|
|
due 06/10/241,4 |
EUR 1,200,000 |
1,537,875 |
due 02/18/241,4 |
EUR 800,000 |
943,078 |
Barclays Bank plc |
|
|
due 01/24/251,4 |
EUR 1,600,000 |
1,788,725 |
Eve Battery Investment Ltd. |
|
|
0.75% due 11/22/261 |
1,451,000 |
1,269,625 |
Vingroup JSC |
|
|
3.00% due 04/20/261 |
1,400,000 |
1,164,380 |
SBI Holdings, Inc. |
|
|
due 07/25/251,4 |
JPY 120,000,000 |
935,923 |
Citigroup Global |
|
|
0.50% due 08/04/231 |
EUR 800,000 |
915,174 |
BNP Paribas SA/New York NY |
|
|
due 05/13/251 |
EUR 700,000 |
874,227 |
Redfin Corp. |
|
|
due 10/15/251,4 |
959,000 |
707,263 |
Total Financial |
|
33,904,532 |
See notes to financial statements.
24 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Energy – 5.2% |
|
|
Enphase Energy, Inc. |
|
|
due 03/01/281,4 |
4,398,000 |
$ 4,137,719 |
Nabors Industries, Inc. |
|
|
1.75% due 06/15/291,2 |
4,936,000 |
3,817,996 |
NextEra Energy Partners, LP |
|
|
due 11/15/251,2,4 |
3,475,000 |
3,186,575 |
Equities Corp. |
|
|
1.75% due 05/01/261 |
1,191,000 |
2,847,610 |
RAG-Stiftung |
|
|
1.88% due 11/16/291 |
EUR 1,300,000 |
1,521,451 |
due 06/17/261,4 |
EUR 800,000 |
829,711 |
Northern Oil and Gas, Inc. |
|
|
3.63% due 04/15/291,2 |
1,836,000 |
2,080,673 |
Pioneer Natural Resources Co. |
|
|
0.25% due 05/15/251 |
785,000 |
1,791,763 |
CIMC Enric Holdings Ltd. |
|
|
due 11/30/261,4 |
HKD 10,000,000 |
1,224,538 |
SolarEdge Technologies, Inc. |
|
|
due 09/15/251,4 |
595,000 |
741,072 |
Array Technologies, Inc. |
|
|
1.00% due 12/01/281 |
189,000 |
198,639 |
Total Energy |
|
22,377,747 |
Industrial – 4.5% |
|
|
Rheinmetall AG |
|
|
2.25% due 02/07/301 |
EUR 2,300,000 |
2,847,272 |
1.88% due 02/07/281 |
EUR 1,000,000 |
1,201,634 |
Cellnex Telecom S.A. |
|
|
0.50% due 07/05/281 |
EUR 1,500,000 |
1,805,250 |
1.50% due 01/16/261 |
EUR 900,000 |
1,311,950 |
0.75% due 11/20/311 |
EUR 700,000 |
625,557 |
Safran S.A. |
|
|
0.88% due 05/15/271 |
13,679** |
2,234,912 |
ZTO Express Cayman, Inc. |
|
|
1.50% due 09/01/271,2 |
1,265,000 |
1,328,250 |
Deutsche Post AG |
|
|
0.05% due 06/30/251 |
EUR 1,200,000 |
1,286,257 |
L&F Company Ltd. |
|
|
2.50% due 04/26/301 |
1,400,000 |
1,242,500 |
Itron, Inc. |
|
|
due 03/15/261,4 |
1,241,000 |
1,045,542 |
SPIE SA |
|
|
2.00% due 01/17/281 |
EUR 900,000 |
1,027,856 |
Bloom Energy Corp. |
|
|
2.50% due 08/15/251 |
756,000 |
937,062 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 25
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CONVERTIBLE BONDS†† – 77.4% (continued) |
|
|
Industrial – 4.5% (continued) |
|
|
Prysmian SpA |
|
|
due 02/02/261,4 |
EUR 700,000 |
$ 818,211 |
Schneider Electric SE |
|
|
due 06/15/264 |
3,900** |
803,186 |
Sika A.G. |
|
|
0.15% due 06/05/251 |
CHF 480,000 |
708,338 |
Total Industrial |
|
19,223,777 |
Basic Materials – 2.0% |
|
|
Nippon Steel Corp. |
|
|
due 10/05/261,4 |
JPY 130,000,000 |
1,175,981 |
due 10/04/241,4 |
JPY 130,000,000 |
1,166,673 |
Glencore Funding LLC |
|
|
due 03/27/251,4 |
1,800,000 |
1,952,154 |
due 03/27/25 |
200,000 |
216,906 |
MP Materials Corp. |
|
|
0.25% due 04/01/261,2 |
1,359,000 |
1,161,932 |
POSCO Holdings Inc. |
|
|
due 09/01/261,4 |
EUR 1,000,000 |
1,110,345 |
Lithium Americas Corp. |
|
|
1.75% due 01/15/271 |
1,249,000 |
972,971 |
Ivanhoe Mines Ltd. |
|
|
2.50% due 04/15/261,2 |
571,000 |
759,145 |
Total Basic Materials |
|
8,516,107 |
Utilities – 1.1% |
|
|
Veolia Environnement S.A. |
|
|
due 01/01/251,4 |
58,552** |
2,073,948 |
CenterPoint Energy, Inc. |
|
|
3.37% due 09/15/291 |
26,551** |
981,723 |
Duke Energy Corp. |
|
|
4.13% due 04/15/261,2 |
745,000 |
761,762 |
NRG Energy, Inc. |
|
|
2.75% due 06/01/481 |
737,000 |
760,953 |
Total Utilities |
|
4,578,386 |
Total Convertible Bonds |
|
|
(Cost $342,739,826) |
|
330,386,446 |
CORPORATE BONDS†† – 70.4% |
|
|
Consumer, Cyclical – 20.1% |
|
|
Ford Motor Credit Company LLC |
|
|
5.58% due 03/18/241 |
5,362,000 |
5,334,169 |
2.30% due 02/10/251 |
3,062,000 |
2,855,185 |
International Game Technology plc |
|
|
6.50% due 02/15/251,2 |
3,000,000 |
3,040,740 |
4.13% due 04/15/261,2 |
2,792,000 |
2,682,753 |
See notes to financial statements.
26 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Consumer, Cyclical – 20.1% (continued) |
|
|
Victoria’s Secret & Co. |
|
|
4.63% due 07/15/291,2 |
6,029,000 |
$ 4,881,952 |
Macy’s Retail Holdings LLC |
|
|
6.13% due 03/15/321,2 |
3,000,000 |
2,627,820 |
5.88% due 04/01/291,2 |
2,046,000 |
1,876,039 |
Scientific Games International, Inc. |
|
|
8.63% due 07/01/251,2 |
3,362,000 |
3,441,747 |
American Airlines Incorporated/AAdvantage Loyalty IP Ltd. |
|
|
5.75% due 04/20/291,2 |
3,601,000 |
3,429,438 |
Evergreen Acqco 1 Limited Partnership / TVI, Inc. |
|
|
9.75% due 04/26/281,2 |
3,379,000 |
3,386,738 |
Spirit Loyalty Cayman Limited / Spirit IP Cayman Ltd |
|
|
8.00% due 09/20/251,2 |
3,150,000 |
3,181,701 |
LSF9 Atlantis Holdings LLC / Victra Finance Corp. |
|
|
7.75% due 02/15/261,2 |
3,373,000 |
3,165,951 |
Caesars Entertainment, Inc. |
|
|
6.25% due 07/01/251,2 |
3,142,000 |
3,149,902 |
Dave & Buster’s, Inc. |
|
|
7.63% due 11/01/251,2 |
2,873,000 |
2,918,704 |
Hilton Domestic Operating Company, Inc. |
|
|
4.00% due 05/01/311,2 |
3,250,000 |
2,877,355 |
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. |
|
|
5.50% due 03/01/251,2 |
2,648,000 |
2,614,489 |
Nissan Motor Acceptance Company LLC |
|
|
2.00% due 03/09/261,2 |
2,793,000 |
2,454,628 |
Abercrombie & Fitch Management Co. |
|
|
8.75% due 07/15/251,2 |
2,235,000 |
2,271,257 |
MGM Resorts International |
|
|
6.75% due 05/01/251 |
2,221,000 |
2,244,660 |
Live Nation Entertainment, Inc. |
|
|
3.75% due 01/15/281,2 |
2,235,000 |
2,005,912 |
Ferrellgas Limited Partnership / Ferrellgas Finance Corp. |
|
|
5.88% due 04/01/291,2 |
2,355,000 |
1,992,237 |
Kontoor Brands, Inc. |
|
|
4.13% due 11/15/291,2 |
2,108,000 |
1,793,324 |
Bath & Body Works, Inc. |
|
|
6.88% due 11/01/351 |
1,955,000 |
1,771,766 |
Scotts Miracle-Gro Co. |
|
|
4.38% due 02/01/321 |
2,055,000 |
1,668,948 |
Nordstrom, Inc. |
|
|
2.30% due 04/08/241 |
1,708,000 |
1,628,945 |
American Airlines, Inc. |
|
|
11.75% due 07/15/251,2 |
1,476,000 |
1,621,854 |
Jacobs Entertainment, Inc. |
|
|
6.75% due 02/15/291,2 |
1,762,000 |
1,534,526 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 27
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Consumer, Cyclical – 20.1% (continued) |
|
|
Carnival Corp. |
|
|
4.00% due 08/01/281,2 |
1,751,000 |
$ 1,519,800 |
NCL Corporation Ltd. |
|
|
5.88% due 02/15/271,2 |
832,000 |
785,445 |
7.75% due 02/15/291,2 |
855,000 |
724,984 |
Carnival Holdings Bermuda Ltd. |
|
|
10.38% due 05/01/281,2 |
1,397,000 |
1,503,248 |
Vista Outdoor, Inc. |
|
|
4.50% due 03/15/291,2 |
1,763,000 |
1,389,103 |
Dealer Tire LLC / DT Issuer LLC |
|
|
8.00% due 02/01/281,2 |
1,363,000 |
1,266,023 |
American Greetings Corp. |
|
|
8.75% due 04/15/251,2 |
1,111,000 |
1,096,951 |
Michael Kors USA, Inc. |
|
|
4.25% due 11/01/241,2 |
1,117,000 |
1,089,494 |
Hanesbrands, Inc. |
|
|
9.00% due 02/15/311,2 |
1,000,000 |
1,024,976 |
Michaels Companies, Inc. |
|
|
7.88% due 05/01/291,2 |
1,399,000 |
939,093 |
Royal Caribbean Cruises Ltd. |
|
|
5.38% due 07/15/271,2 |
1,046,000 |
929,643 |
Ford Motor Co. |
|
|
6.10% due 08/19/321 |
951,000 |
907,898 |
Total Consumer, Cyclical |
|
85,629,398 |
Communications – 13.9% |
|
|
CCO Holdings LLC / CCO Holdings Capital Corp. |
|
|
5.00% due 02/01/281,2 |
3,129,000 |
2,898,512 |
4.25% due 01/15/341,2 |
3,172,000 |
2,432,674 |
Sirius XM Radio, Inc. |
|
|
4.00% due 07/15/281,2 |
3,677,000 |
3,108,363 |
3.13% due 09/01/261,2 |
2,000,000 |
1,791,566 |
Urban One, Inc. |
|
|
7.38% due 02/01/281,2 |
5,159,000 |
4,690,718 |
CSC Holdings LLC |
|
|
5.25% due 06/01/241 |
2,220,000 |
2,166,653 |
6.50% due 02/01/291,2 |
2,244,000 |
1,876,270 |
Uber Technologies, Inc. |
|
|
7.50% due 05/15/251,2 |
3,463,000 |
3,518,252 |
Ciena Corp. |
|
|
4.00% due 01/31/301,2 |
3,246,000 |
2,855,271 |
News Corp. |
|
|
5.13% due 02/15/321,2 |
3,039,000 |
2,805,574 |
Directv Financing LLC / Directv Financing Company-Obligor, Inc. |
|
|
5.88% due 08/15/271,2 |
3,103,000 |
2,724,958 |
See notes to financial statements.
28 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Communications – 13.9% (continued) |
|
|
Match Group Holdings II LLC |
|
|
4.13% due 08/01/301,2 |
3,104,000 |
$ 2,657,151 |
McGraw-Hill Education, Inc. |
|
|
8.00% due 08/01/291,2 |
2,508,000 |
2,159,137 |
5.75% due 08/01/281,2 |
271,000 |
240,951 |
TripAdvisor, Inc. |
|
|
7.00% due 07/15/251,2 |
2,356,000 |
2,373,458 |
Nexstar Media, Inc. |
|
|
4.75% due 11/01/281,2 |
2,562,000 |
2,254,352 |
Sprint Capital Corp. |
|
|
6.88% due 11/15/281 |
2,083,000 |
2,246,385 |
Rakuten Group, Inc. |
|
|
10.25% due 11/30/241,2 |
2,221,000 |
2,189,018 |
Acuris Finance US Incorporated / Acuris Finance SARL |
|
|
5.00% due 05/01/281,2 |
2,729,000 |
2,159,049 |
Cable One, Inc. |
|
|
4.00% due 11/15/301,2 |
2,233,000 |
1,817,885 |
Stagwell Global LLC |
|
|
5.63% due 08/15/291,2 |
2,061,000 |
1,793,688 |
Level 3 Financing, Inc. |
|
|
3.40% due 03/01/271,2 |
2,235,000 |
1,749,754 |
Cablevision Lightpath LLC |
|
|
5.63% due 09/15/281,2 |
1,991,000 |
1,456,445 |
DISH Network Corp. |
|
|
11.75% due 11/15/271,2 |
1,392,000 |
1,317,397 |
CommScope, Inc. |
|
|
8.25% due 03/01/271,2 |
1,675,000 |
1,297,592 |
DISH DBS Corp. |
|
|
5.25% due 12/01/261,2 |
1,392,000 |
1,070,125 |
Intelsat Jackson Holdings S.A. |
|
|
6.50% due 03/15/301,2 |
1,117,000 |
1,034,462 |
Charter Communications Operating LLC / Charter Communications Operating Capital |
|
|
3.50% due 06/01/411 |
1,106,000 |
756,102 |
Total Communications |
|
59,441,762 |
Energy – 10.6% |
|
|
Genesis Energy Limited Partnership / Genesis Energy Finance Corp. |
|
|
8.00% due 01/15/271 |
2,467,000 |
2,464,373 |
8.88% due 04/15/301 |
1,113,000 |
1,115,895 |
Permian Resources Operating LLC |
|
|
5.88% due 07/01/291,2 |
3,135,000 |
2,969,907 |
Nabors Industries, Inc. |
|
|
7.38% due 05/15/271,2 |
3,037,000 |
2,964,871 |
Tallgrass Energy Partners Limited Partnership / Tallgrass Energy Finance Corp. |
|
|
6.00% due 03/01/271,2 |
3,062,000 |
2,958,313 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 29
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Energy – 10.6% (continued) |
|
|
Hilcorp Energy I Limited Partnership / Hilcorp Finance Co. |
|
|
6.25% due 04/15/321,2 |
3,036,000 |
$ 2,841,315 |
New Fortress Energy, Inc. |
|
|
6.50% due 09/30/261,2 |
2,887,000 |
2,653,321 |
Parkland Corp. |
|
|
4.63% due 05/01/301,2 |
3,012,000 |
2,624,311 |
Harvest Midstream I, LP |
|
|
7.50% due 09/01/281,2 |
2,522,000 |
2,470,419 |
Alliance Resource Operating Partners Limited Partnership / Alliance Resource |
|
|
Finance Corp. |
|
|
7.50% due 05/01/251,2 |
2,331,000 |
2,319,030 |
Transocean, Inc. |
|
|
8.75% due 02/15/301,2 |
2,233,000 |
2,264,575 |
CNX Resources Corp. |
|
|
7.38% due 01/15/311,2 |
2,278,000 |
2,196,667 |
Martin Midstream Partners Limited Partnership / Martin Midstream Finance Corp. |
|
|
11.50% due 02/15/281,2 |
2,235,000 |
2,179,562 |
Southwestern Energy Co. |
|
|
5.38% due 03/15/301 |
2,071,000 |
1,929,279 |
Aethon United BR Limited Partnership / Aethon United Finance Corp. |
|
|
8.25% due 02/15/261,2 |
1,956,000 |
1,901,479 |
Vermilion Energy, Inc. |
|
|
6.88% due 05/01/301,2 |
2,047,000 |
1,900,722 |
Occidental Petroleum Corp. |
|
|
6.13% due 01/01/311 |
1,799,000 |
1,882,807 |
Civitas Resources, Inc. |
|
|
5.00% due 10/15/261,2 |
1,967,000 |
1,851,134 |
EnLink Midstream Partners, LP |
|
|
5.60% due 04/01/441 |
2,218,000 |
1,844,006 |
Calumet Specialty Products Partners Limited Partnership / Calumet Finance Corp. |
|
|
8.13% due 01/15/271,2 |
1,712,000 |
1,658,611 |
EnLink Midstream LLC |
|
|
6.50% due 09/01/301,2 |
345,000 |
349,043 |
Total Energy |
|
45,339,640 |
Consumer, Non-cyclical – 10.2% |
|
|
Primo Water Holdings, Inc. |
|
|
4.38% due 04/30/291,2 |
4,294,000 |
3,787,940 |
Land O’Lakes Capital Trust I |
|
|
7.45% due 03/15/281,2 |
3,682,000 |
3,488,695 |
Pediatrix Medical Group, Inc. |
|
|
5.38% due 02/15/301,2 |
3,101,000 |
2,835,477 |
Encompass Health Corp. |
|
|
4.63% due 04/01/311 |
2,987,000 |
2,680,335 |
See notes to financial statements.
30 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Consumer, Non-cyclical – 10.2% (continued) |
|
|
TriNet Group, Inc. |
|
|
3.50% due 03/01/291,2 |
3,029,000 |
$ 2,651,844 |
DaVita, Inc. |
|
|
4.63% due 06/01/301,2 |
2,869,000 |
2,502,642 |
Varex Imaging Corp. |
|
|
7.88% due 10/15/271,2 |
2,503,000 |
2,480,636 |
ASGN, Inc. |
|
|
4.63% due 05/15/281,2 |
2,607,000 |
2,412,894 |
Edgewell Personal Care Co. |
|
|
4.13% due 04/01/291,2 |
2,687,000 |
2,383,004 |
Kronos Acquisition Holdings, Inc. / KIK Custom Products, Inc. |
|
|
7.00% due 12/31/271,2 |
2,514,000 |
2,212,263 |
Central Garden & Pet Co. |
|
|
4.13% due 04/30/311,2 |
2,620,000 |
2,210,220 |
Sotheby’s |
|
|
7.38% due 10/15/271,2 |
2,234,000 |
2,097,020 |
Tenet Healthcare Corp. |
|
|
4.38% due 01/15/301 |
2,115,000 |
1,948,082 |
Service Corporation International |
|
|
3.38% due 08/15/301 |
2,271,000 |
1,926,212 |
Kevlar SpA |
|
|
6.50% due 09/01/292 |
2,236,000 |
1,862,253 |
Elanco Animal Health, Inc. |
|
|
6.65% due 08/28/281 |
1,890,000 |
1,844,886 |
HLF Financing SARL LLC / Herbalife International, Inc. |
|
|
4.88% due 06/01/291,2 |
2,326,000 |
1,782,902 |
MPH Acquisition Holdings LLC |
|
|
5.50% due 09/01/281,2 |
1,759,000 |
1,347,065 |
Royalty Pharma plc |
|
|
3.30% due 09/02/401 |
1,659,000 |
1,208,953 |
Total Consumer, Non-cyclical |
|
43,663,323 |
Financial – 5.0% |
|
|
OneMain Finance Corp. |
|
|
6.13% due 03/15/241 |
2,550,000 |
2,512,170 |
7.13% due 03/15/261 |
1,117,000 |
1,089,821 |
PRA Group, Inc. |
|
|
5.00% due 10/01/291,2 |
3,387,000 |
2,873,791 |
Iron Mountain, Inc. |
|
|
4.50% due 02/15/311,2 |
3,029,000 |
2,637,314 |
Cushman & Wakefield US Borrower LLC |
|
|
6.75% due 05/15/281,2 |
2,234,000 |
2,094,811 |
Acrisure LLC / Acrisure Finance, Inc. |
|
|
10.13% due 08/01/261,2 |
1,956,000 |
1,992,561 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 31
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Financial – 5.0% (continued) |
|
|
VistaJet Malta Finance plc / Vista Management Holding, Inc. |
|
|
6.38% due 02/01/301,2 |
2,032,000 |
$ 1,760,410 |
Aretec Escrow Issuer, Inc. |
|
|
7.50% due 04/01/291,2 |
1,940,000 |
1,626,605 |
NMI Holdings, Inc. |
|
|
7.38% due 06/01/251,2 |
1,546,000 |
1,573,573 |
Radian Group, Inc. |
|
|
4.88% due 03/15/271 |
1,647,000 |
1,568,496 |
Realogy Group LLC / Realogy Company-Issuer Corp. |
|
|
5.75% due 01/15/291,2 |
1,955,000 |
1,453,738 |
Total Financial |
|
21,183,290 |
Technology – 4.8% |
|
|
Consensus Cloud Solutions, Inc. |
|
|
6.50% due 10/15/281,2 |
3,002,000 |
2,630,037 |
Synaptics, Inc. |
|
|
4.00% due 06/15/291,2 |
3,076,000 |
2,602,566 |
Playtika Holding Corp. |
|
|
4.25% due 03/15/291,2 |
2,327,000 |
1,980,045 |
Open Text Corp. |
|
|
3.88% due 12/01/291,2 |
2,220,000 |
1,868,380 |
Kyndryl Holdings, Inc. |
|
|
4.10% due 10/15/411 |
2,528,000 |
1,707,734 |
McAfee Corp. |
|
|
7.38% due 02/15/301,2 |
1,985,000 |
1,650,266 |
CA Magnum Holdings |
|
|
5.38% due 10/31/261,2 |
1,817,000 |
1,602,091 |
NCR Corp. |
|
|
5.13% due 04/15/291,2 |
1,704,000 |
1,475,790 |
Seagate HDD Cayman |
|
|
5.75% due 12/01/341 |
1,644,000 |
1,461,163 |
Ahead DB Holdings LLC |
|
|
6.63% due 05/01/281,2 |
1,393,000 |
1,164,597 |
NXP BV / NXP Funding LLC / NXP USA, Inc. |
|
|
3.25% due 05/11/411 |
1,106,000 |
804,066 |
Micron Technology, Inc. |
|
|
3.37% due 11/01/411 |
1,100,000 |
778,411 |
Alteryx, Inc. |
|
|
1.00% due 08/01/261 |
928,000 |
776,620 |
Total Technology |
|
20,501,766 |
Industrial – 2.3% |
|
|
Bombardier, Inc. |
|
|
7.13% due 06/15/261,2 |
2,656,000 |
2,650,450 |
Sealed Air Corp. |
|
|
6.88% due 07/15/331,2 |
2,291,000 |
2,436,066 |
See notes to financial statements.
32 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
CORPORATE BONDS†† – 70.4% (continued) |
|
|
Industrial – 2.3% (continued) |
|
|
Clydesdale Acquisition Holdings, Inc. |
|
|
8.75% due 04/15/301,2 |
2,035,000 |
$ 1,873,787 |
VM Consolidated, Inc. |
|
|
5.50% due 04/15/291,2 |
1,755,000 |
1,630,158 |
Rand Parent LLC |
|
|
8.50% due 02/15/301,2 |
1,398,000 |
1,268,128 |
Total Industrial |
|
9,858,589 |
Basic Materials – 2.1% |
|
|
FMG Resources August 2006 Pty Ltd. |
|
|
4.38% due 04/01/311,2 |
2,901,000 |
2,523,316 |
Chemours Co. |
|
|
4.63% due 11/15/291,2 |
2,773,000 |
2,276,598 |
First Quantum Minerals Ltd. |
|
|
6.88% due 10/15/271,2 |
2,233,000 |
2,169,973 |
Ingevity Corp. |
|
|
3.88% due 11/01/281,2 |
2,223,000 |
1,953,153 |
Total Basic Materials |
|
8,923,040 |
Utilities – 1.0% |
|
|
NRG Energy, Inc. |
|
|
5.25% due 06/15/291,2 |
4,424,000 |
4,085,802 |
Consumer Cyclical – 0.4% |
|
|
Fertitta Entertainment LLC |
|
|
6.75% due 01/15/30 |
1,955,000 |
1,587,395 |
Total Corporate Bonds |
|
|
(Cost $311,184,179) |
|
300,214,005 |
ASSET-BACKED SECURITIES†† – 8.7% |
|
|
Collateralized Loan Obligations – 8.7% |
|
|
720 East CLO 2023-I Ltd. |
|
|
2023-IA, 10.73% (3 Month Term SOFR + 5.85%, Rate Floor: 5.85%) |
|
|
due 04/15/36◊,1,2 |
4,000,000 |
3,999,000 |
Dryden 49 Senior Loan Fund |
|
|
2021-49A, 8.66% (3 Month USD LIBOR + 3.40%, Rate Floor: 3.40%) |
|
|
due 07/18/30◊,1,2 |
4,000,000 |
3,702,720 |
PARK BLUE CLO 2023-III Ltd. |
|
|
2023-3A, 10.36% (3 Month Term SOFR + 5.40%, Rate Floor: 5.40%) |
|
|
due 04/20/36◊,1,2 |
3,400,000 |
3,409,326 |
Galaxy 31 CLO Ltd. |
|
|
2023-31A, 10.03% (3 Month Term SOFR + 5.25%, Rate Floor: 5.25%) |
|
|
due 04/15/36◊,1,2 |
3,400,000 |
3,399,187 |
SOUND POINT CLO III-R Ltd. |
|
|
2018-2RA, 8.21% (3 Month USD LIBOR + 2.95%) |
|
|
due 04/15/29◊,1,2 |
3,500,000 |
3,223,623 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 33
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
Face |
|
|
Amount~ |
Value |
ASSET-BACKED SECURITIES†† – 8.7% (continued) |
|
|
Collateralized Loan Obligations – 8.7% (continued) |
|
|
Crown City CLO V |
|
|
2023-5A, 10.59% (3 Month Term SOFR + 5.65%, Rate Floor: 5.65%) |
|
|
due 04/20/34◊,1,2 |
3,000,000 |
$ 2,999,949 |
Barrow Hanley CLO I Ltd. |
|
|
2023-1A, 11.03% (3 Month Term SOFR + 6.16%, Rate Floor: 6.16%) |
|
|
due 04/20/35◊,1,2 |
3,000,000 |
2,996,316 |
1988 CLO 2 Ltd. |
|
|
2023-2A, 11.22% (3 Month Term SOFR + 6.40%, Rate Floor: 6.40%) |
|
|
due 04/15/38◊,1,2 |
3,000,000 |
2,995,560 |
Fortress Credit BSL Ltd. |
|
|
2023-1A, 10.95% (3 Month Term SOFR + 6.17%, Rate Floor: 6.17%) |
|
|
due 04/23/36◊,1,2 |
3,000,000 |
2,993,136 |
Invesco US CLO 2023-2 Ltd. |
|
|
2023-2A, 9.81% (3 Month Term SOFR + 4.95%, Rate Floor: 4.95%) |
|
|
due 04/21/36◊,1,2 |
2,750,000 |
2,749,818 |
OZLM XXIV Ltd. |
|
|
2021-24A, 8.65% (3 Month USD LIBOR + 3.40%, Rate Floor: 3.40%) |
|
|
due 07/20/32◊,1,2 |
2,500,000 |
2,267,880 |
Sound Point CLO XXVII Ltd. |
|
|
2021-2A, 8.61% (3 Month USD LIBOR + 3.35%, Rate Floor: 3.35%) |
|
|
due 10/25/34◊,1,2 |
2,500,000 |
2,190,960 |
Total Collateralized Loan Obligations |
|
36,927,475 |
Total Asset-Backed Securities |
|
|
(Cost $37,193,277) |
|
36,927,475 |
SENIOR FLOATING RATE INTERESTS††,◊ – 1.8% |
|
|
Consumer, Cyclical – 1.2% |
|
|
SeaWorld Parks & Entertainment, Inc. |
|
|
8.06% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.50%) due 08/25/28 |
2,600,400 |
2,587,398 |
Alterra Mountain Co. |
|
|
8.53% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.00%) due 08/17/28 |
2,322,179 |
2,313,471 |
Total Consumer, Cyclical |
|
4,900,869 |
Industrial – 0.6% |
|
|
TransDigm, Inc. |
|
|
8.15% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 08/24/28 |
2,769,582 |
2,766,436 |
Total Senior Floating Rate Interests |
|
|
(Cost $7,654,721) |
|
7,667,305 |
Total Investments – 180.8% |
|
|
(Cost $796,329,747) |
|
$ 771,355,147 |
Other Assets & Liabilities, net – (80.8)% |
|
(344,641,602) |
Total Net Assets – 100.0% |
|
$ 426,713,545 |
See notes to financial statements.
34 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
|
|
|
|
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† |
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
Contract |
|
Appreciation |
Counterparty |
Currency |
Type |
Quantity |
Amount |
Settlement Date |
(Depreciation) |
Bank of New York Mellon |
EUR |
Buy |
2,048,934 |
2,213,410 USD |
06/13/23 |
$ 54,559 |
Bank of New York Mellon |
JPY |
Sell |
848,472,500 |
6,314,980 USD |
06/13/23 |
40,764 |
Bank of New York Mellon |
HKD |
Sell |
41,067,500 |
5,247,172 USD |
06/13/23 |
5,349 |
Bank of New York Mellon |
CHF |
Buy |
300,000 |
336,205 USD |
06/13/23 |
2,643 |
Bank of New York Mellon |
HKD |
Buy |
2,206,000 |
281,927 USD |
06/13/23 |
(355) |
Bank of New York Mellon |
SGD |
Sell |
548,856 |
407,477 USD |
06/13/23 |
(4,602) |
Bank of New York Mellon |
JPY |
Buy |
106,220,000 |
809,629 USD |
06/13/23 |
(24,161) |
Bank of New York Mellon |
CHF |
Sell |
946,037 |
1,019,310 USD |
06/13/23 |
(49,235) |
Bank of New York Mellon |
GBP |
Sell |
828,348 |
987,372 USD |
06/13/23 |
(54,798) |
Bank of New York Mellon |
EUR |
Sell |
37,401,141 |
39,847,200 USD |
06/13/23 |
(1,552,208) |
|
|
|
|
|
|
$(1,582,044) |
~ |
The
face amount is denominated in U.S. dollars unless otherwise indicated. |
* |
Non-income
producing security. |
** |
Represents
shares. |
† |
Value
determined based on Level 1 inputs — See Note 6. |
†† |
Value
determined based on Level 2 inputs — See Note 6. |
◊
|
Variable rate security. Rate indicated is the rate effective at April 30, 2023. In some instances, the
effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer.
The settlement status of a position may also impact the effective rate indicated. In some cases, a
position may be unsettled at period end and may not have a stated effective rate. In instances where
multiple underlying reference rates and spread amounts are shown, the effective rate is based on a
weighted average. |
1
|
All or a portion of these securities have been physically segregated in connection with the borrowings
and reverse repurchase agreements. As of April 30, 2023, the total value of securities segregated was
$749,706,232. |
2
|
Security is a 144A or Section 4(a)(2) security. These securities have been determined to be liquid
under guidelines established by the Board of Trustees. The total market value of 144A or Section
4(a)(2) securities is $356,405,982 (cost $368,114,547), or 83.5% of total net assets. |
3 |
Rate
indicated is the 7-day yield as of April 30, 2023. |
4 |
Zero
coupon rate security. |
CHF |
Swiss
Franc |
EUR |
Euro |
GBP |
British
Pound |
HKD |
Hong
Kong Dollar |
JPY |
Japanese
Yen |
LIBOR |
London
Interbank Offered Rate |
LLC |
Limited
Liability Company |
plc |
Public
Limited Company |
SARL |
Société
à Responsabilité Limitée |
SGD |
Singapore
Dollar |
SOFR |
Secured
Overnight Financing Rate |
See Sector Classification in Other Information section.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 35
|
|
PORTFOLIO OF INVESTMENTS (Unaudited) continued |
April 30, 2023 |
The following table summarizes the inputs used to value the Fund’s
investments at April 30, 2023 (See Note 6 in the Notes to Financial Statements):
|
|
Level 2 |
Level 3 |
|
|
Level 1 |
Significant |
Significant |
|
|
Quoted |
Observable |
Unobservable |
|
Investments in Securities (Assets) |
Prices |
Inputs |
Inputs |
Total |
Common Stocks |
$ 36,734,534 |
$ — |
$ — |
$ 36,734,534 |
Convertible Preferred Stocks |
31,043,472 |
— |
— |
31,043,472 |
Closed-End Funds |
4,330,000 |
— |
— |
4,330,000 |
Money Market Fund |
24,051,910 |
— |
— |
24,051,910 |
Convertible Bonds |
— |
330,386,446 |
— |
330,386,446 |
Corporate Bonds |
— |
300,214,005 |
— |
300,214,005 |
Asset-Backed Securities |
— |
36,927,475 |
— |
36,927,475 |
Senior Floating Rate Interests |
— |
7,667,305 |
— |
7,667,305 |
Forward Foreign Currency |
|
|
|
|
Exchange Contracts** |
— |
103,315 |
— |
103,315 |
Total Assets |
$ 96,159,916 |
$ 675,298,546 |
$ — |
$ 771,458,462 |
|
|
Level 2 |
Level 3 |
|
|
Level 1 |
Significant |
Significant |
|
|
Quoted |
Observable |
Unobservable |
|
Investments in Securities (Liabilities) |
Prices |
Inputs |
Inputs |
Total |
Forward Foreign Currency |
|
|
|
|
Exchange Contracts** |
$ — |
$ 1,685,359 |
$ — |
$ 1,685,359 |
** This derivative is reported as unrealized appreciation/depreciation
at period end.
Please refer to the detailed portfolio for the breakdown of investment
type by industry category.
The Fund may hold assets and/or liabilities in which the fair value
approximates the carrying amount for financial statement purposes. As of the period end, reverse repurchase agreements of $ 176,062,220
are categorized as Level 2 within the disclosure hierarchy — See Note 7.
The Fund did not hold any Level 3 securities during the period
ended April 30, 2023.
36 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (Unaudited) |
April 30, 2023 |
ASSETS: |
|
Investments, at value (cost $796,329,747) |
$ 771,355,147 |
Foreign currency, at value |
8 |
Cash |
3,952 |
Unrealized appreciation on forward foreign currency exchange contracts |
103,315 |
Receivables: |
|
Investments sold |
9,546,552 |
Interest |
6,512,126 |
Dividends |
273,867 |
Tax reclaims |
43,975 |
Other assets |
78,708 |
Total assets |
787,917,650 |
LIABILITIES: |
|
Reverse repurchase agreements (Note 7) |
176,062,220 |
Borrowings (Note 8) |
173,000,000 |
Unrealized depreciation on forward foreign currency exchange contracts |
1,685,359 |
Interest due on borrowings |
80,953 |
Payable for: |
|
Investments purchased |
9,570,647 |
Investment advisory fees |
348,517 |
Professional fees |
156,520 |
Servicing fees |
135,615 |
Trustees’ fees and expenses* |
50,427 |
Other liabilities |
113,847 |
Total liabilities |
361,204,105 |
NET ASSETS |
$ 426,713,545 |
NET ASSETS CONSIST OF: |
|
Common stock, $0.001 par value per share; unlimited number of shares |
|
authorized, 34,593,769 shares issued and outstanding |
$ 34,594 |
Additional paid-in capital |
508,573,565 |
Total distributable earnings (loss) |
(81,894,614) |
NET ASSETS |
$ 426,713,545 |
Shares outstanding ($0.001 par value with unlimited amount authorized) |
34,593,769 |
Net asset value |
$ 12.33 |
* Relates to Trustees not deemed “interested persons”
within the meaning of Section 2(a)(19) of the 1940 Act.
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 37
STATEMENT OF OPERATIONS (Unaudited) |
April 30, 2023 |
For the Six Months Ended April 30, 2023 |
|
INVESTMENT INCOME: |
|
Interest |
$ 15,487,431 |
Dividends (net of foreign withholdings tax $994) |
2,062,664 |
Total investment income |
17,550,095 |
EXPENSES: |
|
Interest expense |
7,709,184 |
Investment advisory fees |
2,103,425 |
Servicing fees |
817,998 |
Trustees’ fees and expenses* |
384,589 |
Professional fees |
224,230 |
Fund accounting fees |
79,485 |
Administration fees |
78,264 |
Insurance |
70,668 |
Printing fees |
50,569 |
Custodian fees |
29,178 |
Registration and filing fees |
16,652 |
Transfer agent fees |
10,323 |
Miscellaneous |
17,637 |
Total expenses |
11,592,202 |
Net investment income |
5,957,893 |
NET REALIZED AND UNREALIZED GAIN (LOSS): |
|
Net realized gain (loss) on: |
|
Investments |
(2,808,091) |
Options written |
65,358 |
Forward foreign currency exchange contracts |
(2,009,398) |
Foreign currency transactions |
1,042,868 |
Net realized loss |
(3,709,263) |
Net change in unrealized appreciation (depreciation) on: |
|
Investments |
22,331,870 |
Forward foreign currency exchange contracts |
(2,672,606) |
Foreign
curren cy translations |
7,931 |
Net change in unrealized appreciation (depreciation) |
19,667,195 |
Net realized and unrealized gain |
15,957,932 |
Net increase in net assets resulting from operations |
$ 21,915,825 |
* Relates to Trustees not deemed “interested persons”
within the meaning of Section 2(a)(19) of the 1940 Act.
See notes to financial statements.
38 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS |
April 30, 2023 |
|
Six Months Ended |
|
|
April 30, 2023 |
Year Ended |
|
(Unaudited) |
October 31, 2022 |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
|
|
Net investment income |
$ 5,957,893 |
$ 8,752,577 |
Net realized loss on investments |
(3,709,263) |
(22,246,766) |
Net change in unrealized appreciation (depreciation) |
|
|
on investments |
19,667,195 |
(157,361,847) |
Net increase (decrease) in net assets resulting from operations |
21,915,825 |
(170,856,036) |
DISTRIBUTIONS: |
|
|
Distributions to shareholders |
(24,326,338) |
(65,732,145) |
Return of capital |
— |
(30,796,382) |
Total distributions to shareholders |
(24,326,338) |
(96,528,527) |
SHAREHOLDER TRANSACTIONS: |
|
|
Reinvestments of distributions |
— |
1,186,045 |
Net increase in net assets resulting from |
|
|
shareholder transactions |
— |
1,186,045 |
Net decrease in net assets |
(2,410,513) |
(266,198,518) |
NET ASSETS: |
|
|
Beginning of period |
429,124,058 |
695,322,576 |
End of period |
$ 426,713,545 |
$ 429,124,058 |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 39
STATEMENT OF CASH FLOWS (Unaudited) |
April 30, 2023 |
For the Six Months Ended April 30, 2023 |
|
Cash Flows from Operating Activities: |
|
Net increase in net assets resulting from operations |
$ 21,915,825 |
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to |
|
Net Cash Provided by Operating and Investing Activities: |
|
Net change in unrealized (appreciation) depreciation on investments |
(22,331,870) |
Net change in unrealized (appreciation) depreciation on forward foreign |
|
currency exchange contracts |
2,672,606 |
Net realized loss on investments |
2,808,091 |
Net realized gain on options written |
(65,358) |
Purchase of long-term investments |
(379,412,771) |
Proceeds from sale of long-term investments |
450,824,233 |
Net purchase of short-term investments |
(54,102,711) |
Net accretion of discount and amortization of premium |
(2,646,761) |
Corporate actions and other payments |
3,273 |
Premiums received on options written |
1,792,807 |
Cost of closing options written |
(1,727,449) |
Increase in interest receivable |
(588,323) |
Increase in dividends receivable |
(264,068) |
Decrease investments sold receivable |
122,875 |
Increase in tax reclaims receivable |
(6,999) |
Decrease in other assets |
70,668 |
Increase in investments purchased payable |
5,279,281 |
Increase in interest due on borrowings |
61,125 |
Decrease in professional fees payable |
(114,208) |
Decrease in servicing fees payable |
(2,173) |
Decrease in investment advisory fees payable |
(5,589) |
Increase in trustees’ fees and expenses payable* |
50,427 |
Decrease in other liabilities |
(10,000) |
Net Cash Provided by Operating and Investing Activities |
$ 24,322,931 |
Cash Flows From Financing Activities: |
|
Distributions to common shareholders |
(24,326,338) |
Net Cash Used in Financing Activities |
(24,326,338) |
Net decrease in cash |
(3,407) |
Cash at Beginning of Period (including foreign currency) |
7,367 |
Cash at End of Period (including foreign currency) |
$ 3,960 |
Supplemental Disclosure of Cash Financing Information: |
|
Cash paid during the period for interest |
|
(including interest on reverse repurchase agreements) |
$ 7,601,002 |
Supplemental Disclosure of Non Operating Activity: Dividend reinvestment |
$ — |
* Relates to Trustees not deemed “interested persons”
within the meaning of Section 2(a)(19) of the 1940 Act.
See notes to financial statements.
40 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
FINANCIAL HIGHLIGHTS |
April 30, 2023 |
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
|
April 30, 2023 |
October 31, |
October 31, |
October 31, |
October 31, |
October 31, |
|
(Unaudited) |
2022 |
2021 |
2020 |
2019 |
2018 |
Per Share Data: |
|
|
|
|
|
|
Net asset value, beginning of period |
$ 12.40 |
$ 20.14 |
$ 16.06 |
$ 16.34 |
$ 16.20 |
$ 17.63 |
Income from investment operations: |
|
|
|
|
|
|
Net investment income(a) |
0.17 |
0.25 |
0.26 |
0.33 |
0.47 |
0.51 |
Net gain (loss) on investments (realized and unrealized) |
0.46 |
(5.20) |
5.23 |
0.80 |
1.08 |
(0.54) |
Total from investment operations |
0.63 |
(4.95) |
5.49 |
1.13 |
1.55 |
(0.03) |
Less distributions from: |
|
|
|
|
|
|
Net investment income |
(0.70) |
(0.51) |
(1.41) |
(0.34) |
(0.56) |
(0.58) |
Capital gains |
— |
(1.39) |
— |
— |
— |
— |
Return of capital |
— |
(0.89) |
— |
(1.07) |
(0.85) |
(0.82) |
Total distributions to shareholders |
(0.70) |
(2.79) |
(1.41) |
(1.41) |
(1.41) |
(1.40) |
Net asset value, end of period |
$ 12.33 |
$ 12.40 |
$ 20.14 |
$ 16.06 |
$ 16.34 |
$ 16.20 |
Market value, end of period |
$ 11.75 |
$ 11.71 |
$ 19.23 |
$ 13.62 |
$ 14.79 |
$ 13.93 |
Total Return(b) |
|
|
|
|
|
|
Net asset value |
5.11%(f) |
(27.04%) |
34.59% |
7.66% |
9.94% |
(0.34%) |
Market value |
6.41%(f) |
(27.59%) |
52.60% |
2.05% |
17.01% |
(5.22%) |
See notes to financial statements.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 41
|
|
FINANCIAL HIGHLIGHTS continued |
April 30, 2023 |
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
Year Ended |
|
April 30, 2023 |
October 31, |
October 31, |
October 31, |
October 31, |
October 31, |
|
(Unaudited) |
2022 |
2021 |
2020 |
2019 |
2018 |
Ratios/Supplemental Data: |
|
|
|
|
|
|
Net assets, end of period (in thousands) |
$ 426,714 |
$ 429,124 |
$ 695,323 |
$ 554,322 |
$ 564,148 |
$ 559,440 |
Ratio to average net assets of: |
|
|
|
|
|
|
Net investment income, including interest expense |
2.75%(f) |
1.66% |
1.31% |
2.14% |
2.90% |
2.93% |
Total expenses, including interest expense(c) |
5.36%(f) |
3.54% |
2.77% |
3.98% |
4.11% |
3.87% |
Portfolio turnover rate |
55% |
186% |
126% |
242% |
123% |
121% |
Senior Indebtedness |
|
|
|
|
|
|
Total Borrowings outstanding (in thousands)(d) |
$ 173,000 |
$ 173,000 |
$ 168,000 |
$ 168,000 |
$ 210,000 |
$ 235,000 |
Asset Coverage per $1,000 of indebtedness(e) |
$ 3,467 |
$ 3,480 |
$ 5,139 |
$ 4,300 |
$ 3,686 |
$ 3,381 |
(a) | | Based on average shares outstanding. |
(b) | | Total return is calculated assuming a purchase of a common share at the beginning of the
period and a sale on the last day of the period reported either at the net asset value (“NAV”) or market price per share.
Dividends and distributions are assumed to be reinvested at NAV for NAV returns or the prices obtained under the Fund’s Dividend
Reinvestment Plan for market value returns. Total return does not reflect brokerage commissions. |
(c) | | Excluding interest expense, the operating expense ratios for the six months ended April 30,
2023 and the years ended October 31 would be: |
(Unaudited) |
|
|
|
|
|
April 30, 2023 |
2022 |
2021 |
2020 |
2019 |
2018 |
1.79%(f) |
1.56% |
1.40% |
1.55%* |
1.57% |
1.62% |
* | | Excludes borrowings breakage fees. |
(d) | | Commencing on October 31, 2018, as a result of the Fund having earmarked or segregated cash
to collateralize the reverse repurchase agreement transactions or otherwise having covered the transactions, in accordance with releases
and interpretive letters issued by the Securities and Exchange Commission (the “SEC”), the Fund does not treat its obligations
under such transactions as senior securities representing indebtedness for purposes of the 1940 Act. |
(e) | | Calculated by subtracting the Fund’s total liabilities (not including the borrowings)
from the Fund’s total assets and dividing by the borrowings. |
See notes to financial statements.
42 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) |
April 30, 2023 |
Note 1 – Organization
Advent Convertible and Income Fund (the “Fund”) was
organized as a Delaware statutory trust on February 19, 2003. The Fund is registered as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Fund’s investment objective is to provide total return
through a combination of capital appreciation and current income. The Fund pursues its investment objective by investing at least 80%
of its managed assets in a diversified portfolio of convertible securities and non-convertible income producing securities.
Note 2 – Significant Accounting Policies
The Fund operates as an investment company and, accordingly, follows
the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity
with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Fund. This requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. All time references are based on Eastern Time.
(a) Valuation of Investments
The Board of Trustees of the Fund (the “Board”) has
adopted policies and procedures for the valuation of the Fund's investments (the “Valuation Procedures”). The U.S. Securities
and Exchange Commission (the “SEC”) adopted Rule 2a-5 under the 1940 Act (“Rule 2a-5”) which establishes requirements
for determining fair value in good faith and became effective September 8, 2022. Rule 2a-5 also defines “readily available market
quotations” for purposes of the 1940 Act and establishes requirements for determining whether a fund must fair value a security
in good faith.
Pursuant to Rule 2a-5, the Board has designated Advent Capital
Management, LLC (“Advent” or the “Adviser”) as the valuation designee to perform fair valuation determinations
for the Fund with respect to all Fund investments and other assets. As the Fund’s valuation designee pursuant to Rule 2a-5, the
Adviser has adopted separate procedures (the “Valuation Designee Procedures”) reasonably designed to prevent violations of
the requirements of Rule 2a-5 and Rule 31a-4. The Adviser, in its role as valuation designee, utilizes a valuation committee (the “Valuation
Committee”), in the fair value of the Fund’s securities and/or other assets.
Valuations of the Fund’s securities and other assets are
supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Adviser, consistent
with the monitoring and review responsibilities set forth in the Valuation Designee Procedures, regularly review the appropriateness of
the inputs, methods, models and assumptions employed by the pricing services.
If the pricing service cannot or does not provide a valuation for
a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Adviser.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 43
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Securities listed on an exchange or on an over-the-counter market
will be valued at the last reported sale price on the primary exchange or market on which they are traded; provided, however, that securities
listed on the National Association of Securities Dealers Automated Quotations (“NASDAQ”) National Market system will be valued
at the NASDAQ official closing price, which may not necessarily represent the last sale price.
Equity securities that are traded on an exchange or on the over-the-counter
(“OTC”) market and for which there are no transactions on a given day are valued at the mean of the closing bid and asked
prices.
Open-end investment companies are valued at their net asset value
(“NAV”) as of the close of business, on the valuation date.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of the New York Stock Exchange (“NYSE”). The values of foreign securities
are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currencies
are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of U.S. business at 4:00 p.m. Investments
in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value
of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following
factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency
exchange activity, and the trading prices of financial products that are tied to foreign securities. In addition, under the Valuation
Procedures, the Valuation Committee is authorized to use prices and other information supplied by a third party pricing vendor in valuing
foreign securities.
Commercial paper and discount notes are valued based on prices
provided by independent pricing services or, if not available or if the Adviser considers that price to not represent fair value, by dealers
using the mean of the closing bid and asked prices for such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type. If sufficient market activity is limited or does not exist, the pricing services or dealers
may utilize proprietary valuation models which may, for example, consider market characteristics such as benchmark yield curves, option
adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral,
or other unique security features in order to estimate relevant cash flows, which are then discounted to calculate a security’s
fair value. Commercial paper and discount notes with remaining maturities of 60 days or less at the time of valuation are valued at amortized
cost, unless the Adviser concludes that amortized cost does not represent the fair value of the applicable asset in which case it will
be valued using an independent pricing service. Commercial paper and discount notes which have a term-to-maturity greater than 60 days
from the date of purchase are valued at their current market quotations until maturity or disposition. Convertible securities are valued
in the same manner as debt securities.
Repurchase agreements are valued at amortized cost, provided such
amounts approximate market value.
44 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Typically, loans are valued using information provided by an independent
third party pricing service which uses broker quotes, among other inputs. If the pricing service cannot or does not provide a valuation
for a particular loan, or such valuation is deemed unreliable, such investment is valued based on a quote from a broker-dealer or is fair
valued by the Adviser.
Exchange-traded options are valued at the closing price, or if
not traded that day at the mean of the bid and ask prices on the principal exchange on which they are traded.
Forward foreign currency exchange contracts are valued daily based
on the applicable exchange rate of the underlying currency.
Investments for which market quotations are not readily available
are fair valued as determined in good faith by the Adviser. Valuations in accordance with these methods are intended to reflect each security’s
(or asset’s or liability’s) “fair value”. Each such determination is based on a consideration of all relevant
factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to market
prices; sale prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities
and characteristics, or based on inputs such as anticipated cash flows or collateral, spread over U.S. Treasury securities, and other
information analysis.
(b) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the identified cost basis. Dividend income is recorded net of applicable withholding
taxes on the ex-dividend date and interest income is recorded on an accrual basis. Discounts or premiums on debt securities purchased
are accreted or amortized to interest income over the lives of the respective securities using the effective interest method.
(c) Convertible Securities
The Fund invests in convertible securities, preferred stocks and
fixed-income securities which are convertible into common stock. Convertible securities may be converted either at a stated price or rate
within a specified period of time into a specified number of shares of common stock. Most commonly, convertible securities have paid dividends
or interest greater than on the related common stocks, but less than fixed income non-convertible securities. By investing in a convertible
security, the Fund may participate in any capital appreciation or depreciation of a company’s stock, but to a lesser degree than
if it had invested in that company’s common stock. Convertible securities rank senior to common stock in a corporation’s capital
structure and, therefore, entail less risk than the corporation’s common stock.
(d) Senior Floating Rate Interests and Loan Investments
Senior floating rate interests in which the Fund invests generally
pay interest rates which are periodically adjusted by reference to a base short-term floating rate, plus a premium. These base lending
rates are generally (i) the lending rate offered by one or more major European banks, such as the one-month or three-month London Inter-Bank
Offered Rate (“LIBOR”), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate
of deposit rate. Senior floating rate interests often require repayments from excess cash flows or permit the borrower to repay at its
election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially
less than the stated
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 45
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
maturities disclosed in the Fund’s Schedule of Investments.
The interest rate indicated is the rate in effect at April 30, 2023.
The Fund invests in loans and other similar debt obligations (“obligations”).
A portion of the Fund’s investments in these obligations is sometimes referred to as “covenant lite” loans or obligations
(“covenant lite obligations”), which are obligations that lack covenants or possess fewer or less restrictive covenants or
constraints on borrowers than certain other types of obligations. The Fund may also obtain exposure to covenant lite obligations through
investment in securitization vehicles and other structured products. In recent market conditions, many new or reissued obligations have
not featured traditional covenants, which are intended to protect lenders and investors by (i) imposing certain restrictions or other
limitations on a borrower’s operations or assets or (ii) providing certain rights to lenders. The Fund may have fewer rights with
respect to covenant lite obligations, including fewer protections against the possibility of default and fewer remedies in the event of
default. As a result, investments in (or exposure to) covenant lite obligations are subject to more risk than investments in (or exposure
to) certain other types of obligations. The Fund is subject to other risks associated with investments in (or exposure to) obligations,
including that obligations may not be considered “securities” and, as a result, the Fund may not be entitled to rely on the
antifraud protections under the federal securities laws and instead may have to resort to state law and direct claims.
(e) Currency Translations
The accounting records of the Fund are maintained in U.S. dollars.
All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases
and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing
on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly
affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange
restrictions, expropriation, taxation, or other political, social or economic developments, all of which could affect the market and/or
credit risk of the investments.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized gain or loss and unrealized appreciation or depreciation on investments.
Reported net realized foreign exchange gains and losses arise from
sales of foreign currencies and currency gains or losses realized between the trade and settlement dates on investment transactions. Net
unrealized appreciation and depreciation arise from changes in the fair values of assets and liabilities other than investments in securities
at the fiscal period end, resulting from changes in exchange rates.
(f) Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts are agreements between
two parties to buy and sell currencies at a set price on a future date. Fluctuations in the value of open forward foreign currency exchange
contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Fund until the contracts are
closed. When the contracts are closed, realized gains
46 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
and losses are recorded, and included on the Fund’s Statement
of Operations in forward foreign currency exchange contracts.
(g) Foreign Taxes
The Fund may be subject to foreign taxes (a portion of which may
be reclaimable) on income, stock dividends, capital gains on investments or certain foreign currency transactions. All foreign taxes are
recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund
invests. These foreign taxes, if any, are paid by the Fund and reflected in its Statement of Operations as follows: foreign taxes withheld
at source are presented as a reduction of income and foreign taxes on capital gains from sales of investments are included with the net
realized gain (loss) on investments. Foreign taxes payable or deferred as of April 30, 2023, if any, are disclosed in the Fund’s
Statement of Assets and Liabilities.
(h) Distributions to Shareholders
The Fund declares and pays monthly distributions to common shareholders.
These distributions consist of investment company taxable income, which generally includes qualified dividend income, ordinary income
and short-term capital gains. Any net realized long-term capital gains are distributed annually to common shareholders. To the extent
distributions exceed taxable income, the excess will be deemed a return of capital.
Distributions to shareholders are recorded on the ex-dividend date.
The amount and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S.
GAAP.
(i) Covered Call Options and Put Options
When an option is written, the premium received is recorded as
an asset with an equal liability and is subsequently marked to market to reflect the current market value of the option written. These
liabilities are reflected as options written on the Fund’s Statement of Assets and Liabilities. Premiums received from writing options
which expire unexercised are recorded on the expiration date as a realized gain. The difference between the premium received and the amount
paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium
is less than the amount paid for the closing purchase transactions, as a realized loss. If an option is exercised, the premium is added
to the proceeds from the sale of the underlying security in determining whether there has been a realized gain or loss.
When a call option is purchased, the Fund obtains the right (but
not the obligation) to buy the underlying instrument at the strike price at any time during the option period. When a put option is purchased,
the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at the strike price at anytime during
the option period. When the Fund purchases an option, an amount equal to the premium paid by the Fund is reflected as an asset and subsequently
marked-to-market to reflect the current market value of the option purchased. Purchased options are included with Investments on the Fund’s
Statement of Assets and Liabilities.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 47
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
(j) Swap Agreements
Swap agreements are marked-to-market daily and the change, if any,
is recorded as unrealized appreciation or depreciation. Payments received or made as a result of an agreement or termination of an agreement
are recognized as realized gains or losses.
Upon entering into certain centrally-cleared swap transactions,
a Fund is required to deposit with its clearing broker an amount of cash or securities as an initial margin. Subsequent variation margin
receipts or payments are received or made by the Fund depending on fluctuations in the fair value of the reference entity and are recorded
by the Fund as unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Upfront payments received or made by a Fund on credit default swap
agreements and interest rate swap agreements are amortized over the expected life of the agreement. Periodic payments received or paid
by a Fund are recorded as realized gains or losses. Payments received or made as a result of a credit event or termination of the contract
are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.
(k) Indemnifications
Under the Fund’s organizational documents, its Trustees and
Officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, throughout
the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general
indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may
be made against the Fund and/or its affiliates that have not yet occurred. However, based on experience, the Fund expects the risk of
loss to be remote.
Note 3 – Derivatives
As part of its investment strategy, the Fund utilizes a variety
of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of amounts recognized
on the Fund's Statement of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant
Accounting Policies in Note 2 of these Notes to Financial Statements.
Derivatives are instruments whose values depend on, or are derived
from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments
may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets),
for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative
instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and
credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why a Fund uses derivative instruments, how
these derivative instruments are accounted for and their effects on the Fund's financial position and results of operations.
The Fund utilized derivatives for the following purposes:
48 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Hedge: an investment made in order to reduce the risk of
adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Income: the use of any instrument that distributes cash
flows typically based upon some rate of interest.
Options Purchased and Written
A call option on a security gives the purchaser of the option the
right to buy, and the writer of a call option the obligation to sell, the underlying security. The purchaser of a put option has the right
to sell, and the writer of the put option the obligation to buy, the underlying security at any time during the option period. The risk
associated with purchasing options is limited to the premium originally paid.
For the period ended April 30, 2023, there were no call/put options
purchased.
The risk in writing a call option is that a Fund may incur a loss
if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund
may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect
correlation between the movement in prices of options and the underlying securities where a Fund may not be able to enter into a closing
transaction because of an illiquid secondary market; or, for OTC options, a Fund may be at risk because of the counterparty’s inability
to perform.
The following table represents the Fund’s use and volume
of call/put options written on a monthly basis:
|
Average Notional Amount |
Use |
Call |
Put |
Income |
$4,145,833 |
$ — |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between
two parties to exchange two designated currencies at a specific time in the future. Certain types of contracts may be cash settled, in
an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure
to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract
changes with fluctuations in foreign currency exchange rates. Furthermore, the Fund may be exposed to risk if the counterparties cannot
meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
The following table represents the Fund’s use and volume
of forward foreign currency exchange contracts on a monthly basis:
|
Average Value |
Use |
Purchased |
|
Sold |
Hedge |
$ 3,374,883 |
$ 51,950,665 |
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 49
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments
on the Fund's Statement of Assets and Liabilities as of April 30, 2023:
Derivative Investment Type |
Asset Derivatives |
Liability Derivatives |
Currency forward contracts |
Unrealized |
Unrealized |
|
appreciation |
depreciation |
|
on forward |
on forward |
|
foreign currency |
foreign currency |
|
exchange contracts |
exchange contracts |
The following tables set forth the fair value of the Fund's derivative
investments categorized by primary risk exposure at April 30, 2023:
Asset Derivative Investments Value |
Forward Foreign Currency Exchange Risk |
$ 103,315 |
Liability Derivative Investments Value |
Forward Foreign Currency Exchange Risk |
$ 1,685,359 |
The following is a summary of the location of derivative investments
on the Fund's Statement of Operations for the period ended April 30, 2023:
Derivative Investment Type |
Location of Gain (Loss) on Derivatives |
Equity options contracts |
Net realized gain (loss) on options written |
Currency forward contracts |
Net realized gain (loss) on forward foreign currency exchange contracts |
|
Net change in unrealized appreciation (depreciation) on |
|
forward foreign currency exchange contracts |
The following is a summary of the Fund's realized gain (loss) and
change in unrealized appreciation (depreciation) on derivative investments recognized on the Fund's Statement of Operations categorized
by primary risk exposure for the period ended April 30, 2023:
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations |
|
Forward Foreign |
|
Options Written |
Currency |
|
Equity Risk |
Exchange Risk |
Total |
$65,358 |
$(2,009,398) |
$(1,944,040) |
50 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
|
|
|
Change in Unrealized Appreciation (Depreciation) on Derivative Investments |
Recognized on the Statement of Operations |
|
Forward Foreign |
|
Options Written |
Currency |
|
Equity Risk |
Exchange Risk |
Total |
$— |
$(2,672,606) |
$(2,672,606) |
In conjunction with the use of derivative instruments, the Fund
is required to maintain collateral in various forms. Depending on the financial instrument utilized and the broker involved, the Fund
uses margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or repurchase agreements allocated
to the Fund as collateral.
The Fund has established counterparty credit guidelines and enters
into transactions only with financial institutions of investment grade or better. The Fund monitors the counterparty credit risk.
Note 4 – Offsetting
In the normal course of business, the Fund enters into transactions
subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows
the Fund to counteract the exposure to a specific counterparty with collateral received from or delivered to that counterparty based on
the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit
event upon merger or additional termination event.
In order to better define its contractual rights and to secure
rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association,
Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract counterparties. An ISDA
Master Agreement is a bilateral agreement between a fund and a counterparty that governs OTC derivatives, including foreign exchange contracts,
and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination
event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting)
or similar event, including the bankruptcy or insolvency of the counterparty.
For derivatives traded under an ISDA Master Agreement, the collateral
requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that
amount to the value of any collateral currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral
that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, are reported separately
on the Fund's Statement of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap
settlement/variation margin. Cash and/or securities pledged or received as collateral by the Fund in connection with an OTC derivative
subject to an ISDA Master Agreement generally may not be invested, sold or rehypothecated by the counterparty or the Fund, as applicable,
absent an event of default under such agreement, in which case such collateral generally may be applied towards obligations due to and
payable by such counterparty or the Fund, as applicable. Generally, the amount of collateral due from or to a counterparty must exceed
a minimum transfer amount threshold (e.g., $300,000) before a transfer is
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 51
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
required to be made. To the extent amounts due to the Fund from
its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance.
The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it believes to be of good standing
and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Fund does not offset derivative
assets and derivative liabilities that are subject to netting arrangements in the Fund's Statement of Assets and Liabilities.
The following tables present derivative financial instruments and
secured financing transactions that are subject to enforceable netting arrangements:
|
|
|
Gross |
Net Amounts |
Gross Amounts Not Offset |
|
|
|
|
Amounts |
of Assets |
in the Statement of |
|
|
|
Gross |
Offset in the |
Presented on |
Assets and Liabilities |
|
|
|
Amounts of |
Statement |
the Statement |
|
Cash |
|
|
|
Recognized |
of Assets & |
of Assets & |
Financial |
Collateral |
Net |
Counterparty |
Instrument |
Assets |
Liabilities |
Liabilities |
Instruments |
Received |
Amount |
Bank of New York |
Forward foreign |
$103,315 |
$— |
$103,315 |
$(103,315) |
$— |
$— |
Mellon |
currency |
|
|
|
|
|
|
|
exchange |
|
|
|
|
|
|
|
contracts |
|
|
|
|
|
|
|
|
|
Gross |
Net Amounts |
Gross Amounts Not Offset |
|
|
|
|
Amounts |
of Liabilities |
in the Statement of |
|
|
|
Gross |
Offset in the |
Presented on |
Assets and Liabilities |
|
|
|
Amounts of |
Statement |
the Statement |
|
Cash |
|
|
|
Recognized |
of Assets & |
of Assets & |
Financial |
Collateral |
Net |
Counterparty |
Instrument |
Liabilities |
Liabilities |
Liabilities |
Instruments |
Pledged |
Amount |
Bank of New York |
Forward foreign |
$1,685,359 |
$— |
$1,685,359 |
$(103,315) |
$— |
$1,582,044 |
Mellon |
currency |
|
|
|
|
|
|
|
exchange |
|
|
|
|
|
|
|
contracts |
|
|
|
|
|
|
Société |
Reverse |
176,062,220 |
— |
176,062,220 |
(176,062,220) |
— |
— |
Générale |
repurchase |
|
|
|
|
|
|
|
agreements |
|
|
|
|
|
|
The table above does not include the additional collateral pledged
to the counterparty for the reverse repurchase agreement. Total additional collateral pledged for the reverse repurchase agreement was
$89,861,327.
Note 5– Fees and Other Transactions with Affiliates
Pursuant to an Investment Advisory Agreement between the Fund and
Advent, the Adviser is responsible for the daily management of the Fund’s portfolio of investments, which includes buying and selling
securities for the Fund, as well as investment research. The Adviser receives an annual fee from the Fund based on the average value of
the Fund’s managed assets. In addition, subject to the approval of the Fund’s Board, a pro rata portion of the salaries, bonuses,
health insurance, retirement benefits and similar employment costs for the time spent on Fund operations (other than the provision of
services required under the Investment Advisory Agreement) of all personnel employed by the Adviser who devote substantial time to Fund
operations may be reimbursed by the
52 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Fund to the Adviser. For the period ended April 30, 2023, the Adviser
was not reimbursed by the Fund for these items. The annual fee will be determined as follows:
(a) If the average value of the Fund’s managed assets (calculated
monthly) is greater than $250 million, the fee will be a maximum amount equal to 0.54% of the average value of the Fund’s managed
assets.
(b) If the average value of the Fund’s managed assets (calculated
monthly) is $250 million or less, the fee will be a maximum amount equal to 0.55% of the average value of the Fund’s managed assets.
Pursuant to a Servicing Agreement between the Fund and Guggenheim
Funds Distributors, LLC (the “Servicing Agent”), the Servicing Agent will act as servicing agent to the Fund. The Servicing
Agent will receive an annual fee of 0.21% of the average value of the Fund’s managed assets.
For purposes of calculating the fees payable under the foregoing
agreements, average daily managed assets means the average daily value of the Fund’s total assets minus the sum of its accrued liabilities.
Total assets means all of the Fund’s assets and is not limited to its investment securities. Accrued liabilities means all of the
Fund’s liabilities other than borrowings for investment purposes.
Certain officers of the Fund may also be officers, directors and/or
employees of the Investment Adviser or Servicing Agent. The Fund does not compensate its officers who are officers, directors and/or employees
of the aforementioned firms.
MUFG Investor Services (US), LLC (“MUIS”) acts as the
Fund’s administrator. The Bank of New York Mellon Corp. (“BNY”) acts as the Fund’s custodian and accounting agent.
As custodian, BNY is responsible for the custody of the Fund’s assets. As accounting agent, BNY maintains the books and records
of the Fund’s securities and cash. For providing the aforementioned services, MUIS and BNY are entitled to receive a monthly fee
equal to an annual percentage of the Fund’s average daily managed assets subject to certain minimum monthly fees and out of pocket
expenses.
Note 6 – Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price
that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction between market participants
at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and
liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:
Level 1 — unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2 — significant other observable inputs (for example
quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.).
Level 3 — significant unobservable inputs based on the best
information available under the circumstances, to the extent observable inputs are not available, which may include assumptions.
Rule 2a-5 sets forth a definition of “readily available market
quotations,” which is consistent with the definition of a Level 1 input under U.S. GAAP. Rule 2a-5 provides that “a market
quotation is readily available only when that quotation is a quoted price (unadjusted) in active markets for identical
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 53
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
investments that the fund can access at the measurement date, provided
that a quotation will not be readily available if it is not reliable.”
Securities for which market quotations are not readily available
must be valued at fair value as determined in good faith. Accordingly, any security priced using inputs other than Level 1 inputs will
be subject to fair value requirements. The types of inputs available depend on a variety of factors, such as the type of security and
the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs
require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.
Independent pricing services are used to value a majority of the
Fund’s investments. When values are not available from a pricing service, they will be determined using a variety of sources and
techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with
comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over U.S. Treasury securities,
and other information and analysis. A significant portion of the Fund’s assets and liabilities are categorized as Level 2, as indicated
in this report.
The inputs or methodologies selected and applied for valuing securities
are not necessarily an indication of the risk associated with investing in those securities. The suitability, appropriateness and accuracy
of the techniques, methodologies and sources employed to determine fair valuation are periodically reviewed and subject to change.
Note 7 – Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements as part of
its financial leverage strategy. Under a reverse repurchase agreement, the Fund temporarily transfers possession of a portfolio instrument
to another party, such as a bank or broker-dealer, in return for cash. At the same time, the Fund agrees to repurchase the instrument
at an agreed upon time and price, which reflects an interest payment. Such agreements have the economic effect of borrowings. The Fund
may enter into such agreements when it is able to invest the cash acquired at a rate higher than the cost of the agreement, which would
increase earned income. When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the instruments
transferred to another party or the instruments in which the proceeds may be invested would affect the market value of the Fund’s
assets. As a result, such transactions may increase fluctuations in the market value of the Fund’s assets. For the period ended
April 30, 2023, the average daily balance for which reverse repurchase agreements were outstanding amounted to $176,000,000, with a related
weighted average interest rate of 3.90%. As of April 30, 2023, there were $176,062,220 in reverse repurchase agreements outstanding.
54 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Counterparty |
Interest Rate(s) |
Maturity Date(s) |
Face Value |
Société Générale |
6.06% (SOFR Index + 1.25%)* |
12/15/24 |
$ 101,051,005 |
Société Générale |
1.54%-1.88% |
12/15/23-12/15/25 |
75,011,215 |
|
|
|
$ 176,062,220 |
* Variable rate security. Rate indicated is the rate effective at April 30, 2023. |
|
|
The following is a summary of the remaining contractual maturities
of the reverse repurchase agreements outstanding as of April 30, 2023, aggregated by asset class of the related collateral pledged by
the Fund:
|
Up to |
31 – 90 |
Greater than |
|
Asset Type |
30 days |
days |
90 days |
Total |
Corporate Bonds |
$ — |
$ — |
$ 116,727,032 |
$ 116,727,032 |
Convertible Bonds |
— |
— |
45,786,155 |
45,786,155 |
Foreign Bonds |
— |
— |
8,540,430 |
8,540,430 |
Convertible Preferred Stocks |
— |
— |
5,008,603 |
5,008,603 |
Total Reverse Repurchase Agreements |
$ — |
$ — |
$ 176,062,220 |
$ 176,062,220 |
Gross amount of recognized |
|
|
|
|
liabilities for reverse |
|
|
|
|
repurchase agreements |
$ — |
$ — |
$ 176,062,220 |
$ 176,062,220 |
Note 8 – Borrowings
The Fund entered into a senior secured credit agreement dated December
15, 2017, as amended from time to time, with Société Générale.
Under the terms of the amended credit agreement, the Fund’s
credit facility was as follows through September 29, 2022:
1.54% fixed rate 3-year maturity |
$ 6,000,000 |
1.88% fixed rate 5-year maturity |
19,000,000 |
3.89% fixed rate 5-year maturity |
114,000,000 |
3 Month USD LIBOR + 1.00% floating rate |
62,000,000 |
An undrawn commitment fee of 0.30% per annum is charged on the
difference between the $62,000,000 floating rate loan commitment and the amount borrowed. If applicable, the undrawn commitment fee is
included in interest expense on the Fund's Statement of Operations.
On September 29, 2022, the terms of the credit agreement were amended.
Under the terms of the amended credit agreement, the Fund’s credit facility is as follows:
1.54% fixed rate 3-year maturity |
$ 6,000,000 |
1.88% fixed rate 5-year maturity |
19,000,000 |
SOFR + 1.25% floating rate |
164,000,000 |
An undrawn commitment fee of 0.30% per annum is charged on the
difference between the $164,000,000 floating rate loan commitment and the amount borrowed. If applicable, the undrawn commitment fee is
included in interest expense on the Fund's Statement of Operations.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 55
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
In the event that the Fund terminates a credit agreement prior
to the contractually agreed upon date, the Fund is charged a breakage fee by the counterparty to compensate for the early termination.
Such fees, if incurred, are recorded as Borrowings breakage fees on the Fund's Statement of Operations.
As of April 30, 2023, there was $173,000,000 outstanding in connection
with the Fund’s credit agreement. The average daily amount of borrowings under the credit agreement during the period ended April
30, 2023, was $173,000,000, with a related weighted average interest rate of 4.87%. The maximum amount outstanding during the period was
$173,000,000. As of April 30, 2023, the total value of securities segregated as collateral in connection with borrowings under the credit
agreement was $483,782,685.
The credit agreement includes usual and customary covenants. These
covenants impose on the Fund asset coverage requirements, collateral requirements, investment strategy requirements, and certain financial
obligations. These covenants place limits or restrictions on the Fund’s ability to (i) enter into additional indebtedness with a
party other than the counterparty, (ii) change its fundamental investment policy, or (iii) pledge to any other party, other than to the
counterparty, securities owned or held by the Fund over which the counterparty has a lien. In addition, the Fund is required to deliver
financial information to the counterparty within established deadlines, maintain an asset coverage ratio (as defined in Section 18(g)
of the 1940 Act) greater than 300%, comply with the rules of the stock exchange on which its shares are listed, and maintain its classification
as a “closed-end management investment company” as defined in the 1940 Act.
There is no guarantee that the Fund’s leverage strategy will
be successful. The Fund’s use of leverage may cause the Fund’s NAV and market price of common shares to be more volatile and
can magnify the effect of any losses.
Note 9 – Federal Income Tax Information
The Fund intends to continue to comply with the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision
for U.S. federal income taxes is required. In addition, by distributing substantially all of its ordinary income and long-term capital
gains, if any, during each calendar year, the Fund avoids a 4% federal excise tax that is assessed on the amount of the under distribution.
At April 30, 2023, the cost of investments for U.S. federal income
tax purposes, the aggregate gross unrealized appreciation for all investments for which there was an excess of value over tax cost, and
the aggregate gross unrealized depreciation for all investments for which there was an excess of tax cost over value, were as follows:
|
|
|
Net Tax |
|
Tax |
Tax |
Unrealized |
Tax |
Unrealized |
Unrealized |
Appreciation/ |
Cost |
Appreciation |
Depreciation |
(Depreciation) |
$801,007,307 |
$13,073,081 |
$(44,307,285) |
$(31,234,204) |
The differences between book basis and tax basis unrealized appreciation/(depreciation)
are primarily attributable to the tax deferral of losses on wash sales, the mark-to-market of certain
56 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
derivatives, real estate investment trusts, contingent payment
debt instruments and additional income adjustments for tax purposes on certain convertible securities.
As of October 31, 2022 (the most recent fiscal year end for federal
income tax purposes), tax components of distributable earnings (loss) were as follows:
Undistributed |
Undistributed |
|
|
Ordinary |
Long-Term |
|
|
Income |
Capital Gain |
|
Net Unrealized |
(Accumulated |
(Accumulated |
Other Temporary |
Appreciation/ |
Ordinary Loss) |
Capital Loss) |
Differences |
(Depreciation) |
$ — |
$ (23,754,347) |
$ (1) |
$ (55,729,753) |
At October 31, 2022 (the most recent fiscal year end for federal
income tax purposes), the Fund had capital loss carryforward available as shown in the table below, to offset possible future capital
gains. The Fund is permitted to carry forward capital losses incurred for an unlimited period and such capital loss carryforwards will
retain their character as either short-term or long-term capital losses.
|
|
Total |
Unlimited |
Unlimited |
Capital Loss |
Short-Term |
Long-Term |
Carryforward |
$ 23,754,347 |
$ — |
$ 23,754,347 |
For the year ended October 31, 2022 (the most recent fiscal year
end for federal income tax purposes), the capital loss carryforward amount utilized was $0.
The tax character of distributions paid during the year ended October
31, 2022 (the most recent fiscal year end for federal income tax purposes) was as follows:
Ordinary |
Long-Term |
Return |
Total |
Income |
Capital Gain |
of Capital |
Distributions |
$ 17,819,755 |
$ 47,912,390 |
$ 30,796,382 |
$ 96,528,527 |
For all open tax years and all major jurisdictions, management
of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
Uncertain tax positions are tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns that would
not meet a more-likely-than not threshold of being sustained by the applicable tax authority and would be recorded as a tax expense in
the current year. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year
ends and the interim tax period since then). Furthermore, management of the Fund is also not aware of any tax positions for which it is
reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Note 10 – Securities Transactions
For the period ended April 30, 2023, the cost of purchases and
proceeds from sales of investment securities, excluding short-term investments and derivatives, were as follows:
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 57
|
|
NOTES TO FINANCIAL STATEMENTS (Unaudited) continued |
April 30, 2023 |
Purchases |
Sales |
$379,412,771 |
$450,824,233 |
Note
11 – Capital
Common Shares
The Fund has an unlimited amount of common shares, $0.001 par value,
authorized and 34,593,769 shares issued and outstanding. As of April 30, 2023, Advent owned 59,048 shares of the Fund.
Transactions in common shares were as follows:
|
Period Ended |
Year Ended |
|
April 30, 2023 |
October 31, 2022 |
Beginning shares |
34,593,769 |
34,525,222 |
Shares issued through dividend reinvestment |
— |
68,547 |
Ending shares |
34,593,769 |
34,593,769 |
Note 12 – Subsequent Events
The Fund evaluated subsequent events through the date the financial
statements are issued and determined there were no material events that would require adjustment to or disclosure in the Fund’s
financial statements.
58 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
INVESTMENT OBJECTIVE, |
|
POLICIES AND PRINCIPAL RISKS (Unaudited) |
April 30, 2023 |
Investment Objective and Policies
The Fund’s investment objective is to provide total return
through a combination of capital appreciation and current income. Under normal market conditions, the Fund will invest at least 80% of
its managed assets in a diversified portfolio of convertible securities and non-convertible income securities. Under normal market conditions,
the Fund will invest at least 30% of its managed assets in convertible securities and up to 70% of its managed assets in non-convertible
income securities. The Fund may invest without limitation in securities of foreign issuers.
Principal Risks
Investors
should consider the following risk factors and special considerations associated with investing in the Fund. Investors should be aware
that in light of the current uncertainty, volatility and distress in economies, financial markets, and labor and health conditions over
the world, the risks below are heightened significantly compared to normal conditions and therefore subject the Fund’s investments
and a shareholder’s investment in the Fund to elevated investment risk, including the possible loss of the entire principal amount
invested.
Investment and Market Risk. An investment in the Fund is
subject to investment risk, particularly under current economic, financial, labor and health conditions, including the possible loss of
the entire principal amount that you invest. An investment in the common shares of the Fund represents an indirect investment in the securities
owned by the Fund. The value of, or income generated by, the investments held by the Fund are subject to the possibility of rapid and
unpredictable fluctuation. These movements may result from factors affecting individual companies, or from broader influences, including
real or perceived changes in prevailing interest rates, changes in inflation or expectations about inflation, investor confidence or economic,
political, social or financial market conditions (such as the current contentious political climate in the United States), environmental
disasters, governmental actions, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and other
similar events, that each of which may be temporary or last for extended periods of time. Different sectors, industries and security types
may react differently to such developments and, when the market performs well, there is no assurance that the Fund’s investments
will increase in value along with the broader markets. Volatility of financial markets, including potentially extreme volatility caused
by the events described above, can expose the Fund to greater market risk than normal, possibly resulting in greatly reduced liquidity.
At any point in time, your common shares may be worth less than your original investment, including the reinvestment of Fund dividends
and distributions.
Market Discount Risk. Shares of closed-end management investment
companies frequently trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Fund’s
net asset value could decrease as a result of its investment activities. Although the value of the Fund’s net assets is generally
considered by market participants in determining whether to purchase or sell common shares, and at what price to do so, whether investors
will realize gains or losses upon the sale of common shares will depend entirely upon whether the market price of common shares at the
time of sale is above or below the investor’s purchase price for common shares. Because the market price of common shares will be
determined by factors such as net asset value, dividend and distribution levels (which are dependent, in part, on expenses), supply of
and demand for common shares, stability of dividends or distributions, trading volume of common
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 59
INVESTMENT OBJECTIVE, |
|
POLICIES AND PRINCIPAL RISKS (Unaudited) continued |
April 30, 2023 |
shares, general market and economic conditions and other factors
beyond the control of the Fund, the Fund cannot predict whether common shares will trade at, below or above net asset value or at, below
or above an investor’s initial purchase price for common shares.
Convertible Securities Risk. Convertible securities are
hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities involve risks similar
to those of both fixed income and equity securities. In a corporation’s capital structure, convertible securities are senior to
common stock, but are usually subordinated to senior debt obligations of the issuer.
The market value of a convertible security is a function of its
“investment value” and its “conversion value.” A security’s “investment value” represents the
value of the security without its conversion feature (i.e., a nonconvertible fixed income security). The investment value may be determined
by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial
strength of the issuer, and the seniority of the security in the issuer’s capital structure. A security’s “conversion
value” is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current
price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock and its market value will not be influenced greatly by fluctuations in
the market price of the underlying security. In that circumstance, the convertible security takes on the characteristics of a bond, and
its price moves in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or
above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market
price of the underlying security. In that case, the convertible security’s price may be as volatile as that of common stock. Because
both interest rates and market movements can influence its value, a convertible security generally is not as sensitive to interest rates
as a similar fixed income security, nor is it as sensitive to changes in share price as its underlying equity security. Convertible securities
are often rated below investment grade or are not rated.
Although all markets are prone to change over time, the generally
high rate at which convertible securities are retired (through mandatory or scheduled conversions by issuers or through voluntary redemptions
by holders) and replaced with newly issued convertibles may cause the convertible securities market to change more rapidly than other
markets. For example, a concentration of available convertible securities in a few economic sectors could elevate the sensitivity of the
convertible securities market to the volatility of the equity markets and to the specific risks of those sectors. Moreover, convertible
securities with innovative structures, such as mandatory-conversion securities and equity-linked securities, have increased the sensitivity
of the convertible securities market to the volatility of the equity markets and to the special risks of those innovations, which may
include risks different from, and possibly greater than, those associated with traditional convertible securities. A convertible security
may be subject to redemption at the option of the issuer at a price set in the governing instrument of the convertible security. If a
convertible security held by the Fund is subject to such redemption option and is called for redemption, the Fund must allow the issuer
to redeem the security, convert it into the underlying common stock, or sell the security to a third party.
As a result of the conversion feature, convertible securities typically
offer lower interest rates than if the securities were not convertible. During periods of rising interest rates, it is possible that the
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potential for capital gain on convertible securities may be less
than that of a common stock equivalent if the yield on the convertible security is at a level that would cause it to sell at a discount.
Also, in the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional
securities are issued, a stock dividend is declared, or the issuer enters into another type of corporate transaction which increases its
outstanding securities.
Structured and Synthetic Convertible Securities Risk. The
value of structured and synthetic convertible securities can be affected by interest rate changes and credit risks of the issuer. Such
securities may be structured in ways that limit their potential for capital appreciation and the entire value of the security may be at
a risk of loss depending on the performance of the underlying equity security. Structured and synthetic convertible securities may be
less liquid than other convertible securities. The value of a synthetic convertible security will respond differently to market fluctuations
than a convertible security because a synthetic convertible security is composed of two or more separate securities, each with its own
market value. In addition, if the value of the underlying common stock or the level of the index involved in the convertible component
falls below the exercise price of the warrant or option, the warrant or option may lose all value.
Equity Securities Risk. Equity securities risk is the risk
that the value of the securities held by the Fund will fall due to general market and economic conditions, perceptions regarding the industries
in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. Stock
of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among
other reasons, the issuer of the security experiences a decline in its financial condition. Common stock in which the Fund may invest
is structurally subordinated to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of
priority to corporate income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such
issuers. In addition, while common stock has historically generated higher average returns than fixed income securities, common stock
has also experienced significantly more volatility in those returns. An adverse event, such as an unfavorable earnings report, may depress
the value of common stock of an issuer held by the Fund. Common stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based
on various and unpredictable factors including expectations regarding: government, economic, monetary and fiscal policies; inflation and
interest rates; economic expansion or contraction; and global or regional political, economic and banking crises.
Interest Rate Risk. Convertible securities and non-convertible
income-producing securities (including preferred stock and debt securities) (collectively “income securities”) are subject
to certain interest rate risks, including:
• If interest rates go up, the value of income securities
in the Fund’s portfolio generally will decline. These risks may be greater in the current market environment because while interest
rates were historically low in past years, the Fed has been increasing the Federal Funds rate to address inflation.
• During periods of rising interest rates, the average life
of certain types of income securities may be extended because of slower than expected principal payments. This may lock in a below
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market interest rate, increase the security’s duration (the
estimated period until the security is paid in full) and reduce the value of the security. This is known as extension risk.
• During periods of declining interest rates, the issuer of
an income security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding
income securities. This is known as call or prepayment risk. Lower grade income securities have call features that allow the issuer to
repurchase the security prior to its stated maturity. An issuer may redeem a lower grade income security if the issuer can refinance the
security at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer.
• Interest rate risk may be more pronounced in the current
market environment with interest rates rising in response to inflation.
Credit Risk. Credit risk is the risk that one or more income
securities in the Fund’s portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the
security experiences a decline in its financial status. The Fund’s investments in income securities involve credit risk. However,
in general, lower rated, lower grade and noninvestment grade income securities carry a greater degree of risk that the issuer will lose
its ability to make interest and principal payments, which could have a negative impact on the Fund’s net asset value or dividends.
Lower Grade Securities Risk. Investing in lower grade and
non-investment grade securities involves additional risks. Securities of below investment grade quality are commonly referred to as “junk
bonds” or “high yield securities.” Investment in securities of below investment grade quality involves substantial risk
of loss. Securities of below investment grade quality are predominantly speculative with respect to the issuer’s capacity to pay
interest and repay principal when due and therefore involve a greater risk of default or decline in market value due to adverse economic
and issuer-specific developments. Issuers of below investment grade securities are not perceived to be as strong financially as those
with higher credit ratings. Issuers of lower grade securities may be highly leveraged and may not have available to them more traditional
methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the
case with higher rated securities. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers,
which may impair their ability to make interest and principal payments. The issuer’s ability to service its debt obligations also
may be adversely affected by specific issuer developments, the issuer’s inability to meet specific projected business forecasts
or the unavailability of additional financing. Therefore, there can be no assurance that in the future there will not exist a higher default
rate relative to the rates currently existing in the market for lower grade securities. The risk of loss due to default by the issuer
is significantly greater for the holders of lower grade securities because such securities may be unsecured and may be subordinate to
other creditors of the issuer. Securities of below investment grade quality display increased price sensitivity to changing interest rates
and to a deteriorating economic environment. The market values for securities of below investment grade quality tend to be more volatile
and such securities tend to be less liquid than investment grade debt securities. To the extent that a secondary market does exist for
certain below investment grade securities, the market for them may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods.
Debt Securities Risk. Debt securities are subject to a variety
of risks, such as interest rate risk, income risk, call/prepayment risk, inflation risk, credit risk, and (in the case of foreign securities)
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country risk and currency risk. The reorganization of an issuer
under the federal bankruptcy laws may result in the issuer’s debt securities being cancelled without repayment, repaid only in part,
or repaid in part or in whole through an exchange thereof for any combination of cash, debt securities, convertible securities, equity
securities, or other instruments or rights in respect of the same issuer or a related entity.
Preferred Securities Risk. There are special risks associated
with investing in preferred securities, including:
Deferral. Preferred securities may include provisions that
permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the
Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income.
Non-Cumulative Dividends. Some preferred stocks are non-cumulative,
meaning that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of
a non-cumulative preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays
may be adversely affected. There is no assurance that dividends or distributions on noncumulative preferred stocks in which the Fund invests
will be declared or otherwise made payable.
Subordination. Preferred securities are subordinated to
bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt instruments.
Liquidity. Preferred securities may be substantially less
liquid than many other securities, such as common stocks or U.S. government securities.
Limited Voting Rights. Generally, preferred security holders
(such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified
number of periods, at which time the preferred security holders may have the right to elect a number of directors to the issuer’s
board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
Special Redemption Rights. In certain varying circumstances,
an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities,
a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer
may negatively impact the return of the security held by the Fund.
Foreign Securities Risk. Investing in foreign issuers or
securities denominated in non-U.S. currencies may involve certain risks not typically associated with investing in securities of U.S.
issuers due to increased exposure to foreign economic, political and legal developments, including favorable or unfavorable changes in
currency exchange rates, exchange control regulations (including currency blockage), confiscatory taxation, political or social instability,
illiquidity, price volatility, market manipulation, expropriation or nationalization of assets, imposition of withholding taxes on payments,
and possible difficulty in obtaining and enforcing judgments against foreign entities.
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Furthermore, issuers of foreign securities and obligations are
subject to different, often less comprehensive, accounting, reporting and disclosure requirements than domestic issuers. The securities
and obligations of some foreign companies and foreign markets are less liquid and at times more volatile than comparable U.S. securities,
obligations and markets. Securities markets in foreign countries often are not as developed, efficient or liquid as securities markets
in the United States, and therefore, the prices of foreign securities can be more volatile. Certain foreign countries may impose restrictions
on the ability of issuers to make payments of principal and interest to investors located outside the country. In the event of nationalization,
expropriation or other confiscation, the Fund could lose its entire investment in a foreign security. Transaction costs of investing outside
the U.S. are generally higher than in the U.S. Higher costs result because of the cost of converting a foreign currency to dollars, the
payment of fixed brokerage commissions on some foreign exchanges and the imposition of transfer taxes or transaction charges by foreign
exchanges. Non-U.S. markets also have different clearance and settlement procedures which in some markets have at times failed to keep
pace with the volume of transactions, thereby creating substantial delays and settlement failures that could adversely affect the Fund’s
performance. Foreign brokerage commissions and other fees are also generally higher than in the United States. There are also special
tax considerations which apply to securities and obligations of foreign issuers and securities and obligations principally traded overseas.
These risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one
country or geographic region, in which case the Fund may be more exposed to regional economic risks, and to the extent that the Fund invests
in securities of issuers in emerging markets.
On January 31, 2020, the United Kingdom (“UK”) officially
withdrew from the European Union (“EU”). Following a transition period, the United Kingdom and the EU signed a Trade and Cooperation
Agreement (“UK/EU Trade Agreement”), which came into full force on May 1, 2021 and set out the foundation of the economic
and legal framework for trade between the United Kingdom and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation
of the UK/EU Trade Agreement may result in uncertainty in its application and periods of volatility in both the UK and wider European
markets. The UK’s exit from the EU (“Brexit”) is expected to result in additional trade costs and disruptions in this
trading relationship. Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that
regulatory standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global
financial markets, and adversely affect the performance of the Fund.
In addition to the effects on the Fund’s investments in European
issuers, the unavoidable uncertainties and events related to Brexit could negatively affect the value and liquidity of the Fund’s
other investments, increase taxes and costs of business and cause volatility in currency exchange rates and interest rates. European,
UK or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions, regulatory
agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws and regulations as
the new relationship between the UK and EU is further defined and as the UK determines which EU laws to replace or replicate. In addition,
Brexit could lead to further disintegration of the EU and related political stresses (including those related to sentiment against cross
border capital movements and activities of investors like the Fund), prejudice to financial services businesses that are conducting business
in the EU and which are based in the UK, legal uncertainty regarding achievement of compliance with applicable financial and commercial
laws and
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regulations in view of the expected steps to be taken pursuant
to or in contemplation of Brexit. Any of these effects of Brexit, and others that cannot be anticipated, could adversely affect the Fund’s
business, results of operations and financial condition.
Emerging Markets Risk. Investments in securities the issuers
of which are located in countries considered to be emerging markets are subject to heightened risks relative to foreign investing generally
and are considered speculative. Investing in emerging market countries involves certain risks not typically associated with investing
in the United States, and it imposes risks greater than, or in addition to, risks of investing in more developed foreign countries. These
risks include, but are not limited to, the following: greater risks of nationalization or expropriation of assets or confiscatory taxation;
currency devaluations and other currency exchange rate fluctuations; greater social, economic, and political uncertainty and instability
(including amplified risk of war and terrorism); more substantial government involvement in the economy; less government supervision and
regulation of the securities markets and participants in those markets, and possible arbitrary and unpredictable enforcement of securities
regulations; controls on foreign investment and limitations on repatriation of invested capital and on the Fund’s ability to exchange
local currencies for U.S. dollars; unavailability of currency-hedging techniques in certain emerging market countries; the fact that companies
in emerging market countries may be smaller, less seasoned, or newly organized; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material information about issuers; the risk that it may be more difficult
to obtain and/or enforce a judgment in a court outside the United States; and greater price volatility, substantially less liquidity,
and significantly smaller market capitalization of securities markets. Compared to developed countries, emerging market countries may
have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities.
Securities issued by companies located in emerging market countries tend to be especially volatile and may be less liquid than securities
traded in developed countries. In the past, securities in these countries have been characterized by greater potential loss than securities
of companies located in developed countries. Foreign investment in certain emerging market countries may be restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market issuers and
increase the costs and expenses of the Fund. Certain emerging market countries require governmental approval prior to investments by foreign
persons in a particular issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase
by domiciliaries of the countries and/or impose additional taxes on foreign investors.
Investments in issuers located in emerging markets pose a greater
degree of systemic risk. The inter-relatedness of institutions within a country and among emerging market economies has increased in recent
years. Institutional failures or economic difficulties may spread throughout a country, region or emerging market countries throughout
the world, which may limit the ability of the Fund to manage risk through geographic diversification. Bankruptcy law and creditor reorganization
processes may differ substantially from those in the United States, resulting in greater uncertainty as to the rights of creditors, the
enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims.
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Foreign Currency Risk. The Fund’s investment performance
may be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the
Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because
the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the
value of such currency in relation to the U.S. dollar. Foreign currency rates may fluctuate significantly over short periods of time for
various reasons, including changes in interest rates, inflation, balance of payments, governmental surpluses or deficits, intervention
or non-intervention by U.S. or foreign governments, central banks or supranational entities, the imposition of currency controls and political
developments in the U.S. and abroad. The Fund may, but is not required, to seek to protect itself from changes in currency exchange rates
through hedging transactions depending on market conditions. There can be no assurance that such strategies will be available or will
be used by the Fund or, if used, will be successful. Certain countries, particularly emerging market countries, may impose foreign currency
exchange controls or other restrictions on the repatriation, transferability or convertibility of currency. The Fund may attempt within
the parameters of currency and exchange controls that may be in effect, to obtain rights to exchange its invested capital, dividends,
interest, fees, other distributions and capital gains into convertible currencies. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange rates have been highly volatile in recent years. The combination of volatility
and leverage gives rise to the possibility of large profit and large loss. In addition, there is counterparty risk since currency trading
is done on a principal to principal basis.
CLO Risk
CLOs often involve risks that are different from or more acute
than risks associated with other types of income securities, including: (1) the possibility that distributions from collateral assets
will not be adequate to make interest or other payments; (2) the quality of the collateral may decline in value or default; (3) investments
in CLO junior debt tranches and CLO subordinated notes will likely be subordinate in right of payment to other senior classes of CLO debt;
and (4) the complex structure of a particular security may not be fully understood at the time of investment and may produce disputes
with the issuer or unexpected investment results.
There may be less information available to the Fund regarding the
underlying investments held by CLOs than if the Fund had invested directly in securities of the underlying issuers. Fund shareholders
will not know the details of the underlying investments of the CLOs in which the Fund invests. Due to their often complicated structures,
various CLOs may be difficult to value and may constitute illiquid investments. In addition, there can be no assurance that a liquid market
will exist in any CLO when the Fund seeks to sell its interest therein. Moreover, the value of CLOs may decrease if the ratings agencies
reviewing such securities revise their ratings criteria and, as a result, lower their original rating of a CLO in which the Fund has invested.
Further, the complex structure of the security may produce unexpected investment results. Also, it is possible that the Fund’s investment
in a CLO will be subject to certain contractual limitations on transfer.
The market value of CLO securities may be affected by, among other
things, changes in the market value of the underlying assets held by the CLOs, changes in the distributions on the underlying assets,
defaults and recoveries on the underlying assets, capital gains and losses on the underlying
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assets, prepayments on underlying assets and the availability,
prices and interest rate of underlying assets. Therefore, changes in the market value of the Fund’s CLO investments could be greater
than the change in the market value of the underlying instruments.
As a result, as an investor in a CLO, the Fund is subject to the
risk of default by borrowers on the loans held by the CLO. The Federal Reserve has recently implemented several increases to the Federal
Funds rate and may in the future implement additional rate increases. Increases in interest rates may adversely impact the ability of
borrowers to meet interest payment obligations on loans held by a CLO and increase the likelihood of default. A downturn in any particular
industry or borrower in which a CLO is heavily invested may subject that vehicle, and in turn the Fund, to a risk of significant loss
and could significantly impact the aggregate returns realized by the Fund. Although a CLO’s holdings are typically diversified by
industry and borrower, an increase in interest rates coupled with a general economic downturn may result in an increase in defaults on
loans across various sectors of the economy.
Investments in primary issuances of CLO securities may involve
certain additional risks. Between the pricing date and the effective date of a CLO, the CLO collateral manager will generally expect to
purchase additional collateral obligations for the CLO. During this period, the price and availability of these collateral obligations
may be adversely affected by a number of market factors, including price volatility and availability of investments suitable for the CLO,
which could hamper the ability of the collateral manager to acquire a portfolio of collateral obligations that will satisfy specified
concentration limitations and allow the CLO to reach the target initial par amount of collateral prior to the effective date. An inability
or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of interest or principal payments
received by the holders of the CLO debt securities and distributions on the CLO subordinated notes and could result in early redemptions
which may cause CLO debt and subordinated note investors to receive less than face value of their investment.
The failure by a CLO to satisfy financial covenants, including
with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to securityholders,
including the Fund. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that
would, in turn, reduce the payments that holders of junior debt and subordinated securities would otherwise be entitled to receive.
In recent years there has been a marked increase in the number
of, and flow of capital into, investment vehicles established to pursue investments in CLO securities whereas the size of this market
is relatively limited. Such increase may result in greater competition for investment opportunities, which may result in an increase in
the price of such investments relative to the risk taken on by holders of such investments. In addition, the volume of new CLO issuances
varies over time as a result of a variety of factors including new regulations, changes in interest rates, and other market forces. Such
competition may also result under certain circumstances in increased price volatility or decreased liquidity with respect to certain positions.
CLO Management Risk. The activities of any CLO in which
the Fund may invest will generally be directed by a collateral manager. In the Fund’s capacity as holder of CLO securities, the
Fund is generally not able to make decisions with respect to the management, disposition or other
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realization of any investment, or other decisions regarding the
business and affairs, of that CLO. Consequently, the success of any CLOs in which the Fund invests will depend, in large part, on the
financial and managerial expertise of the collateral manager’s investment professionals. Subject to certain exceptions, any change
in the investment professionals of the collateral manager will not present grounds for termination of the collateral management agreement.
In addition, such investment professionals may not devote all of their professional time to the affairs of the CLOs in which the Fund
invests. There can be no assurance that for any CLO, in the event that underlying instruments are prepaid, the collateral manager will
be able to reinvest such proceeds in new instruments with equivalent investment returns. If the collateral manager cannot reinvest in
new instruments with equivalent investment returns, the interest proceeds available to pay interest on the CLO securities may be adversely
affected.
The transaction documents relating to the issuance of CLO securities
may impose eligibility criteria on the assets of the CLO, restrict the ability of the CLO’s investment manager to trade investments
and impose certain portfolio-wide asset quality requirements. These criteria, restrictions and requirements may limit the ability of the
CLO’s investment manager to maximize returns on the CLO securities. In addition, other parties involved in CLOs, such as third-party
credit enhancers and investors in the rated tranches, may impose requirements that have an adverse effect on the returns of the various
tranches of CLO securities. Furthermore, CLO securities issuance transaction documents generally contain provisions that, in the event
that certain tests are not met (generally interest coverage and over-collateralization tests at varying levels in the capital structure),
proceeds that would otherwise be distributed to holders of a junior tranche must be diverted to pay down the senior tranches until such
tests are satisfied. Failure (or increased likelihood of failure) of a CLO to make timely payments on a particular tranche will have an
adverse effect on the liquidity and market value of such tranche.
The manager of a CLO has broad authority to direct and supervise
the investment and reinvestment of the investments held by the CLO, which may include the execution of amendments, waivers, modifications
and other changes to the investment documentation in accordance with the collateral management agreement. During periods of economic uncertainty
and recession, the incidence of amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers,
modifications and other restructurings will change the terms of the investments and in some cases may result in the CLO holding assets
not meeting the CLO’s criteria for investments. This could adversely impact the coverage tests under an indenture governing the
notes issued by the CLO. Any amendment, waiver, modification or other restructuring that reduces the CLO’s compliance with certain
financial tests will make it more likely that the CLO will need to utilize cash to pay down the unpaid principal amount of secured notes
to cure any breach in such test instead of making payments on subordinated notes. Any such use of cash would reduce distributions available
and delay the timing of payments to the Fund.
The Fund cannot be certain that any particular restructuring strategy
pursued by the CLO manager will maximize the value of or recovery on any investment. Any restructuring can fundamentally alter the nature
of the related investment, and restructurings are not subject to the same underwriting standards that are employed in connection with
the origination or acquisition of investments. Any restructuring could alter, reduce or delay the payment of interest or principal on
any investment,
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which could delay the timing and reduce the amount of payments
made to the Fund. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments
made to the Fund.
The CLOs in which the Fund invests are generally not registered
as investment companies under the 1940 Act. As investors in these CLOs, the Fund is not afforded the protections that shareholders in
an investment company registered under the 1940 Act would have.
The terms of CLOs set forth in their applicable transaction documents,
including with respect to collateralization and/or interest coverage tests and asset eligibility criteria, may vary from CLO to CLO. Similarly
the terms of the loans that constitute the underlying assets held by CLOs may vary. The CLO market and loan market may evolve in ways
that result in typical terms being less protective for the holders of CLO securities. As a result, the Fund will be reliant upon the Adviser’s
ability to obtain and evaluate the terms of the CLOs in which the Fund invests, the terms of and creditworthiness of the borrowers with
respect to the underlying assets held by those CLOs and information about the collateral managers of the CLOs.
Derivatives Transactions Risk. The Fund may engage in various
derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to earn income or enhance total
return. The use of derivatives transactions to earn income or enhance total return may be particularly speculative. Derivative transactions
entered into to seek to manage the risks of the Fund’s portfolio of securities may have the effect of limiting the gains from favorable
market movements. Losses on derivatives transactions may reduce the Fund’s net asset value and its ability to pay dividends if such
losses are not offset by gains on portfolio positions being hedged. Derivatives transactions involve risks. There may be imperfect correlation
between the value of such instruments and the underlying assets. Derivatives transactions may be subject to risks associated with the
possible default of the other party to the transaction. Derivative instruments may be illiquid. Certain derivatives transactions may have
economic characteristics similar to leverage, in that relatively small market movements may result in large changes in the value of an
investment. Certain derivatives transactions that involve leverage can result in losses that greatly exceed the amount originally invested.
Furthermore, the Fund’s ability to successfully use derivatives transactions depends on the manager’s ability to predict pertinent
market movements, which cannot be assured. The use of derivatives transactions may result in losses greater than if they had not been
used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values,
may limit the amount of appreciation the Fund can realize on an investment or may cause the Fund to hold a security that it might otherwise
sell. Derivatives transactions involve risks of mispricing or improper valuation. The documentation governing a derivative instrument
or transaction may be unfavorable or ambiguous. Derivatives transactions may involve commissions and other costs, which may increase the
Fund’s expenses and reduce its return. Various legislative and regulatory initiatives may impact the availability, liquidity and
cost of derivative instruments, limit or restrict the ability of the Fund to use certain derivative instruments or transact with certain
counterparties as a part of its investment strategy, increase the costs of using derivative instruments or make derivative instruments
less effective.
Risk Associated with Covered Call Option Writing. There
are significant differences between the securities and options markets that could result in an imperfect correlation between these markets,
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causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events. As the writer of a covered call option, the Fund forgoes, during the option’s
life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium
and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. As the Fund writes
covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited.
The value of options written by the Fund will be affected by, among
other factors, changes in the value of underlying securities (including those comprising an index), changes in the dividend rates of underlying
securities, changes in interest rates, changes in the actual or perceived volatility of the stock market and underlying securities and
the remaining time to an option’s expiration. The value of an option also may be adversely affected if the market for the option
is reduced or becomes less liquid.
To the extent that there is a lack of correlation between the index
options written by the Fund and the Fund’s portfolio securities, movements in the indexes underlying the options positions may result
in losses to the Fund, which may more than offset any gains received by the Fund from options premiums. Such sales would involve transaction
costs borne by the Fund and may also result in realization of taxable gains.
With respect to exchange-traded options, there can be no assurance
that a liquid market will exist when the Fund seeks to close out an option position on an options exchange. An absence of a liquid secondary
market on an exchange may arise because: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed
by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations
on an exchange; (v) the facilities of an exchange or The Options Clearing Corporation (the “OCC”) may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued,
the secondary market on that exchange (or in that class or series of options) would cease to exist. In the event that the Fund were unable
to close out a call option that it had written on a portfolio security, it would not be able to sell the underlying security unless the
option expired without exercise.
The Fund’s options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other trading facilities on which the options are traded. These limitations govern
the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities
or are held or written in one or more accounts or through one or more brokers. An exchange, board of trade or other trading facility may
order the liquidation of positions found to be in excess of these limits, and it may impose other sanctions.
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The Fund may also write (sell) over-the-counter options (“OTC
options”). Options written by the Fund with respect to non-U.S. securities, indices or sectors generally will be OTC options. OTC
options differ from exchange-listed options in that they are entered into directly with the buyer of the option and not through an exchange
or clearing organization that is interposed between the Fund and the counterparty. In an OTC option transaction exercise price, premium
and other terms are negotiated between buyer and seller. OTC options generally do not have as much market liquidity as exchange-listed
options. The OTC options written by the Fund will not be issued, guaranteed or cleared by the OCC. In addition, the Fund’s ability
to terminate the OTC options may be more limited than with exchange-traded options. Banks, broker-dealers or other financial institutions
participating in such transaction may fail to settle a transaction in accordance with the terms of the option as written. In the event
of default or insolvency of the counterparty, the Fund may be unable to liquidate an OTC option position.
Counterparty Risk. The Fund will be subject to credit risk
with respect to the counterparties to the derivative contracts entered into by the Fund. If a counterparty becomes bankrupt or otherwise
fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays
in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited
recovery or may obtain no recovery in such circumstances. Concerns about, or a default by, one large market participant could lead to
significant liquidity problems for other participants. If a counterparty’s credit becomes significantly impaired, multiple requests
for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate collateral. The counterparty
risk for cleared derivatives is generally lower than for uncleared over-the-counter derivatives transactions since generally a clearing
organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’
performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations
under the derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations
to the Fund.
Leverage Risk. The use of leverage may result in higher
income to common shareholders over time; however, there can be no assurance that this expectations will be realized or that a leveraging
strategy will be successful in any particular time period. Use of leverage creates an opportunity for increased income and capital appreciation
but, at the same time, creates special risks. Leverage is a speculative technique that exposes the Fund to greater risk and increased
costs than if it were not implemented. There can be no assurance that a leveraging strategy will be utilized or will be successful.
The use of leverage by the Fund will cause the net asset value,
and possibly the market price, of the Fund’s common shares to fluctuate significantly in response to changes in interest rates and
other economic indicators. As a result, the net asset value and market price and dividend rate of the common shares of the Fund is likely
to be more volatile than those of a closed-end management investment company that is not exposed to leverage. In a declining market the
use of leverage may result in a greater decline in the net asset value of the common shares than if the Fund were not leveraged.
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Leverage will increase operating costs, which may reduce total
return. The Fund will have to pay interest on its indebtedness, if any, which may reduce the Fund’s return. This interest expense
may be greater than the Fund’s return on the underlying investment, which would negatively affect the performance of the Fund. Increases
in interest rates that the Fund must pay on its indebtedness will increase the cost of leverage and may reduce the return to common shareholders.
This risk may be greater in the current market environment because while interest rates were historically low in recent years, the Fed
has been increasing the Federal Funds rate to address inflation.
Certain types of indebtedness subject the Fund to covenants in
credit agreements relating to asset coverage and portfolio composition requirements. Certain indebtedness issued by the Fund also may
be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such
indebtedness. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed
by the 1940 Act. It is not anticipated that these guidelines will impede the Investment Adviser from managing the Fund’s portfolio
in accordance with the Fund’s investment objective and policies. However, particularly during periods of adverse or volatile market
conditions, the Fund may be required to sell assets in order to meet payment obligations on any leverage or to redeem leverage in order
to comply with asset coverage or portfolio composition requirements.
Reverse repurchase agreements involve the risks that the interest
income earned on the investment of the proceeds will be less than the interest expense and Fund expenses associated with the repurchase
agreement, that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase
such securities and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can
be successfully employed. In connection with reverse repurchase agreements, the Fund will also be subject to counterparty risk with respect
to the purchaser of the securities. If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to
purchase or repurchase securities may be restricted
The Fund may have leverage outstanding during a shorter-term period
during which such leverage may not be beneficial to the Fund if the Fund believes that the long-term benefits to common shareholders of
such leverage would outweigh the costs and portfolio disruptions associated with redeeming and reissuing such leverage. However, there
can be no assurance that the Fund’s judgment in weighing such costs and benefits will be correct.
During the time in which the Fund is utilizing leverage, the amount
of the fees paid for investment advisory services will be higher than if the Fund did not utilize leverage because the fees paid will
be calculated based on the Fund’s managed assets, including proceeds of leverage. This may create a conflict of interest between
the manager and the common shareholders, as common shareholders bear the portion of the investment advisory fee attributable to the assets
purchased with the proceeds of leverage, which means that common shareholders effectively bear the entire advisory fee.
In addition, the Fund may engage in certain derivatives transactions
that have economic characteristics similar to leverage. The Fund has adopted a derivatives risk management program which includes value-at-risk
modeling, stress tests, backtests, and additional disclosures to the SEC in compliance with Rule 18f-4 under the 1940 Act. The requirements
of the rule and the Fund’s derivatives risk management program may restrict the Fund’s ability to engage in certain derivatives
72 l AVK l ADVENT CONVERTIBLE
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transactions and/or increase the cost of such transactions, which
could adversely affect the performance of the Fund.
Illiquid Investments Risk. Illiquid securities may be difficult
to dispose of at a fair price at the times when the Fund believes it is desirable to do so. The market price of illiquid securities generally
is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the
sale of illiquid securities. Significant changes in the capital markets, including recent disruption and volatility, have had, and may
in the future have, a negative effect on the valuations of certain illiquid investments. Illiquid securities are also more difficult to
value and the manager’s judgment may play a greater role in the valuation process. Although certain illiquid investments are not
publicly traded, applicable accounting standards and valuation principles require the Fund to assume as part of its valuation process
that such investments are sold in a principal market to market participants (even if the Fund plans on holding such investments to maturity).
In addition, investment of the Fund’s assets in illiquid securities may restrict the Fund’s ability to take advantage of market
opportunities. The risks associated with illiquid securities may be particularly acute in situations in which the Fund’s operations
require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities.
Although many of the Rule 144A Securities in which the Fund invests may be, in the view of the manager, liquid, if qualified institutional
buyers are unwilling to purchase these Rule 144A Securities, they may become illiquid.
Smaller Company Risk. The general risks associated with
corporate income-producing and equity securities are particularly pronounced for securities issued by companies with smaller market capitalizations.
These companies may have limited product lines, markets or financial resources, or they may depend on a few key employees. As a result,
they may be subject to greater levels of credit, market and issuer risk. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized
market capitalizations may have risks similar to those of smaller companies.
REIT Risk. To the extent that the Fund invests in REITs
it will be subject to the risks associated with owning real estate and with the real estate industry generally. REITs are subject to interest
rate risks (especially mortgage REITs) and the risk of default by lessees or borrowers. An equity REIT may be affected by changes in the
value of the underlying properties owned by the REIT. A mortgage REIT may be affected by the ability of the issuers of its portfolio mortgages
to repay their obligations. REITs whose underlying assets are concentrated in properties used by a particular industry are also subject
to risks associated with such industry. REITs may have limited financial resources, their securities trade less frequently and in a limited
volume, and may be subject to more abrupt or erratic price movements than larger company securities.
Inflation Risk/Deflation Risk. Inflation risk is the risk
that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation
increases, the real value of the common shares and distributions can decline. Inflation rates may change frequently and significantly
as a result of various factors, including unexpected shifts in the U.S. or global economy and changes in monetary or economic policies
(or expectations that these
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policies may change), and the Fund’s investments may not
keep pace with inflation, which would adversely affect the Fund. This risk is significantly elevated compared to normal conditions because
of recent monetary policy measures and inflationary price movements. In response to the recent rise in inflation rates, the Fed has been
increasing the Federal Funds rate. During any periods of rising inflation, the dividend rates or borrowing costs associated with the Fund’s
use of leverage would likely increase, which would tend to further reduce returns to common shareholders.
Deflation risk is the risk that prices throughout the economy decline
over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer
default more likely, which may result in a decline in the value of the Fund’s portfolio.
Securities Lending Risk. The Fund may also lend the securities
it owns to others, which allows the Fund the opportunity to earn additional income. Although the Fund will require the borrower of the
securities to post collateral for the loan and the terms of the loan will require that the Fund be able to reacquire the loaned securities
if certain events occur, the Fund is still subject to the risk that the borrower of the securities may default, which could result in
the Fund losing money, which would result in a decline in the Fund’s net asset value. The Fund may also purchase securities for
delayed settlement. This means that the Fund is generally obligated to purchase the securities at a future date for a set purchase price,
regardless of whether the value of the securities is more or less than the purchase price at the time of settlement.
Not a Complete Investment Program. An investment in the
common shares of the Fund should not be considered a complete investment program. The Fund is intended for long-term investors seeking
total return through a combination of current income and capital appreciation. The Fund is not meant to provide a vehicle for those who
wish to play short-term swings in the stock market. Each common shareholder should take into account the Fund’s investment objective
as well as the common shareholder’s other investments when considering an investment in the Fund.
Management Risk. Management’s judgment about the attractiveness,
relative value or potential appreciation of a particular sector, security or investment strategy may prove to be incorrect, and there
can be no assurance that the investment decisions made will prove beneficial to the Fund.
Legislation and Regulation Risk. Legislation may be enacted
that could negatively affect the assets of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative
impact on the Fund or entities in which the Fund invests. Legislation or regulation may also change the way in which the Fund itself is
regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the
Fund or will not impair the ability of the Fund to achieve its investment objective.
Changes enacted by the current presidential administration could
significantly impact the regulation of financial markets in the United States. Areas subject to potential change, amendment or repeal
include trade and foreign policy, corporate tax rates, energy and infrastructure policies, the environment and sustainability, criminal
and social justice initiatives, immigration, healthcare and the oversight of certain federal financial regulatory agencies and the Fed.
Certain of these changes can, and have, been effectuated through executive order. For example, the current administration has taken steps
to address the COVID-19 pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement
priorities and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential
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administration could include an increase in the corporate income
tax rate and changes to regulatory enforcement priorities. It is not possible to predict which, if any, of these actions will be taken
or, if taken, their effect on the economy, securities markets or the financial stability of the United States. The Fund may be affected
by governmental action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse
effect on the Fund and its ability to achieve its investment objective.
Although the Fund cannot predict the impact, if any, of these changes
on the Fund’s business, they could adversely affect the Fund’s business, financial condition, operating results and cash flows.
Until the Fund knows what policy changes are made and how those changes impact the Fund’s business and the business of the Fund’s
competitors over the long term, the Fund will not know if, overall, the Fund will benefit from them or be negatively affected by them.
The Investment Adviser intends to monitor developments and seek to manage the Fund’s portfolio in a manner consistent with achieving
the Fund’s investment objectives, but there can be no assurance that they will be successful in doing so.
Portfolio Turnover Risk. The Fund’s annual portfolio
turnover rate may vary greatly from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment
decisions for the Fund. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional
expenses that are borne by the Fund. High portfolio turnover may result in an increased realization of net short-term capital gains by
the Fund which, when distributed to common shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio
turnover may result in realized capital losses.
Recent Market, Economic and Social Developments Risk. Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events both
within and outside the United States. These conditions have resulted in, and in many cases continue to result in, greater price volatility,
less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value.
Risks resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery, the
financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future
affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home
prices, among other factors. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and
consumer credit factors, the Fund’s business, financial condition and results of operations could be significantly and adversely
affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect
the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the
value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return
to unfavorable economic conditions could impair the Fund’s ability to achieve its investment objective.
Recently the Federal Reserve has sharply raised interest rates
and has signaled an intention to continue to do so until current inflation levels re-align with the Fed's long-term inflation target.
Changing interest rate environments impact the various sectors of the economy in different ways.
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For example, in March 2023, the Federal Deposit Insurance Corporation
("FDIC") was appointed receiver for each of Silicon Valley Bank and Signature Bank, the second- and third-largest bank failures
in U.S. history, which failures may be attributable, in part, to rising interest rates. Bank failures may have a destabilizing impact
on the broader banking industry or markets generally.
The occurrence of events similar to those in recent years, such
as localized wars, instability, new and ongoing pandemics (such as COVID-19), epidemics or outbreaks of infectious diseases in certain
parts of the world, natural/environmental disasters, terrorist attacks in the U.S. and around the world, social and political discord,
debt crises sovereign debt downgrades, increasingly strained relations between the U.S. and a number of foreign countries, new and continued
political unrest in various countries, the exit or potential exit of one or more countries from the EU or the EMU, continued changes in
the balance of political power among and within the branches of the U.S. government, and government shutdowns, among others, may result
in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties
in the U.S. and worldwide.
In particular, the consequences of the Russian military invasion
of Ukraine, including comprehensive international sanctions, the impact on inflation and increased disruption to supply chains and energy
resources may impact the Fund’s portfolio companies, result in an economic downturn or recession either globally or locally in the
U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the form of traditional military action, reignited
“cold” wars or in the form of virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences
and have an adverse impact on the Fund’s returns and net asset value. The Fund has no way to predict the duration or outcome of
the situation, as the conflict and government reactions are rapidly developing and beyond the Fund’s control. Prolonged unrest,
military activities, or broad-based sanctions could have a material adverse effect on the Fund’s portfolio companies. Such consequences
also may increase the Fund’s funding cost or limit the Fund’s access to the capital markets.
The current political climate has intensified concerns about a
potential trade war between China and the U.S., as each country has imposed tariffs on the other country’s products. These actions
may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions
of goods and possible failure of individual companies and/or large segments of China’s export industry, which could have a negative
impact on the Fund’s performance. U.S. companies that source material and goods from China and those that make large amounts of
sales in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions
and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the
euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or
other escalating actions may be taken in the future. Any of these effects could have a material adverse effect on the Fund’s business,
financial condition and results of operations.
LIBOR Risk. Instruments in which the Fund invests may pay
interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund and issuers of instruments
in which the Fund invests may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Fund and/or
issuers of instruments in which the Fund may
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invest may also reference LIBOR. The Fund utilizes leverage or
borrowings primarily based on LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to
phase out the use of LIBOR by the end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December
31, 2021, all sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased
to be published or are no longer representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar
LIBOR settings will cease to be published or will no longer be representative. Various financial industry groups have begun planning for
the transition away from LIBOR, but there are challenges to converting certain securities and transactions to a new reference rate (e.g.,
the Secured Overnight Financing Rate (“SOFR”), which is intended to replace the U.S. dollar LIBOR). Neither the effect of
the LIBOR transition process nor its ultimate success can yet be known. At this time, no consensus exists as to what rate or rates will
become accepted alternatives to LIBOR, although the U.S. Federal Reserve, based on the recommendations of the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions, has begun publishing SOFR. Given the inherent differences
between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there may be uncertainties regarding a transition
from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the
cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or the replacement rates may fail to gain market
acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of
and market for securities linked to such rates.
The state of New York has adopted legislation that requires LIBOR-based
contracts that do not include a fallback to a rate other than LIBOR or an inter-bank quotation poll to use a SOFR-based rate plus a spread
adjustment. On March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act, which provides for the automatic
replacement of U.S. Dollar LIBOR with a benchmark replacement selected by the Board of Governors of the Federal Reserve System in certain
instruments that contain no LIBOR transition or fallback language. The New York and federal statutes each include safe harbors from liability,
which may limit the recourse the Fund may have if the alternative reference rate does not fully compensate the Fund for the transition
of an instrument from LIBOR.
These developments could negatively affect financial markets in
general and present heightened risks, including with respect to the Fund’s investments. As a result of this uncertainty and developments
relating to the transition process, the Fund and its investments may be adversely affected.
Cyber Security Risk. As the use of technology has become
more prevalent in the course of business, the Fund has become potentially more susceptible to operational and informational security risks
resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may,
among other things, cause the Fund to lose proprietary information, suffer data corruption and/or destruction, lose operational capacity,
result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations. In addition,
cyber security breaches involving the Fund’s third party service providers (including but not limited to advisers, administrators,
transfer agents, custodians,
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distributors and other third parties), trading counterparties or
issuers in which the Fund invests in can also subject the Fund to many of the same risks associated with direct cyber security breaches.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce
the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks
may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee
that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers in which the
Fund may invest, trading counterparties or third party service providers to the Fund. There is also a risk that cyber security breaches
may not be detected. The Fund and its shareholders could be negatively impacted as a result.
Anti-Takeover Provisions. The Fund’s Agreement and
Declaration of Trust, and Bylaws include provisions that could limit the ability of other entities or persons to acquire control of the
Fund or convert the Fund to an open-end fund. These provisions could have the effect of depriving common shareholders of opportunities
to sell their common shares at a premium over the then-current market price of the common shares.
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OTHER INFORMATION (Unaudited) |
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Federal Income Tax Information
In January 2024, you will be advised on IRS Form 1099 DIV or substitute
1099 DIV as of the U.S. federal tax status of the distributions received by you in the calendar year 2023.
Sector Classification
Information in the “Portfolio of Investments” is categorized
by sectors using sector-level Classifications used by Bloomberg Industry Classification System, a widely recognized industry classification
system provider. The Fund’s registration statement has investment policies relating to concentration in specific sectors/industries.
For purposes of these investment policies, the Fund usually classifies industries based on industry-level classifications used by widely
recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards
and Barclays Global Classification Scheme.
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Trustees
The Trustees of the Advent Convertible and Income Fund and their
principal business occupations during the past five years:
|
Position(s) |
Term
of Office |
|
Number
of |
|
|
Held |
and
Length |
|
Portfolios
in |
|
Name,
Address |
with |
of
Time |
Principal
Occupation(s) |
Fund
Complex |
Other
Directorships |
and
Year of Birth |
Trust |
Served* |
During
Past Five Years |
Overseen** |
Held
by Trustees |
Independent
Trustees: |
|
|
|
|
Randall
C. |
Trustee
and |
Since
2005 |
Current:
Private Investor (2001-present). |
1 |
Current:
Trustee of funds in the . |
Barnes++ |
Chairman
of |
|
|
|
Guggenheim
Funds fund complex (2003- |
(1951) |
the
Audit |
|
Former:
Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); |
|
present);
funds in the Purpose |
|
Committee |
|
President,
Pizza Hut International (1991-1993); Senior Vice President, Strategic |
|
Investments
Funds (2013-present). |
|
|
|
Planning
and New Business Development, PepsiCo, Inc. (1987-1990). |
|
|
|
|
|
|
|
Former:
Fiduciary/Claymore Energy |
|
|
|
|
|
Infrastructure
Fund (2004-2022); |
|
|
|
|
|
Guggenheim
Enhanced Equity Income |
|
|
|
|
|
Fund
(2005-2021); Guggenheim Credit |
|
|
|
|
|
Allocation
Fund (2013-2021). |
Daniel
L. Black+ |
Trustee |
Since
2005 |
Current:
Managing Partner, the Wicks Group of companies, LLC (2003-present). |
1 |
Current:
Dartmouth College (2019- |
(1960) |
|
|
|
|
present);
Sensata Technologies, Inc. |
|
|
|
Former:
Managing Director and Co-Head of the Merchant Banking Group at |
|
(2021-present). |
|
|
|
BNY
Capital Markets, a division of BNY Mellon (1998-2003); and Co-Head of |
|
|
|
|
|
U.S.
Corporate Banking at BNY Mellon (1995-1998). |
|
Former:
Sontiq, Inc. (2016-2022); Harlem |
|
|
|
|
|
Lacrosse
& Leadership, Inc. (2014-2022); |
|
|
|
|
|
Antenna
International, Inc. (2010-2020); |
|
|
|
|
|
Little
Sprouts, LLC (2015-2018); Bendon |
|
|
|
|
|
Inc.
(2012-2016); Bonded Services, Ltd. |
|
|
|
|
|
(2011-2016). |
80 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
OTHER INFORMATION (Unaudited) continued |
April 30, 2023 |
|
Position(s) |
Term
of Office |
|
Number
of |
|
|
Held |
and
Length |
|
Portfolios
in |
|
Name,
Address |
with |
of
Time |
Principal
Occupation(s) |
Fund
Complex |
Other
Directorships |
and
Year of Birth |
Trust |
Served* |
During
Past Five Years |
Overseen** |
Held
by Trustees |
Independent
Trustees continued: |
|
|
|
|
Derek
Medina+ |
Trustee
and |
Since
2003 |
Current:
Executive Vice President, ABC News (2008-present). |
1 |
Current:
Oliver Scholars (2011-present) |
(1966) |
Chairman
of |
|
|
|
|
|
the
Nominating |
|
Former:
Senior Vice President, Business Affairs and News Planning at ABC |
|
Former:
Young Scholar’s Institute |
|
and
Governance |
|
News
(2003-2008); Executive Director, Office of the President at ABC News |
|
(2005-2020). |
|
Committee |
|
(2000-2003);
Associate at Cleary Gottlieb Steen & Hamilton (law firm) |
|
|
|
|
|
(1995-1998);
Associate in Corporate Finance at J.P. Morgan/Morgan |
|
|
|
|
|
Guaranty
(1988-1990). |
|
|
Ronald A. Nyberg++ |
Trustee |
Since
2003 |
Current:
Of Counsel, Momkus LLP (2016-present). |
|
Current:
Trustee of funds in the |
(1953) |
|
|
|
|
Guggenheim
Funds fund complex |
|
|
|
Former:
Partner, Nyberg & Cassioppi, LLC (2000-2016); Executive Vice |
|
(2003-present);
PPM Funds (2) |
|
|
|
President,
General Counsel, and Corporate Secretary, Van Kampen |
|
(2018-present);
NorthShore- Edward- |
|
|
|
Investments
(1982-1999). |
1 |
Elmhurst
Healthcare (2012-present). |
|
|
|
|
|
|
Former:
Fiduciary/Claymore Energy |
|
|
|
|
|
Infrastructure
Fund (2004-2022); |
|
|
|
|
|
Guggenheim
Enhanced Equity Income |
|
|
|
|
|
Fund
(2005-2021); Guggenheim Credit |
|
|
|
|
|
Allocation
Fund (2013-2021); Western |
|
|
|
|
|
Asset
Inflation-Linked Opportunities & |
|
|
|
|
|
Income
Fund (2004-2020); Western Asset |
|
|
|
|
|
Inflation-Linked
Income Fund (2003-2020). |
Gerald
L. Seizert, |
Trustee |
Since
2003 |
Current:
Managing Partner of Heron Bay Capital Management (2020-present). |
1 |
Current:
University of Toledo Foundation |
CFA,
CIC+ |
|
|
|
|
(2013-present);
Beaumont Hospital |
(1952) |
|
|
Former:
Managing Partner of Seizert Capital Partners (2000-2019); Co-Chief |
|
(2012-present). |
|
|
|
Executive
(1998-1999) and a Managing Partner and Chief Investment Officer – |
|
|
|
|
|
Equities
of Munder Capital Management, LLC (1995-1999); Vice President and |
|
|
|
|
|
Portfolio
Manager of Loomis, Sayles & Co., L.P. (asset manager) (1984-1995); |
|
|
|
|
|
Vice
President and Portfolio Manager at First of America Bank (1978-1984). |
|
|
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 81
|
|
OTHER INFORMATION (Unaudited) continued |
April 30, 2023 |
|
Position(s) |
Term
of Office |
|
Number
of |
|
|
Held |
and
Length |
|
Portfolios
in |
|
Name,
Address |
with |
of
Time |
Principal
Occupation(s) |
Fund
Complex |
Other
Directorships |
and
Year of Birth |
Trust |
Served* |
During
Past Five Years |
Overseen** |
Held
by Trustees |
Independent Trustees continued: |
|
|
|
Michael
A. Smart+ |
Trustee |
Since
2003 |
Current:
Partner, Dominus Capital (2003-present). |
1 |
Current:
Investment Advisory Board, |
(1960) |
|
|
|
|
Autism
Impact Fund (2020-present); |
|
|
|
Former:
Managing Partner, CSW Private Equity (2003-2021); Principal, First |
|
Sprint
Industrial Holdings |
|
|
|
Atlantic
Capital Ltd. (2001-2004); Managing Director, Investment Banking |
|
(2017-present). |
|
|
|
Merrill
Lynch & Co. (1992-2001); Founding Partner, The Carpediem Group |
|
|
|
|
|
(1990-1992)
Dillion Read and Co. (1988-1990). |
|
Former:
Country Pure Foods (2001- |
|
|
|
|
|
2006);
Berkshire Blanket Inc. (2006- |
|
|
|
|
|
2016);
Sqwincher Corporation |
|
|
|
|
|
(2006-2015);
H2O Plus Holdings (2008- |
|
|
|
|
|
2011);
The Mead School (2012-2016); |
|
|
|
|
|
The
Wharton School (2000-2004). |
Nancy
E. Stuebe+ |
Trustee |
Since
2020 |
Current:
Director of Investor Relations, Interactive Brokers Group, Inc. |
1 |
None. |
(1964) |
|
|
(2016-present). |
|
|
|
|
|
|
Former: Senior Equity Analyst & Portfolio Manager, Gabelli
Asset Management |
|
|
|
(2015-2016);
Senior Research Analyst & Portfolio Manager, AIS Capital |
|
|
|
|
|
Management,
LLC (2008-2015); Senior Equity Analyst & Portfolio Manager, |
|
|
|
|
|
Gabelli
Asset Management (2005-2008). |
|
|
82 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
OTHER INFORMATION (Unaudited) continued |
April 30, 2023 |
|
Position(s) |
Term
of Office |
|
Number
of |
|
|
Held |
and
Length |
|
Portfolios
in |
|
Name,
Address |
with |
of
Time |
Principal
Occupation(s) |
Fund
Complex |
Other
Directorships |
and
Year of Birth |
Trust |
Served* |
During
Past Five Years |
Overseen** |
Held
by Trustees |
Interested Trustee: |
|
|
|
|
Tracy
V. Maitland+ø |
Trustee, |
Since
2003 |
Current:
President and Founder, Advent Capital Management, LLC |
1 |
None. |
(1960) |
Chairman, |
|
(2001-present). |
|
|
|
President
and |
|
|
|
|
|
Chief
Executive |
|
|
|
|
|
Officer |
|
|
|
|
+ | | Address
of all Trustees noted: 888 Seventh Avenue, 31st Floor, New York, NY 10019. |
++ | | Address
of all Trustees noted: 227 West Monroe Street, Chicago, IL 60606. |
* | | After a
Trustee’s initial term, each Trustee is expected to serve a three-year term concurrent
with the class of Trustees for which he serves: |
- Mr. Gerald L. Seizert, Mr. Derek Medina and Mr. Randall
C. Barnes are the Class I Trustees of the Fund. The term of the Class I Trustees will continue until the 2023 annual meeting of shareholders
or until successors shall have been elected and qualified.
- Mr. Daniel L. Black, Mr. Michael A. Smart and Ms. Nancy
E. Stuebe are the Class II Trustees of the Fund. The term of the Class II Trustees will continue until the 2023 annual meeting of shareholders
or until successors shall have been elected and qualified.
- Mr. Tracy V. Maitland and Mr. Ronald A. Nyberg are the
Class III Trustees of the Fund. The term of the Class III Trustees will continue until the 2024 annual meeting of shareholders or until
successors shall have been elected and qualified.
** | | As of
period end. The Fund is the only fund in the “Fund Complex. ” |
ø | | Mr.
Maitland is an “interested person” (as defined in section 2(a)(19) of the 1940
Act) of the Fund because of his position as an officer of Advent Capital Management, LLC,
the Fund’s Investment Adviser. |
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 83
|
|
OTHER INFORMATION (Unaudited) continued |
April 30, 2023 |
Officers
The Officers of the Advent Convertible and Income Fund, who are
not Trustees, and their principal occupations during the past five years:
|
Position(s) |
|
|
|
held |
Term
of Office |
|
Name,
Address* |
with
the |
and
Length of |
|
and
Year of Birth |
Trust |
Time
Served** |
Principal
Occupations During Past Five Years |
Officers: |
|
|
|
Stephen
Ellwood |
Chief |
Since
June 2023 |
Current:
General Counsel and Chief Compliance Officer, Advent Capital Management, LLC (June 2023-present). |
(1970) |
Compliance |
|
|
|
Officer
and |
|
Former:
Chief Legal Officer and Chief Compliance Officer, Semper Capital Management, L.P. (2019-2023); General Counsel and Global Chief |
|
Secretary |
|
Compliance
Officer, Structured Portfolio Management, LLC (2015-2019); Chief Compliance Officer, Arrowgrass Capital Partners (US) LP (2011- |
|
|
|
2015);
General Counsel and Chief Compliance Officer, Quattro Global Capital, LLC (2007-2011); Chief Compliance Officer, Greywolf Capital |
|
|
|
Management,
LP (2006-2007); Chief Compliance Officer and Counsel, Forest Investment Management LLC (2004-2006); Director and Counsel, |
|
|
|
MacKay
Shields LLC (1999-2003); Compliance Associate, Goldman Sachs & Co. (Asset Management Division) (1998-1999); Compliance Officer, |
|
|
|
Societe
Generale Asset Management (1997-1998). |
Tony
Huang |
Vice
President |
Since
2014 |
Current:
Director and Co-Portfolio Manager, Advent Capital Management, LLC (2007-present). |
(1976) |
and
Assistant |
|
|
|
Secretary |
|
Former:
Senior Vice President, Portfolio Manager and Analyst, Essex Investment Management (2001-2006); Vice President, Analyst, Abacus |
|
|
|
Investments
(2001); Vice President, Portfolio Manager, M/C Venture Partners (2000-2001); Associate, Fidelity Investments (1996-2000). |
Robert
White |
Treasurer
and |
Since
2005 |
Current:
Chief Financial Officer, Advent Capital Management, LLC (2005-present). |
(1965) |
Chief |
|
|
|
Financial |
|
Former:
Vice President, Client Service Manager, Goldman Sachs Prime Brokerage (1997-2005). |
|
Officer |
|
|
* | | Address
for all Officers: 888 Seventh Avenue, 31st Floor, New York, NY 10019. |
** | | Officers
serve at the pleasure of the Board of Trustees and until his or her successor is appointed
and qualified or until his or her earlier resignation or removal. |
84 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
DIVIDEND REINVESTMENT PLAN (Unaudited) |
April 30, 2023 |
Unless the registered owner of common shares elects to receive
cash by contacting the Plan Administrator, all dividends declared on common shares of the Fund will be automatically reinvested by Computershare
Trust Company, N.A. (the “Plan Administrator”), Administrator for shareholders in the Fund’s Dividend Reinvestment Plan
(the “Plan”), in additional common shares of the Fund. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date;
otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some
brokers may automatically elect to receive cash on your behalf and may re-invest that cash in additional common shares of the Fund for
you. If you wish for all dividends declared on your common shares of the Fund to be automatically reinvested pursuant to the Plan, please
contact your broker.
The Plan Administrator will open an account for each common shareholder
under the Plan in the same name in which such common shareholder’s common shares are registered. Whenever the Fund declares a dividend
or other distribution (together, a “Dividend”) payable in cash, nonparticipants in the Plan will receive cash and participants
in the Plan will receive the equivalent in common shares. The common shares will be acquired by the Plan Administrator for the participants’
accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares
from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding common shares on the open market (“Open-Market
Purchases”) on the New York Stock Exchange or elsewhere. If, on the payment date for any Dividend, the closing market price plus
estimated brokerage commission per common share is equal to or greater than the net asset value per common share, the Plan Administrator
will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares
to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the net asset value
per common share on the payment date; provided that, if the net asset value is less than or equal to 95% of the closing market value on
the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per common share on the payment
date. If, on the payment date for any Dividend, the net asset value per common share is greater than the closing market value plus estimated
brokerage commission, the Plan Administrator will invest the Dividend amount in common shares acquired on behalf of the participants in
Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market
Purchases, the market price per common share exceeds the net asset value per common share, the average per common share purchase price
paid by the Plan Administrator may exceed the net asset value of the common shares, resulting in the acquisition of fewer common shares
than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator
may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at net
asset value per common share at the close of business on the Last Purchase Date provided that, if the net asset value is less than or
equal to 95% of the then current market price per common share; the dollar amount of the Dividend will be divided by 95% of the market
price on the payment date.
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 85
|
|
DIVIDEND REINVESTMENT PLAN (Unaudited) continued |
April 30, 2023 |
The Plan Administrator maintains all shareholders’ accounts
in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax
records. Common shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant,
and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all
proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instruction of the
participants.
There will be no brokerage charges with respect to common shares
issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commission incurred in connection with Open-Market
Purchases. The automatic reinvestment of Dividends will not relieve participants of any Federal, state or local income tax that may be
payable (or required to be withheld) on such Dividends.
The Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan
to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed
to the Plan Administrator, Computershare Trust Company, N.A., P.O. Box 30170 College Station, TX, 77842-3170; Attention: Shareholder Services
Department, Phone Number: (866) 488-3559 or online at www.computershare.com/investor.
86 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
|
|
FUND INFORMATION |
April 30, 2023 |
Board
of Trustees
Randall C. Barnes
Daniel L. Black
Tracy V. Maitland,*
Chairman
Derek Medina
Ronald A. Nyberg
Gerald L. Seizert
Michael A. Smart
Nancy E. Stuebe
* Trustee
is an “interested person” of the Fund
as defined in the Investment Company Act of
1940, as amended.
Officers
Tracy V. Maitland
President and Chief Executive Officer
Robert White
Treasurer and Chief Financial Officer
Stephen Ellwood
Chief Compliance Officer
Tony Huang
Vice President and Assistant Secretary
|
Investment Adviser
Advent Capital Management, LLC
New York, NY
Servicing Agent
Guggenheim Funds Distributors, LLC
Chicago, IL
Accounting Agent and Custodian
The Bank of New York Mellon
New York, NY
Administrator
MUFG Investor Services (US), LLC
Rockville, MD
Transfer Agent
Computershare Trust Company, N.A.
Jersey City, NJ
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, NY
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
New York, NY
|
AVK l ADVENT CONVERTIBLE AND INCOME FUND
SEMIANNUAL REPORT l 87
|
|
FUND INFORMATION continued |
April 30, 2023 |
Portfolio Managers of the Fund
The portfolio managers of the Fund are Tracy Maitland (President
and Chief Investment Officer of Advent), Paul Latronica (Managing Director of Advent) and Tony Huang (Director of Advent).
Privacy Principles of the Fund
The Fund is committed to maintaining the privacy of its shareholders
and to safeguarding their non-public personal information. The following information is provided to help you understand what personal
information the Fund collects, how the Fund protects that information and why, in certain cases, the Fund may share information with select
other parties.
Generally, the Fund does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The
Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted
by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
The Fund restricts access to non-public personal information about
its shareholders to employees of the Fund’s Investment Adviser and its affiliates with a legitimate business need for the information.
The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.
Questions concerning your shares of Advent Convertible and Income
Fund?
• If your shares are held in a Brokerage Account, contact
your Broker.
• If you have physical possession of your shares in certificate
form, contact the Fund’s Transfer Agent: Computershare Trust Company, N.A., P.O. Box 30170, College Station, TX 77842-3170; (866)
488-3559 or online at www.computershare.com/investor.
This report is sent to shareholders of Advent Convertible and Income
Fund for their information. It is not a Prospectus, circular or representation intended for use in the purchase or sale of shares of the
Fund or of any securities mentioned in this report.
Paper copies of the Fund’s annual and semi-annual shareholder
reports are not sent by mail, unless you specifically request paper copies of the reports. Instead, the reports are made available on
a website, and you are notified by mail each time a report is posted and provided with a website address to access the report.
You may elect to receive paper copies of all future shareholder
reports free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you
may receive paper copies of your shareholder reports; if you invest directly with the Fund, you may call Computershare at 1-866-488-3559.
Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you
invest directly, to all Guggenheim closed-end funds you hold.
A description of the Fund’s proxy voting policies and procedures
related to portfolio securities is available without charge, upon request, by calling the Fund at (866) 274-2227. Information regarding
how the Fund voted proxies for portfolio securities, if applicable, during the most recent 12-month period ended June 30, is also available,
without charge and upon request by calling the Fund at (866) 274-2227, by visiting the Fund’s website at guggenheiminvestments.com/avk
or by accessing the Fund’s Form N-PX on the U.S. Securities & Exchange Commission’s (“SEC”) website at www.sec.gov.
The Fund files its complete schedule of portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-PORT, and for the reporting periods ended prior to July 31, 2019,
filed such information on Form N-Q. The Fund’s Forms N-PORT and N-Q are available on the SEC website at www.sec.gov or by visiting
the Fund’s website at guggenheiminvestments.com/avk.
Notice to Shareholders
Notice is hereby given in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended that the Fund from time to time may purchase shares of its common stock in the open market
or in private transactions.
88 l AVK l ADVENT CONVERTIBLE
AND INCOME FUND SEMIANNUAL REPORT
This Page Intentionally Left Blank
This Page Intentionally Left Blank
This Page Intentionally Left Blank
ABOUT THE FUND MANAGER
Advent Capital Management, LLC
Advent Capital Management, LLC (“Advent”) is a registered
investment adviser, based in New York, which specializes in convertible and high-yield securities for institutional and individual investors.
The firm was established by Tracy V. Maitland, a former Director in the Convertible Securities sales and trading division of Merrill Lynch.
Advent’s investment discipline emphasizes capital structure research, encompassing equity fundamentals as well as credit research,
with a focus on cash flow and asset values while seeking to maximize total return.
Investment Philosophy
Advent believes that superior returns can be achieved while reducing
risk by investing in a diversified portfolio of global equity, convertible and high-yield securities. Advent seeks securities with attractive
risk/reward characteristics. Advent employs a bottom-up security selection process across all of the strategies it manages. Securities
are chosen from those that Advent believes have stable-to-improving fundamentals and attractive valuations.
Investment Process
Advent manages securities by using a strict four-step process:
1 Screen the convertible and high-yield markets for securities
with attractive risk/reward characteristics and favorable cash flows;
2 Analyze the quality of issues to help manage downside
risk;
3 Analyze fundamentals to identify catalysts for favorable
performance; and
4 Continually monitor the portfolio for improving or deteriorating
trends in the financials of each investment.
|
|
Advent Capital Management, LLC |
Guggenheim Funds Distributors, LLC |
888 Seventh Avenue, 31st Floor |
227 West Monroe Street |
New York, NY 10019 |
Chicago, IL 60606 |
|
Member FINRA/SIPC |
|
(06/23) |
NOT FDIC-INSURED l NOT BANK-GUARANTEED
l MAY LOSE VALUE
CEF-AVK-SAR-0423
Item 2. Code of Ethics.
Not applicable for a semi-annual reporting period.
Item 3. Audit Committee Financial Expert.
Not applicable for a semi-annual reporting period.
Item 4. Principal Accountant Fees and Services.
Not applicable for a semi-annual reporting period.
Item 5. Audit Committee of Listed Registrants.
Not applicable for a semi-annual reporting period.
Item 6. Schedule of Investments.
The Schedule of Investments is included as part of Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies.
Not applicable for a semi-annual reporting period.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
| (a) | Not applicable for a semi-annual reporting period. |
| (b) | There has been no change, as of the date of this filing, in the Portfolio Managers identified in response to paragraph (a)(1) of this
Item in the registrant’s most recent annual report on Form N-CSR. |
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not made any material changes to the procedures
by which shareholders may recommend nominees to the registrant’s Board of Trustees.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act)
as of a date within 90 days of this filing and have concluded based on such evaluation, as required by Rule 30a-3(b) under the Investment
Company Act, that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required
to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the registrant's period covered
by this report that have materially affected, or are 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.
(a) The registrant has not participated in securities lending activities
during the period covered by this report.
(b) Not applicable.
Item 13. Exhibits.
(a)(1) Not applicable.
(a)(2) Certification of principal executive officer and principal financial officer pursuant to Rule 30a-2(a) of the Investment Company Act.
(a)(3) Not applicable.
(b) Certification of principal executive officer and principal financial officer pursuant to Rule 30a-2(b) of the Investment Company Act and Section 906 of the Sarbanes-Oxley Act of 2002.
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.
Advent Convertible and Income Fund
By: /s/ Tracy V.
Maitland
Name: Tracy V. Maitland
Title: President and Chief Executive Officer
Date: July 5, 2023
Pursuant to the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Tracy V.
Maitland
Name: Tracy V. Maitland
Title: President and Chief Executive Officer
Date: July 5, 2023
By: /s/ Robert White
Name: Robert White
Title: Treasurer and Chief Financial Officer
Date: July 5, 2023
EXHIBIT (a) (2)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATIONS
I, Tracy V. Maitland, certify that:
1. I have reviewed this report on Form N-CSR
of Advent Convertible and Income Fund;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results of operations,
changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
for the registrant and have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer
and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: July 5, 2023
/s/ Tracy V. Maitland
Tracy V. Maitland
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATIONS
I, Robert White, certify that:
1. I have reviewed this report on Form N-CSR
of Advent Convertible and Income Fund;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results of operations,
changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
for the registrant and have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer
and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: July 5, 2023
/s/ Robert White
Robert White
Treasurer and Chief Financial Officer
EXHIBIT (b)
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
In connection with the Report on Form N-CSR of Advent Convertible
and Income Fund (the “Company”) for the semi-annual period ended April 30, 2023 (the “Report”), Tracy V. Maitland,
as President and Chief Executive Officer of the Company, and Robert White, as Treasurer and Chief Financial Officer of the Company, each
hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
Dated: July 5, 2023
/s/ Tracy V.
Maitland
Name: Tracy V. Maitland
Title: Chief Executive Officer
/s/ Robert White
Name: Robert White
Title: Chief Financial Officer
v3.23.2
N-2
|
6 Months Ended |
Apr. 30, 2023
shares
|
Cover [Abstract] |
|
Entity Central Index Key |
0001219120
|
Amendment Flag |
false
|
Document Type |
N-CSRS
|
Entity Registrant Name |
Advent Convertible and Income Fund
|
General Description of Registrant [Abstract] |
|
Investment Objectives and Practices [Text Block] |
The Fund’s investment objective is to provide total return
through a combination of capital appreciation and current income. Under normal market conditions, the Fund will invest at least 80% of
its managed assets in a diversified portfolio of convertible securities and non-convertible income securities. Under normal market conditions,
the Fund will invest at least 30% of its managed assets in convertible securities and up to 70% of its managed assets in non-convertible
income securities. The Fund may invest without limitation in securities of foreign issuers.
|
Risk [Text Block] |
Investors
should consider the following risk factors and special considerations associated with investing in the Fund. Investors should be aware
that in light of the current uncertainty, volatility and distress in economies, financial markets, and labor and health conditions over
the world, the risks below are heightened significantly compared to normal conditions and therefore subject the Fund’s investments
and a shareholder’s investment in the Fund to elevated investment risk, including the possible loss of the entire principal amount
invested. Investment and Market Risk. An investment in the Fund is
subject to investment risk, particularly under current economic, financial, labor and health conditions, including the possible loss of
the entire principal amount that you invest. An investment in the common shares of the Fund represents an indirect investment in the securities
owned by the Fund. The value of, or income generated by, the investments held by the Fund are subject to the possibility of rapid and
unpredictable fluctuation. These movements may result from factors affecting individual companies, or from broader influences, including
real or perceived changes in prevailing interest rates, changes in inflation or expectations about inflation, investor confidence or economic,
political, social or financial market conditions (such as the current contentious political climate in the United States), environmental
disasters, governmental actions, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and other
similar events, that each of which may be temporary or last for extended periods of time. Different sectors, industries and security types
may react differently to such developments and, when the market performs well, there is no assurance that the Fund’s investments
will increase in value along with the broader markets. Volatility of financial markets, including potentially extreme volatility caused
by the events described above, can expose the Fund to greater market risk than normal, possibly resulting in greatly reduced liquidity.
At any point in time, your common shares may be worth less than your original investment, including the reinvestment of Fund dividends
and distributions.
Market Discount Risk. Shares of closed-end management investment
companies frequently trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Fund’s
net asset value could decrease as a result of its investment activities. Although the value of the Fund’s net assets is generally
considered by market participants in determining whether to purchase or sell common shares, and at what price to do so, whether investors
will realize gains or losses upon the sale of common shares will depend entirely upon whether the market price of common shares at the
time of sale is above or below the investor’s purchase price for common shares. Because the market price of common shares will be
determined by factors such as net asset value, dividend and distribution levels (which are dependent, in part, on expenses), supply of
and demand for common shares, stability of dividends or distributions, trading volume of common shares, general market and economic conditions and other factors
beyond the control of the Fund, the Fund cannot predict whether common shares will trade at, below or above net asset value or at, below
or above an investor’s initial purchase price for common shares.
Convertible Securities Risk. Convertible securities are
hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities involve risks similar
to those of both fixed income and equity securities. In a corporation’s capital structure, convertible securities are senior to
common stock, but are usually subordinated to senior debt obligations of the issuer.
The market value of a convertible security is a function of its
“investment value” and its “conversion value.” A security’s “investment value” represents the
value of the security without its conversion feature (i.e., a nonconvertible fixed income security). The investment value may be determined
by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial
strength of the issuer, and the seniority of the security in the issuer’s capital structure. A security’s “conversion
value” is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current
price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock and its market value will not be influenced greatly by fluctuations in
the market price of the underlying security. In that circumstance, the convertible security takes on the characteristics of a bond, and
its price moves in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or
above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market
price of the underlying security. In that case, the convertible security’s price may be as volatile as that of common stock. Because
both interest rates and market movements can influence its value, a convertible security generally is not as sensitive to interest rates
as a similar fixed income security, nor is it as sensitive to changes in share price as its underlying equity security. Convertible securities
are often rated below investment grade or are not rated.
Although all markets are prone to change over time, the generally
high rate at which convertible securities are retired (through mandatory or scheduled conversions by issuers or through voluntary redemptions
by holders) and replaced with newly issued convertibles may cause the convertible securities market to change more rapidly than other
markets. For example, a concentration of available convertible securities in a few economic sectors could elevate the sensitivity of the
convertible securities market to the volatility of the equity markets and to the specific risks of those sectors. Moreover, convertible
securities with innovative structures, such as mandatory-conversion securities and equity-linked securities, have increased the sensitivity
of the convertible securities market to the volatility of the equity markets and to the special risks of those innovations, which may
include risks different from, and possibly greater than, those associated with traditional convertible securities. A convertible security
may be subject to redemption at the option of the issuer at a price set in the governing instrument of the convertible security. If a
convertible security held by the Fund is subject to such redemption option and is called for redemption, the Fund must allow the issuer
to redeem the security, convert it into the underlying common stock, or sell the security to a third party.
As a result of the conversion feature, convertible securities typically
offer lower interest rates than if the securities were not convertible. During periods of rising interest rates, it is possible that the potential for capital gain on convertible securities may be less
than that of a common stock equivalent if the yield on the convertible security is at a level that would cause it to sell at a discount.
Also, in the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional
securities are issued, a stock dividend is declared, or the issuer enters into another type of corporate transaction which increases its
outstanding securities.
Structured and Synthetic Convertible Securities Risk. The
value of structured and synthetic convertible securities can be affected by interest rate changes and credit risks of the issuer. Such
securities may be structured in ways that limit their potential for capital appreciation and the entire value of the security may be at
a risk of loss depending on the performance of the underlying equity security. Structured and synthetic convertible securities may be
less liquid than other convertible securities. The value of a synthetic convertible security will respond differently to market fluctuations
than a convertible security because a synthetic convertible security is composed of two or more separate securities, each with its own
market value. In addition, if the value of the underlying common stock or the level of the index involved in the convertible component
falls below the exercise price of the warrant or option, the warrant or option may lose all value.
Equity Securities Risk. Equity securities risk is the risk
that the value of the securities held by the Fund will fall due to general market and economic conditions, perceptions regarding the industries
in which the issuers of securities held by the Fund participate or factors relating to specific companies in which the Fund invests. Stock
of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among
other reasons, the issuer of the security experiences a decline in its financial condition. Common stock in which the Fund may invest
is structurally subordinated to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of
priority to corporate income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such
issuers. In addition, while common stock has historically generated higher average returns than fixed income securities, common stock
has also experienced significantly more volatility in those returns. An adverse event, such as an unfavorable earnings report, may depress
the value of common stock of an issuer held by the Fund. Common stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based
on various and unpredictable factors including expectations regarding: government, economic, monetary and fiscal policies; inflation and
interest rates; economic expansion or contraction; and global or regional political, economic and banking crises.
Interest Rate Risk. Convertible securities and non-convertible
income-producing securities (including preferred stock and debt securities) (collectively “income securities”) are subject
to certain interest rate risks, including:
• If interest rates go up, the value of income securities
in the Fund’s portfolio generally will decline. These risks may be greater in the current market environment because while interest
rates were historically low in past years, the Fed has been increasing the Federal Funds rate to address inflation.
• During periods of rising interest rates, the average life
of certain types of income securities may be extended because of slower than expected principal payments. This may lock in a below
market interest rate, increase the security’s duration (the
estimated period until the security is paid in full) and reduce the value of the security. This is known as extension risk.
• During periods of declining interest rates, the issuer of
an income security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding
income securities. This is known as call or prepayment risk. Lower grade income securities have call features that allow the issuer to
repurchase the security prior to its stated maturity. An issuer may redeem a lower grade income security if the issuer can refinance the
security at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer.
• Interest rate risk may be more pronounced in the current
market environment with interest rates rising in response to inflation.
Credit Risk. Credit risk is the risk that one or more income
securities in the Fund’s portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the
security experiences a decline in its financial status. The Fund’s investments in income securities involve credit risk. However,
in general, lower rated, lower grade and noninvestment grade income securities carry a greater degree of risk that the issuer will lose
its ability to make interest and principal payments, which could have a negative impact on the Fund’s net asset value or dividends.
Lower Grade Securities Risk. Investing in lower grade and
non-investment grade securities involves additional risks. Securities of below investment grade quality are commonly referred to as “junk
bonds” or “high yield securities.” Investment in securities of below investment grade quality involves substantial risk
of loss. Securities of below investment grade quality are predominantly speculative with respect to the issuer’s capacity to pay
interest and repay principal when due and therefore involve a greater risk of default or decline in market value due to adverse economic
and issuer-specific developments. Issuers of below investment grade securities are not perceived to be as strong financially as those
with higher credit ratings. Issuers of lower grade securities may be highly leveraged and may not have available to them more traditional
methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the
case with higher rated securities. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers,
which may impair their ability to make interest and principal payments. The issuer’s ability to service its debt obligations also
may be adversely affected by specific issuer developments, the issuer’s inability to meet specific projected business forecasts
or the unavailability of additional financing. Therefore, there can be no assurance that in the future there will not exist a higher default
rate relative to the rates currently existing in the market for lower grade securities. The risk of loss due to default by the issuer
is significantly greater for the holders of lower grade securities because such securities may be unsecured and may be subordinate to
other creditors of the issuer. Securities of below investment grade quality display increased price sensitivity to changing interest rates
and to a deteriorating economic environment. The market values for securities of below investment grade quality tend to be more volatile
and such securities tend to be less liquid than investment grade debt securities. To the extent that a secondary market does exist for
certain below investment grade securities, the market for them may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods.
Debt Securities Risk. Debt securities are subject to a variety
of risks, such as interest rate risk, income risk, call/prepayment risk, inflation risk, credit risk, and (in the case of foreign securities)
country risk and currency risk. The reorganization of an issuer
under the federal bankruptcy laws may result in the issuer’s debt securities being cancelled without repayment, repaid only in part,
or repaid in part or in whole through an exchange thereof for any combination of cash, debt securities, convertible securities, equity
securities, or other instruments or rights in respect of the same issuer or a related entity.
Preferred Securities Risk. There are special risks associated
with investing in preferred securities, including:
Deferral. Preferred securities may include provisions that
permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the
Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income.
Non-Cumulative Dividends. Some preferred stocks are non-cumulative,
meaning that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative
preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of
a non-cumulative preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays
may be adversely affected. There is no assurance that dividends or distributions on noncumulative preferred stocks in which the Fund invests
will be declared or otherwise made payable.
Subordination. Preferred securities are subordinated to
bonds and other debt instruments in a company’s capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt instruments.
Liquidity. Preferred securities may be substantially less
liquid than many other securities, such as common stocks or U.S. government securities.
Limited Voting Rights. Generally, preferred security holders
(such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified
number of periods, at which time the preferred security holders may have the right to elect a number of directors to the issuer’s
board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
Special Redemption Rights. In certain varying circumstances,
an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities,
a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer
may negatively impact the return of the security held by the Fund.
Foreign Securities Risk. Investing in foreign issuers or
securities denominated in non-U.S. currencies may involve certain risks not typically associated with investing in securities of U.S.
issuers due to increased exposure to foreign economic, political and legal developments, including favorable or unfavorable changes in
currency exchange rates, exchange control regulations (including currency blockage), confiscatory taxation, political or social instability,
illiquidity, price volatility, market manipulation, expropriation or nationalization of assets, imposition of withholding taxes on payments,
and possible difficulty in obtaining and enforcing judgments against foreign entities.
Furthermore, issuers of foreign securities and obligations are
subject to different, often less comprehensive, accounting, reporting and disclosure requirements than domestic issuers. The securities
and obligations of some foreign companies and foreign markets are less liquid and at times more volatile than comparable U.S. securities,
obligations and markets. Securities markets in foreign countries often are not as developed, efficient or liquid as securities markets
in the United States, and therefore, the prices of foreign securities can be more volatile. Certain foreign countries may impose restrictions
on the ability of issuers to make payments of principal and interest to investors located outside the country. In the event of nationalization,
expropriation or other confiscation, the Fund could lose its entire investment in a foreign security. Transaction costs of investing outside
the U.S. are generally higher than in the U.S. Higher costs result because of the cost of converting a foreign currency to dollars, the
payment of fixed brokerage commissions on some foreign exchanges and the imposition of transfer taxes or transaction charges by foreign
exchanges. Non-U.S. markets also have different clearance and settlement procedures which in some markets have at times failed to keep
pace with the volume of transactions, thereby creating substantial delays and settlement failures that could adversely affect the Fund’s
performance. Foreign brokerage commissions and other fees are also generally higher than in the United States. There are also special
tax considerations which apply to securities and obligations of foreign issuers and securities and obligations principally traded overseas.
These risks may be more pronounced to the extent that the Fund invests a significant amount of its assets in companies located in one
country or geographic region, in which case the Fund may be more exposed to regional economic risks, and to the extent that the Fund invests
in securities of issuers in emerging markets.
On January 31, 2020, the United Kingdom (“UK”) officially
withdrew from the European Union (“EU”). Following a transition period, the United Kingdom and the EU signed a Trade and Cooperation
Agreement (“UK/EU Trade Agreement”), which came into full force on May 1, 2021 and set out the foundation of the economic
and legal framework for trade between the United Kingdom and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation
of the UK/EU Trade Agreement may result in uncertainty in its application and periods of volatility in both the UK and wider European
markets. The UK’s exit from the EU (“Brexit”) is expected to result in additional trade costs and disruptions in this
trading relationship. Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that
regulatory standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global
financial markets, and adversely affect the performance of the Fund.
In addition to the effects on the Fund’s investments in European
issuers, the unavoidable uncertainties and events related to Brexit could negatively affect the value and liquidity of the Fund’s
other investments, increase taxes and costs of business and cause volatility in currency exchange rates and interest rates. European,
UK or worldwide political, regulatory, economic or market conditions and could contribute to instability in political institutions, regulatory
agencies and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws and regulations as
the new relationship between the UK and EU is further defined and as the UK determines which EU laws to replace or replicate. In addition,
Brexit could lead to further disintegration of the EU and related political stresses (including those related to sentiment against cross
border capital movements and activities of investors like the Fund), prejudice to financial services businesses that are conducting business
in the EU and which are based in the UK, legal uncertainty regarding achievement of compliance with applicable financial and commercial
laws and
regulations in view of the expected steps to be taken pursuant
to or in contemplation of Brexit. Any of these effects of Brexit, and others that cannot be anticipated, could adversely affect the Fund’s
business, results of operations and financial condition.
Emerging Markets Risk. Investments in securities the issuers
of which are located in countries considered to be emerging markets are subject to heightened risks relative to foreign investing generally
and are considered speculative. Investing in emerging market countries involves certain risks not typically associated with investing
in the United States, and it imposes risks greater than, or in addition to, risks of investing in more developed foreign countries. These
risks include, but are not limited to, the following: greater risks of nationalization or expropriation of assets or confiscatory taxation;
currency devaluations and other currency exchange rate fluctuations; greater social, economic, and political uncertainty and instability
(including amplified risk of war and terrorism); more substantial government involvement in the economy; less government supervision and
regulation of the securities markets and participants in those markets, and possible arbitrary and unpredictable enforcement of securities
regulations; controls on foreign investment and limitations on repatriation of invested capital and on the Fund’s ability to exchange
local currencies for U.S. dollars; unavailability of currency-hedging techniques in certain emerging market countries; the fact that companies
in emerging market countries may be smaller, less seasoned, or newly organized; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material information about issuers; the risk that it may be more difficult
to obtain and/or enforce a judgment in a court outside the United States; and greater price volatility, substantially less liquidity,
and significantly smaller market capitalization of securities markets. Compared to developed countries, emerging market countries may
have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities.
Securities issued by companies located in emerging market countries tend to be especially volatile and may be less liquid than securities
traded in developed countries. In the past, securities in these countries have been characterized by greater potential loss than securities
of companies located in developed countries. Foreign investment in certain emerging market countries may be restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market issuers and
increase the costs and expenses of the Fund. Certain emerging market countries require governmental approval prior to investments by foreign
persons in a particular issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase
by domiciliaries of the countries and/or impose additional taxes on foreign investors.
Investments in issuers located in emerging markets pose a greater
degree of systemic risk. The inter-relatedness of institutions within a country and among emerging market economies has increased in recent
years. Institutional failures or economic difficulties may spread throughout a country, region or emerging market countries throughout
the world, which may limit the ability of the Fund to manage risk through geographic diversification. Bankruptcy law and creditor reorganization
processes may differ substantially from those in the United States, resulting in greater uncertainty as to the rights of creditors, the
enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. Foreign Currency Risk. The Fund’s investment performance
may be negatively affected by a devaluation of a currency in which the Fund’s investments are denominated or quoted. Further, the
Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because
the U.S. dollar value of securities denominated or quoted in another currency will increase or decrease in response to changes in the
value of such currency in relation to the U.S. dollar. Foreign currency rates may fluctuate significantly over short periods of time for
various reasons, including changes in interest rates, inflation, balance of payments, governmental surpluses or deficits, intervention
or non-intervention by U.S. or foreign governments, central banks or supranational entities, the imposition of currency controls and political
developments in the U.S. and abroad. The Fund may, but is not required, to seek to protect itself from changes in currency exchange rates
through hedging transactions depending on market conditions. There can be no assurance that such strategies will be available or will
be used by the Fund or, if used, will be successful. Certain countries, particularly emerging market countries, may impose foreign currency
exchange controls or other restrictions on the repatriation, transferability or convertibility of currency. The Fund may attempt within
the parameters of currency and exchange controls that may be in effect, to obtain rights to exchange its invested capital, dividends,
interest, fees, other distributions and capital gains into convertible currencies. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange rates have been highly volatile in recent years. The combination of volatility
and leverage gives rise to the possibility of large profit and large loss. In addition, there is counterparty risk since currency trading
is done on a principal to principal basis.
CLO Risk
CLOs often involve risks that are different from or more acute
than risks associated with other types of income securities, including: (1) the possibility that distributions from collateral assets
will not be adequate to make interest or other payments; (2) the quality of the collateral may decline in value or default; (3) investments
in CLO junior debt tranches and CLO subordinated notes will likely be subordinate in right of payment to other senior classes of CLO debt;
and (4) the complex structure of a particular security may not be fully understood at the time of investment and may produce disputes
with the issuer or unexpected investment results.
There may be less information available to the Fund regarding the
underlying investments held by CLOs than if the Fund had invested directly in securities of the underlying issuers. Fund shareholders
will not know the details of the underlying investments of the CLOs in which the Fund invests. Due to their often complicated structures,
various CLOs may be difficult to value and may constitute illiquid investments. In addition, there can be no assurance that a liquid market
will exist in any CLO when the Fund seeks to sell its interest therein. Moreover, the value of CLOs may decrease if the ratings agencies
reviewing such securities revise their ratings criteria and, as a result, lower their original rating of a CLO in which the Fund has invested.
Further, the complex structure of the security may produce unexpected investment results. Also, it is possible that the Fund’s investment
in a CLO will be subject to certain contractual limitations on transfer.
The market value of CLO securities may be affected by, among other
things, changes in the market value of the underlying assets held by the CLOs, changes in the distributions on the underlying assets,
defaults and recoveries on the underlying assets, capital gains and losses on the underlying
assets, prepayments on underlying assets and the availability,
prices and interest rate of underlying assets. Therefore, changes in the market value of the Fund’s CLO investments could be greater
than the change in the market value of the underlying instruments.
As a result, as an investor in a CLO, the Fund is subject to the
risk of default by borrowers on the loans held by the CLO. The Federal Reserve has recently implemented several increases to the Federal
Funds rate and may in the future implement additional rate increases. Increases in interest rates may adversely impact the ability of
borrowers to meet interest payment obligations on loans held by a CLO and increase the likelihood of default. A downturn in any particular
industry or borrower in which a CLO is heavily invested may subject that vehicle, and in turn the Fund, to a risk of significant loss
and could significantly impact the aggregate returns realized by the Fund. Although a CLO’s holdings are typically diversified by
industry and borrower, an increase in interest rates coupled with a general economic downturn may result in an increase in defaults on
loans across various sectors of the economy.
Investments in primary issuances of CLO securities may involve
certain additional risks. Between the pricing date and the effective date of a CLO, the CLO collateral manager will generally expect to
purchase additional collateral obligations for the CLO. During this period, the price and availability of these collateral obligations
may be adversely affected by a number of market factors, including price volatility and availability of investments suitable for the CLO,
which could hamper the ability of the collateral manager to acquire a portfolio of collateral obligations that will satisfy specified
concentration limitations and allow the CLO to reach the target initial par amount of collateral prior to the effective date. An inability
or delay in reaching the target initial par amount of collateral may adversely affect the timing and amount of interest or principal payments
received by the holders of the CLO debt securities and distributions on the CLO subordinated notes and could result in early redemptions
which may cause CLO debt and subordinated note investors to receive less than face value of their investment.
The failure by a CLO to satisfy financial covenants, including
with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to securityholders,
including the Fund. In the event that a CLO fails certain tests, holders of CLO senior debt may be entitled to additional payments that
would, in turn, reduce the payments that holders of junior debt and subordinated securities would otherwise be entitled to receive.
In recent years there has been a marked increase in the number
of, and flow of capital into, investment vehicles established to pursue investments in CLO securities whereas the size of this market
is relatively limited. Such increase may result in greater competition for investment opportunities, which may result in an increase in
the price of such investments relative to the risk taken on by holders of such investments. In addition, the volume of new CLO issuances
varies over time as a result of a variety of factors including new regulations, changes in interest rates, and other market forces. Such
competition may also result under certain circumstances in increased price volatility or decreased liquidity with respect to certain positions.
CLO Management Risk. The activities of any CLO in which
the Fund may invest will generally be directed by a collateral manager. In the Fund’s capacity as holder of CLO securities, the
Fund is generally not able to make decisions with respect to the management, disposition or other
realization of any investment, or other decisions regarding the
business and affairs, of that CLO. Consequently, the success of any CLOs in which the Fund invests will depend, in large part, on the
financial and managerial expertise of the collateral manager’s investment professionals. Subject to certain exceptions, any change
in the investment professionals of the collateral manager will not present grounds for termination of the collateral management agreement.
In addition, such investment professionals may not devote all of their professional time to the affairs of the CLOs in which the Fund
invests. There can be no assurance that for any CLO, in the event that underlying instruments are prepaid, the collateral manager will
be able to reinvest such proceeds in new instruments with equivalent investment returns. If the collateral manager cannot reinvest in
new instruments with equivalent investment returns, the interest proceeds available to pay interest on the CLO securities may be adversely
affected.
The transaction documents relating to the issuance of CLO securities
may impose eligibility criteria on the assets of the CLO, restrict the ability of the CLO’s investment manager to trade investments
and impose certain portfolio-wide asset quality requirements. These criteria, restrictions and requirements may limit the ability of the
CLO’s investment manager to maximize returns on the CLO securities. In addition, other parties involved in CLOs, such as third-party
credit enhancers and investors in the rated tranches, may impose requirements that have an adverse effect on the returns of the various
tranches of CLO securities. Furthermore, CLO securities issuance transaction documents generally contain provisions that, in the event
that certain tests are not met (generally interest coverage and over-collateralization tests at varying levels in the capital structure),
proceeds that would otherwise be distributed to holders of a junior tranche must be diverted to pay down the senior tranches until such
tests are satisfied. Failure (or increased likelihood of failure) of a CLO to make timely payments on a particular tranche will have an
adverse effect on the liquidity and market value of such tranche.
The manager of a CLO has broad authority to direct and supervise
the investment and reinvestment of the investments held by the CLO, which may include the execution of amendments, waivers, modifications
and other changes to the investment documentation in accordance with the collateral management agreement. During periods of economic uncertainty
and recession, the incidence of amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers,
modifications and other restructurings will change the terms of the investments and in some cases may result in the CLO holding assets
not meeting the CLO’s criteria for investments. This could adversely impact the coverage tests under an indenture governing the
notes issued by the CLO. Any amendment, waiver, modification or other restructuring that reduces the CLO’s compliance with certain
financial tests will make it more likely that the CLO will need to utilize cash to pay down the unpaid principal amount of secured notes
to cure any breach in such test instead of making payments on subordinated notes. Any such use of cash would reduce distributions available
and delay the timing of payments to the Fund.
The Fund cannot be certain that any particular restructuring strategy
pursued by the CLO manager will maximize the value of or recovery on any investment. Any restructuring can fundamentally alter the nature
of the related investment, and restructurings are not subject to the same underwriting standards that are employed in connection with
the origination or acquisition of investments. Any restructuring could alter, reduce or delay the payment of interest or principal on
any investment,
which could delay the timing and reduce the amount of payments
made to the Fund. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments
made to the Fund.
The CLOs in which the Fund invests are generally not registered
as investment companies under the 1940 Act. As investors in these CLOs, the Fund is not afforded the protections that shareholders in
an investment company registered under the 1940 Act would have.
The terms of CLOs set forth in their applicable transaction documents,
including with respect to collateralization and/or interest coverage tests and asset eligibility criteria, may vary from CLO to CLO. Similarly
the terms of the loans that constitute the underlying assets held by CLOs may vary. The CLO market and loan market may evolve in ways
that result in typical terms being less protective for the holders of CLO securities. As a result, the Fund will be reliant upon the Adviser’s
ability to obtain and evaluate the terms of the CLOs in which the Fund invests, the terms of and creditworthiness of the borrowers with
respect to the underlying assets held by those CLOs and information about the collateral managers of the CLOs.
Derivatives Transactions Risk. The Fund may engage in various
derivatives transactions for hedging and risk management purposes, to facilitate portfolio management and to earn income or enhance total
return. The use of derivatives transactions to earn income or enhance total return may be particularly speculative. Derivative transactions
entered into to seek to manage the risks of the Fund’s portfolio of securities may have the effect of limiting the gains from favorable
market movements. Losses on derivatives transactions may reduce the Fund’s net asset value and its ability to pay dividends if such
losses are not offset by gains on portfolio positions being hedged. Derivatives transactions involve risks. There may be imperfect correlation
between the value of such instruments and the underlying assets. Derivatives transactions may be subject to risks associated with the
possible default of the other party to the transaction. Derivative instruments may be illiquid. Certain derivatives transactions may have
economic characteristics similar to leverage, in that relatively small market movements may result in large changes in the value of an
investment. Certain derivatives transactions that involve leverage can result in losses that greatly exceed the amount originally invested.
Furthermore, the Fund’s ability to successfully use derivatives transactions depends on the manager’s ability to predict pertinent
market movements, which cannot be assured. The use of derivatives transactions may result in losses greater than if they had not been
used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values,
may limit the amount of appreciation the Fund can realize on an investment or may cause the Fund to hold a security that it might otherwise
sell. Derivatives transactions involve risks of mispricing or improper valuation. The documentation governing a derivative instrument
or transaction may be unfavorable or ambiguous. Derivatives transactions may involve commissions and other costs, which may increase the
Fund’s expenses and reduce its return. Various legislative and regulatory initiatives may impact the availability, liquidity and
cost of derivative instruments, limit or restrict the ability of the Fund to use certain derivative instruments or transact with certain
counterparties as a part of its investment strategy, increase the costs of using derivative instruments or make derivative instruments
less effective.
Risk Associated with Covered Call Option Writing. There
are significant differences between the securities and options markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events. As the writer of a covered call option, the Fund forgoes, during the option’s
life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium
and the strike price of the call, but has retained the risk of loss should the price of the underlying security decline. As the Fund writes
covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited.
The value of options written by the Fund will be affected by, among
other factors, changes in the value of underlying securities (including those comprising an index), changes in the dividend rates of underlying
securities, changes in interest rates, changes in the actual or perceived volatility of the stock market and underlying securities and
the remaining time to an option’s expiration. The value of an option also may be adversely affected if the market for the option
is reduced or becomes less liquid.
To the extent that there is a lack of correlation between the index
options written by the Fund and the Fund’s portfolio securities, movements in the indexes underlying the options positions may result
in losses to the Fund, which may more than offset any gains received by the Fund from options premiums. Such sales would involve transaction
costs borne by the Fund and may also result in realization of taxable gains.
With respect to exchange-traded options, there can be no assurance
that a liquid market will exist when the Fund seeks to close out an option position on an options exchange. An absence of a liquid secondary
market on an exchange may arise because: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed
by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations
on an exchange; (v) the facilities of an exchange or The Options Clearing Corporation (the “OCC”) may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued,
the secondary market on that exchange (or in that class or series of options) would cease to exist. In the event that the Fund were unable
to close out a call option that it had written on a portfolio security, it would not be able to sell the underlying security unless the
option expired without exercise.
The Fund’s options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other trading facilities on which the options are traded. These limitations govern
the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities
or are held or written in one or more accounts or through one or more brokers. An exchange, board of trade or other trading facility may
order the liquidation of positions found to be in excess of these limits, and it may impose other sanctions.
The Fund may also write (sell) over-the-counter options (“OTC
options”). Options written by the Fund with respect to non-U.S. securities, indices or sectors generally will be OTC options. OTC
options differ from exchange-listed options in that they are entered into directly with the buyer of the option and not through an exchange
or clearing organization that is interposed between the Fund and the counterparty. In an OTC option transaction exercise price, premium
and other terms are negotiated between buyer and seller. OTC options generally do not have as much market liquidity as exchange-listed
options. The OTC options written by the Fund will not be issued, guaranteed or cleared by the OCC. In addition, the Fund’s ability
to terminate the OTC options may be more limited than with exchange-traded options. Banks, broker-dealers or other financial institutions
participating in such transaction may fail to settle a transaction in accordance with the terms of the option as written. In the event
of default or insolvency of the counterparty, the Fund may be unable to liquidate an OTC option position.
Counterparty Risk. The Fund will be subject to credit risk
with respect to the counterparties to the derivative contracts entered into by the Fund. If a counterparty becomes bankrupt or otherwise
fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays
in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited
recovery or may obtain no recovery in such circumstances. Concerns about, or a default by, one large market participant could lead to
significant liquidity problems for other participants. If a counterparty’s credit becomes significantly impaired, multiple requests
for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate collateral. The counterparty
risk for cleared derivatives is generally lower than for uncleared over-the-counter derivatives transactions since generally a clearing
organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’
performance under the contract as each party to a trade looks only to the clearing organization for performance of financial obligations
under the derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations
to the Fund.
Leverage Risk. The use of leverage may result in higher
income to common shareholders over time; however, there can be no assurance that this expectations will be realized or that a leveraging
strategy will be successful in any particular time period. Use of leverage creates an opportunity for increased income and capital appreciation
but, at the same time, creates special risks. Leverage is a speculative technique that exposes the Fund to greater risk and increased
costs than if it were not implemented. There can be no assurance that a leveraging strategy will be utilized or will be successful.
The use of leverage by the Fund will cause the net asset value,
and possibly the market price, of the Fund’s common shares to fluctuate significantly in response to changes in interest rates and
other economic indicators. As a result, the net asset value and market price and dividend rate of the common shares of the Fund is likely
to be more volatile than those of a closed-end management investment company that is not exposed to leverage. In a declining market the
use of leverage may result in a greater decline in the net asset value of the common shares than if the Fund were not leveraged.
Leverage will increase operating costs, which may reduce total
return. The Fund will have to pay interest on its indebtedness, if any, which may reduce the Fund’s return. This interest expense
may be greater than the Fund’s return on the underlying investment, which would negatively affect the performance of the Fund. Increases
in interest rates that the Fund must pay on its indebtedness will increase the cost of leverage and may reduce the return to common shareholders.
This risk may be greater in the current market environment because while interest rates were historically low in recent years, the Fed
has been increasing the Federal Funds rate to address inflation.
Certain types of indebtedness subject the Fund to covenants in
credit agreements relating to asset coverage and portfolio composition requirements. Certain indebtedness issued by the Fund also may
be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such
indebtedness. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed
by the 1940 Act. It is not anticipated that these guidelines will impede the Investment Adviser from managing the Fund’s portfolio
in accordance with the Fund’s investment objective and policies. However, particularly during periods of adverse or volatile market
conditions, the Fund may be required to sell assets in order to meet payment obligations on any leverage or to redeem leverage in order
to comply with asset coverage or portfolio composition requirements.
Reverse repurchase agreements involve the risks that the interest
income earned on the investment of the proceeds will be less than the interest expense and Fund expenses associated with the repurchase
agreement, that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase
such securities and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can
be successfully employed. In connection with reverse repurchase agreements, the Fund will also be subject to counterparty risk with respect
to the purchaser of the securities. If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to
purchase or repurchase securities may be restricted
The Fund may have leverage outstanding during a shorter-term period
during which such leverage may not be beneficial to the Fund if the Fund believes that the long-term benefits to common shareholders of
such leverage would outweigh the costs and portfolio disruptions associated with redeeming and reissuing such leverage. However, there
can be no assurance that the Fund’s judgment in weighing such costs and benefits will be correct.
During the time in which the Fund is utilizing leverage, the amount
of the fees paid for investment advisory services will be higher than if the Fund did not utilize leverage because the fees paid will
be calculated based on the Fund’s managed assets, including proceeds of leverage. This may create a conflict of interest between
the manager and the common shareholders, as common shareholders bear the portion of the investment advisory fee attributable to the assets
purchased with the proceeds of leverage, which means that common shareholders effectively bear the entire advisory fee.
In addition, the Fund may engage in certain derivatives transactions
that have economic characteristics similar to leverage. The Fund has adopted a derivatives risk management program which includes value-at-risk
modeling, stress tests, backtests, and additional disclosures to the SEC in compliance with Rule 18f-4 under the 1940 Act. The requirements
of the rule and the Fund’s derivatives risk management program may restrict the Fund’s ability to engage in certain derivatives
transactions and/or increase the cost of such transactions, which
could adversely affect the performance of the Fund.
Illiquid Investments Risk. Illiquid securities may be difficult
to dispose of at a fair price at the times when the Fund believes it is desirable to do so. The market price of illiquid securities generally
is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the
sale of illiquid securities. Significant changes in the capital markets, including recent disruption and volatility, have had, and may
in the future have, a negative effect on the valuations of certain illiquid investments. Illiquid securities are also more difficult to
value and the manager’s judgment may play a greater role in the valuation process. Although certain illiquid investments are not
publicly traded, applicable accounting standards and valuation principles require the Fund to assume as part of its valuation process
that such investments are sold in a principal market to market participants (even if the Fund plans on holding such investments to maturity).
In addition, investment of the Fund’s assets in illiquid securities may restrict the Fund’s ability to take advantage of market
opportunities. The risks associated with illiquid securities may be particularly acute in situations in which the Fund’s operations
require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities.
Although many of the Rule 144A Securities in which the Fund invests may be, in the view of the manager, liquid, if qualified institutional
buyers are unwilling to purchase these Rule 144A Securities, they may become illiquid.
Smaller Company Risk. The general risks associated with
corporate income-producing and equity securities are particularly pronounced for securities issued by companies with smaller market capitalizations.
These companies may have limited product lines, markets or financial resources, or they may depend on a few key employees. As a result,
they may be subject to greater levels of credit, market and issuer risk. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized
market capitalizations may have risks similar to those of smaller companies.
REIT Risk. To the extent that the Fund invests in REITs
it will be subject to the risks associated with owning real estate and with the real estate industry generally. REITs are subject to interest
rate risks (especially mortgage REITs) and the risk of default by lessees or borrowers. An equity REIT may be affected by changes in the
value of the underlying properties owned by the REIT. A mortgage REIT may be affected by the ability of the issuers of its portfolio mortgages
to repay their obligations. REITs whose underlying assets are concentrated in properties used by a particular industry are also subject
to risks associated with such industry. REITs may have limited financial resources, their securities trade less frequently and in a limited
volume, and may be subject to more abrupt or erratic price movements than larger company securities.
Inflation Risk/Deflation Risk. Inflation risk is the risk
that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation
increases, the real value of the common shares and distributions can decline. Inflation rates may change frequently and significantly
as a result of various factors, including unexpected shifts in the U.S. or global economy and changes in monetary or economic policies
(or expectations that these
policies may change), and the Fund’s investments may not
keep pace with inflation, which would adversely affect the Fund. This risk is significantly elevated compared to normal conditions because
of recent monetary policy measures and inflationary price movements. In response to the recent rise in inflation rates, the Fed has been
increasing the Federal Funds rate. During any periods of rising inflation, the dividend rates or borrowing costs associated with the Fund’s
use of leverage would likely increase, which would tend to further reduce returns to common shareholders.
Deflation risk is the risk that prices throughout the economy decline
over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer
default more likely, which may result in a decline in the value of the Fund’s portfolio.
Securities Lending Risk. The Fund may also lend the securities
it owns to others, which allows the Fund the opportunity to earn additional income. Although the Fund will require the borrower of the
securities to post collateral for the loan and the terms of the loan will require that the Fund be able to reacquire the loaned securities
if certain events occur, the Fund is still subject to the risk that the borrower of the securities may default, which could result in
the Fund losing money, which would result in a decline in the Fund’s net asset value. The Fund may also purchase securities for
delayed settlement. This means that the Fund is generally obligated to purchase the securities at a future date for a set purchase price,
regardless of whether the value of the securities is more or less than the purchase price at the time of settlement.
Not a Complete Investment Program. An investment in the
common shares of the Fund should not be considered a complete investment program. The Fund is intended for long-term investors seeking
total return through a combination of current income and capital appreciation. The Fund is not meant to provide a vehicle for those who
wish to play short-term swings in the stock market. Each common shareholder should take into account the Fund’s investment objective
as well as the common shareholder’s other investments when considering an investment in the Fund.
Management Risk. Management’s judgment about the attractiveness,
relative value or potential appreciation of a particular sector, security or investment strategy may prove to be incorrect, and there
can be no assurance that the investment decisions made will prove beneficial to the Fund.
Legislation and Regulation Risk. Legislation may be enacted
that could negatively affect the assets of the Fund or the issuers of such assets. Changing approaches to regulation may have a negative
impact on the Fund or entities in which the Fund invests. Legislation or regulation may also change the way in which the Fund itself is
regulated. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the
Fund or will not impair the ability of the Fund to achieve its investment objective.
Changes enacted by the current presidential administration could
significantly impact the regulation of financial markets in the United States. Areas subject to potential change, amendment or repeal
include trade and foreign policy, corporate tax rates, energy and infrastructure policies, the environment and sustainability, criminal
and social justice initiatives, immigration, healthcare and the oversight of certain federal financial regulatory agencies and the Fed.
Certain of these changes can, and have, been effectuated through executive order. For example, the current administration has taken steps
to address the COVID-19 pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline, change immigration enforcement
priorities and increase spending on clean energy and infrastructure. Other potential changes that could be pursued by the current presidential
administration could include an increase in the corporate income
tax rate and changes to regulatory enforcement priorities. It is not possible to predict which, if any, of these actions will be taken
or, if taken, their effect on the economy, securities markets or the financial stability of the United States. The Fund may be affected
by governmental action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse
effect on the Fund and its ability to achieve its investment objective.
Although the Fund cannot predict the impact, if any, of these changes
on the Fund’s business, they could adversely affect the Fund’s business, financial condition, operating results and cash flows.
Until the Fund knows what policy changes are made and how those changes impact the Fund’s business and the business of the Fund’s
competitors over the long term, the Fund will not know if, overall, the Fund will benefit from them or be negatively affected by them.
The Investment Adviser intends to monitor developments and seek to manage the Fund’s portfolio in a manner consistent with achieving
the Fund’s investment objectives, but there can be no assurance that they will be successful in doing so.
Portfolio Turnover Risk. The Fund’s annual portfolio
turnover rate may vary greatly from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment
decisions for the Fund. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional
expenses that are borne by the Fund. High portfolio turnover may result in an increased realization of net short-term capital gains by
the Fund which, when distributed to common shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio
turnover may result in realized capital losses.
Recent Market, Economic and Social Developments Risk. Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events both
within and outside the United States. These conditions have resulted in, and in many cases continue to result in, greater price volatility,
less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value.
Risks resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery, the
financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future
affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home
prices, among other factors. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and
consumer credit factors, the Fund’s business, financial condition and results of operations could be significantly and adversely
affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect
the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the
value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return
to unfavorable economic conditions could impair the Fund’s ability to achieve its investment objective.
Recently the Federal Reserve has sharply raised interest rates
and has signaled an intention to continue to do so until current inflation levels re-align with the Fed's long-term inflation target.
Changing interest rate environments impact the various sectors of the economy in different ways.
For example, in March 2023, the Federal Deposit Insurance Corporation
("FDIC") was appointed receiver for each of Silicon Valley Bank and Signature Bank, the second- and third-largest bank failures
in U.S. history, which failures may be attributable, in part, to rising interest rates. Bank failures may have a destabilizing impact
on the broader banking industry or markets generally.
The occurrence of events similar to those in recent years, such
as localized wars, instability, new and ongoing pandemics (such as COVID-19), epidemics or outbreaks of infectious diseases in certain
parts of the world, natural/environmental disasters, terrorist attacks in the U.S. and around the world, social and political discord,
debt crises sovereign debt downgrades, increasingly strained relations between the U.S. and a number of foreign countries, new and continued
political unrest in various countries, the exit or potential exit of one or more countries from the EU or the EMU, continued changes in
the balance of political power among and within the branches of the U.S. government, and government shutdowns, among others, may result
in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties
in the U.S. and worldwide.
In particular, the consequences of the Russian military invasion
of Ukraine, including comprehensive international sanctions, the impact on inflation and increased disruption to supply chains and energy
resources may impact the Fund’s portfolio companies, result in an economic downturn or recession either globally or locally in the
U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the form of traditional military action, reignited
“cold” wars or in the form of virtual warfare such as cyberattacks) with similar and perhaps wider ranging impacts and consequences
and have an adverse impact on the Fund’s returns and net asset value. The Fund has no way to predict the duration or outcome of
the situation, as the conflict and government reactions are rapidly developing and beyond the Fund’s control. Prolonged unrest,
military activities, or broad-based sanctions could have a material adverse effect on the Fund’s portfolio companies. Such consequences
also may increase the Fund’s funding cost or limit the Fund’s access to the capital markets.
The current political climate has intensified concerns about a
potential trade war between China and the U.S., as each country has imposed tariffs on the other country’s products. These actions
may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions
of goods and possible failure of individual companies and/or large segments of China’s export industry, which could have a negative
impact on the Fund’s performance. U.S. companies that source material and goods from China and those that make large amounts of
sales in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions
and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the
euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed or
other escalating actions may be taken in the future. Any of these effects could have a material adverse effect on the Fund’s business,
financial condition and results of operations.
LIBOR Risk. Instruments in which the Fund invests may pay
interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund and issuers of instruments
in which the Fund invests may also obtain financing at floating rates based on LIBOR. Derivative instruments utilized by the Fund and/or
issuers of instruments in which the Fund may
invest may also reference LIBOR. The Fund utilizes leverage or
borrowings primarily based on LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to
phase out the use of LIBOR by the end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December
31, 2021, all sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings have ceased
to be published or are no longer representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar
LIBOR settings will cease to be published or will no longer be representative. Various financial industry groups have begun planning for
the transition away from LIBOR, but there are challenges to converting certain securities and transactions to a new reference rate (e.g.,
the Secured Overnight Financing Rate (“SOFR”), which is intended to replace the U.S. dollar LIBOR). Neither the effect of
the LIBOR transition process nor its ultimate success can yet be known. At this time, no consensus exists as to what rate or rates will
become accepted alternatives to LIBOR, although the U.S. Federal Reserve, based on the recommendations of the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions, has begun publishing SOFR. Given the inherent differences
between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there may be uncertainties regarding a transition
from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the
cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or the replacement rates may fail to gain market
acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of
and market for securities linked to such rates.
The state of New York has adopted legislation that requires LIBOR-based
contracts that do not include a fallback to a rate other than LIBOR or an inter-bank quotation poll to use a SOFR-based rate plus a spread
adjustment. On March 15, 2022, President Biden signed into law the Adjustable Interest Rate (LIBOR) Act, which provides for the automatic
replacement of U.S. Dollar LIBOR with a benchmark replacement selected by the Board of Governors of the Federal Reserve System in certain
instruments that contain no LIBOR transition or fallback language. The New York and federal statutes each include safe harbors from liability,
which may limit the recourse the Fund may have if the alternative reference rate does not fully compensate the Fund for the transition
of an instrument from LIBOR.
These developments could negatively affect financial markets in
general and present heightened risks, including with respect to the Fund’s investments. As a result of this uncertainty and developments
relating to the transition process, the Fund and its investments may be adversely affected.
Cyber Security Risk. As the use of technology has become
more prevalent in the course of business, the Fund has become potentially more susceptible to operational and informational security risks
resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may,
among other things, cause the Fund to lose proprietary information, suffer data corruption and/or destruction, lose operational capacity,
result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations. In addition,
cyber security breaches involving the Fund’s third party service providers (including but not limited to advisers, administrators,
transfer agents, custodians,
distributors and other third parties), trading counterparties or
issuers in which the Fund invests in can also subject the Fund to many of the same risks associated with direct cyber security breaches.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce
the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks
may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee
that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers in which the
Fund may invest, trading counterparties or third party service providers to the Fund. There is also a risk that cyber security breaches
may not be detected. The Fund and its shareholders could be negatively impacted as a result.
|
Latest Premium (Discount) to NAV [Percent] |
(4.70%)
|
Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
|
Outstanding Security, Authorized [Shares] |
34,593,769
|
X |
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