Notes to Schedule of Portfolio Investments (Unaudited)
Valuation of Investments
Portfolio securities are valued by various methods depending on the primary market or exchange on which they trade. Most equity
securities for which the primary market is in the United States are usually valued at the official closing price, last sale price or, if no sale has occurred, at the closing bid price. Most equity securities for which the primary market is
outside the United States are usually valued using the official closing price or the last sale price in the principal market in which they are traded. If the last sale price on the local exchange is unavailable, the last evaluated quote or
closing bid price normally is used. In the event of an unexpected closing of the primary market or exchange, a security may continue to trade on one or more other markets, and the price as reflected on those other trading venues may be more
reflective of the security’s value than an earlier price from the primary market or exchange. Accordingly, the Fund may seek to use these additional sources of pricing data or information when prices from the primary market or exchange are
unavailable or are earlier and less representative of current market value. Certain debt securities may be priced through pricing services that may utilize a matrix pricing system which takes into consideration factors such as yields, prices,
maturities, call features, and ratings on comparable securities or according to prices quoted by a securities dealer that offers pricing services. Open end investment companies are valued at their net asset value. Foreign securities markets
may be open on days when the U.S. markets are closed. For this reason, the value of any foreign securities owned by the Fund could change on a day when shareholders cannot buy or sell shares of the Fund. Securities for which market quotations
are not readily available or reliable and other assets may be valued as determined in good faith by the Investment Manager under the direction of or pursuant to procedures approved by the Fund’s Board of Directors, called “fair value
pricing.” Due to the inherent uncertainty of valuation, fair value pricing values may differ from the values that would have been used had a readily available or reliable market quotation for the securities existed. These differences in
valuation could be material. A security’s valuation may differ depending on the method used for determining value. The use of fair value pricing by the Fund may cause the net asset value of its shares to differ from the net asset value that
would be calculated using market prices. A fair value price is an estimate and there is no assurance that such price will be at or close to the price at which a security is next quoted or traded.
Value Measurements
Inputs to valuation methods are prioritized by a three level hierarchy as follows:
• Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities including securities actively traded
on a securities exchange.
• Level 2 – observable inputs other than quoted prices included in level 1 that are observable for the asset or liability which
may include quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.
• Level 3 – unobservable inputs for the asset or liability including the Fund’s own assumptions about the assumptions a market
participant would use in valuing the asset or liability.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors,
including, for example the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized
in level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined
based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing investments are not an indication of the risk associated with investing in those securities.
The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities
measured at fair value on a recurring basis:
Equity securities (common and preferred stock) – Most publicly traded equity securities are valued normally at the most recent
official closing price, last sale price, evaluated quote, or closing bid price. To the extent these securities are actively traded and valuation adjustments are not applied, they may be categorized in level 1 of the fair value hierarchy.
Equities on inactive markets or valued by reference to similar instruments may be categorized in level 2.
Restricted and/or illiquid securities – Restricted and/or illiquid securities for which quotations are not readily available or
reliable may be valued with fair value pricing as determined in good faith by the Investment Manager under the direction of or pursuant to procedures approved by the Fund’s Board of Directors. Restricted securities issued by publicly traded
companies are generally valued at a discount to similar publicly traded securities. Restricted or illiquid securities issued by nonpublic entities may be valued by reference to comparable public entities or fundamental data relating to the
issuer or both or similar inputs. Depending on the relative significance of valuation inputs, these instruments may be categorized in either level 2 or level 3 of the fair value hierarchy.
The following is a summary of the inputs used as of September 30, 2019 in valuing the Fund’s assets. Refer to the Schedule of
Portfolio Investments for detailed information on specific investments.
|
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
|
Investments, at value
|
|
|
|
|
|
|
|
Common stocks
|
$ 8,915,210
|
$ -
|
$ 0
|
$ 8,915,210
|
|
|
|
Master limited partnerships
|
27,690
|
-
|
-
|
27,690
|
|
|
|
Preferred stocks
|
-
|
-
|
85,558
|
85,558
|
|
|
Total investments, at value
|
$ 8,942,900
|
$ -
|
$ 85,558
|
$ 9,028,458
|
There were no securities transferred from level 1 on December 31, 2018 to level 2 on September 30, 2019.
The following is a reconciliation of level 3 assets:
|
|
|
Common
Stocks
|
Preferred
Stocks
|
Total
|
|
Balance of level 3 assets at December 31, 2018
|
$ 0
|
$ 85,558
|
$ 85,558
|
|
Payment in-kind dividends
|
-
|
-
|
-
|
|
Change in unrealized depreciation
|
-
|
-
|
-
|
|
Balance at September 30, 2019
|
$ 0
|
$ 85,558
|
$ 85,558
|
|
Net change in unrealized depreciation attributable to assets still held as level 3 at September 30, 2019
|
$ -
|
$ -
|
$ -
|
There were no transfers into or out of level 3 assets during the period.
The Investment Manager, under the direction of the Fund’s Board of Directors, considers various valuation approaches for valuing
assets categorized within level 3 of the fair value hierarchy. The factors used in determining the value of such assets may include, but are not limited to: the discount applied due to the private nature of the asset; the type of the
security; the size of the asset; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable
companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer or analysts; an analysis of the company’s or issuer’s financial statements; or an evaluation of the forces that
influence the issuer and the market in which the asset is purchased and sold. Significant changes in any of those inputs in isolation may result in a significantly lower or higher fair value measurement. The pricing of all fair value assets
is normally reported to the Fund’s Board of Directors.
The following table presents additional information about valuation methodologies and inputs used for assets that are measured
at fair value and categorized as level 3 as of September 30, 2019 :
|
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range
|
|
Common stocks
|
|
|
|
|
|
|
Retail Consulting and Investment
|
$ 0
|
Value of liquidation preference per share
|
Discount rate due to lack of marketability
|
80%
|
|
Preferred stocks
|
|
|
|
|
|
|
Retail Consulting and Investment
|
$ 85,558
|
Value of liquidation preference per share
|
Discount rate due to lack of marketability
|
80%
|
Cost for Federal Income Tax Purposes
As of September 30, 2019, for federal income tax purposes, subject to change, the aggregate cost of securities was $8,295,315
and net unrealized appreciation was $733,143, comprised of gross unrealized appreciation of $1,560,177 and gross unrealized depreciation of $827,034 The aggregate cost of investments for tax purposes will depend upon the Fund’s investment
experience during the entirety of its fiscal year and may be subject to changes based on tax regulations.
Illiquid and Restricted Securities
The Fund owns securities which have a limited trading market and/or certain restrictions on trading and, therefore, may be
considered illiquid and/or restricted. Such securities have been valued using fair value pricing. Due to the inherent uncertainty of valuation, fair value pricing values may differ from the values that would have been used had a readily
available market for the securities existed. These differences in valuation could be material. Illiquid and/or restricted securities owned as of September 30, 2019 were as follows:
|
|
Acquisition Date
|
Cost
|
Value
|
|
Amerivon Holdings LLC preferred shares
|
9/20/07
|
$ 497,531
|
$ 85,558
|
|
Amerivon Holdings LLC common equity units
|
9/20/07
|
0
|
0
|
|
Total
|
|
$ 497,531
|
$ 85,558
|
|
Percent of net assets
|
|
6%
|
1%
|
Foreign Securities Risk
Investments in the securities of foreign issuers involve special risks which include changes in foreign exchange rates and the
possibility of future adverse political, tax, and economic developments which could adversely affect the value of such securities. Moreover, securities of foreign issuers and securities traded in foreign markets may be less liquid and their
prices more volatile than those of U.S. issuers and markets. In addition, in certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political, or social instability, or diplomatic developments that
could affect U.S. investments in the securities of issuers domiciled in those countries.