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What is Guggenheim Credit Income Fund?

Finding attractive levels of income can be a challenge for investors. Business Development Companies (“BDCs”) comprise a segment of the market that may provide alternative opportunities to access attractive income streams.

Guggenheim’s current offering, Guggenheim Credit Income Fund – I (GCIF – I), is a feeder fund in a master/feeder structure that is designed to provide its investors with:

Current Income

Current Income

Current Income

Capital Preservation

Current Income

capital appreciation

There is no guarantee these objectives and goals will be achieved.

 

How Does GCIF Create Value for its Investors?

BDCs are domestic, closed-end investment companies¹ that are operated for the purpose of making investments in small and developing businesses and financially troubled businesses. BDCs seek to provide investors with exposure to assets throughout the capital structure of private companies, including senior secured and subordinated debt and preferred and common equity. They are subject to restrictions on their investments, and primarily invest in “eligible portfolio companies,” which generally include small developing businesses and financially troubled businesses that have little access to traditional sources of financing. Traditional lenders, such as banks, are facing increased regulatory burdens and are unable to lend to

small and mid-sized businesses, resulting in increased demand for BDC capital. BDCs have become an important source of capital by lending to American businesses that might not otherwise be able to obtain financing. Additionally, BDCs must make available significant managerial assistance to certain companies in which they invest. This not only allows for cash flow, but also for investment in a publicly-held company whose success may be stimulated or revived by the infusion of new capital or managerial assistance by providing a layer of support that these companies may not receive otherwise. In many instances, managers for BDCs have extensive experience in enhancing the operations capabilities and profitability of companies.²

GCIF intends to invest primarily in large, privately-negotiated loans to private middle market U.S. companies, focusing on senior secured debt investments. GCIF seeks to provide value for the investors of its feeder funds through its experienced management team and disciplined investment strategy that seeks to capitalize on the supply/demand imbalances in the market.

1 Business Development Companies are not afforded the full protection of the Investment Company Act of 1940. 2 BDCs can be internally managed or managed by a separate investment adviser. Managers or investment advisers for BDCs often receive a management fee and incentive or compensation based on performance.

Current Income

Management

W. P. Carey Inc. and Guggenheim Partners, LLC, parent companies of the Advisors to GCIF, have a 50+ year aggregate track record, and both play an active role in sourcing, evaluating and monitoring portfolio investments.

Current Income

Alignment

W. P. Carey Inc. and Guggenheim Partners, LLC have made an initial commitment of $50 million in GCIF, effectively aligning their interests with those of the feeder fund shareholders.1

Current Income

Opportunity

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1 The Sub-Advisor’s alignment of interest today is maintained by Guggenheim Partners, LLC, the parent company of Guggenheim Partners Investment Management LLC, the Sub-Advisor.

2 GCIF seeks to primarily invest in the senior secured debt of private middle market American companies.

Investing in privately held middle market companies involves a number of risks including reduced access to capital, diminished ability to withstand financial distress and limited liquidity.

 

Seeking Alternative Sources of Income

Due to the relatively high interest rates on the loans they make and the fact that BDCs have to distribute at least 90% of their taxable income in order to be exempt from corporate level tax, they have the potential to deliver high levels of income when compared to other investments, as shown in the chart below.

Yield Comparison of Various Indices

3 Source: Bloomberg, Barclays, S&P Dow Jones Indices, 7.31.2017. Index representation definitions are found on p. 4 of this document. Past performance is no guarantee of future results. The chart is for illustrative purposes only and it is not meant to forecast, imply or guarantee the future performance of any Guggenheim Investments products. The chart above provides the 12-month trailing dividend yield for equity securities and for fixed income (in all cases, measured based on the performance of indices of U.S. publicly-traded securities) shown is yield-to-worst as of 7.31.2017. The 12-month trailing dividend yield is the total dividends paid over the previous 12 months divided by the current market price. Please be aware yield represents only a portion of the overall return of an investment and entire return potential and risk profile of an investment should be considered when making an investment decision. This chart does not reflect fees and expenses.

Past performance is no guarantee of future results. It is important to note the differences between asset classes, including additional risks. For example, Treasury bonds offer timely interest payments and are backed by the U.S. government, while corporate bonds are more susceptible to the risk of default (especially high yield bonds). BDC, MLP, and REIT structures offer certain tax advantages: however, BDC prices can be volatile as they invest in small- to medium-sized companies susceptible to credit risk, while MLPs and REITs are subject to the sector risks associated with the energy and real estate sectors respectively. MLPs are subject to the risks generally applicable to companies in the energy and natural resources sectors. The value of a REIT and the ability of a REIT to distribute income may be adversely affected by several factors beyond the control of the issuer of the REIT. Preferred securities’ primary investment objective is to provide income, while stocks, as represented by the S&P 500, are generally more volatile but offer investors the opportunity to participate in the growth of a company. Preferred securities are typically subordinated to 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 risk than those debt instruments. Please note that while some of the indices listed represent yield earning asset classes such as High Yield Corporate Bonds, others such as the MLPs are not.

 

How Will GCIF Guide Investors in their Search for Income?

GCIF is the master fund, which pools investor capital raised through its feeder funds—such as the current fund offering, GCIF – I. Both master and feeder share the same investment objectives and strategies. All portfolio investments are made by Guggenheim Credit Income Fund, the master fund.

GCIF infographic

Investors can only acquire shares in a feeder fund, which invests substantially all of its assets in the common shares of GCIF at net asset value, which will vary over time. GCIF, the master fund, and the feeder funds share the same investment objectives and strategies. The imposition of fees and expenses may affect a non-traded BDC’s ability to generate income.

 

Breaking Down BDCs

While they can make both debt and equity investments, BDCs primarily provide floating rate loans to client companies. Based upon company size and credit worthiness, interest on these loans can be attractive when compared to fixed-income instruments issued by larger and more credit worthy companies. Potential investment benefits include a degree of protection if interest rates rise, high current income and capital appreciation, making BDCs an attractive alternative for yield-seeking investors. It is important to note that BDCs invest primarily in debt securities that may be non-rated or below investment-grade, and equity securities of financially troubled companies, many of which are privately held and lack publicly available information. These factors can introduce a degree of risk to investor portfolios.

BDCs maintain a hybrid structure that represents a portfolio of loans, similar to private equity or venture capital, which can be traded

publicly, subject to fees and expenses. BDCs are registered with the SEC as investment companies that have elected to be treated as business development companies, subject to certain provisions of the Investment Company Act of 1940, which requires less than 1:1 debt-to-equity ratio. BDCs are further subject to restrictions on their investments, rules regarding diversification, industry concentration and transactions with affiliates.

BDCs may experience share price decline for a number of reasons, such as if the underlying companies default on BDC-provided loans. In addition, BDCs generally depend on the ability to access capital markets, raise cash and acquire suitable investments and monitor and administer those investments in order to maintain their status as a BDC. Any failure to achieve these objectives may adversely affect the value of the BDC shares.

A Closer Look at BDCs


Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

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