---

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

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT

INVESTMENT COMPANY

Investment Company Act file number: 811-22562

Barings Global Short Duration High Yield Fund
(Exact name of registrant as specified in charter)

550 South Tryon Street

Charlotte, NC 28202

(Address of principal executive offices) (Zip code)

Janice M. Bishop

Secretary and Chief Legal Officer

c/o Barings LLC

Independence Wharf

470 Atlantic Avenue

Boston, MA 02210

 (Name and address of agent for service)

Registrant's telephone number, including area code

Date of fiscal year end: December 31, 2016

Date of reporting period:  September 30, 2016

 

 

Item 1. Schedule of Investments.

 

 

							SHARES				COST				FAIR VALUE
Equities 0.48%*
Common Stocks — 0.48%*:
Sabine Oil & Gas, LLC								4,262			$	248,858			$	234,410
Sabine Oil & Gas, LLC								13,512				60,669				121,608
Sabine Oil & Gas, LLC								2,407				6,547				14,442
Templar Energy LLC								127,002				734,072				734,072
Templar Energy LLC								84,668				846,680				846,680
Total Common Stocks								231,851				1,896,826				1,951,212
Total Equities								231,851				1,896,826				1,951,212
		EFFECTIVE INTEREST RATE‡			DUE DATE		PRINCIPAL				COST				FAIR VALUE
Fixed Income — 129.00%*:
Bank Loans§ — 17.72%*:
Aerospace and Defense — 0.39%*:
Swissport Investments+			6.25	%	2/9/2022			1,400,000			$	1,490,553			$	1,581,867
Total Aerospace and Defense								1,400,000				1,490,553				1,581,867
Chemicals, Plastics and Rubber — 0.81%*:
Flint Group Holdings+			8.25		9/30/2022			3,451,146				3,435,484				3,290,080
Total Chemicals, Plastics and Rubber								3,451,146				3,435,484				3,290,080
Diversified/Conglomerate Manufacturing — 0.31%*:
TenCate+			5.25		1/27/2023			1,100,000				1,177,701				1,240,844
Total Diversified/Conglomerate Manufacturing								1,100,000				1,177,701				1,240,844
Diversified Natural Resources, Precious Metals and Minerals — 1.28%*:
Caraustar Industries Inc.			8.00		5/1/2019			5,141,945				5,149,510				5,191,205
Total Diversified Natural Resources, Precious Metals and Minerals								5,141,945				5,149,510				5,191,205
Electronics — 1.87%*:
Kronos, Inc.			9.75		4/30/2020			7,483,740				7,408,915				7,602,208
Total Electronics								7,483,740				7,408,915				7,602,208
Farming and Agriculture — 1.54%*:
Allflex Holdings, Inc.			8.00		7/19/2021			6,232,322				6,223,544				6,232,322
Total Farming and Agriculture								6,232,322				6,223,544				6,232,322

		EFFECTIVE INTEREST RATE‡			DUE DATE		PRINCIPAL				COST				FAIR VALUE
Finance — 0.53%*:
Cunningham Lindsey Group, Inc.			9.25	%	6/10/2020			5,504,015			$	5,509,125			$	2,132,806
Total Finance								5,504,015				5,509,125				2,132,806
Healthcare, Education and Childcare — 0.87%*:
Tecomet			5.75		12/5/2021			3,550,559				3,355,201				3,519,491
Total Healthcare, Education and Childcare								3,550,559				3,355,201				3,519,491
Leisure, Amusement, Motion Pictures and Entertainment — 0.79%*:
Endemol+			6.75		8/11/2021			3,598,413				3,454,799				3,182,796
Total Leisure, Amusement, Motion Pictures and Entertainment								3,598,413				3,454,799				3,182,796
Mining, Steel, Iron and Non-Precious Metals — 1.23%*:
Boomerang Tube, LLC			15.00		8/1/2017			670,565				671,562				670,565
Boomerang Tube, LLC			20.00		2/1/2019			639,905				585,656				639,905
Boomerang Tube, LLC			18.52		8/17/2017			189,752				189,752				189,752
Boomerang Tube, LLC			15.52		2/1/2019			1,844,382				1,844,382				1,844,382
Boomerang Tube, LLC			18.02		2/1/2021			1,525,226				1,525,226				1,265,938
Murray Energy Corp.			8.25		4/16/2020			463,330				452,770				392,528
Total Mining, Steel, Iron and Non-Precious Metals								5,333,160				5,269,348				5,003,070
Oil and Gas — 7.14%*:
Caelus Energy Alaska			8.75		4/15/2020			17,863,828				17,385,954				11,611,488
Fieldwood Energy LLC			8.38		9/30/2020			8,925,706				6,995,185				3,466,120
Fieldwood Energy LLC			8.38		9/30/2020			7,481,592				5,864,521				5,199,706
Fieldwood Energy LLC			8.00		9/30/2020			5,651,171				5,023,614				4,683,408
Gulf Finance, LLC			6.25		8/17/2023			2,952,076				2,878,850				2,865,374
Jonah Energy LLC			7.50		5/12/2021			1,301,498				1,309,419				1,148,572
Total Oil and Gas								44,175,871				39,457,543				28,974,668
Printing and Publishing — 0.27%*:
Springer+			9.00		8/14/2021			979,688				1,120,343				1,100,538
Total Printing and Publishing								979,688				1,120,343				1,100,538
Retail Store — 0.69%*:
FleetPride			5.25		11/19/2019			824,946				721,965				732,824
FleetPride			9.25		5/19/2020			3,000,000				2,958,918				2,062,500
Total Retail Store								3,824,946				3,680,883				2,795,324
Total Bank Loans								91,775,805				86,732,949				71,847,219
Corporate Bonds — 111.28%*:
Aerospace and Defense — 1.67%*:
CPI International Inc.#			8.75		2/15/2018			5,550,000				5,622,001				5,674,875
Swissport Investments+^			6.75		12/15/2021			950,000				1,040,150				1,099,204
Total Aerospace and Defense								6,500,000				6,662,151				6,774,079
Automobile — 8.82%*:
Accuride Corp#			9.50		8/1/2018			7,607,000				7,683,981				7,607,000
Allied Specialty Vehicles#^			8.50		11/1/2019			6,000,000				5,965,020				6,195,000
Gates Global LLC^			6.00		7/15/2022			4,740,000				4,201,036				4,503,000
International Automotive Components Group, S.A.#^			9.13		6/1/2018			8,125,000				8,186,109				7,952,344
J.B. Poindexter & Co. Inc.#^			9.00		4/1/2022			8,989,000				9,329,426				9,517,104
Total Automobile								35,461,000				35,365,572				35,774,448
Banking — 0.88%*:
Lock AS+^			7.00		8/15/2021			3,050,000				3,783,290				3,567,807
Total Banking								3,050,000				3,783,290				3,567,807
Beverage, Food and Tobacco — 0.49%*:
Carrols Corp.#			8.00		5/1/2022			709,000				730,841				766,606
Manitowoc Foodservice#			9.50		2/15/2024			1,074,000				1,074,000				1,229,730
Total Beverage, Food and Tobacco								1,783,000				1,804,841				1,996,336
Broadcasting and Entertainment — 3.81%*:
Arqiva Finance+#^			9.50		3/31/2020			5,000,000				7,843,674				6,981,348
Dish DBS Corp.#^			7.75		7/1/2026			3,094,000				3,130,921				3,287,375
Entertainment One Ltd.+^			6.88		12/15/2022			850,000				1,282,414				1,189,859
RCN Cable#^			8.50		8/15/2020			3,733,000				3,826,409				3,980,311
Total Broadcasting and Entertainment								12,677,000				16,083,418				15,438,893

		EFFECTIVE INTEREST RATE‡			DUE DATE		PRINCIPAL				COST				FAIR VALUE
Buildings and Real Estate — 5.22%*:
Beazer  Homes USA Inc.^			8.75	%	3/15/2022			3,198,000			$	3,266,465			$	3,373,890
Cemex S.A.B. de C.V.+#^			9.38		10/12/2022			5,000,000				5,170,958				5,481,250
Cemex S.A.B. de C.V.+#^			7.75		4/16/2026			602,000				601,916				667,919
Keystone Financing+^			9.50		10/15/2019			3,900,000				6,195,213				5,232,284
Lyon Williams Homes, Inc.#			8.50		11/15/2020			5,000,000				5,035,698				5,225,000
Paroc Group+^			6.25		5/15/2020			1,050,000				1,444,431				1,200,283
Total Buildings and Real Estate								18,750,000				21,714,681				21,180,626
Cargo Transport — 5.73%*:
Direct ChassisLink Inc.^			10.00		6/15/2023			3,634,000				3,664,679				3,815,700
Kenan Advantage Group, Inc.#^			7.88		7/31/2023			10,000,000				10,075,996				9,475,000
Moto Hospitality Limited+^			6.38		9/1/2020			2,400,000				3,584,497				3,237,661
World Flight Services, Inc.+^			9.50		7/15/2022			1,350,000				1,530,531				1,497,100
XPO Logistics, Inc.#^			6.50		6/15/2022			5,000,000				4,855,067				5,212,500
Total Cargo Transport								22,384,000				23,710,770				23,237,961
Chemicals, Plastics and Rubber — 12.79%*:
Associated Asphalt Partners LLC#^			8.50		2/15/2018			2,327,000				2,331,392				2,350,270
Chemours Co.#			7.00		5/15/2025			5,962,000				5,521,341				5,857,665
Consolidated Energy Finance S.A.+#^			6.75		10/15/2019			8,120,000				7,934,944				8,018,500
Cornerstone Chemical Co.#^			9.38		3/15/2018			4,725,000				4,784,968				4,701,375
CVR Partners LP#^			9.25		6/15/2023			5,913,000				5,820,008				5,720,827
LSB Industries, Inc.#			8.50		8/1/2019			5,669,000				5,456,349				5,697,345
Omnova Solutions, Inc.#			7.88		11/1/2018			4,244,000				4,291,106				4,259,278
Pinnacle Operating Corp.#^			9.00		11/15/2020			2,635,000				2,640,429				1,831,325
Platform Specialty Products Corporation#^			10.38		5/1/2021			5,539,000				5,628,265				5,968,272
TPC Group, Inc.#^			8.75		12/15/2020			8,398,000				8,411,050				6,513,069
Trinseo^			6.38		5/1/2022			800,000				935,512				943,619
Total Chemicals, Plastics and Rubber								54,332,000				53,755,364				51,861,545
Containers, Packaging and Glass — 6.88%*:
Ardagh Packaging+^			6.75		5/15/2024			1,750,000				2,132,315				2,056,794
Bormioli+^			10.00		8/1/2018			2,950,000				3,371,951				3,403,375
Coveris Holdings S.A.#^			7.88		11/1/2019			7,600,000				7,641,753				7,771,000
Horizon Holdings+^			7.25		8/1/2023			2,000,000				2,195,510				2,409,598
Multi Packaging Solutions, Inc.#^			8.50		8/15/2021			6,105,000				6,123,817				6,494,194
Onex Wizard Acquisition Co+^			7.75		2/15/2023			3,600,000				4,134,082				4,242,240
Signode Industrial#^			6.38		5/1/2022			1,500,000				1,446,516				1,518,750
Total Containers, Packaging and Glass								25,505,000				27,045,944				27,895,951
Diversified/Conglomerate Manufacturing — 3.61%*:
Appvion Inc.#^			9.00		6/1/2020			13,200,000				13,371,444				8,514,000
Carlisle Transportation Products#^			8.25		12/15/2019			3,950,000				4,022,510				3,090,875
StoneMor Partners L.P.#			7.88		6/1/2021			3,000,000				2,944,275				3,030,000
Total Diversified/Conglomerate Manufacturing								20,150,000				20,338,229				14,634,875
Diversified/Conglomerate Service — 2.10%*:
Carlson Travel Holdings Inc.#^			7.50		8/15/2019			2,690,000				2,717,422				2,663,100
Zachry Holdings Inc.#^			7.50		2/1/2020			5,875,000				5,841,622				5,845,625
Total Diversified/Conglomerate Service								8,565,000				8,559,044				8,508,725
Electronics — 4.24%*:
ADT Corp/Protection One#^			9.25		5/15/2023			2,455,000				2,455,000				2,675,950
International Wire Group, Inc.#^			8.50		10/15/2017			8,086,000				8,132,179				8,097,320
Microsemi Corporation#^			9.13		4/15/2023			1,326,000				1,326,000				1,511,640
Western Digital Corporation#^			10.50		4/1/2024			4,224,000				4,352,324				4,899,840
Total Electronics								16,091,000				16,265,503				17,184,750
Finance — 6.11%*:
Arrow Global Finance PLC+^			4.75		5/1/2023			350,000				389,086				397,106
Cabot Financial+#^			10.38		10/1/2019			1,864,000				3,088,736				2,541,353
Galaxy Finco Ltd.+^			7.88		11/15/2021			3,900,000				6,351,688				5,015,528
GFKL Financial Services+^			8.50		11/1/2022			4,575,000				6,905,948				6,039,555
Marlin Financial+^			10.50		8/1/2020			1,850,000				2,925,927				2,541,736
National Financial Partners Corp.#^			9.00		7/15/2021			2,220,000				2,212,629				2,280,772
TMF Group Holding+^			9.88		12/1/2019			5,000,000				6,193,044				5,967,265
Total Finance								19,759,000				28,067,058				24,783,315

		EFFECTIVE INTEREST RATE‡			DUE DATE		PRINCIPAL				COST				FAIR VALUE
Grocery — 0.65%*:
Post Holdings#^			8.00	%	7/15/2025			1,232,000			$	1,232,000			$	1,409,870
Premier Foods Finance+^			6.50		3/15/2021			950,000				1,529,072				1,246,727
Total Grocery								2,182,000				2,761,072				2,656,597
Healthcare, Education and Childcare — 9.47%*:
Capsugel Holdings#^			7.00		5/15/2019			1,159,000				1,165,864				1,161,898
Cerba+^			8.25		2/1/2020			3,450,000				3,860,764				3,962,778
Cognita Financing+^			7.75		8/15/2021			2,200,000				3,434,728				2,979,832
ConvaTec Healthcare#^			10.50		12/15/2018			850,000				859,711				864,875
IDH Finance PLC+^			6.25		8/15/2022			1,150,000				1,506,794				1,454,194
Kindred Healthcare, Inc.#			8.75		1/15/2023			5,699,000				5,756,036				5,699,000
Kinetic Concepts Inc.^			9.63		10/1/2021			6,524,000				6,524,000				6,524,000
Regionalcare Hospital Partners, Inc.#^			8.25		5/1/2023			1,496,000				1,534,830				1,544,620
Tenet Healthcare Corporation#			8.13		4/1/2022			4,700,000				4,672,458				4,700,000
Unilabs+^			7.25		7/15/2018			2,600,000				3,573,546				2,892,978
Valeant#^			6.13		4/15/2025			4,006,000				3,683,889				3,450,168
Valeant+#^			7.50		7/15/2021			3,260,000				3,260,000				3,156,006
Total Healthcare, Education and Childcare								37,094,000				39,832,620				38,390,349
Hotels, Motels, Inns and Gaming — 1.06%*:
Gala Group Finance+#^			8.88		9/1/2018			565,714				907,027				751,578
Travelodge+^			8.50		5/15/2023			2,600,000				3,727,347				3,537,122
Total Hotels, Motels, Inns and Gaming								3,165,714				4,634,374				4,288,700
Insurance — 0.67%*:
Onex York Acquisition Corp.#^			8.50		10/1/2022			3,524,000				3,524,000				2,739,910
Total Insurance								3,524,000				3,524,000				2,739,910
Leisure, Amusement, Motion Pictures and Entertainment — 4.96%*:
CPUK Finance Ltd+^			7.00		2/28/2042			4,100,000				6,142,732				5,607,794
Odeon & UCI Finco+^			9.00		8/1/2018			2,150,000				3,165,587				2,856,430
Perform Group+^			8.50		11/15/2020			900,000				1,345,824				1,131,533
Vue Cinimas+^			7.88		7/15/2020			3,650,000				5,853,133				4,910,696
Warner Music#^			6.75		4/15/2022			5,299,000				5,141,944				5,603,693
Total Leisure, Amusement, Motion Pictures and Entertainment								16,099,000				21,649,220				20,110,146
Machinery (Non-Agriculture, Non-Construct, Non-Electronic) — 1.90%*:
Apex Tool Group LLC^			7.00		2/1/2021			4,896,000				4,378,070				4,681,800
Xerium Technologies^			9.50		8/15/2021			3,000,000				3,064,412				3,037,500
Total Machinery (Non-Agriculture, Non-Construct, Non-Electronic)								7,896,000				7,442,482				7,719,300
Mining, Steel, Iron and Non-Precious Metals — 4.43%*:
Constellium Holdco B.V.+#^			7.88		4/1/2021			2,474,000			$	2,471,500			$	2,640,995
Constellium Holdco B.V.+#^			7.00		1/15/2023			3,350,000				3,926,291				3,614,895
Hecla Mining Company#			6.88		5/1/2021			5,888,000				5,669,131				5,910,080
Kissner Milling Company Limited#^			7.25		6/1/2019			3,300,000				2,993,921				3,432,000
SunCoke Energy Inc.			7.38		2/1/2020			2,000,000				1,870,000				1,870,000
Zekelman Industries Inc.^			9.88		6/15/2023			489,000				489,000				515,895
Total Mining, Steel, Iron and Non-Precious Metals								17,501,000				17,419,843				17,983,865
Oil and Gas — 13.48%*:
CITGO Holding Inc.#^			10.75		2/15/2020			7,584,000				7,437,434				7,602,960
EP Energy			9.38		5/1/2020			7,375,000				4,060,594				5,217,812
Ferrellgas Partners LP#			8.63		6/15/2020			7,635,000				7,551,246				7,501,387
Jupiter Resources Inc.+#^			8.50		10/1/2022			8,025,000				7,062,827				6,741,000
KCA DEUTAG Alpha Ltd.+^			9.63		5/1/2018			2,850,000				2,529,858				2,614,875
Kosmos Energy Ltd. +#^			7.88		8/1/2021			5,070,000				4,678,821				4,917,900
Kosmos Energy Ltd. #^			7.88		8/1/2021			1,085,000				1,014,572				1,052,450
Pbf Holding Company LLC#			8.25		2/15/2020			6,000,000				6,159,993				6,189,000
Pbf Logistics LP#			6.88		5/15/2023			1,117,000				1,117,000				1,076,509
SM Energy Company			5.63		6/1/2025			4,000,000				2,734,665				3,760,000
Topaz Marine SA+#^			8.63		11/1/2018			6,877,000				6,900,429				6,651,847
Welltec+#^			8.00		2/1/2019			1,387,000				1,351,708				1,340,189
Total Oil and Gas								59,005,000				52,599,147				54,665,929

		EFFECTIVE INTEREST RATE‡			DUE DATE		PRINCIPAL				COST				FAIR VALUE
Printing and Publishing — 2.09%*:
Cimpress N.V.#^			7.00	%	4/1/2022			1,560,000			$	1,560,000			$	1,626,300
McGraw-Hill Education#^			8.50		8/1/2019			6,794,000				6,805,561				6,861,940
Total Printing and Publishing								8,354,000				8,365,561				8,488,240
Retail Store — 2.54%*:
Boing Group Finance+^			6.63		7/15/2019			3,050,000				4,162,914				3,220,661
Brighthouse Group PLC+#^			7.88		5/15/2018			1,175,000				1,825,611				929,132
HSS Financing PLC+^			6.75		8/1/2019			816,000				1,240,099				1,066,537
Takko Fashion+^			9.88		4/15/2019			2,300,000				3,044,838				1,653,580
Travelex+^			8.00		8/1/2018			2,800,000				4,342,001				3,433,223
Total Retail Store								10,141,000				14,615,463				10,303,133
Telecommunications — 7.10%*:
Altice S.A.+#^			7.75		5/15/2022			3,240,000				3,240,000				3,458,700
Altice S.A.+#^			7.50		5/15/2026			1,622,000				1,622,000				1,688,907
Digicel Limited+^			6.00		4/15/2021			4,000,000				3,479,803				3,533,600
Entercom Communications Corporation#			10.50		12/1/2019			3,500,000				3,610,838				3,644,375
Frontier Communications#			10.50		9/15/2022			1,406,000				1,406,000				1,490,360
Numericable-SFR+#^			7.38		5/1/2026			1,933,000				1,933,000				1,975,893
Sprint Corp.			7.88		9/15/2023			4,428,000				4,293,248				4,455,675
UPC Broadband+^			6.75		3/15/2023			150,000				158,803				165,980
Wind Acquisition+^			7.00		4/23/2021			550,000				758,861				644,876
Wind Acquisition+#^			7.38		4/23/2021			4,995,000				4,628,342				5,219,775
Ziggo+^			7.13		5/15/2024			2,000,000				2,388,730				2,501,713
Total Telecommunications								27,824,000				27,519,625				28,779,854
Textiles & Leather — 0.58%*:
Perry Ellis International Inc#			7.88		4/1/2019			2,334,000				2,378,507				2,360,257
Total Textiles & Leather								2,334,000				2,378,507				2,360,257
Total Corporate Bonds								440,126,714				465,897,779				451,325,591
Total Fixed Income								531,902,519				552,630,728				523,172,810
Total Investments								532,134,370				554,527,554				525,124,022
Other assets and liabilities — (29.48)%																(119,551,797	)
Net Assets — 100%															$	405,572,225

‡

The effective interest rates are based on settled commitment amount.

*

Calculated as a percentage of net assets applicable to common shareholders.

§

Bank loans are exempt from registration under the Securities Act of 1933, as amended, but contain certain restrictions on resale and cannot be sold publicly. These loans pay interest at rates which adjust periodically. The interest rates shown for bank loans are the current interest rates at September 30, 2016. Bank loans are also subject to mandatory and/or optional prepayment which cannot be predicted. As a result, the remaining maturity may be substantially less than the stated maturity shown.

+

Foreign security.

#

All or a portion of the security is segregated as collateral for the credit facility.  See Note 8 to the financial statements for further disclosure.

^

Security exempt from registration under Rule 144a of the Securities Act of 1933.  These securities may only be resold in transactions exempt from registration, normally to qualified institutional buyers.

Distributions of investments by country of risk.  Percentage of assets are expressed by market value excluding cash and accrued income as of September 30, 2016.

United States

66.5%

United Kingdom

12.0%

France

3.7%

Netherlands

2.5%

Germany

2.3%

Canada

1.9%

Italy

1.8%

Trinidad and Tobago

1.5%

Switzerland

1.3%

United Arab Emirates

1.3%

Mexico

1.2%

(Individually less than 1%)

4.0%

100.0%

Tax Basis

The cost basis of investments for federal income tax purposes at September 30, 2016 for Barings Global Short Duration High Yield Fund (the “Fund”) was as follows*:

 

Cost of investments		$	554,527,554
Gross unrealized appreciation			14,620,376
Gross unrealized depreciation			(44,023,908	)
Net unrealized depreciation		$	(29,403,532	)

                         

*The above table only reflects tax adjustments through December 31, 2015.  For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent annual report.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  A three-tier hierarchy is utilized to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes.  Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.  For example, market participants would consider the risk inherent in a particular valuation technique used to measure fair value, such as a pricing model, and/or the risk inherent in the inputs to the valuation technique.  Inputs may be observable or unobservable.  Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity.  Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.  The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

Level 1 – quoted prices in active markets for identical securities

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

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 is determining fair value is greatest for instruments categorized in level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, 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 following is a summary of the inputs used as of September 30, 2016 in valuing the Fund’s investments:

The following table is a summary of quantitative information about significant unobservable valuation inputs for Level 3 fair value measurement for investments held as of September 30, 2016.

 

 

Boomerang Tube, LLC restructured its debt securities on February 2, 2016.  The Fund subsequently received new debt securities, all of which are considered Level 3.  Sabine Oil & Gas, LLC restructured its Second Lien Term Loan on August 12, 2016.  The Fund subsequently received new equity securities, all of which are considered Level 3.

The Fund discloses transfers between levels based on valuations at the end of the reporting period.  Based on end of period market values, $5,948,506 was transferred from Level 3 to Level 2 for the period from January 1, 2016 through September 30, 2016.  The following is a reconciliation of Level 3 investments based upon the inputs used to determine fair value:

 

		BALANCE AT DECEMBER 31, 2015				TRANSFERS INTO LEVEL 3				TRANSFERS OUT OF LEVEL 3				PURCHASES				SALES				ACCRETION OF DISCOUNT				REALIZED GAIN LOSS				CHANGE IN UNREALIZED				BALANCE AT SEPTEMBER 30, 2016				CHANGE IN UNREALIZED APPRECIATION / DEPRECIATION FROM INVESTMENTS HELD AS OF SEPTEMBER 30, 2016
Common Stocks
Equities		$	0			$	0			$	0			$	316,074			$	0			$	0			$	0			$	54,386			$	370,460			$	54,386
Fixed Income
Bank Loan		$	9,628,816			$	0			$	(5,948,506	)		$	10,632,161			$	(8,327,013	)		$	(288,720	)		$	(3,603,433	)		$	2,517,237			$	4,610,542			$	2,517,237
Total		$	9,628,816			$	0			$	(5,948,506	)		$	10,948,235			$	(8,327,013	)		$	(288,720	)		$	(3,603,433	)		$	2,571,623			$	4,981,002			$	2,571,623

B.  Cash and Cash Equivalents

Cash and cash equivalents consist principally of short term investments that are readily convertible into cash and have original maturities of three months or less.  At September 30, 2016, all cash and cash equivalents are held by U.S. Bank, N.A.

C.  Investment Transactions, Related Investment Income and Expenses

 

Investment transactions are accounted for on a trade-date basis.  Interest income is recorded on the accrual basis, including the amortization of premiums and accretion of discounts on bonds held using the yield-to-maturity method.

Realized gains and losses on investment transactions and unrealized appreciation and depreciation of investments are reported for financial statement and Federal income tax purposes on the identified cost method.

Expenses are recorded on the accrual basis as incurred.

D.  Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of 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 those estimates.

E.  Federal Income Taxation

The Fund has elected to be taxed as a Regulated Investment Company (“RIC”) under sub-chapter M of the U.S. Internal Revenue Code of 1986, as amended, and intends to maintain this qualification and to distribute substantially all of its net taxable income to its shareholders.

F. Dividends and Distributions

The Fund declares and pays dividends monthly from net investment income. To the extent that these distributions exceed net investment income, they may be classified as return of capital. The Fund also pays a distribution at least annually from its net realized capital gains, if any. Dividends and distributions are recorded on the ex-dividend date. All common shares have equal dividend and other distribution rights. A notice disclosing the source(s) of a distribution will be provided if payment is made from any source other than net investment income. Any such notice would be provided only for informational purposes in order to comply with the requirements of Section 19(a) of the 1940 Act and not for tax reporting purposes. The tax composition of the Fund’s distributions for each calendar year is reported on Internal Revenue Service Form 1099-DIV.

Dividends from net investment income and distributions from realized gains from investment transactions have been determined in accordance with Federal income tax regulations and may differ from net investment income and realized gains recorded by the Fund for financial reporting purposes. These differences, which could be temporary or permanent in nature may result in reclassification of distributions; however, net investment income, net realized gains and losses, and net assets are not affected.

G.  Derivative Instruments

The following is a description of the derivative instruments that the Fund utilizes as part of its investment strategy, including the primary underlying risk exposures related to the instrument.

Forward Foreign Exchange Contracts – The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives.  The Fund transacted in and currently holds forward foreign exchange contracts to hedge against changes in the value of foreign currencies.  The Fund entered into forward foreign exchange contracts obligating the Fund to deliver or receive a currency at a specified future date.  Forward foreign exchange contracts are valued daily and unrealized appreciation or depreciation is recorded daily as the difference between the contract exchange rate and the closing forward rate applied to the face amount of the contract. A realized gain or loss is recorded at the time the forward contract expires. Credit risk may arise as a result of the failure of the counterparty to comply with the terms of the contract. The Fund considers the creditworthiness of each counterparty to a contract in evaluating potential credit risk quarterly. The Fund is also subject to credit risk with respect to the counterparties to the derivative contracts which are not cleared through a central counterparty but instead are traded over-the-counter between two counterparties. If a counterparty to an over-the-counter derivative 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 a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. The counterparty risk for cleared derivatives is generally lower than for uncleared over-the-counter derivative 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 house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Fund. In addition, in the event of a bankruptcy of a clearing house, the Fund could experience a loss of the funds deposited with such clearing house as margin and of any profits on its open positions.  The counterparty risk to the Fund is limited to the net unrealized gain, in any, on the contract.

The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying prices of the Fund’s investment securities; however, it does establish a rate of exchange that can be achieved in the future. The use of forward foreign exchange contracts involves the risk that anticipated currency movements will not be accurately predicted. A forward foreign exchange contract would limit the risk of loss due to a decline in the value of a particular currency; however it would also limit any potential gain that might result should the value of the currency increase instead of decrease. These contracts may involve market risk in excess of the amount of receivable or payable reflected on the Statement of Assets and Liabilities.

The Fund recognized an asset on the Statement of Assets and Liabilities as a result of forward foreign exchange contracts with BNY Mellon, Morgan Stanley and J.P. Morgan.  The Fund’s policy is to recognize an asset equal to the net value of all forward foreign exchange contracts with an unrealized gain and a liability equal to the net value of all forward foreign exchange contracts with an unrealized loss.  The Fund has recognized an asset of $1,624,012 in net unrealized appreciation and a liability of $145,645 in net unrealized depreciation on forward foreign exchange contracts.  Outstanding forward foreign exchange contracts as of September 30, 2016 are indicative of the volume of activity during the period.

For the period from January 1, 2016 through September 30, 2016, the Fund’s direct investment in derivatives consisted of forward foreign exchange contracts.

The following is a summary of the fair value of derivative instruments held directly by the Fund as of September 30, 2016.  These derivatives are presented in the Schedule of Investments.

Fair values of derivative instruments on the Statement of Assets and Liabilities as of September 30, 2016: