WASHINGTON, D. C. 20549
Deutsche Global High Income Fund, Inc.
April 30, 2015
Semiannual Report
to Shareholders
Deutsche Global High Income Fund, Inc.
Ticker Symbol: LBF
Contents
33 Statement of Assets and Liabilities 35 Statement of Operations 36 Statement of Cash Flows 38 Statement of Changes in Net Assets 41 Notes to Financial Statements 55 Dividend Reinvestment and Cash Purchase Plan 59 Additional Information |
The fund's primary investment objective is to seek high current income; capital appreciation is a secondary investment objective.
Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.
Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Floating rate loans tend to be rated below-investment grade and may be more vulnerable to economic or business changes than issuers with investment-grade credit. Emerging markets tend to be more volatile than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. Investing in foreign securities presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Leverage results in additional risks and can magnify the effect of any gains or losses.
Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries, including the Advisor and DeAWM Distributors, Inc.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary April 30, 2015 (Unaudited)
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit deutschefunds.com for the Fund's most recent month-end performance.
Fund specific data and performance are provided for informational purposes only and are not intended for trading purposes.
Average Annual Return as of 4/30/15 |
| | 6-Month‡ | 1-Year | 5-Year | 10-Year |
Based on Net Asset Value(a) | 1.34% | 4.55% | 8.58% | 8.63% |
Based on Market Price(a) | 4.71% | 8.28% | 8.91% | 9.11% |
JPMorgan Emerging Markets Bond Global Diversified Index(b) | 1.37% | 6.06% | 7.27% | 8.14% |
Morningstar Closed-End Emerging Markets Bond Funds Category (based on Net Asset Value)(c) | –4.26% | –2.96% | 4.08% | 7.65% |
‡ Total returns shown for periods less than one year are not annualized.
a Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period. Expenses of the Fund include management fee, interest expense and other fund expenses. Total returns shown take into account these fees and expenses. The annualized expense ratio of the Fund for the six months ended April 30, 2015 was 2.22% (1.73% excluding interest expense).
b The unmanaged, unleveraged JPMorgan Emerging Markets Bond Global Diversified Index tracks total returns for U.S.-dollar-denominated debt instruments issued by emerging-market sovereign entities, including Brady bonds, loans and Eurobonds, and quasi-sovereign entities. The index limits exposure to any one country.
Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.
c Morningstar's Closed-End Emerging Markets Bond Funds category represents portfolios that invest more than 65% of their assets in foreign bonds from developing countries. The largest portion of the emerging-markets bond market comes from Latin America, followed by Eastern Europe. Africa, the Middle East and Asia make up the rest. Morningstar figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Morningstar, Inc. as falling into the Closed-End Emerging Markets Bond Funds category. Category returns assume reinvestment of all distributions. It is not possible to invest directly in a Morningstar category.
| Net Asset Value and Market Price | |
| | | As of 4/30/15 | | | As of 10/31/14 | |
| Net Asset Value | | $ | 9.16 | | | $ | 9.34 | |
| Market Price | | $ | 8.34 | | | $ | 8.23 | |
Prices and Net Asset Value fluctuate and are not guaranteed.
| Distribution Information | |
Six Months as of 4/30/15: Income Dividends | | $ | .27 | |
| April Income Dividend | | $ | .0450 | |
Current Annualized Distribution Rate (based on Net Asset Value) as of 4/30/15† | | | 5.90 | % |
Current Annualized Distribution Rate (based on Market Price) as of 4/30/15† | | | 6.47 | % |
† Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value/market price on April 30, 2015. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Distribution rates are historical, not guaranteed and will fluctuate. Distributions do not include return of capital or other non-income sources.
Gary Russell, CFA, Managing Director
Portfolio Manager of the fund. Began managing the fund in 2011.
— Joined Deutsche Asset & Wealth Management in 1996. Served as the head of the High Yield group in Europe and as an Emerging Markets portfolio manager.
— Prior to that, he spent four years at Citicorp as a research analyst and structurer of collateralized mortgage obligations. Prior to Citicorp, he served as an officer in the US Army from 1988 to 1991.
— Head of US High Yield Bonds: New York.
— BS, United States Military Academy (West Point); MBA, New York University, Stern School of Business.
Portfolio Summary (Unaudited)
Investment Portfolio as of April 30, 2015 (Unaudited) | | | Principal Amount ($)(a) | | | Value ($) | |
| | | | |
| Bonds 137.0% | |
| Austria 0.6% | |
| JBS Investments GmbH: | |
| 144A, 7.25%, 4/3/2024 | | | | 125,000 | | | | 130,375 | |
| 144A, 7.75%, 10/28/2020 | | | | 200,000 | | | | 216,800 | |
| (Cost $325,000) | | | | 347,175 | |
| Belgium 0.7% | |
| Barry Callebaut Services NV, 144A, 5.5%, 6/15/2023 (Cost $420,017) | | | | 395,000 | | | | 421,662 | |
| Bermuda 0.4% | |
| Digicel Group Ltd.: | |
| 144A, 7.125%, 4/1/2022 | | | | 65,000 | | | | 61,547 | |
| 144A, 8.25%, 9/30/2020 | | | | 147,000 | | | | 151,616 | |
| (Cost $216,095) | | | | 213,163 | |
| Brazil 2.9% | |
| Banco Bradesco SA, 144A, 5.75%, 3/1/2022 | | | | 425,000 | | | | 448,630 | |
| Banco Santander Brasil SA, 144A, 8.0%, 3/18/2016 | BRL | | | 300,000 | | | | 93,596 | |
| Centrais Eletricas Brasileiras SA, 144A, 6.875%, 7/30/2019 | | | | 1,000,000 | | | | 979,700 | |
| Independencia International Ltd., REG S, 12.0%, 12/30/2016* | | | | 577,088 | | | | 0 | |
| Samarco Mineracao SA, 144A, 5.75%, 10/24/2023 | | | | 200,000 | | | | 198,560 | |
| (Cost $2,859,823) | | | | 1,720,486 | |
| Canada 11.4% | |
| Baytex Energy Corp.: | |
| 144A, 5.125%, 6/1/2021 | | | | 20,000 | | | | 19,500 | |
| 144A, 5.625%, 6/1/2024 | | | | 20,000 | | | | 19,350 | |
| Bombardier, Inc.: | |
| 144A, 4.75%, 4/15/2019 | | | | 35,000 | | | | 34,825 | |
| 144A, 5.5%, 9/15/2018 | | | | 30,000 | | | | 30,338 | |
| 144A, 5.75%, 3/15/2022 | | | | 485,000 | | | | 459,537 | |
| 144A, 6.0%, 10/15/2022 | | | | 65,000 | | | | 61,100 | |
| 144A, 7.5%, 3/15/2025 | | | | 30,000 | | | | 29,738 | |
| Cascades, Inc., 144A, 5.5%, 7/15/2022 | | | | 35,000 | | | | 35,438 | |
| Cogeco Cable, Inc., 144A, 4.875%, 5/1/2020 | | | | 185,000 | | | | 189,856 | |
| Concordia Healthcare Corp., 144A, 7.0%, 4/15/2023 | | | | 30,000 | | | | 30,450 | |
| First Quantum Minerals Ltd., 144A, 7.0%, 2/15/2021 | | | | 72,000 | | | | 67,140 | |
| Garda World Security Corp., 144A, 7.25%, 11/15/2021 | | | | 50,000 | | | | 49,750 | |
| Jupiter Resources, Inc., 144A, 8.5%, 10/1/2022 | | | | 55,000 | | | | 46,475 | |
| KGHM International Ltd., 144A, 7.75%, 6/15/2019 | | | | 1,250,000 | | | | 1,281,250 | |
| Masonite International Corp., 144A, 5.625%, 3/15/2023 | | | 70,000 | | | | 73,150 | |
| MDC Partners, Inc., 144A, 6.75%, 4/1/2020 | | | | 45,000 | | | | 45,675 | |
| MEG Energy Corp.: | |
| 144A, 6.5%, 3/15/2021 | | | | 675,000 | | | | 666,562 | |
| 144A, 7.0%, 3/31/2024 | | | | 140,000 | | | | 137,928 | |
| Novelis, Inc., 8.75%, 12/15/2020 | | | | 130,000 | | | | 138,775 | |
| Open Text Corp., 144A, 5.625%, 1/15/2023 | | | | 65,000 | | | | 67,438 | |
| Seven Generations Energy Ltd., 144A, 6.75%, 5/1/2023 | | | 25,000 | | | | 25,469 | |
| Telesat Canada, 144A, 6.0%, 5/15/2017 | | | | 1,025,000 | | | | 1,042,937 | |
| Valeant Pharmaceuticals International, Inc.: | |
| 144A, 5.375%, 3/15/2020 | | | | 120,000 | | | | 123,075 | |
| 144A, 5.875%, 5/15/2023 | | | | 105,000 | | | | 107,756 | |
| 144A, 6.125%, 4/15/2025 | | | | 310,000 | | | | 319,881 | |
| 144A, 6.75%, 8/15/2018 | | | | 1,115,000 | | | | 1,180,506 | |
| 144A, 7.5%, 7/15/2021 | | | | 245,000 | | | | 265,825 | |
| Videotron Ltd., 5.0%, 7/15/2022 | | | | 230,000 | | | | 237,314 | |
| (Cost $6,775,990) | | | | 6,787,038 | |
| Cayman Islands 5.4% | |
| IPIC GMTN Ltd., 144A, 5.5%, 3/1/2022 | | | | 500,000 | | | | 583,125 | |
| Sable International Finance Ltd., 144A, 8.75%, 2/1/2020 | | | 205,000 | | | | 220,887 | |
| Seagate HDD Cayman, 3.75%, 11/15/2018 | | | | 100,000 | | | | 104,631 | |
| UPCB Finance III Ltd., 144A, 6.625%, 7/1/2020 | | | | 2,055,000 | | | | 2,136,686 | |
| UPCB Finance IV Ltd., 144A, 5.375%, 1/15/2025 | | | | 155,000 | | | | 157,519 | |
| (Cost $3,094,520) | | | | 3,202,848 | |
| Chile 4.3% | |
| Corporacion Nacional del Cobre de Chile, REG S, 5.625%, 9/21/2035 | | | | 2,000,000 | | | | 2,280,412 | |
| Inversiones CMPC SA, 144A, 4.375%, 5/15/2023 | | | | 250,000 | | | | 256,250 | |
| (Cost $1,894,486) | | | | 2,536,662 | |
| Croatia 5.7% | |
| Republic of Croatia: | |
| 144A, 6.25%, 4/27/2017 | | | | 280,000 | | | | 296,834 | |
| 144A, 6.375%, 3/24/2021 | | | | 1,770,000 | | | | 1,951,425 | |
| REG S, 6.625%, 7/14/2020 | | | | 1,000,000 | | | | 1,113,440 | |
| (Cost $3,035,678) | | | | 3,361,699 | |
| Dominican Republic 1.9% | |
| Dominican Republic, 144A, 7.5%, 5/6/2021 (Cost $1,044,022) | | | | 1,000,000 | | | | 1,125,000 | |
| France 5.0% | |
| Autodis SA, 144A, 6.5%, 2/1/2019 | EUR | | | 150,000 | | | | 176,020 | |
| BUT SAS, 144A, 7.375%, 9/15/2019 | EUR | | | 185,000 | | | | 213,959 | |
| Credit Agricole SA, 144A, 7.875%, 1/29/2049 | | | | 130,000 | | | | 139,013 | |
| Crown European Holdings SA: | |
| 144A, 3.375%, 5/15/2025 (b) | EUR | | | 390,000 | | | | 435,788 | |
| 144A, 4.0%, 7/15/2022 | EUR | | | 310,000 | | | | 371,579 | |
| Financiere Gaillon 8 SAS, 144A, 7.0%, 9/30/2019 | EUR | | | 215,000 | | | | 248,655 | |
| HomeVi SAS, 144A, 6.875%, 8/15/2021 | EUR | | | 280,000 | | | | 336,406 | |
| Novafives SAS, 144A, 4.5%, 6/30/2021 | EUR | | | 100,000 | | | | 110,898 | |
| Numericable-SFR: | |
| 144A, 4.875%, 5/15/2019 | | | | 125,000 | | | | 126,094 | |
| 144A, 6.0%, 5/15/2022 | | | | 200,000 | | | | 204,875 | |
| Paprec Holding, 144A, 5.25%, 4/1/2022 | EUR | | | 295,000 | | | | 345,318 | |
| Societe Generale SA, 144A, 7.875%, 12/29/2049 | | | | 55,000 | | | | 57,062 | |
| SPCM SA, 144A, 6.0%, 1/15/2022 | | | | 185,000 | | | | 194,250 | |
| (Cost $3,133,365) | | | | 2,959,917 | |
| Germany 1.3% | |
| HP Pelzer Holding GmbH, 144A, 7.5%, 7/15/2021 | EUR | | | 330,000 | | | | 400,184 | |
| Techem GmbH, 144A, 6.125%, 10/1/2019 | EUR | | | 200,000 | | | | 238,325 | |
| Unitymedia Hessen GmbH & Co., KG, 144A, 4.0%, 1/15/2025 | EUR | | | 110,000 | | | | 126,601 | |
| (Cost $840,615) | | | | 765,110 | |
| Greece 0.2% | |
| FAGE Dairy Industry SA, 144A, 9.875%, 2/1/2020 (Cost $100,596) | | | | 100,000 | | | | 105,125 | |
| Hungary 3.8% | |
| Republic of Hungary, 5.375%, 2/21/2023 (Cost $2,193,864) | | | | 2,000,000 | | | | 2,237,940 | |
| Indonesia 2.3% | |
| Perusahaan Penerbit SBSN, 144A, 4.0%, 11/21/2018 (Cost $1,331,237) | | | | 1,300,000 | | | | 1,366,625 | |
| Ireland 1.0% | |
| Ardagh Packaging Finance PLC: | |
| 144A, 4.25%, 1/15/2022 | EUR | | | 100,000 | | | | 114,671 | |
| 144A, 9.125%, 10/15/2020 | | | | 250,000 | | | | 268,750 | |
| MMC Finance Ltd., 144A, 5.55%, 10/28/2020 | | | | 200,000 | | | | 196,512 | |
| (Cost $599,640) | | | | 579,933 | |
| Israel 0.1% | |
| B Communications Ltd., 144A, 7.375%, 2/15/2021 (Cost $60,000) | | | | 60,000 | | | | 64,092 | |
| Italy 2.7% | |
| Astaldi SpA, 144A, 7.125%, 12/1/2020 | EUR | | | 880,000 | | | | 1,063,698 | |
| Snai SpA, 144A, 12.0%, 12/15/2018 | EUR | | | 440,000 | | | | 528,638 | |
| (Cost $1,791,701) | | | | 1,592,336 | |
| Kazakhstan 2.9% | |
| KazMunayGas National Co. JSC: | |
| 144A, 4.4%, 4/30/2023 | | | | 250,000 | | | | 236,875 | |
| 144A, 7.0%, 5/5/2020 | | | | 200,000 | | | | 217,800 | |
| Series 2, REG S, 9.125%, 7/2/2018 | | | | 1,150,000 | | | | 1,300,075 | |
| (Cost $1,572,826) | | | | 1,754,750 | |
| Latvia 0.8% | |
| Republic of Latvia, 144A, 2.75%, 1/12/2020 (Cost $498,250) | | | | 500,000 | | | | 508,345 | |
| Lithuania 3.0% | |
| Republic of Lithuania: | |
| 144A, 6.125%, 3/9/2021 | | | | 1,000,000 | | | | 1,182,500 | |
| 144A, 7.375%, 2/11/2020 | | | | 500,000 | | | | 607,000 | |
| (Cost $1,521,762) | | | | 1,789,500 | |
| Luxembourg 11.0% | |
| Aguila 3 SA, 144A, 7.875%, 1/31/2018 | | | | 245,000 | | | | 247,450 | |
| Altice Financing SA, 144A, 7.875%, 12/15/2019 | | | | 200,000 | | | | 212,510 | |
| Altice Finco SA, 144A, 9.875%, 12/15/2020 | | | | 200,000 | | | | 220,750 | |
| Altice SA, 144A, 7.25%, 5/15/2022 | EUR | | | 110,000 | | | | 127,682 | |
| ArcelorMittal, 6.0%, 8/5/2020 | | | | 330,000 | | | | 344,437 | |
| Coveris Holdings SA, 144A, 7.875%, 11/1/2019 | | | | 20,000 | | | | 20,300 | |
| CSN Resources SA, 144A, 6.5%, 7/21/2020 | | | | 1,170,000 | | | | 1,076,400 | |
| Empark Funding SA, 144A, 6.75%, 12/15/2019 | EUR | | | 210,000 | | | | 261,736 | |
| Intelsat Jackson Holdings SA: | |
| 5.5%, 8/1/2023 | | | | 565,000 | | | | 531,806 | |
| 7.25%, 10/15/2020 | | | | 260,000 | | | | 268,093 | |
| 7.5%, 4/1/2021 | | | | 850,000 | | | | 882,937 | |
| Intelsat Luxembourg SA: | |
| 7.75%, 6/1/2021 | | | | 120,000 | | | | 110,250 | |
| 8.125%, 6/1/2023 | | | | 15,000 | | | | 13,730 | |
| Mallinckrodt International Finance SA, 144A, 4.875%, 4/15/2020 | | | | 50,000 | | | | 50,813 | |
| Matterhorn Telecom Holding SA, 144A, 4.875%, 5/1/2023 | EUR | | | 450,000 | | | | 502,124 | |
| MHP SA, 144A, 8.25%, 4/2/2020 | | | | 645,000 | | | | 516,000 | |
| Millicom International Cellular SA, 144A, 4.75%, 5/22/2020 | | | | 200,000 | | | | 197,000 | |
| Minerva Luxembourg SA, 144A, 7.75%, 1/31/2023 | | | | 210,000 | | | | 209,475 | |
| Play Finance 1 SA, 144A, 6.5%, 8/1/2019 | EUR | | | 100,000 | | | | 118,461 | |
| Play Finance 2 SA, 144A, 5.25%, 2/1/2019 | EUR | | | 200,000 | | | | 232,610 | |
| Telenet Finance V Luxembourg SCA: | |
| 144A, 6.25%, 8/15/2022 | EUR | | | 110,000 | | | | 133,703 | |
| 144A, 6.75%, 8/15/2024 | EUR | | | 110,000 | | | | 137,563 | |
| Wind Acquisition Finance SA: | |
| 144A, 4.011%**, 7/15/2020 | EUR | | | 100,000 | | | | 112,145 | |
| 144A, 6.5%, 4/30/2020 | | | | 30,000 | | | | 31,875 | |
| (Cost $6,922,415) | | | | 6,559,850 | |
| Marshall Islands 0.2% | |
| Navios Maritime Holdings, Inc., 144A, 7.375%, 1/15/2022 (Cost $145,000) | | | | 145,000 | | | | 133,400 | |
| Mexico 0.4% | |
| Petroleos Mexicanos, 5.5%, 6/27/2044 (Cost $214,037) | | | | 215,000 | | | | 212,098 | |
| Netherlands 1.3% | |
| Cable Communications Systems NV, 144A, 7.5%, 11/1/2020 | EUR | | | 100,000 | | | | 118,461 | |
| Fiat Chrysler Automobiles NV, 144A, 4.5%, 4/15/2020 | | | | 110,000 | | | | 110,715 | |
| NXP BV, 144A, 3.75%, 6/1/2018 | | | | 65,000 | | | | 66,787 | |
| United Group BV, 144A, 7.875%, 11/15/2020 | EUR | | | 270,000 | | | | 323,937 | |
| Ziggo Bond Finance BV, 144A, 4.625%, 1/15/2025 | EUR | | | 130,000 | | | | 150,364 | |
| (Cost $832,520) | | | | 770,264 | |
| Panama 3.4% | |
| Republic of Panama, 3.75%, 3/16/2025 (Cost $1,976,000) | | | | 2,000,000 | | | | 2,025,000 | |
| Peru 3.5% | |
| Ferreycorp SAA, 144A, 4.875%, 4/26/2020 | | | | 325,000 | | | | 321,750 | |
| Republic of Peru, 7.35%, 7/21/2025 | | | | 1,000,000 | | | | 1,352,500 | |
| Volcan Cia Minera SAA, 144A, 5.375%, 2/2/2022 | | | | 420,000 | | | | 412,230 | |
| (Cost $2,067,473) | | | | 2,086,480 | |
| Philippines 4.2% | |
| Bangko Sentral Ng Pilipinas, Series A, 8.6%, 6/15/2027 (Cost $1,910,458) | | | | 1,800,000 | | | | 2,520,000 | |
| Poland 0.7% | |
| Republic of Poland: | |
| 3.0%, 3/17/2023 | | | | 400,000 | | | | 406,640 | |
| Series 0725, 3.25%, 7/25/2025 | PLN | | | 80,000 | | | | 23,394 | |
| (Cost $430,621) | | | | 430,034 | |
| Puerto Rico 0.1% | |
| Popular, Inc., 7.0%, 7/1/2019 (Cost $40,000) | | | | 40,000 | | | | 40,400 | |
| Romania 3.6% | |
| Republic of Romania, 144A, 4.375%, 8/22/2023 (Cost $2,144,448) | | | | 2,000,000 | | | | 2,120,000 | |
| Serbia 1.9% | |
| Republic of Serbia: | |
| REG S, 6.75%, 11/1/2024 | | | | 240,305 | | | | 244,030 | |
| 144A, 7.25%, 9/28/2021 | | | | 760,000 | | | | 875,361 | |
| (Cost $963,737) | | | | 1,119,391 | |
| Spain 0.2% | |
| Campofrio Food Group SA, 144A, 3.375%, 3/15/2022 (Cost $111,755) | EUR | | | 100,000 | | | | 113,973 | |
| Sri Lanka 0.8% | |
| Republic of Sri Lanka, 144A, 5.125%, 4/11/2019 (Cost $500,000) | | | | 500,000 | | | | 500,000 | |
| Sweden 0.9% | |
| Ciech Group Financing AB, 144A, 9.5%, 11/30/2019 | EUR | | | 250,000 | | | | 310,210 | |
| Perstorp Holding AB, 144A, 8.75%, 5/15/2017 | | | | 210,000 | | | | 220,500 | |
| (Cost $584,595) | | | | 530,710 | |
| Turkey 4.3% | |
| Arcelik AS, 144A, 5.0%, 4/3/2023 | | | | 435,000 | | | | 415,947 | |
| Republic of Turkey, 4.25%, 4/14/2026 | | | | 2,000,000 | | | | 1,944,080 | |
| Yapi ve Kredi Bankasi AS, 144A, 5.25%, 12/3/2018 | | | | 200,000 | | | | 204,500 | |
| (Cost $2,584,469) | | | | 2,564,527 | |
| United Kingdom 3.1% | |
| Jaguar Land Rover Automotive PLC, 144A, 3.5%, 3/15/2020 | | | | 310,000 | | | | 309,225 | |
| TA Manufacturing Ltd., 144A, 3.625%, 4/15/2023 | EUR | | | 205,000 | | | | 230,476 | |
| Virgin Media Secured Finance PLC, 144A, 5.25%, 1/15/2026 | | | | 1,290,000 | | | | 1,283,550 | |
| (Cost $1,836,051) | | | | 1,823,251 | |
| United States 33.8% | |
| ACI Worldwide, Inc., 144A, 6.375%, 8/15/2020 | | | | 20,000 | | | | 21,025 | |
| Activision Blizzard, Inc., 144A, 5.625%, 9/15/2021 | | | | 160,000 | | | | 171,000 | |
| ADT Corp.: | |
| 3.5%, 7/15/2022 | | | | 35,000 | | | | 32,988 | |
| 4.125%, 4/15/2019 | | | | 10,000 | | | | 10,156 | |
| 5.25%, 3/15/2020 | | | | 85,000 | | | | 89,675 | |
| 6.25%, 10/15/2021 | | | | 30,000 | | | | 32,250 | |
| Aerojet Rocketdyne Holdings, Inc., 7.125%, 3/15/2021 | | | | 70,000 | | | | 75,075 | |
| AES Corp., 3.262%**, 6/1/2019 | | | | 40,000 | | | | 40,000 | |
| Air Lease Corp., 4.75%, 3/1/2020 | | | | 50,000 | | | | 53,625 | |
| Ally Financial, Inc.: | |
| 3.25%, 2/13/2018 | | | | 90,000 | | | | 89,887 | |
| 3.5%, 1/27/2019 | | | | 165,000 | | | | 163,762 | |
| 4.125%, 3/30/2020 | | | | 90,000 | | | | 90,450 | |
| AMC Entertainment, Inc., 5.875%, 2/15/2022 | | | | 45,000 | | | | 46,687 | |
| AMC Networks, Inc., 7.75%, 7/15/2021 | | | | 10,000 | | | | 10,900 | |
| AmeriGas Finance LLC: | |
| 6.75%, 5/20/2020 | | | | 70,000 | | | | 74,287 | |
| 7.0%, 5/20/2022 | | | | 50,000 | | | | 53,550 | |
| Antero Resources Corp.: | |
| 5.125%, 12/1/2022 | | | | 95,000 | | | | 94,525 | |
| 5.375%, 11/1/2021 | | | | 65,000 | | | | 65,650 | |
| 144A, 5.625%, 6/1/2023 | | | | 60,000 | | | | 61,275 | |
| Apex Tool Group LLC, 144A, 7.0%, 2/1/2021 | | | | 30,000 | | | | 28,425 | |
| Artesyn Embedded Technologies, Inc., 144A, 9.75%, 10/15/2020 | | | | 45,000 | | | | 45,000 | |
| Asbury Automotive Group, Inc., 6.0%, 12/15/2024 | | | | 140,000 | | | | 146,650 | |
| Ashland, Inc., 3.875%, 4/15/2018 | | | | 205,000 | | | | 211,150 | |
| Ashtead Capital, Inc., 144A, 6.5%, 7/15/2022 | | | | 160,000 | | | | 171,301 | |
| Audatex North America, Inc.: | |
| 144A, 6.0%, 6/15/2021 | | | | 70,000 | | | | 72,297 | |
| 144A, 6.125%, 11/1/2023 | | | | 30,000 | | | | 31,275 | |
| Avis Budget Car Rental LLC: | |
| 144A, 5.25%, 3/15/2025 | | | | 140,000 | | | | 138,600 | |
| 5.5%, 4/1/2023 | | | | 165,000 | | | | 168,249 | |
| Aviv Healthcare Properties LP: | |
| 6.0%, 10/15/2021 | | | | 20,000 | | | | 22,909 | |
| 7.75%, 2/15/2019 | | | | 35,000 | | | | 36,356 | |
| Berry Petroleum Co., LLC: | |
| 6.375%, 9/15/2022 | | | | 35,000 | | | | 28,788 | |
| 6.75%, 11/1/2020 | | | | 60,000 | | | | 50,100 | |
| Berry Plastics Corp., 5.5%, 5/15/2022 | | | | 100,000 | | | | 103,625 | |
| Blue Racer Midstream LLC, 144A, 6.125%, 11/15/2022 | | | 35,000 | | | | 36,400 | |
| BMC Software Finance, Inc., 144A, 8.125%, 7/15/2021 | | | 95,000 | | | | 87,162 | |
| Boxer Parent Co., Inc., 144A, 9.0%, 10/15/2019 | | | | 80,000 | | | | 65,600 | |
| Cablevision Systems Corp., 5.875%, 9/15/2022 | | | | 25,000 | | | | 26,500 | |
| California Resources Corp.: | |
| 5.0%, 1/15/2020 | | | | 40,000 | | | | 37,800 | |
| 5.5%, 9/15/2021 | | | | 94,000 | | | | 89,065 | |
| 6.0%, 11/15/2024 | | | | 40,000 | | | | 37,600 | |
| Calpine Corp.: | |
| 5.375%, 1/15/2023 | | | | 60,000 | | | | 60,525 | |
| 5.75%, 1/15/2025 | | | | 60,000 | | | | 60,303 | |
| Cardtronics, Inc., 144A, 5.125%, 8/1/2022 | | | | 35,000 | | | | 34,738 | |
| Carrizo Oil & Gas, Inc., 6.25%, 4/15/2023 | | | | 75,000 | | | | 76,125 | |
| CCO Holdings LLC: | |
| 144A, 5.125%, 5/1/2023 | | | | 125,000 | | | | 123,750 | |
| 144A, 5.375%, 5/1/2025 | | | | 95,000 | | | | 93,337 | |
| 144A, 5.875%, 5/1/2027 | | | | 155,000 | | | | 152,675 | |
| CDW LLC: | |
| 5.5%, 12/1/2024 | | | | 185,000 | | | | 196,655 | |
| 6.0%, 8/15/2022 | | | | 60,000 | | | | 64,650 | |
| CenturyLink, Inc.: | |
| Series V, 5.625%, 4/1/2020 | | | | 20,000 | | | | 21,070 | |
| Series W, 6.75%, 12/1/2023 | | | | 35,000 | | | | 37,862 | |
| Cequel Communications Holdings I LLC: | |
| 144A, 5.125%, 12/15/2021 | | | | 99,000 | | | | 99,144 | |
| 144A, 6.375%, 9/15/2020 | | | | 165,000 | | | | 173,869 | |
| Chaparral Energy, Inc., 7.625%, 11/15/2022 | | | | 10,000 | | | | 8,000 | |
| Chesapeake Energy Corp.: | |
| 5.75%, 3/15/2023 | | | | 195,000 | | | | 190,612 | |
| 6.125%, 2/15/2021 | | | | 15,000 | | | | 15,075 | |
| 6.625%, 8/15/2020 | | | | 75,000 | | | | 77,250 | |
| Chiquita Brands International, Inc., 7.875%, 2/1/2021 | | | | 10,000 | | | | 10,925 | |
| Cincinnati Bell, Inc., 8.75%, 3/15/2018 | | | | 19,000 | | | | 19,422 | |
| CIT Group, Inc.: | |
| 3.875%, 2/19/2019 | | | | 235,000 | | | | 232,944 | |
| 4.25%, 8/15/2017 | | | | 925,000 | | | | 941,187 | |
| Clear Channel Worldwide Holdings, Inc.: | |
| Series A, 6.5%, 11/15/2022 | | | | 70,000 | | | | 73,325 | |
| Series B, 6.5%, 11/15/2022 | | | | 185,000 | | | | 195,637 | |
| Clearwater Paper Corp., 144A, 5.375%, 2/1/2025 | | | | 75,000 | | | | 76,312 | |
| CNH Industrial Capital LLC, 3.25%, 2/1/2017 | | | | 150,000 | | | | 150,000 | |
| CommScope, Inc., 144A, 5.0%, 6/15/2021 | | | | 60,000 | | | | 60,000 | |
| Community Health Systems, Inc.: | |
| 5.125%, 8/1/2021 | | | | 10,000 | | | | 10,350 | |
| 6.875%, 2/1/2022 | | | | 45,000 | | | | 47,756 | |
| 7.125%, 7/15/2020 | | | | 35,000 | | | | 37,538 | |
| Concho Resources, Inc., 5.5%, 4/1/2023 | | | | 125,000 | | | | 126,719 | |
| Continental Resources, Inc., 3.8%, 6/1/2024 | | | | 65,000 | | | | 62,456 | |
| Cott Beverages, Inc.: | |
| 144A, 5.375%, 7/1/2022 | | | | 120,000 | | | | 115,356 | |
| 144A, 6.75%, 1/1/2020 | | | | 50,000 | | | | 52,375 | |
| Covanta Holding Corp., 5.875%, 3/1/2024 | | | | 45,000 | | | | 46,575 | |
| Coveris Holding Corp., 144A, 10.0%, 6/1/2018 | | | | 30,000 | | | | 31,650 | |
| Crestwood Midstream Partners LP: | |
| 6.125%, 3/1/2022 | | | | 30,000 | | | | 30,975 | |
| 144A, 6.25%, 4/1/2023 | | | | 30,000 | | | | 31,350 | |
| Crimson Merger Sub, Inc., 144A, 6.625%, 5/15/2022 | | | | 125,000 | | | | 111,094 | |
| Crown Media Holdings, Inc., 10.5%, 7/15/2019 | | | | 20,000 | | | | 21,300 | |
| CSC Holdings LLC, 144A, 5.25%, 6/1/2024 | | | | 210,000 | | | | 218,662 | |
| CTP Transportation Products LLC, 144A, 8.25%, 12/15/2019 | | | | 55,000 | | | | 58,300 | |
| D.R. Horton, Inc., 4.0%, 2/15/2020 | | | | 30,000 | | | | 30,450 | |
| Dana Holding Corp., 5.5%, 12/15/2024 | | | | 50,000 | | | | 51,375 | |
| Delphi Corp., 5.0%, 2/15/2023 | | | | 45,000 | | | | 48,487 | |
| Denali Borrower LLC, 144A, 5.625%, 10/15/2020 | | | | 80,000 | | | | 85,500 | |
| DigitalGlobe, Inc., 144A, 5.25%, 2/1/2021 | | | | 25,000 | | | | 25,188 | |
| DISH DBS Corp.: | |
| 4.25%, 4/1/2018 | | | | 50,000 | | | | 50,895 | |
| 5.0%, 3/15/2023 | | | | 75,000 | | | | 71,062 | |
| Ducommun, Inc., 9.75%, 7/15/2018 | | | | 65,000 | | | | 68,900 | |
| Dynegy, Inc., 144A, 7.625%, 11/1/2024 | | | | 15,000 | | | | 16,125 | |
| E*TRADE Financial Corp.: | |
| 4.625%, 9/15/2023 | | | | 60,000 | | | | 61,275 | |
| 5.375%, 11/15/2022 | | | | 50,000 | | | | 53,125 | |
| EarthLink Holdings Corp., 7.375%, 6/1/2020 | | | | 40,000 | | | | 41,600 | |
| Endeavor Energy Resources LP: | |
| 144A, 7.0%, 8/15/2021 | | | | 115,000 | | | | 114,712 | |
| 144A, 8.125%, 9/15/2023 | | | | 30,000 | | | | 31,125 | |
| Endo Finance LLC: | |
| 144A, 5.375%, 1/15/2023 | | | | 55,000 | | | | 54,106 | |
| 144A, 5.75%, 1/15/2022 | | | | 40,000 | | | | 40,500 | |
| 144A, 6.0%, 2/1/2025 | | | | 50,000 | | | | 51,281 | |
| Energy Future Holdings Corp., Series Q, 6.5%, 11/15/2024* | | | 25,000 | | | | 25,625 | |
| EnerSys, 144A, 5.0%, 4/30/2023 | | | | 15,000 | | | | 15,188 | |
| Entegris, Inc., 144A, 6.0%, 4/1/2022 | | | | 40,000 | | | | 41,800 | |
| Equinix, Inc.: | |
| 5.375%, 1/1/2022 | | | | 65,000 | | | | 67,437 | |
| 5.375%, 4/1/2023 | | | | 120,000 | | | | 123,900 | |
| 5.75%, 1/1/2025 | | | | 50,000 | | | | 52,625 | |
| EV Energy Partners LP, 8.0%, 4/15/2019 | | | | 35,000 | | | | 33,600 | |
| Evolution Escrow Issuer LLC, 144A, 7.5%, 3/15/2022 | | | | 75,000 | | | | 75,937 | |
| Family Tree Escrow LLC: | |
| 144A, 5.25%, 3/1/2020 | | | | 130,000 | | | | 136,175 | |
| 144A, 5.75%, 3/1/2023 | | | | 105,000 | | | | 110,250 | |
| First Data Corp.: | |
| 144A, 6.75%, 11/1/2020 | | | | 43,000 | | | | 45,795 | |
| 144A, 7.375%, 6/15/2019 | | | | 55,000 | | | | 57,131 | |
| 144A, 8.75%, 1/15/2022 | | | | 115,000 | | | | 123,050 | |
| Florida East Coast Holdings Corp., 144A, 6.75%, 5/1/2019 | | | 10,000 | | | | 9,950 | |
| Freescale Semiconductor, Inc., 144A, 6.0%, 1/15/2022 | | | | 50,000 | | | | 54,025 | |
| Fresenius Medical Care U.S. Finance, Inc., 144A, 6.5%, 9/15/2018 | | | | 20,000 | | | | 22,400 | |
| Frontier Communications Corp.: | |
| 6.25%, 9/15/2021 | | | | 40,000 | | | | 39,700 | |
| 6.875%, 1/15/2025 | | | | 40,000 | | | | 38,740 | |
| 7.125%, 1/15/2023 | | | | 160,000 | | | | 160,800 | |
| 8.125%, 10/1/2018 | | | | 600,000 | | | | 675,750 | |
| Gates Global LLC, 144A, 6.0%, 7/15/2022 | | | | 45,000 | | | | 41,963 | |
| Goodyear Tire & Rubber Co., 6.5%, 3/1/2021 | | | | 150,000 | | | | 158,700 | |
| Group 1 Automotive, Inc., 144A, 5.0%, 6/1/2022 | | | | 125,000 | | | | 125,625 | |
| Gulfport Energy Corp., 144A, 6.625%, 5/1/2023 | | | | 30,000 | | | | 30,525 | |
| Halcon Resources Corp.: | |
| 144A, 8.625%, 2/1/2020 (b) | | | | 145,000 | | | | 150,891 | |
| 9.75%, 7/15/2020 | | | | 45,000 | | | | 36,900 | |
| Harron Communications LP, 144A, 9.125%, 4/1/2020 | | | | 90,000 | | | | 98,775 | |
| HCA, Inc.: | |
| 5.25%, 4/15/2025 | | | | 15,000 | | | | 16,256 | |
| 6.5%, 2/15/2020 | | | | 165,000 | | | | 188,100 | |
| 7.5%, 2/15/2022 | | | | 120,000 | | | | 140,400 | |
| HD Supply, Inc.: | |
| 144A, 5.25%, 12/15/2021 | | | | 75,000 | | | | 77,812 | |
| 7.5%, 7/15/2020 | | | | 30,000 | | | | 32,175 | |
| 11.5%, 7/15/2020 | | | | 110,000 | | | | 128,700 | |
| Hexion, Inc., 6.625%, 4/15/2020 | | | | 125,000 | | | | 116,875 | |
| Hilcorp Energy I LP, 144A, 5.0%, 12/1/2024 | | | | 45,000 | | | | 43,650 | |
| Hot Topic, Inc., 144A, 9.25%, 6/15/2021 | | | | 25,000 | | | | 27,125 | |
| Hughes Satellite Systems Corp.: | |
| 6.5%, 6/15/2019 | | | | 40,000 | | | | 43,900 | |
| 7.625%, 6/15/2021 | | | | 30,000 | | | | 33,450 | |
| Huntington Ingalls Industries, Inc., 144A, 5.0%, 12/15/2021 | | | | 110,000 | | | | 113,712 | |
| Huntsman International LLC, 5.125%, 4/15/2021 | EUR | | | 310,000 | | | | 369,839 | |
| iHeartCommunications, Inc., 9.0%, 12/15/2019 | | | | 125,000 | | | | 123,594 | |
| IMS Health, Inc., 144A, 6.0%, 11/1/2020 | | | | 40,000 | | | | 41,600 | |
| Infor U.S., Inc., 144A, 6.5%, 5/15/2022 | | | | 70,000 | | | | 71,925 | |
| International Lease Finance Corp.: | |
| 3.875%, 4/15/2018 | | | | 100,000 | | | | 102,250 | |
| 5.75%, 5/15/2016 | | | | 15,000 | | | | 15,506 | |
| 6.25%, 5/15/2019 | | | | 35,000 | | | | 38,675 | |
| JBS U.S.A. LLC: | |
| 144A, 7.25%, 6/1/2021 | | | | 95,000 | | | | 100,225 | |
| 144A, 8.25%, 2/1/2020 | | | | 80,000 | | | | 85,000 | |
| Jo-Ann Stores Holdings, Inc., 144A, 9.75%, 10/15/2019 | | | | 10,000 | | | | 9,650 | |
| Kenan Advantage Group, Inc., 144A, 8.375%, 12/15/2018 | | | 30,000 | | | | 31,275 | |
| Laredo Petroleum, Inc., 6.25%, 3/15/2023 | | | | 90,000 | | | | 93,150 | |
| Lennar Corp., 4.75%, 5/30/2025 | | | | 80,000 | | | | 79,400 | |
| Level 3 Financing, Inc.: | |
| 5.375%, 8/15/2022 | | | | 175,000 | | | | 178,719 | |
| 144A, 5.375%, 5/1/2025 | | | | 65,000 | | | | 64,919 | |
| 6.125%, 1/15/2021 | | | | 30,000 | | | | 31,763 | |
| LifePoint Hospitals, Inc., 5.5%, 12/1/2021 | | | | 55,000 | | | | 57,810 | |
| Live Nation Entertainment, Inc.: | |
| 144A, 5.375%, 6/15/2022 | | | | 10,000 | | | | 10,225 | |
| 144A, 7.0%, 9/1/2020 | | | | 70,000 | | | | 74,550 | |
| Mediacom Broadband LLC, 5.5%, 4/15/2021 | | | | 10,000 | | | | 10,150 | |
| Memorial Resource Development Corp., 144A, 5.875%, 7/1/2022 | | | | 45,000 | | | | 43,650 | |
| Meritor, Inc.: | |
| 6.25%, 2/15/2024 | | | | 50,000 | | | | 51,125 | |
| 6.75%, 6/15/2021 | | | | 60,000 | | | | 62,700 | |
| MGM Resorts International: | |
| 6.0%, 3/15/2023 | | | | 80,000 | | | | 82,850 | |
| 6.75%, 10/1/2020 | | | | 83,000 | | | | 89,329 | |
| 7.625%, 1/15/2017 | | | | 55,000 | | | | 59,114 | |
| Micron Technology, Inc.: | |
| 144A, 5.25%, 8/1/2023 | | | | 80,000 | | | | 80,280 | |
| 144A, 5.625%, 1/15/2026 (b) | | | | 70,000 | | | | 69,125 | |
| Moog, Inc., 144A, 5.25%, 12/1/2022 | | | | 45,000 | | | | 46,575 | |
| Morgan Stanley, Series H, 5.45%, 7/29/2049 | | | | 35,000 | | | | 35,263 | |
| MPT Operating Partnership LP, (REIT), 5.75%, 10/1/2020 | EUR | | | 185,000 | | | | 225,903 | |
| Murphy Oil U.S.A., Inc., 6.0%, 8/15/2023 | | | | 60,000 | | | | 64,260 | |
| NCR Corp.: | |
| 5.875%, 12/15/2021 | | | | 10,000 | | | | 10,250 | |
| 6.375%, 12/15/2023 | | | | 25,000 | | | | 26,313 | |
| Newfield Exploration Co., 5.375%, 1/1/2026 | | | | 45,000 | | | | 46,800 | |
| NGL Energy Partners LP, 5.125%, 7/15/2019 | | | | 50,000 | | | | 49,125 | |
| Nielsen Finance LLC, 144A, 5.0%, 4/15/2022 | | | | 45,000 | | | | 45,247 | |
| Nortek, Inc., 8.5%, 4/15/2021 | | | | 70,000 | | | | 75,600 | |
| Northern Oil & Gas, Inc., 8.0%, 6/1/2020 | | | | 10,000 | | | | 9,588 | |
| NRG Energy, Inc., 6.25%, 5/1/2024 | | | | 185,000 | | | | 189,162 | |
| Oasis Petroleum, Inc.: | |
| 6.875%, 3/15/2022 | | | | 185,000 | | | | 188,237 | |
| 6.875%, 1/15/2023 | | | | 65,000 | | | | 65,975 | |
| Oshkosh Corp.: | |
| 5.375%, 3/1/2022 | | | | 37,000 | | | | 38,573 | |
| 144A, 5.375%, 3/1/2025 | | | | 5,000 | | | | 5,188 | |
| Par Pharmaceutical Companies, Inc., 7.375%, 10/15/2020 | | | | 35,000 | | | | 37,406 | |
| Penske Automotive Group, Inc., 5.375%, 12/1/2024 | | | | 185,000 | | | | 192,400 | |
| Pilgrim's Pride Corp., 144A, 5.75%, 3/15/2025 | | | | 60,000 | | | | 61,500 | |
| Pinnacle Entertainment, Inc., 6.375%, 8/1/2021 | | | | 30,000 | | | | 31,875 | |
| Plastipak Holdings, Inc., 144A, 6.5%, 10/1/2021 | | | | 50,000 | | | | 51,250 | |
| Ply Gem Industries, Inc., 6.5%, 2/1/2022 | | | | 100,000 | | | | 97,000 | |
| Post Holdings, Inc., 144A, 6.75%, 12/1/2021 | | | | 25,000 | | | | 25,288 | |
| Project Homestake Merger Corp., 144A, 8.875%, 3/1/2023 | | | | 45,000 | | | | 45,506 | |
| PSPC Escrow Corp., 144A, 6.0%, 2/1/2023 | EUR | | | 130,000 | | | | 151,627 | |
| Regency Energy Partners LP: | |
| 5.0%, 10/1/2022 | | | | 30,000 | | | | 32,175 | |
| 5.875%, 3/1/2022 | | | | 5,000 | | | | 5,588 | |
| Reynolds Group Issuer, Inc., 5.75%, 10/15/2020 | | | | 130,000 | | | | 135,850 | |
| Rice Energy, Inc., 144A, 7.25%, 5/1/2023 | | | | 15,000 | | | | 15,600 | |
| RJS Power Holdings LLC, 144A, 5.125%, 7/15/2019 | | | | 50,000 | | | | 49,125 | |
| Roundy's Supermarkets, Inc., 144A, 10.25%, 12/15/2020 | | | 10,000 | | | | 8,900 | |
| RSP Permian, Inc., 144A, 6.625%, 10/1/2022 | | | | 145,000 | | | | 150,510 | |
| Sabine Pass Liquefaction LLC: | |
| 5.625%, 2/1/2021 | | | | 225,000 | | | | 230,137 | |
| 144A, 5.625%, 3/1/2025 | | | | 75,000 | | | | 75,416 | |
| Sabre GLBL, Inc., 144A, 5.375%, 4/15/2023 | | | | 5,000 | | | | 5,100 | |
| Sanmina Corp., 144A, 4.375%, 6/1/2019 | | | | 5,000 | | | | 5,025 | |
| Sealed Air Corp.: | |
| 144A, 4.875%, 12/1/2022 | | | | 35,000 | | | | 35,963 | |
| 144A, 5.125%, 12/1/2024 | | | | 15,000 | | | | 15,638 | |
| Seminole Hard Rock Entertainment, Inc., 144A, 5.875%, 5/15/2021 | | | | 20,000 | | | | 20,200 | |
| Signode Industrial Group Lux SA, 144A, 6.375%, 5/1/2022 | | | 50,000 | | | | 50,000 | |
| Sirius XM Radio, Inc., 144A, 5.875%, 10/1/2020 | | | | 40,000 | | | | 41,750 | |
| Spirit AeroSystems, Inc., 5.25%, 3/15/2022 | | | | 65,000 | | | | 67,762 | |
| Springs Industries, Inc., 6.25%, 6/1/2021 | | | | 55,000 | | | | 54,381 | |
| Sprint Communications, Inc.: | |
| 6.0%, 11/15/2022 | | | | 60,000 | | | | 56,700 | |
| 144A, 7.0%, 3/1/2020 | | | | 60,000 | | | | 66,375 | |
| 144A, 9.0%, 11/15/2018 | | | | 195,000 | | | | 221,873 | |
| Sprint Corp., 7.125%, 6/15/2024 | | | | 240,000 | | | | 230,700 | |
| Starz LLC, 5.0%, 9/15/2019 | | | | 30,000 | | | | 30,750 | |
| Suburban Propane Partners LP, 5.75%, 3/1/2025 | | | | 45,000 | | | | 46,575 | |
| Sunoco LP, 144A, 6.375%, 4/1/2023 | | | | 45,000 | | | | 46,800 | |
| T-Mobile U.S.A., Inc.: | |
| 6.125%, 1/15/2022 | | | | 20,000 | | | | 20,625 | |
| 6.375%, 3/1/2025 | | | | 230,000 | | | | 236,208 | |
| 6.464%, 4/28/2019 | | | | 60,000 | | | | 61,950 | |
| Targa Resources Partners LP: | |
| 144A, 4.125%, 11/15/2019 | | | | 25,000 | | | | 25,063 | |
| 144A, 5.0%, 1/15/2018 | | | | 170,000 | | | | 176,375 | |
| TerraForm Power Operating LLC, 144A, 5.875%, 2/1/2023 | | | 80,000 | | | | 83,400 | |
| The Goldman Sachs Group, Inc., Series L, 5.7%, 12/29/2049 | | | 65,000 | | | | 65,325 | |
| The WhiteWave Foods Co., 5.375%, 10/1/2022 | | | | 60,000 | | | | 64,500 | |
| Titan International, Inc., 6.875%, 10/1/2020 | | | | 35,000 | | | | 31,763 | |
| TransDigm, Inc.: | |
| 6.0%, 7/15/2022 | | | | 60,000 | | | | 60,375 | |
| 6.5%, 7/15/2024 | | | | 35,000 | | | | 35,520 | |
| 7.5%, 7/15/2021 | | | | 205,000 | | | | 220,375 | |
| TRI Pointe Holdings, Inc., 144A, 4.375%, 6/15/2019 | | | | 35,000 | | | | 34,475 | |
| Triangle U.S.A. Petroleum Corp., 144A, 6.75%, 7/15/2022 | | | 35,000 | | | | 29,925 | |
| Triumph Group, Inc., 5.25%, 6/1/2022 | | | | 30,000 | | | | 29,700 | |
| Tronox Finance LLC, 6.375%, 8/15/2020 | | | | 45,000 | | | | 44,100 | |
| U.S. Foods, Inc., 8.5%, 6/30/2019 | | | | 15,000 | | | | 15,806 | |
| United Rentals North America, Inc.: | |
| 4.625%, 7/15/2023 | | | | 50,000 | | | | 50,688 | |
| 7.375%, 5/15/2020 | | | | 180,000 | | | | 194,092 | |
| USG Corp., 144A, 5.5%, 3/1/2025 | | | | 5,000 | | | | 5,250 | |
| Valeant Pharmaceuticals International, Inc., 144A, 6.375%, 10/15/2020 | | | | 60,000 | | | | 63,225 | |
| VeriSign, Inc., 144A, 5.25%, 4/1/2025 | | | | 45,000 | | | | 46,516 | |
| Whiting Petroleum Corp.: | |
| 5.75%, 3/15/2021 | | | | 65,000 | | | | 65,935 | |
| 144A, 6.25%, 4/1/2023 | | | | 135,000 | | | | 139,306 | |
| Windstream Corp.: | |
| 6.375%, 8/1/2023 | | | | 45,000 | | | | 39,713 | |
| 7.75%, 10/1/2021 | | | | 720,000 | | | | 707,400 | |
| Wise Metals Group LLC, 144A, 8.75%, 12/15/2018 | | | | 80,000 | | | | 86,600 | |
| WR Grace & Co-Conn: | |
| 144A, 5.125%, 10/1/2021 | | | | 30,000 | | | | 31,275 | |
| 144A, 5.625%, 10/1/2024 | | | | 15,000 | | | | 16,125 | |
| XPO Logistics, Inc., 144A, 7.875%, 9/1/2019 | | | | 70,000 | | | | 74,375 | |
| Zayo Group LLC, 144A, 6.0%, 4/1/2023 | | | | 60,000 | | | | 60,300 | |
| (Cost $19,767,057) | | | | 20,030,072 | |
| Uruguay 7.2% | |
| Republic of Uruguay, 4.125%, 11/20/2045 (Cost $4,638,860) | | | 4,685,716 | | | | 4,299,144 | |
Total Bonds (Cost $80,978,983) | | | | 81,318,000 | |
| | |
| Loan Participations and Assignments 6.3% | |
| Senior Loans*** | |
| Canada 0.6% | |
| Quebecor Media, Inc., Term Loan B1, 3.25%, 8/17/2020 | | | 103,425 | | | | 102,908 | |
| Valeant Pharmaceuticals International, Inc.: | |
| Series D2, Term Loan B, 3.5%, 2/13/2019 | | | | 137,133 | | | | 137,768 | |
| Series C2, Term Loan B, 3.5%, 12/11/2019 | | | | 132,847 | | | | 133,447 | |
| (Cost $373,778) | | | | 374,123 | |
| United States 5.7% | |
| Albertson's LLC, Term Loan B2, 5.375%, 3/21/2019 | | | | 128,753 | | | | 129,986 | |
| American Rock Salt Holdings LLC, First Lien Term Loan, 4.75%, 5/20/2021 | | | 188,575 | | | | 190,013 | |
| Amsurg Corp., First Lien Term Loan B, 3.75%, 7/16/2021 | | | 49,625 | | | | 49,920 | |
| Asurion LLC, Second Lien Term Loan, 8.5%, 3/3/2021 | | | | 70,000 | | | | 71,216 | |
| Avis Budget Car Rental LLC, Term Loan B, 3.0%, 3/15/2019 | | | 88,643 | | | | 89,281 | |
| Axalta Coating Systems U.S. Holdings, Inc., Term Loan, 3.75%, 2/1/2020 | | | 141,325 | | | | 141,899 | |
| BE Aerospace, Inc., Term Loan B, 4.0%, 12/16/2021 | | | | 44,888 | | | | 45,421 | |
| Community Health Systems, Inc., Term Loan D, 4.25%, 1/27/2021 | | | | 49,375 | | | | 49,737 | |
| DaVita HealthCare Partners, Inc., Term Loan B, 3.5%, 6/24/2021 | | | | 109,175 | | | | 109,714 | |
| DigitalGlobe, Inc., Term Loan B, 3.75%, 1/31/2020 | | | | 19,600 | | | | 19,686 | |
| First Data Corp., Term Loan, 4.182%, 3/24/2021 | | | | 85,000 | | | | 85,726 | |
| Freescale Semiconductor, Inc., Term Loan B4, 4.25%, 2/28/2020 | | | | 69,298 | | | | 69,663 | |
| Goodyear Tire & Rubber Co., Second Lien Term Loan, 4.75%, 4/30/2019 | | | | 554,167 | | | | 560,260 | |
| Hilton Worldwide Finance LLC, Term Loan B2, 3.5%, 10/26/2020 | | | | 87,500 | | | | 87,925 | |
| HJ Heinz Co., Term Loan B2, 3.25%, 6/5/2020 | | | | 203,089 | | | | 203,700 | |
| Level 3 Financing, Inc.: | |
| Term Loan B, 4.0%, 1/15/2020 | | | | 145,000 | | | | 145,658 | |
| Term Loan B5, 4.5%, 1/31/2022 | | | | 120,000 | | | | 120,431 | |
| NRG Energy, Inc., Term Loan B, 2.75%, 7/2/2018 | | | | 311,595 | | | | 311,178 | |
| Par Pharmaceutical Companies, Inc., Term Loan B2, 4.0%, 9/30/2019 | | | | 305,954 | | | | 307,018 | |
| Pinnacle Foods Finance LLC, Term Loan G, 3.0%, 4/29/2020 | | | 116,748 | | | | 116,919 | |
| Ply Gem Industries, Inc., Term Loan, 4.0%, 2/1/2021 | | | | 69,300 | | | | 69,430 | |
| Polymer Group, Inc., First Lien Term Loan, 5.25%, 12/19/2019 | | | 98,750 | | | | 99,532 | |
| Syniverse Holdings, Inc., Term Loan B, 4.0%, 4/23/2019 | | | 109,677 | | | | 106,284 | |
| Vogue International, Inc., Term Loan, 5.75%, 2/14/2020 | | | 29,700 | | | | 30,053 | |
| WP CPP Holdings LLC, First Lien Term Loan, 4.75%, 12/28/2019 | | | | 179,190 | | | | 180,624 | |
| (Cost $3,370,457) | | | | 3,391,274 | |
Total Loan Participations and Assignments (Cost $3,744,235) | | | | 3,765,397 | |
| | | Shares | | | Value ($) | |
| | | | |
| Preferred Stock 0.0% | |
| United States | |
| Ally Financial, Inc. Series G, 144A, 7.0% (Cost $22,799) | | | 23 | | | | 23,549 | |
| | | Contract Amount | | | Value ($) | |
| | | | |
| Call Options Purchased 0.0% | |
| Options on Interest Rate Swap Contracts | |
Pay Fixed Rate — 3.72% – Receive Floating — 3-Month LIBOR, Swap Expiration Date 4/22/2026, Option Expiration Date 4/20/20161 (Cost $29,610) | | | 600,000 | | | | 1,419 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $84,775,627)† | | | 143.3 | | | | 85,108,365 | |
| Notes Payable | | | (44.8 | ) | | | (26,600,000 | ) |
| Other Assets and Liabilities, Net | | | 1.5 | | | | 890,942 | |
| Net Assets | | | 100.0 | | | | 59,399,307 | |
The following table represents bonds that are in default:
| Security | | Coupon | | Maturity Date | Principal Amount ($) | | | Cost ($) | | | Value ($) | |
| Energy Future Holdings Corp.* | | | 6.5 | % | 11/15/2024 | USD | | | 25,000 | | | | 14,975 | | | | 25,625 | |
| Independencia International Ltd.* | | | 12.0 | % | 12/30/2016 | USD | | | 577,088 | | | | 1,014,646 | | | | 0 | |
| | | | | | | | | | | | | | 1,029,621 | | | | 25,625 | |
* Non-income producing security.
** Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the U.S. Treasury Bill. These securities are shown at their current rate as of April 30, 2015.
*** Senior loans in the Fund's portfolio generally are subject to mandatory and/or optional payment. As a result, the actual remaining maturity of senior loans in the Fund's portfolio may be substantially less than the stated maturities shown in this report. Senior loans pay interest at rates which vary based on prevailing interest rates, such as the prime rate offered by a major U.S. bank or LIBOR, and are shown at their current rate as of April 30, 2015.
† The cost for federal income tax purposes was $84,775,632. At April 30, 2015, net unrealized appreciation for all securities based on tax cost was $332,733. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,406,798 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $3,074,065.
(a) Principal amount stated in U.S. dollars unless otherwise noted.
(b) When-issued security.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
LIBOR: London Interbank Offered Rate; 3-Month LIBOR rate at April 30, 2015 is 0.28%.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
REIT: Real Estate Investment Trust
At April 30, 2015, open written options contracts were as follows:
| Options on Interest Rate Swap Contracts | |
| | Swap Effective/ Expiration Date | | Contract Amount | | Option Expiration Date | | Premiums Received ($) | | | Value ($) (c) | |
Call Options Receive Fixed — 4.22% – Pay Floating — 3-Month LIBOR | 4/22/2016 4/22/2026 | | | 600,000 | 1 | 4/20/2016 | | | 21,390 | | | | (453 | ) |
(c) Unrealized appreciation on written options on interest rate swap contracts at April 30, 2015 was $20,937.
At April 30, 2015, open credit default swap contracts sold were as follows:
| Bilateral Swaps | |
Effective/ Expiration Dates | | Notional Amount ($) (d) | | | Fixed Cash Flows Received | | Underlying Debt Obligation/ Quality Rating (e) | | Value ($) | | | Upfront Payments Paid/ (Received) ($) | | | Unrealized Appreciation ($) | |
3/20/2015 6/20/2020 | | | 80,000 | 2 | | | 5.0 | % | CCO Holdings LLC, 7.25%, 10/30/2017, BB– | | | 8,176 | | | | 7,903 | | | | 273 | |
12/22/2014 3/20/2020 | | | 115,000 | 3 | | | 5.0 | % | General Motors Corp., 6.25%, 10/2/2043, BBB– | | | 20,617 | | | | 17,894 | | | | 2,723 | |
| Total unrealized appreciation | | | | 2,996 | |
(d) The maximum potential amount of future undiscounted payments that the Fund could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Fund for the same referenced debt obligation, if any.
(e) The quality ratings represent the higher of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings and are unaudited.
Counterparties:
1 Nomura International PLC
2 Barclays Bank PLC
3 Credit Suisse
As of April 30, 2015, the Fund had the following open forward foreign currency exchange contracts:
| Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) | | Counterparty |
| USD | | | 427,979 | | EUR | | | 390,000 | | 5/5/2015 | | | 9,960 | | JPMorgan Chase Securities, Inc. |
| MXN | | | 58,800,000 | | USD | | | 3,866,929 | | 5/29/2015 | | | 42,445 | | Barclays Bank PLC |
| MXN | | | 4,400,000 | | USD | | | 294,307 | | 6/8/2015 | | | 8,310 | | BNP Paribas |
| Total unrealized appreciation | | | | | 60,715 | |
| Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Depreciation ($) | | Counterparty |
| USD | | | 3,836,743 | | MXN | | | 58,800,000 | | 5/29/2015 | | | (12,258 | ) | BNP Paribas |
| USD | | | 289,245 | | MXN | | | 4,400,000 | | 6/8/2015 | | | (3,249 | ) | BNP Paribas |
| PLN | | | 90,000 | | USD | | | 24,118 | | 6/8/2015 | | | (850 | ) | UBS AG |
| COP | | | 1,072,500,000 | | USD | | | 446,453 | | 6/30/2015 | | | (1,290 | ) | Morgan Stanley& Co. |
| EUR | | | 6,610,000 | | USD | | | 7,042,770 | | 7/13/2015 | | | (386,657 | ) | Citigroup, Inc. |
| EUR | | | 835,500 | | USD | | | 905,121 | | 7/13/2015 | | | (33,954 | ) | JPMorgan Chase Securities, Inc. |
| Total unrealized depreciation | | | | | (438,258 | ) |
| Currency Abbreviations |
BRL Brazilian Real COP Colombian Peso EUR Euro MXN Mexican Peso PLN Polish Zloty USD United States Dollar |
For information on the Fund's policy and additional disclosures regarding options purchased, written option contracts, credit default swap contracts and forward foreign currency exchange contracts, please refer to Note B in the accompanying Notes to Financial Statements.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of April 30, 2015 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments and other receivables, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Fixed Income Investments (f) | |
| Bonds | | $ | — | | | $ | 81,318,000 | | | $ | 0 | | | $ | 81,318,000 | |
| Loan Participations and Assignments | | | — | | | | 3,765,397 | | | | — | | | | 3,765,397 | |
| Preferred Stock (f) | | | — | | | | 23,549 | | | | — | | | | 23,549 | |
| Derivatives (g) | | | | | | | | | | | | | | | | |
| Purchased Option | | | — | | | | 1,419 | | | | — | | | | 1,419 | |
| Credit Default Swap Contracts | | | — | | | | 2,996 | | | | — | | | | 2,996 | |
| Forward Foreign Currency Exchange Contracts | | | — | | | | 60,715 | | | | — | | | | 60,715 | |
| Total | | $ | — | | | $ | 85,172,076 | | | $ | 0 | | | $ | 85,172,076 | |
| Liabilities | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Derivatives (g) | | | | | | | | | | | | | | | | |
| Written Option | | $ | — | | | $ | (453 | ) | | $ | — | | | $ | (453 | ) |
| Forward Foreign Currency Exchange Contracts | | | — | | | | (438,258 | ) | | | — | | | | (438,258 | ) |
| Total | | $ | — | | | $ | (438,711 | ) | | $ | — | | | $ | (438,711 | ) |
There have been no transfers between fair value measurement levels during the period ended April 30, 2015.
(f) See Investment Portfolio for additional detailed categorizations.
(g) Derivatives include value of options purchased, value of written options and unrealized appreciation (depreciation) on credit default swap contracts and forward foreign currency exchange contracts.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of April 30, 2015 (Unaudited) | |
| Assets | |
| Investments in non-affiliated securities, at value (cost $84,775,627) | | $ | 85,108,365 | |
| Cash | | | 713,503 | |
| Foreign currency, at value (cost $223,481) | | | 209,003 | |
| Receivable for investments sold — when-issued securities | | | 45,563 | |
| Dividends receivable | | | 394 | |
| Interest receivable | | | 1,144,595 | |
| Unrealized appreciation on bilateral swap contracts | | | 2,996 | |
| Unrealized appreciation on forward foreign currency exchange contracts | | | 60,715 | |
| Upfront payments paid on bilateral swap contracts | | | 25,797 | |
| Foreign taxes recoverable | | | 13,214 | |
| Other asset | | | 1,773 | |
| Total assets | | | 87,325,918 | |
| Liabilities | |
| Payable for investments purchased — when-issued securities | | | 700,812 | |
| Notes payable | | | 26,600,000 | |
| Interest on notes payable | | | 28,722 | |
| Options written, at value (premium received $21,390) | | | 453 | |
| Unrealized depreciation on forward foreign currency exchange contracts | | | 438,258 | |
| Accrued management fee | | | 48,543 | |
| Accrued Directors' fees | | | 1,254 | |
| Other accrued expenses and payables | | | 108,569 | |
| Total liabilities | | | 27,926,611 | |
| Net assets, at value | | $ | 59,399,307 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 909,929 | |
Net unrealized appreciation (depreciation) on: Investments | | | 332,738 | |
| Swap contracts | | | 2,996 | |
| Foreign currency | | | (405,049 | ) |
| Written options | | | 20,937 | |
| Accumulated net realized gain (loss) | | | (2,771,604 | ) |
| Paid-in capital | | | 61,309,360 | |
| Net assets, at value | | $ | 59,399,307 | |
| Net Asset Value | |
Net asset value per share ($59,399,307 ÷ 6,483,604 shares of common stock issued and outstanding, $.01 par value, 100,000,000 shares authorized) | | $ | 9.16 | |
The accompanying notes are an integral part of the financial statements.
| for the six months ended April 30, 2015 (Unaudited) | |
| Investment Income | |
| Interest (net of foreign taxes withheld of $32,105) | | $ | 2,347,025 | |
| Dividends | | | 1,468 | |
| Total income | | | 2,348,493 | |
Expenses: Management fee | | | 294,189 | |
| Services to shareholders | | | 3,381 | |
| Custodian fees | | | 23,494 | |
| Accounting fees | | | 43,922 | |
| Audit fees | | | 46,818 | |
| Legal fees | | | 19,534 | |
| Reports to shareholders | | | 32,161 | |
| Directors' fees and expenses | | | 4,462 | |
| Interest expense | | | 145,974 | |
| Stock exchange listing fees | | | 11,778 | |
| Other | | | 27,950 | |
| Total expenses | | | 653,663 | |
| Net investment income | | | 1,694,830 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | (1,313,398 | ) |
| Swap contracts | | | 2,667 | |
| Foreign currency | | | 1,204,244 | |
| | | | (106,487 | ) |
Change in net unrealized appreciation (depreciation) on: Investments | | | (603,184 | ) |
| Swap contracts | | | (448 | ) |
| Written options | | | 3,051 | |
| Foreign currency | | | (454,282 | ) |
| | | | (1,054,863 | ) |
| Net gain (loss) | | | (1,161,350 | ) |
| Net increase (decrease) in net assets resulting from operations | | $ | 533,480 | |
The accompanying notes are an integral part of the financial statements.
| for the six months ended April 30, 2015 (Unaudited) | |
Increase (Decrease) in Cash: Cash Flows from Operating Activities | | | |
| Net increase (decrease) in net assets resulting from operations | | $ | 533,480 | |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) by operating activities: Purchases of long-term investments | | | (28,527,255 | ) |
| Net amortization of premium/(accretion of discount) | | | 180,011 | |
| Proceeds from sales and maturities of long-term investments | | | 25,128,736 | |
| (Increase) decrease in interest receivable | | | 188,413 | |
| (Increase) decrease in dividends receivable | | | 447 | |
| (Increase) decrease in other assets | | | 22,041 | |
| (Increase) decrease in upfront payments paid/received on credit default swap contracts | | | (22,326 | ) |
| (Increase) decrease in receivable for investments and when-issued securities sold | | | 229,268 | |
| Increase (decrease) in written options, at value | | | (3,051 | ) |
| Increase (decrease) in interest on notes payable | | | (15,266 | ) |
| Increase (decrease) in payable for investments and when-issued securities purchased | | | 436,712 | |
| Increase (decrease) in other accrued expenses and payables | | | (50,940 | ) |
| Change in unrealized (appreciation) depreciation on investments | | | 603,184 | |
| Change in unrealized (appreciation) depreciation on swaps | | | 448 | |
| Change in unrealized (appreciation) depreciation on forward foreign currency exchange contracts | | | 451,584 | |
| Net realized (gain) loss from investments | | | 1,313,398 | |
| Cash provided (used) by operating activities | | | 468,884 | |
| Cash Flows from Financing Activities | | | | |
| Net increase (decrease) in notes payable | | | 100,000 | |
| Payment for shares repurchased | | | (598,015 | ) |
| Distributions paid | | | (1,758,155 | ) |
| Cash provided (used) for financing activities | | | (2,256,170 | ) |
| Increase (decrease) in cash | | | (1,787,286 | ) |
| Cash at beginning of period (including foreign currency) | | | 2,709,792 | |
| Cash at end of period (including foreign currency) | | $ | 922,506 | |
| Supplemental Disclosure | | | | |
| Interest paid on notes | | | (161,240 | ) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended April 30, 2015 (Unaudited) | | | Year Ended October 31, 2014 | |
Operations: Net investment income | | $ | 1,694,830 | | | $ | 3,613,049 | |
Operations: Net investment income | | $ | 1,694,830 | | | $ | 3,613,049 | |
| Net realized gain (loss) | | | (106,487 | ) | | | 576,337 | |
| Change in net unrealized appreciation (depreciation) | | | (1,054,863 | ) | | | (565,316 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 533,480 | | | | 3,624,070 | |
| Distributions to shareholders from net investment income | | | (1,758,155 | ) | | | (3,608,614 | ) |
Fund share transactions: Cost of shares repurchased | | | (577,357 | ) | | | (2,098,303 | ) |
| Net increase (decrease) in net assets from Fund share transactions | | | (577,357 | ) | | | (2,098,303 | ) |
| Increase (decrease) in net assets | | | (1,802,032 | ) | | | (2,082,847 | ) |
| Net assets at beginning of period | | | 61,201,339 | | | | 63,284,186 | |
| Net assets at end of period (including undistributed net investment income of $909,929 and $973,254, respectively) | | $ | 59,399,307 | | | $ | 61,201,339 | |
| Other Information | |
| Shares outstanding at beginning of period | | | 6,554,942 | | | | 6,811,025 | |
| Shares repurchased | | | (71,338 | ) | | | (256,083 | ) |
| Shares outstanding at end of period | | | 6,483,604 | | | | 6,554,942 | |
The accompanying notes are an integral part of the financial statements.
| | | | | | Years Ended October 31, | |
| | | Six Months Ended 4/30/15 (Unaudited) | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | 2010 | |
| Per Share Operating Performance | |
| Net asset value, beginning of period | | $ | 9.34 | | | $ | 9.29 | | | $ | 9.80 | | | $ | 8.62 | | | $ | 8.88 | | | $ | 8.04 | |
Income (loss) from investment operations: Net investment incomea | | | .26 | | | | .54 | | | | .55 | | | | .59 | | | | .50 | | | | .55 | |
| Net realized and unrealized gain (loss) | | | (.18 | ) | | | .01 | | | | (.55 | ) | | | 1.08 | d | | | (.26 | ) | | | .79 | |
| Total from investment operations | | | .08 | | | | .55 | | | | (.00 | )*** | | | 1.67 | | | | .24 | | | | 1.34 | |
Less distributions from: Net investment income | | | (.27 | ) | | | (.54 | ) | | | (.55 | ) | | | (.51 | ) | | | (.55 | ) | | | (.51 | ) |
NAV accretion resulting from repurchases of shares and shares tendered at a discount to NAVa | | | .01 | | | | .04 | | | | .04 | | | | .02 | | | | .05 | | | | .01 | |
| Net asset value, end of period | | $ | 9.16 | | | $ | 9.34 | | | $ | 9.29 | | | $ | 9.80 | | | $ | 8.62 | | | $ | 8.88 | |
| Market value, end of period | | $ | 8.34 | | | $ | 8.23 | | | $ | 8.29 | | | $ | 8.82 | | | $ | 7.65 | | | $ | 8.44 | |
| Total Return | |
Per share net asset value (%)b | | | 1.34 | ** | | | 7.36 | | | | 1.06 | | | | 20.86 | d | | | 4.12 | | | | 18.08 | |
Per share market value (%)b | | | 4.71 | ** | | | 6.01 | | | | .20 | | | | 22.57 | | | | (2.78 | ) | | | 33.67 | |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 59 | | | | 61 | | | | 63 | | | | 70 | | | | 63 | | | | 88 | |
| Ratio of expenses (including interest expense) (%) | | | 2.22 | * | | | 2.29 | | | | 2.21 | | | | 2.36 | | | | 2.22 | | | | 1.68 | |
| Ratio of expenses (excluding interest expense) (%) | | | 1.73 | * | | | 1.82 | | | | 1.68 | | | | 1.67 | | | | 1.86 | | | | 1.68 | |
| Ratio of net investment income (%) | | | 5.76 | * | | | 5.82 | | | | 5.77 | | | | 6.54 | | | | 5.75 | | | | 6.53 | |
| Portfolio turnover rate (%) | | | 30 | ** | | | 37 | | | | 48 | | | | 25 | | | | 89 | | | | 31 | |
| Total debt outstanding, end of period ($ thousands) | | | 26,600 | | | | 26,500 | | | | 23,000 | | | | 31,000 | | | | 26,000 | | | | — | |
Asset coverage per $1,000 of debtc | | | 3,233 | | | | 3,309 | | | | 3,751 | | | | 3,242 | | | | 3,410 | | | | — | |
| | |
a Based on average shares outstanding during the period. b Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure includes reinvestments of distributions. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares trade during the period. c Asset coverage equals the total net assets plus borrowings of the Fund divided by the borrowings outstanding at period end. d During the year ended October 31, 2012, Lehman Brothers International issued a Claims Determination Deed to the Fund as a partial settlement for a loss written off by the Fund in 2008. The impact of this claim amounted to $0.13 per share. Excluding this pending claim, total return would have been 1.39% lower. * Annualized ** Not annualized *** Amount is less than $.005. |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
Deutsche Global High Income Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, diversified management investment company organized as a Maryland corporation.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.
Debt securities and loan participations and assignments are valued at prices supplied by independent pricing services approved by the Fund's Board. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers and loan participations and assignments are valued at the mean of the most recent bid and ask quotations or evaluated prices, as applicable, obtained from broker-dealers. Certain securities may be valued on the basis of a price provided by a single source or broker-dealer. No active trading market may exist for some senior loans and they may be subject to restrictions on resale. The inability to dispose of senior loans in a timely fashion could result in losses. These securities are generally categorized as Level 2.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.
Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.
Exchange-traded options are valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid or asked price are available. Exchange-traded options are generally categorized as Level 1. Over-the-counter written or purchased options are valued at the price provided by the broker-dealer with which the option was traded and are generally categorized as Level 2.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; 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, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurement is included in a table following the Fund's Investment Portfolio.
Securities Lending. Deutsche Global High Income Fund, Inc. is approved to participate in securities lending, but had no securities on loan during the six months ended April 30, 2015. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of the Security Lending Agreement. The Fund retains the benefits of owning the securities it has loaned and continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Loan Participations and Assignments. Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These floating-rate loans ("Loans") in which the Fund invests are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy outs and refinancing. The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship with only the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights of set off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. Loans held by the Fund are generally in the form of Assignments, but the Fund may also invest in Participations. All Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction, it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund may be required to post securities and/or cash collateral in accordance with the terms of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders.
Additionally, the Fund may be subject to taxes imposed by the governments of countries in which it invests and are generally based on income and/or capital gains earned or repatriated. Estimated tax liabilities on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments. Tax liabilities realized as a result of security sales are reflected as a component of net realized gain/loss on investments.
Under the Regulated Investment Company Modernization Act of 2010, net capital losses incurred post-enactment may be carried forward indefinitely, and their character is retained as short-term and/or long-term. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
At October 31, 2014, the Fund had a net tax basis capital loss carryforward of approximately $2,665,000, including $2,345,000 of pre-enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or October 31, 2017, the expiration date, whichever occurs first; and approximately $320,000 of post-enactment losses, which may be applied against realized net taxable capital gains indefinitely, including short-term losses ($49,000) and long-term losses ($271,000).
The Fund has reviewed the tax positions for the open tax years as of October 31, 2014 and has determined that no provision for income tax and/or uncertain tax provisions is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Distributions from net investment income of the Fund, if any, are declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary.
The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in forward currency contracts, recognition of certain currency gain (loss) as ordinary income (loss), foreign denominated securities and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the cash and foreign currency positions at the Fund's custodian bank at April 30, 2015.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes with the exception of securities in default of principal. The Fund uses the specific identification method for determining realized gain or loss on investments. The value of additional securities received as an interest payment is recorded as income and as the cost basis of such securities.
B. Derivative Instruments
Swaps. A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the fund exchanges cash flows.
The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.
An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations.
Credit default swaps are agreements between a buyer and a seller of protection against predefined credit events for the reference entity. The Fund may enter into credit default swaps to gain exposure to an underlying issuer's credit quality characteristics without directly investing in that issuer or to hedge against the risk of a credit event on debt securities. As a seller of a credit default swap, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a U.S. or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the swap provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swaps, in which case the Fund functions as the counterparty referenced above. This involves the risk that the swap may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap, it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swaps sold by the Fund. For the six months ended April 30, 2015, the Fund entered into credit default swap agreements to gain exposure to the underlying issuer's credit quality characteristics.
Under the terms of a credit default swap, the Fund receives or makes periodic payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the swap are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.
A summary of the open credit default swap contracts as of April 30, 2015 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2015, the investment in credit default swap contracts sold had a total notional value generally indicative of a range from $50,000 to $195,000.
Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices and interest rate options, will require cash settlement by the Fund if exercised. For the six months ended April 30, 2015, the Fund entered into options on interest rate swaps in order to hedge against potential adverse interest rate movements of portfolio assets.
If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.
A summary of the open purchased option contracts as of April 30, 2015 is included in the Fund's Investment Portfolio. A summary of open written option contracts is included in the table following the Fund's Investment Portfolio. For the six months ended April 30, 2015, the investment in written option contracts had a total value generally indicative of a range from $0 to approximately $4,000, and purchased option contracts had a total value generally indicative of a range from approximately $1,000 to $7,000.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract (forward currency contract) is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the six months ended April 30, 2015, the Fund entered into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings, to facilitate transactions in foreign currency denominated securities and for non-hedging purposes to seek to enhance potential gains.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, 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 of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
A summary of the open forward currency contracts as of April 30, 2015 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2015, the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $7,403,000 to $12,580,000, and the investment in forward currency contracts long vs. US dollars had a total contract value generally indicative of a range from $0 to approximately $4,554,000.
The following tables summarize the value of the Fund's derivative instruments held as of April 30, 2015 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
| Asset Derivatives | | Purchased Options | | | Swap Contracts | | | Forward Contracts | | | Total | |
| Interest Rate Contracts (a) | | $ | 1,419 | | | $ | — | | | $ | — | | | $ | 1,419 | |
| Credit Contracts (b) | | | — | | | | 2,996 | | | | — | | | | 2,996 | |
| Foreign Exchange Contracts (c) | | | — | | | | — | | | | 60,715 | | | | 60,715 | |
| | | $ | 1,419 | | | $ | 2,996 | | | $ | 60,715 | | | $ | 65,130 | |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts: (a) Investments in securities, at value (includes purchased options) (b) Unrealized appreciation on bilateral swap contracts (c) Unrealized appreciation on forward foreign currency exchange contracts | |
| Liability Derivatives | | Written Option | | | Forward Contracts | | | Total | |
| Interest Rate Contracts (a) | | $ | (453 | ) | | $ | — | | | $ | (453 | ) |
| Foreign Exchange Contracts (b) | | | — | | | | (438,258 | ) | | | (438,258 | ) |
| | | $ | (453 | ) | | $ | (438,258 | ) | | $ | (438,711 | ) |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts: (a) Options written, at value (b) Unrealized depreciation on forward foreign currency exchange contracts | |
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended April 30, 2015 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
| Realized Gain (Loss) | | Swap Contracts | | | Forward Contracts | | | Total | |
| Credit Contracts (a) | | $ | 2,667 | | | $ | — | | | $ | 2,667 | |
| Foreign Exchange Contracts (b) | | | — | | | | 1,275,123 | | | | 1,275,123 | |
| | | $ | 2,667 | | | $ | 1,275,123 | | | $ | 1,277,790 | |
Each of the above derivatives is located in the following Statement of Operations accounts: (a) Net realized gain (loss) on swap contracts (b) Net realized gain (loss) from foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions) | |
| Change in Net Unrealized Appreciation (Depreciation) | | Purchased Option | | | Written Option | | | Swap Contracts | | | Forward Contracts | | | Total | |
| Interest Rate Contracts (a) | | $ | (6,052 | ) | | $ | 3,051 | | | $ | — | | | $ | — | | | $ | (3,001 | ) |
| Credit Contracts (b) | | | — | | | | — | | | | (448 | ) | | | — | | | | (448 | ) |
| Foreign Exchange Contracts (c) | | | — | | | | — | | | | — | | | | (451,584 | ) | | | (451,584 | ) |
| | | $ | (6,052 | ) | | $ | 3,051 | | | $ | (448 | ) | | $ | (451,584 | ) | | $ | (455,033 | ) |
Each of the above derivatives is located in the following Statement of Operations accounts: (a) Change in net unrealized appreciation (depreciation) on investments (includes purchased options) and written options, respectively (b) Change in net unrealized appreciation (depreciation) on swap contracts (c) Change in net unrealized appreciation (depreciation) on foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions) | |
As of April 30, 2015, the Fund has transactions subject to enforceable master netting agreements. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by counterparty, including any collateral exposure, is included in the following tables:
| Counterparty | | Gross Amounts of Assets Presented in the Statement of Assets and Liabilities | | | Financial Instruments and Derivatives Available for Offset | | | Collateral Received | | | Net Amount of Derivative Assets | |
| Barclays Bank PLC | | $ | 42,718 | | | $ | — | | | $ | — | | | $ | 42,718 | |
| BNP Paribas | | | 8,310 | | | | (8,310 | ) | | | — | | | | — | |
| Credit Suisse | | | 2,723 | | | | — | | | | — | | | | 2,723 | |
| JPMorgan Chase Securities, Inc. | | | 9,960 | | | | (9,960 | ) | | | — | | | | — | |
| Nomura International PLC | | | 1,419 | | | | (453 | ) | | | — | | | | 966 | |
| | | $ | 65,130 | | | $ | (18,723 | ) | | $ | — | | | $ | 46,407 | |
| Counterparty | | Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities | | | Financial Instruments and Derivatives Available for Offset | | | Collateral Pledged | | | Net Amount of Derivative Liabilities | |
| BNP Paribas | | $ | 15,507 | | | $ | (8,310 | ) | | $ | — | | | $ | 7,197 | |
| Citigroup, Inc. | | | 386,657 | | | | — | | | | — | | | | 386,657 | |
| JPMorgan Chase Securities, Inc. | | | 33,954 | | | | (9,960 | ) | | | — | | | | 23,994 | |
| Morgan Stanley & Co. | | | 1,290 | | | | — | | | | — | | | | 1,290 | |
| Nomura International PLC | | | 453 | | | | (453 | ) | | | — | | | | — | |
| UBS AG | | | 850 | | | | — | | | | — | | | | 850 | |
| | | $ | 438,711 | | | $ | (18,723 | ) | | $ | — | | | $ | 419,988 | |
C. Purchases and Sales of Securities
During the six months ended April 30, 2015, purchases and sales of investment securities (excluding short-term investments) aggregated $28,527,255 and $25,128,736, respectively.
For the six months ended April 30, 2015, transactions for written options on interest rate swap contracts were as follows:
| | | Contracts | | | Premium | |
| Outstanding, beginning of period | | | 600,000 | | | $ | 21,390 | |
| Options closed | | | — | | | | — | |
| Outstanding, end of period | | | 600,000 | | | $ | 21,390 | |
D. Related Parties
Management Agreement. Under the Investment Advisory, Management and Administration Agreement ("Management Agreement") with Deutsche Investment Management Americas Inc. ("DIMA" or the "Manager"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Manager directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Manager determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Manager provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 1.00% of the Fund's average weekly net assets, computed and accrued daily and payable monthly.
Service Provider Fees. DeAWM Service Company ("DSC"), an affiliate of the Manager, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. ("DST"), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended April 30, 2015, the amount charged to the Fund by DSC aggregated $1,270, of which $449 is unpaid.
DIMA is responsible for determining the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. Pursuant to a sub-accounting agreement between DIMA and State Street Bank and Trust Company ("SSB"), DIMA has delegated all accounting functions to SSB. DIMA compensates SSB out of the accounting fee it receives from the Fund. For the six months ended April 30, 2015, the amount charged to the Fund by DIMA aggregated $43,922, of which $5,362 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended April 30, 2015, the amount charged to the Fund by DIMA included in the Statement of Operations under "Reports to shareholders" aggregated $8,208, of which $7,623 is unpaid.
Directors' Fees and Expenses. The Fund paid retainer fees to each Director not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
E. Investing in High-Yield Securities
The Fund's performance could be hurt if a security declines in credit quality or goes into default, or if an issuer does not make timely payments of interest or principal. Because the issuers of high-yield debt securities or junk bonds (debt securities rated below the fourth-highest category) may be in uncertain financial health, the risk of loss from default by the issuer is significantly greater. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a fund's net asset value. Because the Fund may invest in securities not paying current interest or in securities already in default, these risks may be more pronounced.
F. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in developed markets. These risks include revaluation of currencies, high rates of inflation or deflation, repatriation restrictions on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls or delayed settlements, and may have prices that are more volatile or less easily assessed than those of comparable securities of issuers in developed markets.
G. Share Repurchases
The Board of Directors has authorized the Fund to effect periodic repurchases of its shares in the open market from time to time when the Fund's shares trade at a discount to their net asset value. During the six months ended April 30, 2015 and the year ended October 31, 2014, the Fund purchased 71,338 and 256,083 of its shares of common stock on the open market at a total cost of $577,357 and $2,098,303 ($8.08 and $8.19 average per share), respectively. The average discount of these purchased shares comparing the purchase price to the net asset value at the time of purchase, was 11.20% and 11.81%, respectively.
H. Borrowings
The Fund has a secured line of credit with a commercial bank in an amount up to $30,000,000, with a maturity date of April 6, 2016. Loans under the facility generally bear interest at the applicable LIBOR rate plus 0.85%. A commitment fee on any unused portion of the credit line is charged to the Fund and is included with "interest expense" in the Statement of Operations. An arrangement fee incurred by the Fund in connection with its loan was deferred and was amortized over a one-year period.
At April 30, 2015, the Fund had a notes payable outstanding of $26,600,000. The weighted average outstanding daily balance of all loans during the six months ended April 30, 2015 was approximately $26,377,000, with a weighted average borrowing cost of 1.12%. The borrowings were valued at cost, which approximates fair value.
Leverage involves risks and special considerations for the Fund's stockholders, including the likelihood of greater volatility of net asset value and market price of, and dividends on, the Fund's shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on such borrowings will reduce the return to stockholders; and the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Fund's shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the Fund's shares.
Changes in the value of the Fund's portfolio will be borne by the stockholders. If there is a net decrease (or increase) in the value of the Fund's investment portfolio, leverage will decrease (or increase) the net asset value per share to a greater extent than if leverage were not used. It is also possible that the Fund will be required to sell assets at a time when it would otherwise not do so, possibly at a loss, in order to redeem or meet payment obligations on borrowings or to comply with asset coverage or other restrictions imposed by the lender. The Fund is subject to certain restrictions on its investments under the terms of its credit agreement. Moreover, certain covenants contained in the credit agreement impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act.
There is no assurance that the Fund's leveraging strategy will be successful.
Dividend Reinvestment and Cash Purchase Plan
The Board of Directors of the Fund has established a Dividend Reinvestment and Cash Purchase Plan (the "Plan") for shareholders that elect to have all dividends and distributions automatically reinvested in shares of common stock of the Fund (each a "Participant"). DST Systems, Inc. (the "Plan Agent") has been appointed by the Fund’s Board of Directors to act as agent for each Participant.
A summary of the Plan is set forth below. Shareholders may obtain a copy of the entire Dividend Reinvestment and Cash Purchase Plan by visiting the Fund’s Web site at deutschefunds.com or by calling (800) 294-4366.
If you wish to participate in the Plan and your shares are held in your own name, contact DeAWM Service Company (the "Transfer Agent") at P.O. Box 219066, Kansas City, Missouri 64121-9066 or (800) 294-4366 for the appropriate form. Current shareholders may join the Plan by either enrolling their shares with the Transfer Agent or making an initial cash deposit of at least $250 with the Transfer Agent. First-time investors in the Fund may join the Plan by making an initial cash deposit of at least $250 with the Transfer Agent. Initial cash deposits will be invested within approximately 30 days. If your shares are held in the name of a broker or other nominee, you should contact the broker or nominee in whose name your shares are held to determine whether and how you may participate in the Plan.
Whenever the Fund declares an income dividend or a capital gain distribution payable in common shares or cash at the option of the shareholders, each Participant is deemed to have elected to take such dividend or distribution entirely in additional shares of common stock of the Fund. If the market price per share of the Fund’s common stock on the valuation date equals or exceeds the net asset value per share on the valuation date, the number of additional shares to be credited to the Participant’s account shall be determined by dividing the dollar amount of the dividend or capital gain distribution payable on the Participant’s shares by the greater of the following amounts per share of the Fund’s common stock on the valuation date: (a) the net asset value, or (b) 95% of the market price. If the market price per share of the Fund’s common stock on the valuation date is less than the net asset value per share on the valuation date, the Plan Agent shall apply the dollar amount of the dividend or capital gain distribution on such Participant’s shares (less such Participant’s pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of such dividend and distribution) to the purchase on the open market of shares of the Fund’s common stock for the Participant’s account. The valuation date will be the payment date for the dividend or capital gains distribution or, if such date is not a New York Stock Exchange trading date, then the next preceding New York Stock Exchange trading date. Should the Fund declare an income dividend or capital gain distribution payable only in cash, the amount of such dividend or distribution on each Participant’s shares (less such Participant’s pro rata share of brokerage commissions incurred with respect to open-market purchases in connection with the reinvestment of such dividend or distribution) shall be applied to the purchase on the open market of shares of the Fund’s common stock for the Participant’s account. Open-market purchases will be made on or shortly after the payment date for such dividend or distribution, and in no event more than 30 days after such date except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities law.
Each Participant may send additional funds in the amount of $100 in any month (with a $36,000 annual limit) for the purchase on the open market of shares of the Fund’s common stock for the Participant’s account. Such voluntary payments will be invested by the Plan Agent on or shortly after the 15th of each month and in no event more than 30 days after such dates, except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities law. Optional cash payments received from a Participant on or prior to the fifth day preceding the 15th of each month will be applied by the Plan Agent to the purchase of additional shares of the Fund’s common stock as of that investment date. No interest will be paid on optional cash payments held until investment. Consequently, Participants are strongly urged to ensure that their payments are received by the Transfer Agent on or prior to the fifth day preceding the 15th of any month. Optional cash payments should be made in U.S. dollars and be sent by first-class mail, postage prepaid only to the following address (deliveries to any other address do not constitute valid delivery):
Deutsche Global High Income Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
c/o DeAWM Service Company
P.O. Box 219066
Kansas City, MO 64121-9066
(800) 294-4366
Participants may withdraw their entire voluntary cash payment by written notice received by the Transfer Agent not less than 48 hours before such payment is to be invested.
Investment of voluntary cash payments and other open-market purchases may be made on any securities exchange where the Fund’s common stock is traded, in the OTC market or in negotiated transactions and may be on such terms as to price, delivery and otherwise as the Plan Agent shall determine.
The Transfer Agent will confirm to each Participant each acquisition made for such Participant’s account as soon as practicable but no later than 60 days after the date thereof. The Transfer Agent will send to each Participant a statement of account confirming the transaction and itemizing any previous reinvestment activity for the calendar year. A statement reflecting the amount of cash received by the Fund’s Transfer Agent will be issued on receipt of each cash deposit. The statements are the record of the costs of shares and should be retained for tax purposes.
The reinvestment of dividends and capital gain distributions does not relieve the Participant of any tax that may be payable on such dividends and distributions. The Transfer Agent will report to each Participant the taxable amount of dividends and distributions credited to his or her account. Participants will be treated as receiving the amount of the distributions made by the Fund, which amount generally will be either equal to the amount of the cash distribution the Participant would have received if the Participant had elected to receive cash or, for shares issued by the Fund, the fair market value of the shares issued to the Participant.
The service fees for handling capital gain distributions or income dividends will be paid by the Fund.
Participants may terminate their accounts under the Plan by notifying the Transfer Agent in writing. Such termination will be effective immediately if such Participant’s notice is received by the Transfer Agent not less than ten days prior to any dividend or distribution record date; otherwise such termination will be effective as soon as practicable upon completion of the reinvestment of capital gain distributions or income dividends. If a Participant elects by notice to the Plan Agent in writing in advance of such termination to have the Plan Agent sell part or all of such Participant’s shares and remit the proceeds to such Participant, the Plan Agent is authorized to deduct brokerage commissions for this transaction and any transfer taxes. The Plan may be terminated by the Fund upon notice in writing mailed to Participants at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund. The terms and conditions of the Plan may be amended or supplemented by the Fund at any time or times, but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission, any securities exchange on which shares of the Fund are listed, or any other regulatory authority and with certain other limited exceptions, only by mailing to Participants appropriate written notice at least 30 days prior to the effective date thereof.
All correspondence and inquiries concerning the Plan, and requests for additional information about the Plan, should be directed to DeAWM Service Company at P.O. Box 219066, Kansas City, Missouri 64121-9066 or (800) 294-4366.
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| Automated Information Lines | | Deutsche AWM Closed-End Fund Info Line (800) 349-4281 |
| Web Site | | deutschefunds.com Obtain fact sheets, financial reports, press releases and webcasts when available. |
| Written Correspondence | | Deutsche Asset & Wealth Management Attn: Secretary of the Deutsche Funds One Beacon Street Boston, MA 02108 |
| Legal Counsel | | Vedder Price P.C. 222 North LaSalle Street Chicago, IL 60601 |
| Dividend Reinvestment Plan Agent | | DST Systems, Inc. 333 W. 11th Street, 5th Floor Kansas City, MO 64105 |
| Shareholder Service Agent and Transfer Agent | | DeAWM Service Company P.O. Box 219066 Kansas City, MO 64121-9066 (800) 294-4366 |
| Custodian | | Brown Brothers Harriman & Company 50 Post Office Square Boston, MA 02110 |
| Independent Registered Public Accounting Firm | | PricewaterhouseCoopers LLP 125 High Street Boston, MA 02110 |
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| Proxy Voting | | The fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 728-3337. |
| Portfolio Holdings | | Following the fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. This form will be available on the SEC's Web site at sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The fund's portfolio holdings as of the month-end are posted on deutschefunds.com on or after the last day of the following month. More frequent posting of portfolio holdings information may be made from time to time on deutschefunds.com. |
| Investment Management | | Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset & Wealth Management, is the investment advisor for the fund. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to both institutional and retail clients. DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution engaged in a wide variety of financial services, including investment management, retail, private and commercial banking, investment banking and insurance. Deutsche Asset & Wealth Management is the retail brand name in the U.S. for the wealth management and asset management activities of Deutsche Bank AG and DIMA. Deutsche Asset & Wealth Management is committed to delivering the investing expertise, insight and resources of this global investment platform to American investors. |
| NYSE Symbol | | LBF |
| CUSIP Number | | 25158V 108 |
| FACTS | | What Does Deutsche Asset & Wealth Management Do With Your Personal Information? |
| Why? | | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | | The types of personal information we collect and share can include: — Social Security number — Account balances — Purchase and transaction history — Bank account information — Contact information such as mailing address, e-mail address and telephone number |
| How? | | All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information, the reasons Deutsche Asset & Wealth Management chooses to share and whether you can limit this sharing. |
| Reasons we can share your personal information | Does Deutsche Asset & Wealth Management share? | | Can you limit this sharing? |
For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders or legal investigations | Yes | | No |
For our marketing purposes — to offer our products and services to you | Yes | | No |
| For joint marketing with other financial companies | No | | We do not share |
For our affiliates' everyday business purposes — information about your transactions and experiences | No | | We do not share |
For our affiliates' everyday business purposes — information about your creditworthiness | No | | We do not share |
| For non-affiliates to market to you | No | | We do not share |
| Questions? | | Call (800) 728-3337 or e-mail us at service@db.com | |
| Who we are |
| Who is providing this notice? | | DeAWM Distributors, Inc.; Deutsche Investment Management Americas Inc.; DeAWM Trust Company; the Deutsche Funds |
| What we do |
| How does Deutsche Asset & Wealth Management protect my personal information? | | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. |
| How does Deutsche Asset & Wealth Management collect my personal information? | | We collect your personal information, for example. When you: — open an account — give us your contact information — provide bank account information for ACH or wire transactions — tell us where to send money — seek advice about your investments |
| Why can't I limit all sharing? | | Federal law gives you the right to limit only — sharing for affiliates' everyday business purposes — information about your creditworthiness — affiliates from using your information to market to you — sharing for non-affiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | | Companies related by common ownership or control. They can be financial or non-financial companies. Our affiliates include financial companies with the DWS or Deutsche Bank ("DB") name, such as DB AG Frankfurt and DB Alex Brown. |
| Non-affiliates | | Companies not related by common ownership or control. They can be financial and non-financial companies. Non-affiliates we share with include account service providers, service quality monitoring services, mailing service providers and verification services to help in the fight against money laundering and fraud. |
| Joint marketing | | A formal agreement between non-affiliated financial companies that together market financial products or services to you. Deutsche Asset & Wealth Management does not jointly market. |
| | | | Rev. 08/2014 |
Notes
Notes
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.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
