N-Q
Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-22467

 

 

Kayne Anderson Midstream/Energy Fund, Inc.

(Exact name of registrant as specified in charter)

 

 

811 Main Street, 14th Floor

Houston, Texas 77002

(Address of principal executive offices) (Zip code)

 

 

David Shladovsky, Esq.

KA Fund Advisors, LLC

811 Main Street, 14th Floor

Houston, Texas 77002

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: (713) 493-2020

Date of fiscal year end: November 30, 2015

Date of reporting period: August 31, 2015

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item 1: Schedule of Investments   
Item 2: Controls and Procedures   
Item 3: Exhibits   
SIGNATURES   
EX-99.CERT   


Table of Contents
Item 1. Schedule of Investments.

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

SCHEDULE OF INVESTMENTS

AUGUST 31, 2015

(amounts in 000’s, except numbers of option contracts)

(UNAUDITED)

 

Description

             No. of
Shares/Units
     Value  

Long-Term Investments — 154.5%

           

Equity Investments(1) — 136.1%

           

United States — 131.3%

           

Midstream Company(2) — 73.0%

           

Capital Product Partners L.P.(3)

     827       $ 5,853   

Capital Product Partners L.P. — Class B Units(3)(4)(5)

     606         5,066   

Columbia Pipeline Group, Inc.

     501         12,713   

Dynagas LNG Partners LP(3)

     1,296         18,487   

GasLog Partners LP(3)

     607         11,665   

Golar LNG Partners LP (3)

     814         16,083   

Höegh LNG Partners LP(3)

     238         4,487   

Kinder Morgan, Inc.

     3,054         98,974   

KNOT Offshore Partners LP(3)

     843         15,419   

ONEOK, Inc.

     907         32,647   

Plains GP Holdings, L.P.(3)(6)

     649         12,720   

Plains GP Holdings, L.P.(3)(6)(7)

     1,836         35,973   

SemGroup Corporation

     67         3,685   

Spectra Energy Corp.

     501         14,570   

Tallgrass Energy GP, LP(3)(8)

     226         6,466   

Targa Resources Corp.(8)

     250         16,502   

Teekay Corporation

     168         6,165   

Teekay Offshore Partners L.P.(3)

     602         10,662   

VTTI Energy Partners LP(3)

     376         8,175   

The Williams Companies, Inc.(8)(9)

     1,292         62,266   
           

 

 

 
        398,578   
           

 

 

 

Midstream MLP(2)(10) — 51.7%

           

Antero Midstream Partners LP

     61         1,406   

Arc Logistics Partners LP

     483         7,703   

Buckeye Partners, L.P.(8)

     156         10,989   

Columbia Pipeline Partners LP

     68         1,339   

Crestwood Midstream Partners LP(11)

     892         6,970   

DCP Midstream Partners, LP

     373         10,514   

Enbridge Energy Management, L.L.C.(12)(13)

     2,241         63,091   

Energy Transfer Equity, L.P.(8)(9)

     129         3,607   

Energy Transfer Partners, L.P.(8)(14)

     704         34,576   

EnLink Midstream Partners, LP

     511         9,015   

Enterprise Products Partners L.P.(14)

     739         20,773   

EQT Midstream Partners, LP

     21         1,610   

Exterran Partners, L.P.

     252         5,478   

Global Partners LP

     266         8,595   

Holly Energy Partners, L.P.

     33         1,124   

Magellan Midstream Partners, L.P.(8)

     25         1,764   

MarkWest Energy Partners, L.P.(6)(15)

     203         11,433   

Midcoast Energy Partners, L.P.

     138         1,629   

MPLX LP(8)(15)

     25         1,241   

ONEOK Partners, L.P.

     786         25,431   

PennTex Midstream Partners, LP

     23         413   

Plains All American Pipeline, L.P.(6)

     405         14,619   


Table of Contents

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

SCHEDULE OF INVESTMENTS

AUGUST 31, 2015

(amounts in 000’s, except numbers of option contracts)

(UNAUDITED)

 

Description

             No. of
Shares/Units
     Value  

Midstream MLP(2)(10) (continued)

           

Rose Rock Midstream, L.P.

     65       $ 2,032   

Shell Midstream Partners, L.P.

     197         7,811   

Summit Midstream Partners, LP

     72         1,587   

Sunoco Logistics Partners L.P.

     111         3,752   

Tallgrass Energy Partners, LP

     59         2,794   

Targa Resources Partners LP

     224         6,760   

USD Partners LP

     119         1,332   

Western Gas Partners, LP

     115         6,745   

Williams Partners L.P.(9)

     153         6,093   
           

 

 

 
        282,226   
           

 

 

 

Other Energy Company — 4.1%

           

Anadarko Petroleum Corporation — 7.50% Tangible Equity Units(16)

     140         6,391   

Enduro Royalty Trust

     76         226   

Marathon Petroleum Corporation(8)

     22         1,041   

NRG Yield, Inc. — Class C

     26         419   

Phillips 66(8)

     112         8,824   

Seadrill Partners LLC(3)

     356         4,237   

TerraForm Power, Inc.

     71         1,600   
           

 

 

 
              22,738   
           

 

 

 

Other — 2.2%

           

Macquarie Infrastructure Company LLC

     154         12,147   

Seaspan Corporation — 7.95% Series D Preferred Shares

     9         189   
           

 

 

 
              12,336   
           

 

 

 

Other MLP(10) — 0.3%

           

Suncoke Energy Partners, L.P.

     113         1,487   
           

 

 

 

Total United States (Cost — $633,006)

              717,365   
           

 

 

 

Canada — 4.8%

           

Midstream Company(2) — 4.8%

           

AltaGas Ltd.

     404         11,107   

Enbridge Inc.

     159         6,576   

Gibson Energy Inc.

     167         2,468   

Inter Pipeline Ltd.

     102         2,182   

Pembina Pipeline Corporation

     139         3,848   
           

 

 

 
        26,181   
           

 

 

 

Other Energy Company — 0.0%

           

ARC Resources Ltd.(14)

     1         7   
           

 

 

 

Total Canada (Cost — $32,487)

              26,188   
           

 

 

 

Total Equity Investments (Cost — $665,493)

              743,553   
           

 

 

 


Table of Contents

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

SCHEDULE OF INVESTMENTS

AUGUST 31, 2015

(amounts in 000’s, except numbers of option contracts)

(UNAUDITED)

 

Description

   Interest
Rate
    Maturity
Date
     Principal
Amount
     Value  

Debt Instruments — 18.4%

          

United States — 17.6%

          

Upstream — 16.8%

          

American Eagle Energy Corporation(17)(18)

     11.000     9/1/19       $ 4,800       $ 1,080   

American Energy-Woodford, LLC

     12.000        12/30/20         1,050         504   

BlackBrush Oil & Gas, L.P.

     (19)        7/30/21         13,300         10,939   

California Resources Corporation(20)

     6.000        11/15/24         7,500         5,580   

Canbriam Energy Inc.

     9.750        11/15/19         9,640         9,592   

Chief Oil & Gas LLC

     (21)        8/8/21         9,609         8,552   

Comstock Resources, Inc.

     10.000        3/15/20         5,000         4,037   

Eclipse Resources Corporation

     8.875        7/15/23         8,000         7,380   

Energy & Exploration Partners, Inc.

     (22)        1/22/19         992         769   

Goodrich Petroleum Corporation

     8.875        3/15/19         6,950         1,425   

Halcón Resources Corporation(23)

     9.750        7/15/20         10,500         5,323   

Jonah Energy LLC

     (24)        5/29/21         3,000         2,550   

Jones Energy, Inc.

     9.250        3/15/23         5,000         4,675   

Jupiter Resources Inc.

     8.500        10/1/22         10,000         6,300   

Magnum Hunter Resources Corporation

     9.750        5/15/20         13,900         9,626   

Midstates Petroleum Company, Inc.

     10.750        10/1/20         3,500         1,032   

Midstates Petroleum Company, Inc.

     9.250        6/1/21         6,750         1,924   

Resolute Energy Corporation

     8.500        5/1/20         4,900         1,715   

Triangle USA Petroleum Corporation

     6.750       7/15/22         800         484   

Vantage Energy, LLC

     (25)        12/31/18         8,885         8,130   
          

 

 

 
             91,617   
          

 

 

 

Midstream Company(2) — 0.8%

          

ONEOK, Inc.

     7.500        9/1/23         4,500         4,500   
          

 

 

 

Total United States (Cost — $136,503)

             96,117   
          

 

 

 

Canada — 0.8%

          

Upstream — 0.8%

          

Athabasca Oil Corporation (Cost — $5,099)

     7.500        11/19/17         (26)         4,217   
          

 

 

 

Total Debt Investments (Cost — $141,602)

             100,334   
          

 

 

 

Total Long-Term Investments (Cost — $807,095)

             843,887   
          

 

 

 
          
      Strike
Price
    Expiration
Date
     No. of
Contracts
     Value  

Call Option Contracts Written(17)

          

Midstream Company

          

Tallgrass Energy GP, LP

   $ 30.00        9/18/15         500       $ (36

Targa Resources Corp.

     80.00        9/18/15         300         (8

Targa Resources Corp.

     85.00        9/18/15         300         (8

The Williams Companies, Inc.

     60.00        9/18/15         1,220         (13

The Williams Companies, Inc.

     62.50        9/18/15         400         (6

The Williams Companies, Inc.

     65.00        9/18/15         350         (4
          

 

 

 
             (75
          

 

 

 

Midstream MLP

          

Buckeye Partners, L.P.

     70.00        9/18/15         300         (62

Energy Transfer Equity, L.P.

     32.50        9/18/15         250         (2


Table of Contents

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

SCHEDULE OF INVESTMENTS

AUGUST 31, 2015

(amounts in 000’s, except numbers of option contracts)

(UNAUDITED)

 

Description

   Strike
Price
     Expiration
Date
     No. of
Contracts
     Value  

Midstream MLP (continued)

           

Energy Transfer Equity, L.P.

   $ 33.75         9/18/15         100       $ (1

Energy Transfer Partners, L.P.

     52.50         9/18/15         200         (7

Energy Transfer Partners, L.P.

     55.00         9/18/15         200         (3

Magellan Midstream Partners, L.P.

     82.50         9/18/15         100         (20

MPLX LP

     55.00         9/18/15         250         (19
           

 

 

 
              (114
           

 

 

 

Other Energy Company

           

Marathon Petroleum Corporation

     60.00         9/18/15         170         (1

Marathon Petroleum Corporation

     62.50         9/18/15         50         (1

Phillips 66

     82.50         9/18/15         400         (40

Phillips 66

     85.00         9/18/15         260         (12

Phillips 66

     87.50         9/18/15         350         (9

Phillips 66

     90.00         9/18/15         100         (2
           

 

 

 
              (65
           

 

 

 

Total Call Option Contracts Written (Premiums Received — $604)

              (254
           

 

 

 

Debt

              (235,000

Mandatory Redeemable Preferred Stock at Liquidation Value

              (105,000

Other Assets in Excess of Other Liabilities

              42,534   
           

 

 

 

Net Assets Applicable to Common Stockholders

            $ 546,167   
           

 

 

 


Table of Contents

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

SCHEDULE OF INVESTMENTS

AUGUST 31, 2015

(amounts in 000’s, except numbers of option contracts)

(UNAUDITED)

 

 

  (1) Unless otherwise noted, equity investments are common units/common shares.

 

  (2) Securities are categorized as “Midstream” if they (i) derive at least 50% of their revenues or operating income from operating Midstream Assets or (ii) have Midstream Assets that represent the majority of their assets.

 

  (3) This company is structured like an MLP, but is not treated as a publicly-traded partnership for regulated investment company (“RIC”) qualification purposes.

 

  (4) Fair valued security, restricted from public sale.

 

  (5) Class B Units are convertible on a one-for-one basis into common units of Capital Product Partners L.P. (“CPLP”) and are senior to the common units in terms of liquidation preference and priority of distributions. The Class B Units pay quarterly cash distributions and are convertible at any time at the option of the holder. The Class B Units paid a distribution of $0.21775 per unit for the third quarter of fiscal 2015.

 

  (6) The Fund believes that it is an affiliate of MarkWest Energy Partners, L.P., Plains All American Pipeline, L.P. and Plains GP Holdings, L.P. (“Plains GP”).

 

  (7) The Fund holds an interest in Plains AAP, L.P. (“PAA GP”), which controls the general partner of Plains All American, L.P. The Fund’s ownership of PAA GP is exchangeable into shares of Plains GP (which trades on the NYSE under the ticker “PAGP”) on a one-for-one basis at the Fund’s option.

 

  (8) Security or a portion thereof is segregated as collateral on option contracts written.

 

  (9) On September 28, 2015, Energy Transfer Equity, L.P. (“ETE”) announced an agreement to combine with The Williams Companies, Inc. (“WMB”). WMB is the general partner of Williams Partners L.P. (“WPZ”). In conjunction with this announcement, WPZ announced the termination of the merger agreement between WMB and WPZ.

 

(10) Unless otherwise noted, securities are treated as a publicly-traded partnership for RIC qualification purposes. To qualify as a RIC for tax purposes, the Fund may directly invest up to 25% of its total assets in equity and debt securities of entities treated as publicly-traded partnerships. The Fund had 24.5% of its total assets invested in publicly-traded partnerships at August 31, 2015. It is the Fund’s intention to be treated as a RIC for tax purposes.

 

(11) On September 30, 2015, Crestwood Equity Partners LP (“CEQP”) and Crestwood Midstream Partners LP (“CMLP”) completed their merger. CMLP unitholders received 2.75 units of CEQP for each CMLP unit that they owned.

 

(12) Dividends are paid-in-kind.

 

(13) Security is not treated as a publicly-traded partnership for RIC qualification purposes.

 

(14) In lieu of cash distributions, the Fund has elected to receive distributions in additional units/stock through the issuer’s dividend reinvestment program.

 

(15) On July 13, 2015, MPLX LP (“MPLX”) and MarkWest Energy Partners, L.P. (“MWE”) announced the signing of a definitive merger agreement whereby MWE would become a wholly owned subsidiary of MPLX. Under the terms of the agreement, common unitholders of MWE will receive 1.09 MPLX common units and a cash payment of $3.37 for each MWE common unit they own.

 

(16) Security is comprised of a prepaid equity purchase contract and a senior amortizing note. Unless settled earlier, each prepaid equity purchase contract will settle on June 7, 2018 for between 0.7159 and 0.8591 Western Gas Equity Partners, LP (“WGP”) common units (subject to Anadarko Petroleum Corporation’s (“APC”) right to deliver APC common stock in lieu of WGP common units). The Fund receives a quarterly payment of 7.50% per annum on the $50 per unit stated amount of the security.

 

(17) Security is non-income producing.

 

(18) On May 8, 2015, American Eagle Corporation (“American Eagle”) filed voluntary petitions in the United States Bankruptcy Court for the District of Colorado seeking relief under Chapter 11 of the bankruptcy code. On April 2, 2015, American Eagle made a partial interest payment to its noteholders, and the Fund received $110 as its share of the partial interest payment. As of February 28, 2015, the Fund had $270 of accrued interest income, and accordingly, the Fund established a $160 reserve during the second quarter against the portion of the accrued interest income that exceeded the partial interest payment. The Fund is no longer accruing interest income related to its investment in American Eagle.

 

(19) Floating rate second lien secured term loan. Security pays interest at a rate of LIBOR + 650 basis points with a 1.00% LIBOR floor (7.50% as of August 31, 2015).

 

(20) Robert V. Sinnott, the Chief Executive Officer of Kayne Anderson Capital Advisors, L.P., serves as a director of California Resources Corporation (“CRC”). The Fund does not believe that it is an affiliate of CRC.

 

(21) Floating rate second lien secured term loan. Security pays interest at a rate of LIBOR + 650 basis points with a 1.00% LIBOR floor (7.50% as of August 31, 2015).

 

(22) Floating rate second lien secured term loan. Security pays interest at a rate of LIBOR + 675 basis points with a 1.00% LIBOR floor (7.75% as of August 31, 2015).

 

(23) On August 27, 2015, the Fund entered in to an agreement with Halcón Resources Corporation (“Halcón”) to exchange $10,500 principal amount of Halcón’s outstanding 9.75% unsecured notes due 2020 for $6,825 principal amount of new 13.00% third lien senior secured notes due 2022 (the “New Notes”). The Halcón notes held at August 31, 2015 were valued on an as-exchanged basis with the New Notes. The exchange was completed on September 10, 2015. The New Notes are restricted from sale pursuant to Rule 144A of the Securities Act of 1933, as amended.

 

(24) Floating rate second lien secured term loan. Security pays interest at a rate of LIBOR + 650 basis points with a 1.00% LIBOR floor (7.50% as of August 31, 2015).

 

(25) Floating rate second lien secured term loan. Security pays interest at a rate of LIBOR + 750 basis points with a 1.00% LIBOR floor (8.50% as of August 31, 2015).

 

(26) Principal amount is 6,850 Canadian dollars.


Table of Contents

From time to time, certain of the Fund’s investments may be restricted as to resale. For instance, private investments that are not registered under the Securities Act of 1933, as amended (the “Securities Act”), cannot be offered for public sale in a non-exempt transaction without first being registered. In other cases, certain of the Fund’s investments have restrictions such as lock-up agreements that preclude the Fund from offering these securities for public sale.

At August 31, 2015, the Fund held the following restricted investments:

 

Investment

 

Acquisition
Date

  Type of
Restriction
  Number of
Units,
Principal ($)
(in 000s)
    Cost
Basis
(GAAP)
    Fair
Value
    Fair Value
Per Unit
    Percent
of Net
Assets
    Percent
of Total
Assets
 

Level 2 Investments

               

Equity Investments

               

Plains GP Holdings, L.P.(1)

               

Partnership Interests

  (2)   (3)     1,836      $ 5,679      $ 35,973      $ 19.59        6.6     4.0

Senior Notes and Secured Term Loans(4)

               

American Eagle Energy Corporation

  8/13/14   (5)   $ 4,800        4,759        1,080        n/a        0.2        0.1   

American Energy-Woodford, LLC

  9/11/14   (6)     1,050        1,389        504        n/a        0.1        0.1   

Athabasca Oil Corporation

  (2)   (5)     (7)        5,099        4,217        n/a        0.8        0.5   

BlackBrush Oil & Gas, L.P.

  (2)   (6)     13,300        13,178        10,939        n/a        2.0        1.2   

Canbriam Energy Inc.

  (2)   (6)     9,640        9,713        9,592        n/a        1.8        1.1   

Chief Oil & Gas LLC

  (2)   (6)     9,609        9,224        8,552        n/a        1.6        0.9   

Comstock Resources, Inc.

  (2)   (5)     5,000        5,004        4,037        n/a        0.7        0.4   

Eclipse Resources Corporation

  (2)   (5)     8,000        7,813        7,380        n/a        1.3        0.8   

Energy & Exploration Partners, Inc.

  12/22/14   (6)     992        748        769        n/a        0.1        0.1   

Jonah Energy LLC

  5/8/14   (6)     3,000        2,963        2,550        n/a        0.5        0.3   

Jones Energy, Inc.

  4/29/15   (5)     5,000        5,359        4,675        n/a        0.9        0.5   

Jupiter Resources Inc.

  9/11/14   (6)     10,000        9,615        6,300        n/a        1.1        0.7   

Triangle USA Petroleum Corporation

  7/15/14   (5)     800        800        484        n/a        0.1        0.1   

Vantage Energy, LLC

  (2)   (6)     8,885        8,839        8,130        n/a        1.5        0.9   
       

 

 

   

 

 

     

 

 

   

 

 

 

Total

        $ 90,182      $ 105,182          19.3     11.7
       

 

 

   

 

 

     

 

 

   

 

 

 

Level 3 Investments(8)

               

Capital Product Partners L.P.

               

Class B Units

  (2)   (5)     606      $ 4,227      $ 5,066      $ 8.36        0.9     0.6
       

 

 

   

 

 

     

 

 

   

 

 

 

Total of all restricted investments

        $ 94,409      $ 110,248          20.2     12.3
       

 

 

   

 

 

     

 

 

   

 

 

 

 

 

(1) The Fund values its investment in Plains AAP, L.P. (“PAA GP”) on an “as exchanged” basis based on the public market value of Plains GP Holdings, L.P. (“Plains GP”).

 

(2) Security was acquired at various dates during the nine months ended August 31, 2015 and/or in prior fiscal years.

 

(3) The Fund’s investment in PAA GP is exchangeable into shares of Plains GP on a one-for-one basis at the Fund’s option. Upon exchange, the shares of Plains GP will be free of any restriction.

 

(4) These securities have a fair market value determined by the mean of the bid and ask prices provided by an agent or a syndicate bank, a principal market maker, an independent pricing service or an independent broker. These securities have limited trading volume and are not listed on a national exchange.

 

(5) Unregistered or restricted security of a publicly-traded company.

 

(6) Unregistered security of a private company.

 

(7) Principal amount is 6,850 Canadian dollars.

 

(8) Securities are valued using inputs reflecting the Fund’s own assumptions.


Table of Contents

At August 31, 2015, the cost basis of investments for federal income tax purposes was $808,235. At August 31, 2015, gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

Gross unrealized appreciation

   $ 158,704   

Gross unrealized depreciation

     (123,051
  

 

 

 

Net unrealized appreciation

   $ 35,653   
  

 

 

 

The identified cost basis of federal tax purposes is estimated based on information available from the Fund’s portfolio companies. In some cases, this information is very limited. Accordingly, the actual cost basis may prove higher or lower than the estimated cost basis included above.

As required by the Fair Value Measurement and Disclosures of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 820”), the Fund has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.

 

   

Level 1 — Valuations based on quoted unadjusted prices for identical instruments in active markets traded on a national exchange to which the Fund has access at the date of measurement.

 

   

Level 2 — Valuations based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

 

   

Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

The following table presents the Fund’s assets and liabilities measured at fair value on a recurring basis at August 31, 2015, and the Fund presents these assets and liabilities by security type and description on its Schedule of Investments. Note that the valuation levels below are not necessarily an indication of the risk or liquidity associated with the underlying investment.

 

      Total      Quoted Prices in
Active Markets
(Level 1)
     Prices with Other
Observable Inputs
(Level 2)
    Unobservable
Inputs
(Level 3)
 

Assets at Fair Value

          

Equity investments

   $ 743,553       $ 702,514       $ 35,973 (1)    $ 5,066   

Debt investments

     100,334                 100,334          
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets at fair value

   $ 843,887       $ 702,514       $ 136,307      $ 5,066   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities at Fair Value

          

Call option contracts written

   $ 254       $       $ 254      $   

 

(1) The Fund’s investment in PAA GP is exchangeable into shares of Plains GP Holdings, L.P. (“Plains GP”) on a one-for-one basis at the Fund’s option. Plains GP trades on the NYSE under the ticker “PAGP”. The Fund values its investment in PAA GP on an “as exchanged” basis based on the public market value of Plains GP and categorizes its investment as a Level 2 security for fair value reporting purposes.

For the nine months ended August 31, 2015, there were no transfers between Level 1 and Level 2.

The following table presents the Fund’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended August 31, 2015.

 

      Equity
Investments
 

Balance — November 30, 2014

   $ 52,527   

Purchases

     11,667   

Issuances

     161   

Transfers out to Level 1 and 2

     (58,997

Realized gains (losses)

       

Unrealized gains (losses), net

     (292
  

 

 

 

Balance — August 31, 2015

   $ 5,066   
  

 

 

 

The $292 of net unrealized losses relate to investments that were still held at August 31, 2015.

The purchases of $11,667 relate to the Fund’s investment in Arc Logistics Partners LP (“ARCX”) and Shell Midstream Partners, L.P. (“SHLX”) that were both made in May 2015. The issuance of $161 relates to additional units received from ARCX.

The $58,997 of transfers out relates to the Fund’s investments in ARCX, SHLX, and Plains AAP, L.P. (“PAA GP”).

ARCX and SHLX became marketable during the third quarter of fiscal 2015 when the respective companies filed effective shelf registrations. PAA GP became marketable during the first quarter of fiscal 2015 when its 15-month lock-up expired.


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As required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification (ASC 815), the following are the derivative instruments and hedging activities of the Fund.

The following table sets forth the fair value of the Fund’s derivative instruments:

 

Derivatives Not Accounted for as      Fair Value as of

Hedging Instruments

 

Statement of Assets and Liabilities Location

  

August 31, 2015

Call options written

  Call option contracts written    $(254)

The following table sets forth the effect of the Fund’s derivative instruments on the Fund’s operations:

 

           For the Nine Months Ended
August 31, 2015
 

Derivatives Not Accounted for as
Hedging Instruments

  

Location of Gains/(Losses) on
Derivatives Recognized in Income

  

Net Realized
Gains/(Losses) on
Derivatives
Recognized in
Income

    

Change in
Unrealized
Gains/(Losses) on
Derivatives
Recognized in
Income

 

Call options written

   Options    $ 4,058       $ (73

The Fund’s investments are concentrated in the energy sector. The focus of the Fund’s portfolio within the energy sector may present more risks than if the Fund’s portfolio were broadly diversified across numerous sectors of the economy. A downturn in the energy sector would have a larger impact on the Fund than on an investment company that does not focus on the energy sector. The performance of securities in the energy sector may lag the performance of other industries or the broader market as a whole. Additionally, to the extent that the Fund invests a relatively high percentage of its assets in the securities of a limited number of issuers, the Fund may be more susceptible than a more widely diversified investment company to any single economic, political or regulatory occurrence. At August 31, 2015, the Fund had the following investment concentrations:

 

Category

  

Percent of

Long-Term

Investments

Securities of energy companies

   98.5%

Equity securities

   88.1%

Debt securities

   11.9%

Securities of MLPs(1)

   33.6%

Largest single issuer

   11.7%

Restricted securities

   13.1%

 

(1) Securities of MLPs consist of entities that are structured as limited partnerships and limited liability companies that are publicly traded and are treated as partnerships for federal income tax purposes, and their affiliates.

Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Fund’s semi-annual report previously filed with the Securities and Exchange Commission on form N-CSR on July 30, 2015 with a file number 811-22467.

Other information regarding the Fund is available in the Fund’s most recent annual report. This information is also available on the Fund’s website at www.kaynefunds.com; or on the website of the Securities and Exchange Commission at www.sec.gov.

 

Item 2. Controls and Procedures.

(a)  As of a date within 90 days of the filing date of this report, the principal executive officer and the principal financial officer concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) were effective based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of 1934, as amended.

(b)  There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 3. Exhibits.

The certifications for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act are filed as exhibits to this report.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

/S/    KEVIN S. MCCARTHY

Name:   Kevin S. McCarthy
Title:   Chairman of the Board of Directors,
President and Chief Executive Officer
Date:   October 29, 2015

 

 

 

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.

 

KAYNE ANDERSON MIDSTREAM/ENERGY FUND, INC.

/S/    KEVIN S. MCCARTHY

Name:   Kevin S. McCarthy
Title:   Chairman of the Board of Directors,
President and Chief Executive Officer
Date:   October 29, 2015

 

/S/    TERRY A. HART

Name:   Terry A. Hart
Title:   Chief Financial Officer and Treasurer
Date:   October 29, 2015