P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Schedule of Portfolio Investments (continued)
As of December 31, 2012
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Description
|
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Shares (000)
|
|
|
Value
|
|
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Percent
of Net
Assets*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY 0.1%
|
|
COMPUTERS & PERIPHERALS 0.0%
|
|
|
|
|
|
Stratus Technologies Bermuda Holdings, Ltd.,
(Bermuda)
1,9
|
|
|
8
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
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|
|
|
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.1%
|
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|
|
|
Magnachip Semiconductor Corp., (Luxembourg)
1
|
|
|
6
|
|
|
|
88,913
|
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|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Information Technology
|
|
|
|
|
|
|
88,913
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MATERIALS 0.8%
|
|
|
|
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CONSTRUCTION MATERIALS 0.1%
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|
U.S. Concrete, Inc.
1
|
|
|
10
|
|
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|
90,690
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|
|
0.1
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
CONTAINERS & PACKAGING
0.0%
12
|
|
|
|
|
|
Constar International, Inc., ADR
1,9
|
|
|
4
|
|
|
|
|
|
|
|
0.0
|
|
Rock-Tenn Co., Class A
|
|
|
|
11
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|
|
18,176
|
|
|
|
0.0
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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18,176
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|
|
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0.0
|
12
|
METALS & MINING 0.1%
|
|
|
|
|
|
Wolverine Tube, Inc., ADR,
1,9
|
|
|
8
|
|
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150,174
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAPER & FOREST PRODUCTS 0.6%
|
|
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New Holdco
1,9
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|
|
6
|
|
|
|
523,140
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|
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|
0.5
|
|
Resolute Forest Products, (Canada)
1
|
|
|
10
|
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|
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134,014
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|
|
0.1
|
|
|
|
|
|
|
|
|
|
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|
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|
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657,154
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|
|
|
0.6
|
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Total Materials
|
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916,194
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|
|
0.8
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|
|
|
|
|
|
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|
UTILITIES 0.7%
|
|
Independent Power Producers & Energy Traders 0.7%
|
|
Dynegy, Inc.
1
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|
|
39
|
|
|
|
746,070
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|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
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|
|
Total Common Stocks
|
|
|
|
|
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|
(Cost $6,011,153)
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2,454,278
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|
|
2.2
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|
|
|
|
|
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|
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WARRANTS 0.1%
|
|
CONSUMER DISCRETIONARY 0.1%
|
|
AUTOMOBILES 0.1%
|
|
General Motors Co., expiring 07/10/16
1
|
|
|
8
|
|
|
|
147,634
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|
|
|
0.1
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|
|
|
|
|
|
|
|
|
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SPECIALTY RETAIL 0.0%
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|
Neebo, Inc., expiring 06/20/19
1,9
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|
5
|
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|
|
0.0
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|
|
|
|
|
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|
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Total Consumer Discretionary
|
|
|
|
|
|
|
147,634
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|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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INDUSTRIALS 0.0%
|
|
MARINE 0.0%
|
|
General Maritime Corp.,
expiring 05/17/17
1,9
|
|
|
|
11
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
(Cost $160,931)
|
|
|
|
|
|
|
147,634
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
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|
|
Total Equity Investments
|
|
|
|
|
|
|
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|
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|
|
(Cost $10,371,088)
|
|
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|
|
5,308,671
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENT 0.7%
|
|
INVESTMENT COMPANY 0.7%
|
|
JPMorgan Prime Money Market Fund, Institutional Class Shares,
0.080%
5,13
(Cost $747,006)
|
|
|
747
|
|
|
|
747,006
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
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TOTAL INVESTMENTS
|
|
|
|
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|
|
(Cost $153,526,093)
|
|
|
|
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|
|
151,762,380
|
|
|
|
136.3
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Preferred Stock and Liabilities in Excess of Other Assets
|
|
|
|
|
|
|
(40,417,940
|
)
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|
|
(36.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Applicable to Common Stockholders
|
|
|
|
|
|
$
|
111,344,440
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADR
|
|
American Depositary Receipt
|
VAR
|
|
Variable Rate Security. The interest rate shown is the rate in effect as of December 31, 2012.
|
*
|
|
Applicable to common stockholders.
|
1
|
|
Non-income producing security.
|
2
|
|
Security is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. Unless otherwise indicated, this security has been determined to be liquid under procedures established by the Board of Directors and may be resold in transactions exempt from registration, normally to qualified institutional buyers. These
securities amounted to $45,951,505 and 41.3% of net assets applicable to common stockholders.
|
5
|
|
Investment in affiliate. Money market fund registered under the Investment Company Act
of 1940, as amended, and advised by J.P. Morgan Investment Management Inc.
|
25
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Schedule of Portfolio Investments (concluded)
As of December 31, 2012
7
|
|
Step-up bond. Interest rate is effective rate as of December 31, 2012.
|
9
|
|
Security deemed to be illiquid. These securities amounted to $4,004,760 and 3.6% of
net assets applicable to common stockholders.
|
10
|
|
All or a portion of the security is reserved for current or potential holdings of swaps, unfunded commitments, TBAs, when issued securities and/or delayed
delivery securities.
|
11
|
|
Amount rounds to less than one thousand (par or shares).
|
12
|
|
Amount rounds to less than 0.1%.
|
13
|
|
The rate shown is the current yield as of December 31, 2012.
|
14
|
|
Security is perpetual and, thus, does not have a predetermined maturity date. The coupon rate for this security is fixed for a period of time and may be
structured to adjust thereafter. The date shown reflects the next call date. The coupon rate shown is the rate in effect as of December 31, 2012.
|
15
|
|
The date shown reflects the next call date on which the issuer may redeem the security at par value. The coupon rate for this security is based on par value and
is currently in effect as of December 31, 2012.
|
16
|
|
Security is distressed as of December 31, 2012. The rate at which income is accrued on the security is lower than the stated PIK coupon rate.
|
^
|
|
All or a portion of the security is unsettled as of December 31, 2012. Unless otherwise indicated, the coupon rate is undetermined. The coupon rate shown may not be accrued
for the entire position.
|
See
Notes to Financial Statements.
26
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Statement of Assets and Liabilities
As of
December 31, 2012
|
|
|
|
|
ASSETS:
|
|
|
|
|
Investments in non-affiliates, at value
|
|
$
|
151,015,374
|
|
Investments in affiliates, at value
|
|
|
747,006
|
|
|
|
|
|
|
Total investment securities, at value
|
|
|
151,762,380
|
|
Cash
|
|
|
115,191
|
|
Receivables:
|
|
|
|
|
Investment securities sold
|
|
|
849,736
|
|
Interest and dividends from non-affiliates
|
|
|
2,378,009
|
|
Dividends from affiliates
|
|
|
141
|
|
Unrealized appreciation on unfunded commitments
|
|
|
400
|
|
|
|
|
|
|
Total Assets
|
|
|
155,105,857
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
Payables:
|
|
|
|
|
Dividends on preferred stock
|
|
|
1,488
|
|
Investment securities purchased
|
|
|
401,881
|
|
Accrued liabilities:
|
|
|
|
|
Investment advisory fees
|
|
|
192,424
|
|
Administration fees
|
|
|
10,519
|
|
Custodian and accounting fees
|
|
|
12,248
|
|
Collateral management fees
|
|
|
687
|
|
Directors and Chief Compliance Officers fees
|
|
|
189
|
|
Audit Fee
|
|
|
83,576
|
|
Excise tax payable
|
|
|
13,145
|
|
Other
|
|
|
45,260
|
|
|
|
|
|
|
Total Liabilities
|
|
|
761,417
|
|
|
|
|
|
|
Less: Outstanding Preferred Stock (1,720 shares at $25,000 per share) at liquidation value
|
|
$
|
43,000,000
|
|
|
|
|
|
|
Net Assets applicable to common shareholders
|
|
$
|
111,344,440
|
|
|
|
|
|
|
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
|
|
Common Stock, $0.01 par value; 49,996,320 shares authorized, 12,985,950 shares issued and outstanding
|
|
$
|
129,860
|
|
Capital in excess of par
|
|
|
138,353,742
|
|
Undistributed net investment income (loss)
|
|
|
403,031
|
|
Accumulated net realized gains (losses)
|
|
|
(25,778,880
|
)
|
Net unrealized appreciation (depreciation)
|
|
|
(1,763,313
|
)
|
|
|
|
|
|
Total Net Assets applicable to common shareholders
|
|
$
|
111,344,440
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
12,985,950
|
|
Net Asset Value per Common Share
($111,344,440/12,985,950)
|
|
$
|
8.57
|
|
Cost of investments in non-affiliates
|
|
$
|
152,779,087
|
|
Cost of investments in affiliates
|
|
|
747,006
|
|
See Notes to Financial Statements.
Statement of Operations
For the
Year Ended December 31, 2012
|
|
|
|
|
INVESTMENT INCOME:
|
|
Interest income from non-affiliates
|
|
$
|
11,792,521
|
|
Dividend income from non-affiliates
|
|
|
328,679
|
|
Dividend income from affiliates
|
|
|
2,575
|
|
|
|
|
|
|
Total investment income
|
|
|
12,123,775
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
Investment advisory fees (Note 5)
|
|
|
1,232,795
|
|
Administration fees (Note 5)
|
|
|
151,153
|
|
Custodian and accounting fees (Note 5)
|
|
|
60,841
|
|
Collateral management fees (Note 5)
|
|
|
2,520
|
|
Excise tax expense
|
|
|
13,145
|
|
Interest expense to affiliates
|
|
|
27
|
|
Audit fees
|
|
|
158,239
|
|
Legal fees
|
|
|
34,857
|
|
Directors and Chief Compliance Officers fees
|
|
|
1,349
|
|
Printing and mailing costs
|
|
|
127,509
|
|
Transfer agent fees
|
|
|
16,216
|
|
Stock exchange listing fees
|
|
|
20,506
|
|
Other
|
|
|
32,748
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,851,905
|
|
|
|
|
|
|
Commissions on auction rate preferred stock
|
|
|
29,756
|
|
|
|
|
|
|
Total expenses
|
|
|
1,881,661
|
|
|
|
|
|
|
Less amounts waived
|
|
|
(3,271
|
)
|
|
|
|
|
|
Net expenses
|
|
|
1,878,390
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
10,245,385
|
|
|
|
|
|
|
REALIZED/UNREALIZED GAINS (LOSSES):
|
|
|
|
|
Net realized gain (loss) on transactions from investments in non-affiliates
|
|
|
2,342,379
|
|
Change in net unrealized appreciation/depreciation of:
|
|
|
|
|
Investments in non-affiliates
|
|
|
7,618,536
|
|
Unfunded commitments
|
|
|
400
|
|
|
|
|
|
|
Change in net unrealized appreciation/depreciation
|
|
|
7,618,936
|
|
|
|
|
|
|
Net realized/unrealized gains (losses)
|
|
|
9,961,315
|
|
|
|
|
|
|
Change in net assets resulting from operations
|
|
|
20,206,700
|
|
|
|
|
|
|
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS FROM NET INVESTMENT INCOME
|
|
|
(58,708
|
)
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM OPERATIONS
|
|
$
|
20,147,992
|
|
|
|
|
|
|
See Notes to Financial Statements.
27
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Statements of Changes in Net Assets
For the Periods Indicated
|
|
|
|
|
|
|
|
|
|
|
Year Ended
12/31/2012
|
|
|
Year Ended
12/31/2011
|
|
INCREASE/(DECREASE) IN NET ASSETS:
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
10,245,385
|
|
|
$
|
10,948,879
|
|
Net realized gain (loss)
|
|
|
2,342,379
|
|
|
|
(531,792
|
)
|
Change in net unrealized appreciation/depreciation
|
|
|
7,618,936
|
|
|
|
(9,120,386
|
)
|
Distributions to preferred stockholders from net investment income
|
|
|
(58,708
|
)
|
|
|
(60,368
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net assets resulting from operations applicable to common stockholders
|
|
|
20,147,992
|
|
|
|
1,236,333
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO COMMON STOCKHOLDERS FROM:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(10,900,157
|
)
|
|
|
(11,521,550
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(10,900,157
|
)
|
|
|
(11,521,550
|
)
|
|
|
|
|
|
|
|
|
|
FUND SHARE TRANSACTIONS (NOTE 2):
|
|
|
|
|
|
|
|
|
Value of 17,080 and 12,252 shares issued in reinvestment of dividends to common stockholders in 2012 and 2011, respectively
|
|
|
150,025
|
|
|
|
108,711
|
|
|
|
|
|
|
|
|
|
|
Total increase in net assets derived from fund share transactions
|
|
|
150,025
|
|
|
|
108,711
|
|
|
|
|
|
|
|
|
|
|
Total net increase/(decrease) in net assets applicable to common stockholders
|
|
|
9,397,860
|
|
|
|
(10,176,506
|
)
|
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
101,946,580
|
|
|
|
112,123,086
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
111,344,440
|
|
|
$
|
101,946,580
|
|
|
|
|
|
|
|
|
|
|
Undistributed Net Investment Income (Loss)
|
|
$
|
403,031
|
|
|
$
|
1,049,916
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
28
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Financial Highlights
(Contained below is per share operating performance data for a share of common stock outstanding, total return performance, ratios
to average net assets and other supplemental data. This information has been derived from information provided in the financial statements calculated using average shares outstanding and market price data for the Funds
shares.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net asset value, beginning of period
|
|
$
|
7.86
|
|
|
$
|
8.65
|
|
|
$
|
7.79
|
|
|
$
|
4.14
|
|
|
$
|
9.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.79
|
|
|
|
0.84
|
|
|
|
0.90
|
|
|
|
0.76
|
|
|
|
1.21
|
|
Net realized and unrealized gain/(loss) on investments
|
|
|
0.76
|
|
|
|
(0.74
|
)
|
|
|
0.89
|
|
|
|
3.56
|
|
|
|
(5.18
|
)
|
Distributions to preferred stockholders from net investment income
|
|
|
|
(14)
|
|
|
|
(14)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net asset value resulting from operations
|
|
|
1.55
|
|
|
|
0.10
|
|
|
|
1.78
|
|
|
|
4.31
|
|
|
|
(4.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Stockholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.84
|
)
|
|
|
(0.89
|
)
|
|
|
(0.92
|
)
|
|
|
(0.66
|
)
|
|
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common stockholders
|
|
|
(0.84
|
)
|
|
|
(0.89
|
)
|
|
|
(0.92
|
)
|
|
|
(0.66
|
)
|
|
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
8.57
|
|
|
$
|
7.86
|
|
|
$
|
8.65
|
|
|
$
|
7.79
|
|
|
$
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per share, end of period
|
|
$
|
8.87
|
|
|
$
|
8.95
|
|
|
$
|
8.45
|
|
|
$
|
7.38
|
|
|
$
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT
RETURN:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on market value per common share
(2)
|
|
|
9.02
|
%
|
|
|
17.09
|
%
|
|
|
27.90
|
%
|
|
|
126.57
|
%
|
|
|
(47.76
|
)%
|
Based on net asset value per common share
(3)
(4)
|
|
|
19.93
|
%
|
|
|
0.42
|
%
|
|
|
24.03
|
%
|
|
|
112.51
|
%
|
|
|
(47.98
|
)%
|
RATIOS TO AVERAGE NET ASSETS:
(5)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Expenses (including expenses related to leverage)
(7)
(8)
|
|
|
1.24
|
%
(12)
|
|
|
1.56
|
%
(12)
|
|
|
1.74
|
%
(12)
|
|
|
1.73
|
%
(12)
|
|
|
0.59
|
%
|
Applicable to common stockholders only
(7)(9)
|
|
|
1.74
|
%
(13)
|
|
|
2.17
|
%
(13)
|
|
|
2.43
|
%
(13)
|
|
|
2.70
|
%
(13)
|
|
|
0.99
|
%
|
Net Expenses (prior to expenses related to leverage)
(7)
(8)
|
|
|
1.22
|
%
(12)
|
|
|
1.54
|
%
(12)
|
|
|
1.67
|
%
(12)
|
|
|
1.64
|
%
(12)
|
|
|
0.49
|
%
|
Applicable to common stockholders only
(7)(9)
|
|
|
1.71
|
%
(13)
|
|
|
2.14
|
%
(13)
|
|
|
2.34
|
%
(13)
|
|
|
2.56
|
%
(13)
|
|
|
0.82
|
%
|
Net investment income
(9)
|
|
|
9.47
|
%
|
|
|
9.90
|
%
|
|
|
10.81
|
%
|
|
|
12.80
|
%
|
|
|
16.22
|
%
|
SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period, net of preferred stock
|
|
$
|
111,344,440
|
|
|
$
|
101,946,580
|
|
|
$
|
112,123,086
|
|
|
$
|
100,899,931
|
|
|
$
|
53,537,351
|
|
Portfolio turnover rate
(10)
|
|
|
61
|
%
|
|
|
50
|
%
|
|
|
58
|
%
|
|
|
63
|
%
|
|
|
36
|
%
|
SENIOR SECURITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of preferred shares outstanding at end of period
|
|
|
1,720
|
|
|
|
1,720
|
|
|
|
1,720
|
|
|
|
1,720
|
|
|
|
1,720
|
|
Asset coverage per share of preferred stock outstanding at end of
period
(11)
|
|
$
|
89,735
|
|
|
$
|
84,271
|
|
|
$
|
90,188
|
|
|
$
|
83,663
|
|
|
$
|
56,126
|
|
Involuntary liquidation preference and average market value per share of preferred stock
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
1
|
|
Total investment return excludes the effects of commissions. Dividends and distributions to common stockholders, if any, are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Funds dividend reinvestment plan. Rights offerings, if any, are assumed, for purposes of this calculation, to be fully subscribed under the terms of the rights offering.
|
2
|
|
Assumes an investment at the common share market value at the beginning of the period indicated and sale of all shares at the closing common share market value
at the end of the period indicated. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Funds dividend reinvestment plan.
|
3
|
|
Assumes an investment at the common share net asset value at the beginning of the period indicated and sale of all shares at the closing common share net asset
value at the end of the period indicated. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Funds dividend reinvestment plan.
|
4
|
|
Includes adjustments in accordance with accounting principles generally accepted in
the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and the returns for common stockholder transactions.
|
5
|
|
Ratios do not include the effect of dividends to preferred stock.
|
6
|
|
See Note 5 in the Notes to Financial Statements.
|
7
|
|
Includes earnings credits and interest expense, if applicable, each of which is less than 0.01% or unless otherwise noted.
|
8
|
|
Ratios calculated relative to the average net assets of both common and preferred stockholders.
|
9
|
|
Ratios calculated relative to the average net assets of common stockholders only.
|
10
|
|
Portfolio turnover is calculated by dividing the lesser of total purchases or sales of portfolio securities for the reporting period by the monthly average of
portfolio securities owned during the reporting period. Excluded from both the numerator and denominator are amounts relating to derivatives and securities whose maturities or expiration dates at the time of acquisition were one year or less.
|
11
|
|
Calculated by subtracting the Funds total liabilities (not including the preferred stock) from the Funds total assets, and dividing this by the
number of preferred shares outstanding.
|
12
|
|
The Advisor and Administrator voluntarily agreed to waive/reimburse fees during the years ended December 31, 2012, 2011, 2010 and 2009. Without these
waivers/reimbursements, the ratios would have been higher by less than 0.01%, less than 0.01%, 0.03% and 0.17%, respectively.
|
13
|
|
The Advisor and Administrator voluntarily agreed to waive/reimburse fees during the years ended December 31, 2012, 2011, 2010 and 2009. Without these
waivers/reimbursements, the ratios would have been higher by less than 0.01%, less than 0.01%, 0.04% and 0.27%, respectively.
|
14
|
|
Amount rounds to less than $0.01.
|
See Notes
to Financial Statements.
29
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial
Statements
1.
|
|
SIGNIFICANT ACCOUNTING POLICIES
Pacholder High Yield Fund, Inc. (the Fund) is a closed-end, diversified
management investment company with a leveraged capital structure. The Funds investment objective is to seek a high level of total return through current income and capital appreciation by investing primarily in high yield, fixed income
securities of domestic companies. Under normal circumstances, the Fund invests at least 80% of the value of its assets in high yield debt securities. The Fund invests primarily in high yield fixed income securities of domestic companies. The Fund
was incorporated under the laws of the State of Maryland in August 1988.
|
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in accordance with accounting principles generally accepted in the
United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
|
A.
|
|
SECURITY VALUATIONS
Fixed income securities (other than certain short-term investments maturing in less than 61 days) are valued each day based on prices
received from independent or affiliated pricing services approved by the Board of Directors (the Board) or third party broker-dealers. The broker-dealers or pricing services use multiple valuation techniques to determine fair value. In
instances where sufficient market activity exists, the broker-dealer or pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may
not exist or is limited, the broker-dealers or pricing services also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining value and/or
characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to
estimate the relevant cash flows, which are then discounted to calculate the fair values. Equity securities listed on a North American, Central American, South American or Caribbean securities exchange shall generally be valued at the last sale
price on the exchange on which the security is principally traded that is reported before the time when the net assets of the Fund are valued. Securities listed on The NASDAQ Stock Market LLC are generally valued at the NASDAQ Official Closing
Price.
|
Generally, short-term investments of
sufficient credit quality maturing in less than 61 days are valued at amortized cost, which approximates market value. Certain investments of the Fund may, depending upon market conditions, trade in relatively thin markets and/or in markets that
experience significant volatility. As a result of these conditions, the prices used by the Fund to value securities may differ from the value that would be realized if these securities were sold, and the differences could be material. Futures and
options are generally valued on the basis of available market quotations. Swaps and other derivatives are valued daily, primarily using independent or affiliated pricing services approved by the Board. If valuations are not available from such
services or values received are deemed not representative of fair value, values will be obtained from a third party broker-dealer or counterparty. Investments in other open-end investment companies are valued at each investment companys net
asset value per share as of the report date.
Securities or
other assets for which market quotations are not readily available or for which market quotations do not represent the fair value of the security or asset at the time of pricing (including certain illiquid securities) are fair valued in accordance
with procedures established by and under the supervision and responsibility of the Board. The Board has established an Audit and Valuation Committee to assist with the oversight of the valuation of the Funds securities. JPMorgan Funds
Management, Inc. (JPMFM or the Funds Administrator) has established a Valuation Committee (VC) that is comprised of senior representatives from JPMFM, J.P. Morgan Investment Management Inc.
(JPMIM or the Funds Advisor), a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc. (JPMAM), which is a wholly-owned subsidiary of JPMorgan Chase & Co. (JPMorgan),
JPMAMs Legal and Compliance, JPMAMs Risk Management and the Funds Chief Compliance Officer. The VCs responsibilities include making determinations regarding Level 3 fair value measurements (Fair Values) and/or
providing recommendations for approval to the Boards Audit and Valuation Committee, in accordance with the Funds valuation policies.
The VC or Board, as applicable, primarily employ a market-based approach which may use related or comparable assets or liabilities, recent
transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The VC or Board may also use an income-based valuation approach in which the anticipated future cash flows
of the
30
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any
restrictions on the disposition of the investments. Valuations may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry.
It is possible that the estimated values may differ significantly from
the values that would have been used had a ready market for the investments existed, and such differences could be material. JPMFM and JPMIM are responsible for monitoring developments that may impact Fair Values and for discussing and assessing
Fair Values on an ongoing and at least a quarterly basis with the VC and Board, as applicable. The appropriateness of Fair Values is assessed based on results of unchanged price review, consideration of macro or security specific events, back
testing and broker and vendor due diligence.
See the table
on Quantitative Information about Level 3 Fair Value Measurements for information on the valuation techniques and inputs used to value Level 3 securities at December 31, 2012.
Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events
and/or issuer related events after the report date and prior to issuance of the report, are not reflected herein.
The various inputs that are used in determining the fair value of the Funds investments are summarized into the three broad levels listed
below.
Level 1 quoted prices in
active markets for identical securities
Level
2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of
investments)
A financial instruments level within the
fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the
risk associated with investing in those securities.
The following table
represents each valuation input by sector as presented in the Schedule of Portfolio Investments (SOI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Quoted prices
|
|
|
Level 2
Other significant
observable inputs
|
|
|
Level 3
Significant
unobservable inputs
|
|
|
Total
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
$
|
358,443
|
|
|
$
|
|
|
|
$
|
62,148
|
|
|
$
|
420,591
|
|
Consumer Staples
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(a)
|
Financials
|
|
|
259,122
|
|
|
|
|
|
|
|
|
|
|
|
259,122
|
|
Industrials
|
|
|
|
|
|
|
|
|
|
|
23,388
|
|
|
|
23,388
|
|
Information Technology
|
|
|
88,913
|
|
|
|
|
|
|
|
|
(a)
|
|
|
88,913
|
|
Materials
|
|
|
242,880
|
|
|
|
|
|
|
|
673,314
|
|
|
|
916,194
|
|
Utilities
|
|
|
746,070
|
|
|
|
|
|
|
|
|
|
|
|
746,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks
|
|
|
1,695,428
|
|
|
|
|
|
|
|
758,850
|
|
|
|
2,454,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
726,800
|
|
|
|
308,910
|
|
|
|
107,734
|
|
|
|
1,143,444
|
|
Consumer Staples
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(a)
|
Financials
|
|
|
216,522
|
|
|
|
1,346,793
|
|
|
|
|
|
|
|
1,563,315
|
|
Information Technology
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(a)
|
Materials
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Stocks
|
|
|
943,322
|
|
|
|
1,655,703
|
|
|
|
107,734
|
|
|
|
2,706,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Quoted prices
|
|
|
Level 2
Other significant
observable inputs
|
|
|
Level 3
Significant
unobservable inputs
|
|
|
Total
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,448,757
|
|
|
$
|
1,448,757
|
|
Convertible Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
76,923
|
|
|
|
76,923
|
|
Materials
|
|
|
|
|
|
|
57,500
|
|
|
|
|
|
|
|
57,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Bonds
|
|
|
|
|
|
|
57,500
|
|
|
|
76,923
|
|
|
|
134,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
27,892,311
|
|
|
|
672,398
|
|
|
|
28,564,709
|
|
Consumer Staples
|
|
|
|
|
|
|
3,704,289
|
|
|
|
|
(a)
|
|
|
3,704,289
|
|
Energy
|
|
|
|
|
|
|
18,192,982
|
|
|
|
|
|
|
|
18,192,982
|
|
Financials
|
|
|
|
|
|
|
17,101,767
|
|
|
|
43,048
|
|
|
|
17,144,815
|
|
Health Care
|
|
|
|
|
|
|
9,329,678
|
|
|
|
71,479
|
|
|
|
9,401,157
|
|
Industrials
|
|
|
|
|
|
|
11,249,086
|
|
|
|
2,536,630
|
|
|
|
13,785,716
|
|
Information Technology
|
|
|
|
|
|
|
7,076,965
|
|
|
|
98,258
|
|
|
|
7,175,223
|
|
Materials
|
|
|
|
|
|
|
14,895,157
|
|
|
|
697,988
|
|
|
|
15,593,145
|
|
Telecommunication Services
|
|
|
|
|
|
|
11,215,246
|
|
|
|
|
|
|
|
11,215,246
|
|
Utilities
|
|
|
|
|
|
|
3,538,327
|
|
|
|
29,750
|
|
|
|
3,568,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate Bonds
|
|
|
|
|
|
|
124,195,808
|
|
|
|
4,149,551
|
|
|
|
128,345,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Participations & Assignments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
5,637,343
|
|
|
|
97,631
|
|
|
|
5,734,974
|
|
Consumer Staples
|
|
|
|
|
|
|
1,298,602
|
|
|
|
|
|
|
|
1,298,602
|
|
Energy
|
|
|
|
|
|
|
519,340
|
|
|
|
|
|
|
|
519,340
|
|
Health Care
|
|
|
|
|
|
|
464,240
|
|
|
|
|
|
|
|
464,240
|
|
Industrials
|
|
|
|
|
|
|
2,573,463
|
|
|
|
|
|
|
|
2,573,463
|
|
Information Technology
|
|
|
|
|
|
|
1,880,986
|
|
|
|
|
|
|
|
1,880,986
|
|
Materials
|
|
|
|
|
|
|
1,825,502
|
|
|
|
|
|
|
|
1,825,502
|
|
Telecommunication Services
|
|
|
|
|
|
|
109,893
|
|
|
|
|
|
|
|
109,893
|
|
Utilities
|
|
|
|
|
|
|
1,371,164
|
|
|
|
|
|
|
|
1,371,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loan Participations & Assignments
|
|
|
|
|
|
|
15,680,533
|
|
|
|
97,631
|
|
|
|
15,778,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
147,634
|
|
|
|
|
(a)
|
|
|
147,634
|
|
Industrials
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants
|
|
|
|
|
|
|
147,634
|
|
|
|
|
(a)
|
|
|
147,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company
|
|
|
747,006
|
|
|
|
|
|
|
|
|
|
|
|
747,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments in Securities
|
|
$
|
3,385,756
|
|
|
$
|
141,737,178
|
|
|
$
|
6,639,446
|
|
|
$
|
151,762,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Levels 1 and 2 during the year ended December 31, 2012.
32
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
The following is a summary of investments for which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of
12/31/11
|
|
|
Realized
gain
(loss)
|
|
|
Change in
unrealized
appreciation
(depreciation)
|
|
|
Net
accretion
(amortization)
|
|
|
Purchases
1
|
|
|
Sales
2
|
|
|
Transfers
into
Level 3
|
|
|
Transfers
out of
Level 3
|
|
|
Balance
as of
12/31/12
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
$
|
1,499,754
|
|
|
$
|
|
|
|
$
|
(39,077
|
)
|
|
$
|
(10,047
|
)
|
|
$
|
|
|
|
$
|
(1,873)
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,448,757
|
|
Common Stocks Consumer Discretionary
|
|
|
887,184
|
|
|
|
657,066
|
|
|
|
(525,678
|
)
|
|
|
|
|
|
|
51,983
|
|
|
|
(1,014,243
|
)
|
|
|
5,836
|
|
|
|
|
|
|
|
62,148
|
|
Common Stocks Consumer Staples
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Common Stocks Industrials
|
|
|
40,845
|
|
|
|
|
|
|
|
(22,157
|
)
|
|
|
|
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,388
|
|
Common Stocks Information Technology
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Common Stocks Materials
|
|
|
217,747
|
|
|
|
6,328
|
|
|
|
(926,396
|
)
|
|
|
|
|
|
|
1,485,690
|
|
|
|
(110,055
|
)
|
|
|
|
|
|
|
|
|
|
|
673,314
|
|
Common Stocks Telecommunication Services
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Bonds Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,923
|
|
Corporate Bonds Consumer Discretionary
|
|
|
145,041
|
|
|
|
(103,178
|
)
|
|
|
(109,875
|
)
|
|
|
6,199
|
|
|
|
826,017
|
|
|
|
(91,806
|
)
|
|
|
|
|
|
|
|
|
|
|
672,398
|
|
Corporate Bonds Consumer Staples
|
|
|
414,702
|
|
|
|
|
|
|
|
(438,868
|
)
|
|
|
|
|
|
|
24,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Corporate Bonds Financials
|
|
|
|
|
|
|
5,071
|
|
|
|
12,299
|
|
|
|
|
|
|
|
|
|
|
|
(5,071
|
)
|
|
|
30,749
|
|
|
|
|
|
|
|
43,048
|
|
Corporate Bonds Health Care
|
|
|
792,048
|
|
|
|
|
|
|
|
(726,103
|
)
|
|
|
(721
|
)
|
|
|
6,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,479
|
|
Corporate Bonds Industrials
|
|
|
|
|
|
|
|
|
|
|
80,984
|
|
|
|
(2,755
|
)
|
|
|
1,501,992
|
|
|
|
(101,379
|
)
|
|
|
1,057,788
|
|
|
|
|
|
|
|
2,536,630
|
|
Corporate Bonds Information Technology
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
8
|
|
|
|
98,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,258
|
|
Corporate Bonds Materials
|
|
|
973,265
|
|
|
|
2,887
|
|
|
|
(138,166
|
)
|
|
|
9,098
|
|
|
|
674,395
|
|
|
|
(798,336
|
)
|
|
|
|
|
|
|
(25,155
|
)
|
|
|
697,988
|
|
Corporate Bonds Utilities
|
|
|
|
|
|
|
|
|
|
|
348,621
|
|
|
|
(9,183
|
)
|
|
|
34,687
|
|
|
|
(954,375
|
)
|
|
|
610,000
|
|
|
|
|
|
|
|
29,750
|
|
Loan Participations & Assignments Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
(118,901
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,276
|
)
|
|
|
217,808
|
|
|
|
|
|
|
|
97,631
|
|
Loan Participations & Assignments Information Technology
|
|
|
728,764
|
|
|
|
(13,154
|
)
|
|
|
21,937
|
|
|
|
5,381
|
|
|
|
|
|
|
|
(742,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stocks Consumer Discretionary
|
|
|
200,078
|
|
|
|
|
|
|
|
(92,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,734
|
|
Preferred Stocks Consumer Staples
|
|
|
|
(a)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1,659,345
|
|
|
|
(1,659,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Preferred Stocks Information Technology
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Preferred Stocks Materials
|
|
|
90,682
|
|
|
|
|
|
|
|
(90,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Warrants Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Warrants Industrials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,990,110
|
|
|
$
|
555,020
|
|
|
$
|
(2,764,211
|
)
|
|
$
|
(2,020
|
)
|
|
$
|
6,444,209
|
|
|
$
|
(5,480,688
|
)
|
|
$
|
1,922,181
|
|
|
$
|
(25,155
|
)
|
|
$
|
6,639,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Purchases include all purchases of securities and securities received in corporate
actions.
|
2
|
|
Sales include all sales of securities, maturities, paydowns and securities tendered in
corporate actions.
|
Transfers into, and
out of, Level 3 are valued utilizing values as of the beginning of the period.
Transfers from Level 2 to Level 3 or from Level 3 to Level 2 are due to a decline or an increase in market activity (e.g. frequency of trades), which resulted in a lack of or increase in available market inputs to
determine price.
The change in unrealized appreciation
(depreciation) attributable to securities owned at December 31, 2012, which were valued using significant unobservable inputs (Level 3) amounted to $(2,506,078). This amount is included in Change in net unrealized appreciation (depreciation) of
investments in non-affiliates on the Statement of Operations.
33
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements#
|
|
|
|
Fair Value at
12/31/2012
|
|
|
Valuation Technique(s)
|
|
Unobservable Input
|
|
Range (Weighted Average)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
534,540
|
|
|
Market Comparable Companies
|
|
EBITDA Multiple(a)
|
|
|
5.00x - 6.90x (5.04x)
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
10% - 30% (10.43%)
|
|
|
|
|
27,517
|
|
|
Mergers and Acquisitions
|
|
Discount for potential outcome
|
|
|
20% (N/A)
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
25% (N/A)
|
|
|
|
|
7,050
|
|
|
Terms of Plan of Reorganization
|
|
Discount for lack of marketability(b)
|
|
|
25% (N/A)
|
|
|
|
|
0
|
|
|
Broker Bid
|
|
Equity Broker Bid
|
|
|
$2.00 (N/A)
|
|
|
|
|
17,393
|
|
|
Consensus Pricing
|
|
Median Offered quote
|
|
|
$1.50 (N/A)
|
|
|
|
|
0
|
|
|
Discounted Cash Flow
|
|
Probability of Insolvency
|
|
|
100% (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
586,500
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Discounted Cash Flow
|
|
Discount for lack of marketability(b)
|
|
|
17.5% (N/A)
|
|
|
|
|
|
|
|
|
|
Probability of Insolvency
|
|
|
100% (N/A)
|
|
|
|
|
0
|
(c)
|
|
Market Comparable Companies
|
|
EBITDA Multiple(a)
|
|
|
5.40x - 5.82x (N/A)
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
30% (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
575,549
|
|
|
Market Comparable Companies
|
|
EBITDA Multiple(a)
|
|
|
5.5x - 6.90x (6.39x)
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
25% - 30% (27.78%)
|
|
|
|
|
|
|
|
|
|
Probability of Default
|
|
|
97% (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bond
|
|
|
575,549
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441,050
|
|
|
Discounted Cash Flow
|
|
Liquidity Discount
|
|
|
4.50% (N/A)
|
|
|
|
|
|
|
|
|
|
Implied Spread to Index
|
|
|
2% (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
|
1,441,050
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
0
|
|
|
Discounted Terms of Plan of Reorganization
|
|
Issue Price vs. Stock Price
|
|
|
0 (N/A)
|
|
Total
|
|
$
|
2,603,099
|
|
|
|
|
|
|
|
|
|
#
|
|
The table above does not include level 3 securities that are valued by brokers. At 12/31/12, the value of these securities was $4,036,347. The inputs for these securities are not
readily available or cannot be reasonably estimated and are generally those inputs described in Note 2.A. The appropriateness of fair values for these securities is monitored on an ongoing basis which may include results of back testing, results of
broker due diligence, unchanged price review and consideration of macro or security specific events.
|
*
|
|
Based on the fair market value of the investments included in the range.
|
(a)
|
|
Represents amounts used when the reporting entity has determined that market participants would take into account such multiples when pricing the investments.
|
(b)
|
|
Represents amounts used when the reporting entity has determined that market participants would take into account discounts, as applicable, when pricing the
investments.
|
(c)
|
|
Securities senior to the preferred securities in issuing entity capital structure result in preferred stock being valued at zero.
|
The significant unobservable inputs used in the fair value measurement
of the Funds investments are listed above. Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the unobservable inputs may significantly
impact the fair value measurement. The impact is based on the relationship between each unobservable input and the fair value measurement. Significant increases (decreases) in enterprise multiples may increase (decrease) the fair value
measurement. Significant increases (decreases) in the discount for lack of marketability, discount for potential outcome and probability of default may decrease (increase) the fair value measurement. A significant change in broker pricing
information could result in a significantly higher or lower value in such Level 3 instruments.
34
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
|
B.
|
|
FEDERAL TAXES
It is the Funds policy to make distributions to stockholders of net investment income and net realized capital gains to comply with
the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies.
|
The Fund intends to continue to qualify as a regulated investment company by complying with the appropriate provisions of the Internal Revenue Code
and to distribute to stockholders each year substantially all of its taxable income, if any, including realized gains on investments.
The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits or losses will
significantly change in the next twelve months. However, the Funds conclusions may be subject to future review based on changes in, or the interpretation of, the accounting standards or tax laws and regulations. The Funds federal tax
returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
The Fund reserves the right to retain investment company taxable income and/or net capital gains. As such, excise taxes may be recognized and paid
on undistributed income and capital gain amounts. For the tax year ended 2012, the Fund retained approximately $531,368 in income and incurred an excise tax of approximately $13,145.
Distributions paid by the Fund are subject to recharacterization for tax purposes. A portion of dividends paid may
consist of net realized gains. To the extent that capital loss carryforwards are available to offset the distribution of capital gains but are not utilized at the end of the Funds fiscal year, such capital gain distributions may be taxable to
stockholders as ordinary income.
The amount of
distributions from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. To the extent
these book/tax differences are permanent in nature (i.e., that they result from other than timing of recognition temporary differences), such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment.
The following amounts
were reclassified within the capital accounts:
|
|
|
|
|
|
|
|
|
|
|
Capital in
excess of par
|
|
|
Undistributed net
investment
income (loss)
|
|
|
Accumulated
net realized
gains (losses)
|
|
|
$(1,180,274)
|
|
|
$
|
66,595
|
|
|
$
|
1,113,679
|
|
The reclassification for the Fund
relates primarily to expiration of capital loss carryforwards, non-deductible expenses, non-taxable special dividends and consent fees.
The tax character of distributions paid during the years ended December 31, 2012 and 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Common Stockholder Ordinary Income
|
|
$
|
10,900,157
|
|
|
$
|
11,521,550
|
|
Preferred Stockholder Ordinary Income
|
|
$
|
58,708
|
|
|
$
|
60,368
|
|
|
C.
|
|
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses on securities
transactions are determined on an identified cost basis. Interest income is determined on the basis of coupon interest accrued using the effective interest method which adjusts for amortization of premiums and accretion of discounts. Dividend income
is recorded on the ex-dividend date.
|
|
D.
|
|
EXPENSES AND DISTRIBUTIONS
Expenses are accrued as incurred. Dividends to common stockholders are generally declared and paid monthly from net investment income and
distributions of net realized capital gains, if any, are paid at least annually. Dividends to preferred stockholders are accrued daily based on a variable interest rate set at weekly auctions or, in the absence of a successful auction, at a maximum
rate as calculated in accordance with the Funds Articles Supplementary for Auction Rate Cumulative Preferred Stock and are paid weekly from net investment income. Distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles.
|
|
E.
|
|
LOAN PARTICIPATIONS AND
ASSIGNMENTS
The Fund may invest in loan participations and
assignments of all or a portion of the loans. When the Fund purchases a loan participation, the Fund typically enters into a contractual relationship with the lender or third party selling such participations (Selling Participant), but
not the
|
35
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
|
borrower. In contrast, the Fund has direct rights against the borrower on a loan when it purchases an assignment; provided, however, that the Funds rights may be more limited than the
lender from which it acquired the assignment and the Fund may be able to enforce its rights only through an administrative agent. As a result, the Fund assumes the credit risk of the borrower and the Selling Participant and any other persons
interpositioned between the Fund and the borrower (Intermediate Participants). Although certain loan participations or assignments are secured by collateral, the Fund could experience delays or limitations in realizing on such collateral
or have its interest subordinated to other indebtedness of the obligor. In addition, loan participations and assignments are vulnerable to market conditions such that economic conditions or other events may reduce the demand for loan participations
and assignments and certain loan participations and assignments which were liquid, when purchased, may become illiquid.
|
|
F.
|
|
UNFUNDED COMMITMENTS
The Fund may enter into commitments to buy and sell investments including commitments to buy loan participations and assignments to settle
on future dates as part of its normal investment activities. Unfunded commitments are generally traded and priced as part of a related loan participation or assignment (Note 1.E.). The value of the unfunded portion of the investment is determined
using a pro-rata allocation, based on its par value relative to the par value of the entire investment. The unrealized appreciation (depreciation) from unfunded commitments is reported in the Statement of Assets and Liabilities. The Fund segregates
sufficient liquid assets for unfunded and funded commitments that will settle on future dates. Credit risks exist on these commitments to the extent of any difference between the sales price and current value of the underlying securities sold.
Market risk exists on these commitments to buy to the same extent as if the securities were owned on a settled basis and gains and losses are recorded and reported in the same manner. However, during the commitment period, these investments earn no
interest or dividends.
|
At December 31,
2012, the Fund had the following unfunded loan commitments which could be extended at the option of the borrower:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Description
|
|
Term
|
|
|
Maturity
Date
|
|
|
Commitment
Fee Rate
|
|
Rate if
Funded
|
|
Par
Value
|
|
Commitment
|
|
|
|
|
|
|
Amount
|
|
Value
|
ROC Finance LLC
|
|
Incremental 18 Month Delayed Draw Term B Loans
|
|
|
08/19/17
|
|
|
2.25%
|
|
2.25%
|
|
$8,333
|
|
$8,333
|
|
$8,583
|
ROC Finance LLC
|
|
Incremental 6 Month Delayed Draw Term B Loans
|
|
|
08/19/17
|
|
|
2.25
|
|
2.25
|
|
5,000
|
|
5,000
|
|
5,150
|
2.
|
|
COMMON STOCK
At December 31, 2012, there were 49,996,320 shares of common stock with a $0.01 par value authorized and 12,985,950 shares
outstanding. During the years ended December 31, 2012 and 2011, the Fund issued 17,080 and 12,252 shares of common stock, respectively, in connection with its dividend reinvestment plan.
|
3.
|
|
PREFERRED STOCK
On June 29, 2001, the Fund issued shares of Series W Auction Rate Cumulative Preferred Stock (ARPS) at an offering price
of $25,000 per share. Dividends on these shares are paid weekly at an annual rate determined by a weekly auction or, in the absence of a successful auction, at a maximum rate as calculated in accordance with the Funds Articles Supplementary
for Auction Rate Cumulative Preferred Stock. In general, the holders of the ARPS and the common stock vote together as a single class, except that the ARPS stockholders, as a separate class, vote to elect two members of the Board of Directors. The
ARPS have a liquidation value of $25,000 per share, plus accumulated and unpaid dividends. At December 31, 2012, accrued ARPS dividends were $1,488.
|
The Fund is subject to certain limitations and restrictions associated
with outstanding shares of ARPS, including maintaining an asset coverage ratio of 200% for such shares. Failure to comply with these limitations and restrictions could preclude the Fund from declaring any dividends or distributions to common
stockholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Stock at their liquidation value.
The weekly auction for the ARPS issued by the Fund has failed since February 13, 2008, due to insufficient demand (bids to buy shares) to meet
supply (shares offered for sale) at the auction. Holders of
36
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
preferred shares who wish to sell in an auction will not be able to do so until there is a successful auction with sufficient demand for the shares. Failed auctions are not considered a default
by the Fund and do not alter the credit quality of the ARPS. However, failed auctions may increase the cost of the Funds leverage and decrease the income available for common stockholders. ARPS holders have continued to receive dividends at
the maximum rate set on the date of the failed auction, and the redemption price of $25,000 per share (plus accumulated but unpaid dividends, if any) is unaffected. Based on the rating assigned to the Funds ARPS, the maximum rate
may range from 150%-275% of the AA Financial Composite Commercial Paper Rate as of a given auction date. The maximum rate incurred during the year ended December 31, 2012, ranged from 0.03% to 0.24%. The maximum rate as of the
February 13, 2013 auction was 0.165%, which is 150% of the AA Financial Composite Commercial Paper Rate on that date.
4.
|
|
PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term
securities) for the year ended December 31, 2012, aggregated $89,851,548 and $89,785,059, respectively. During the year ended December 31, 2012, there were no purchases or sales of U.S. Government securities.
|
5.
|
|
TRANSACTIONS WITH INVESTMENT ADVISOR, ADMINISTRATOR, ACCOUNTING SERVICES AGENT AND CUSTODIAN
JPMIM, an indirect, wholly-owned subsidiary of JPMorgan, serves as investment advisor to the Fund under an Investment Advisory Agreement (the Advisory Agreement). Under the Advisory Agreement, JPMIM is entitled to receive an annual
investment advisory fee (the Performance Fee), computed and paid monthly after the end of each calendar month, at a rate that increases or decreases from a fulcrum fee of 0.90% of the Funds average net assets over a
rolling 12-month period. The increase or decrease is calculated by comparing the total return investment performance of the Fund (net of all fees and expenses, including the advisory fee) for the prior 12-month period (the Fund Return)
to the percentage change in the CSFB High Yield Index, Developed Countries Only (the Index) for the same period. The fee rate is 0.90% of the Funds average net assets if the performance of the Fund Return equals the Index Return.
The fee rate increases or decreases from the 0.90% fulcrum fee by 10% of the difference between the Fund Return and the Index Return, up to the maximum fee rate of 1.40% or down to the minimum fee rate of 0.40%. The fee rate is
calculated monthly based on the performance of the Fund compared to the Index during the rolling twelve month period. This rate is applied to the average net assets (defined as the total assets of the Fund minus liabilities other than the principal
amount of any outstanding senior securities representing indebtedness and the liquidation preference of the ARPS) during the entire 12-month period. The compensation due to the Advisor after the end of each month shall be equal to 1/12th of the
amount of the advisory fee calculated as stated above.
|
Advisory fees for the year ended December 31, 2012 amounted to $1,232,795 which calculated to an annual effective rate of 0.82%. The advisory fee rate calculated for the one month ended December 31, 2012
was a rate of 1.40%.
The Fund has an administrative
services agreement with JPMFM (an affiliate of JPMIM) pursuant to which the Administrator provides administrative services to the Fund. Under the agreement, the Administrator receives from the Fund a fee, accrued at least weekly and paid monthly, at
the annual rate of 0.10% of the average weekly net assets of the Fund. At December 31, 2012, accrued administrative fees were $10,519.
JPMFM and JPMIM have agreed that JPMFM will not increase the 10 basis point fee payable under the Funds administrative services contract
through December 31, 2012.
JPMorgan Chase Bank, N.A.
(JPMCB), a wholly-owned subsidiary of JPMorgan serves as the Funds sub-administrator (the Sub-administrator). For its services as Sub-administrator, JPMCB receives a portion of the fees payable to the Administrator.
The Fund has a Global Custody and Fund Accounting Agreement
(the Agreement) with JPMCB. For providing custody services under the Agreement, JPMCB is entitled to a fee from the Fund, accrued weekly and paid monthly. The amounts paid directly to JPMCB by the Fund for custody and accounting services
are included in Custodian and accounting fees in the Statement of Operations. Payments to the custodian may be reduced by credits earned by the Fund, based on uninvested cash balances held by the custodian. Such earnings credits are presented
separately in the Statement of Operations.
Interest
expense, if any, paid to the custodian related to cash overdrafts is included in Interest expense to affiliates in the Statement of Operations.
In addition JPMFM and JPMIM have agreed to cap director compensation expenses and legal fees payable by the Fund through December 31, 2012, at
the amount of such compensation and fees for
37
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (continued)
2007 (exclusive of extraordinary director compensation and legal fees attributable to the 2008 Board consolidation whereby the former Board of Directors was elected). The agreed-upon cap does not
apply to director compensation expenses for special meetings or to legal fees incurred with respect to matters not in the ordinary course of the Funds business.
The Fund may invest in one or more money market funds advised by the
Advisor or its affiliates. The Advisor and Administrator waive fees in an amount sufficient to offset the advisory, administration and shareholder servicing fees each charged to the affiliated money market fund on the Funds investment in such
affiliated money market fund. A portion of the waiver is voluntary.
The amount of waivers resulting from investments in these money market funds for the year ended December 31, 2012 was $3,271.
JPMCB provides derivative collateral management services for the Fund.
The amounts paid directly to JPMCB by the Fund for these services are included in Collateral management fees on the Statement of Operations.
Certain officers of the Fund are affiliated with the Advisor and the Administrator. Such officers, with the exception of the Chief Compliance
Officer, receive no compensation from the Fund for serving in their respective roles.
The Board of Directors appointed a Chief Compliance Officer to the Fund in accordance with Federal securities regulations. The Fund, along with other affiliated funds, makes reimbursement payments, on a pro-rata
basis, to the Administrator for a portion of the fees associated with the Office of the Chief Compliance Officer. Such fees are included in Directors and Chief Compliance Officers fees in the Statement of Operations.
The Fund adopted a Directors Deferred Compensation Plan (the
Plan) which allows the Independent Directors to defer the receipt of all or a portion of compensation related to performance of their duties as Directors. The deferred fees are invested in various J.P. Morgan Funds until distribution in
accordance with the Plan.
6.
|
|
COMPONENTS OF ACCUMULATED EARNINGS
(LOSSES)
For Federal income tax purposes, the cost and unrealized appreciation (depreciation) in value of the investment securities held at December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
December 31,
2012
|
|
Gross unrealized appreciation on investments
|
|
$
|
8,591,120
|
|
Gross unrealized depreciation on investments
|
|
|
(11,068,502
|
)
|
|
|
|
|
|
Net unrealized appreciation (depreciation) on investments
|
|
$
|
(2,477,382
|
)
|
|
|
|
|
|
Cost of investments for Federal Tax purposes
|
|
$
|
154,239,762
|
|
The difference between the book-basis
and tax basis unrealized appreciation/(depreciation) is attributable primarily to distressed securities and wash sale loss deferrals.
At December 31, 2012, the components of net assets (excluding paid-in-capital) on a tax basis were as follows:
|
|
|
|
|
Current Distributable
Ordinary Income
|
|
Current Distributable
Long Term Capital Gain
or
(Tax Basis Capital
Loss Carryover)
|
|
Unrealized
Appreciation
(Depreciation)
|
$593,290
|
|
$(25,254,622)
|
|
$(2,476,981)
|
The cumulative timing differences
primarily consist of distressed securities and wash sale loss deferrals.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), net capital losses recognized by the Fund after December 31, 2010 may get carried forward indefinitely, and retain their
character as short-term and/or long-term losses. Prior to the Act, net capital losses incurred by the Fund were carried forward for eight years and treated as short-term losses. The Act requires that post-enactment net capital losses be used before
pre-enactment net capital losses.
As of December 31, 2012,
the Fund did not have any post-enactment net capital loss carryforwards.
As of December 31, 2012, the Fund had the following pre-enactment net capital loss carryforwards expiring during the year indicated, which are available to offset future realized gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
Total
|
|
|
$6,916,560
|
|
|
$
|
416,016
|
|
|
$
|
1,876,547
|
|
|
$
|
14,493,773
|
|
|
$
|
1,551,726
|
|
|
$
|
25,254,622
|
|
38
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (concluded)
During the year ended December 31, 2012, the Fund utilized capital loss carryforwards in the amount of $1,280,089 of
which $418,269 was long-term post-enactment capital loss carryforwards and $861,820 was pre-enactment capital loss carryforwards.
During the year ended December 31, 2012, $1,168,863 of the Funds capital loss carryovers expired.
7.
|
|
RESTRICTED AND ILLIQUID SECURITIES
Certain securities held by the Fund may be subject to legal or contractual restrictions on resale and/or are illiquid. Restricted securities generally are resold in transactions exempt from registration
under the Securities Act of 1933 (the Securities Act). An illiquid security is a security which cannot be disposed of promptly (within seven days) and in the usual course of business at approximately its fair value and includes, but is
not limited to, repurchase agreements maturing in excess of seven days, time deposits with a withdrawal penalty, non-negotiable instruments and instruments for which no market exists. Disposal of these securities may involve time-consuming
negotiations and expense. Prompt sale at the current valuation may be difficult and could adversely affect the net assets of the Fund. As of December 31, 2012, the Fund had no investments in restricted securities other than securities sold to
the Fund under Rule 144A under the Securities Act. At December 31, 2012, the Fund held illiquid securities representing 3.6% of net assets applicable to common stockholders.
|
8.
|
|
OTHER
The Fund may use related party broker-dealers. For the year ended December 31,
2012, the Fund did not incur any brokerage commissions with broker-dealers affiliated with the Advisor.
|
9.
|
|
RISKS, CONCENTRATIONS AND INDEMNIFICATIONS
The Fund invests at least 80% of its assets in
high yield debt securities. Investments in lower-rated securities or unrated securities of comparable quality tend to be more sensitive to economic conditions than higher rated securities. These securities involve a greater risk of default by the
issuer because such securities are generally unsecured and are often subordinated to other creditors claims.
|
The ability of the issuers of debt and asset-backed securities, including sub-prime securities, along with counterparties to swap agreements, to
meet their obligations may be affected by the economic and political developments in a specific industry or region. The value of asset-backed securities, including sub-prime securities, can be significantly affected by changes in interest rates or
rapid principal payments including prepayments.
The
Funds officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that
provide for general indemnifications. The Funds maximum exposure under these arrangements is unknown. The amount of exposure would depend on future claims that may be made against the Fund. However, based on experience, the Fund expects the
risk of loss to be remote.
Citigroup and Morgan Stanley are
beneficial owners of a significant portion of the Funds outstanding ARPS and based on such ownership, could each be deemed to be an affiliate of the Fund. Both Citigroup and Morgan Stanley have informed the Fund that they intend to comply with
a No Action Letter that enables them not to be deemed affiliates of the Fund. These parties could have an impact on matters that affect the Funds shareholders due to the voting rights associated with the ARPS, as detailed in the
Preferred Stock note, included in this report.
As of December 31, 2012, the Fund is a party to certain securities loans and loan participations and assignments that were transacted with
either Citigroup or Morgan Stanley in the normal course of business.
The Fund is subject to interest rate and credit risk. The value of debt securities may decline as interest rates increase. The Fund could lose money if the issuer of a fixed income security is unable to pay
interest or repay principal when it is due. The ability of the issuers of debt to meet their obligations may be affected by the economic and political developments in a specific industry or region.
The Fund is subject to risks associated with asset-backed and
mortgage-related securities such as collateralized mortgage obligations backed by sub-prime mortgage loans. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate value,
prepayments, delinquencies and/or defaults, and may be adversely affected by shifts in the markets perception of the issuers and changes in interest rates.
The Fund is subject to the risk that should the Fund decide to sell an
illiquid investment when a ready buyer is not available at a price the Fund deems representative of its value, the value of the Funds net assets could be adversely affected.
10.
|
|
SUBSEQUENT EVENT
On February 15, 2013, the Board of
Directors of the Pacholder High Yield Fund, Inc. authorized a reduction in the monthly dividend amount from $0.070 per common share to $0.065 per common share.
|
39
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and Shareholders of Pacholder High Yield Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Pacholder High Yield Fund, Inc.
(hereafter referred to as the Fund) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are
the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2013
40
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Tax Letter (Unaudited)
Certain tax information for the Fund is required to be provided to shareholders based upon the Funds income and distributions for the taxable year ended December 31, 2012. The information and distributions
reported is this letter may differ from the information and taxable distributions reported to the shareholders for the calendar year ending December 31, 2012. The information necessary to complete your income tax returns for the calendar year ending
December 31, 2012 will be received under separate cover.
Dividends Received Deductions (DRD)
3.29% of ordinary income distributions qualified for the 70% dividends received deduction for corporate shareholders for the Funds fiscal year ended December
31, 2012.
41
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Directors (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Name (Year of Birth);
Positions With
the
Fund
(1)
|
|
Length of Time Served
|
|
Principal Occupations
During Past
5 Years
|
|
Number of
Portfolios in Fund
Complex Overseen
by
Director
(2)
|
|
|
Other Directorships Held
Outside Fund
Complex
During Past 5 Years
|
|
Independent Directors
|
|
|
|
|
|
|
|
|
|
|
|
John F. Finn (1947); Director of Fund since 2009; Director of heritage One Group Mutual Funds since 1998.
|
|
Elected at 2009 Shareholder Meeting
|
|
Chairman (1985-present), President and Chief Executive Officer, Gardner, Inc. (supply chain management company serving industrial and consumer markets) (1974-present).
|
|
|
170
|
|
|
Director, Cardinal Health, Inc. (CAH) (1994-present); Director, Greif, Inc. (GEF) (industrial package products and services) (2007-present).
|
|
|
|
|
|
Dr. Matthew Goldstein (1941); Director of Fund since 2009; Chairman effective 2013; Director of heritage J.P. Morgan Funds since 2003.
|
|
Elected at 2009 Shareholder Meeting
|
|
Chancellor, City University of New York (1999-present); President, Adelphi University (New York) (1998-1999).
|
|
|
170
|
|
|
Director, Bronx-Lebanon Hospital Center; Director, United Way of New York City (2002-present); Trustee, Museum of Jewish Heritage (2011-present)
|
|
|
|
|
|
Robert J. Higgins (1945); Director of Fund since 2009; Director of heritage J.P. Morgan Funds since 2002.
|
|
Elected at 2009 Shareholder Meeting
|
|
Retired; Director of Administration of the State of Rhode Island (2003-2004); President Consumer Banking and Investment Services, Fleet Boston Financial (1971-2001).
|
|
|
170
|
|
|
None.
|
|
|
|
|
|
Peter C. Marshall (1942); Director of Fund since 2009; Director of heritage One Group Mutual Funds since 1985.
|
|
Elected at 2009 Shareholder Meeting
|
|
Self-employed business consultant (2002-Present).
|
|
|
170
|
|
|
Director, Center for Communication, Hearing and Deafness (1990-present).
|
|
|
|
|
|
Mary E. Martinez (1960); Director of Fund since 2013
|
|
Appointed in 2013
|
|
Associate, Special Properties, a Christies
International Real Estate Affiliate (2010-Present); Managing Director, Bank of America (Asset Management) (2007-2008); Chief Operating Officer, U.S. Trust Asset
Management; U.S. Trust Company (asset management) (2003-2007); President, Excelsior Funds (registered investment companies) (2004-2005).
|
|
|
170
|
|
|
Member, New York City Center
Advisory Council
(oversees public
performing arts facilities) (2006-Present)
|
42
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Directors (Unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
Name (Year of Birth);
Positions With
the
Fund
(1)
|
|
Length of Time Served
|
|
Principal Occupations
During Past
5 Years
|
|
Number of
Portfolios in Fund
Complex Overseen
by
Director
(2)
|
|
|
Other Directorships Held
Outside Fund
Complex
During Past 5 Years
|
|
Independent Directors (continued)
|
|
|
|
|
|
|
|
Marilyn McCoy* (1948); Director of Fund since 2009; Director of heritage One Group Mutual Funds since 1999.
|
|
Elected at 2009 Shareholder Meeting
|
|
Vice President of Administration and Planning, Northwestern University (1985-present).
|
|
|
170
|
|
|
Trustee, Carleton College (2003-present).
|
|
|
|
|
|
Mitchell M. Merin (1953);
Director of Fund since
2013
|
|
Appointed in 2013
|
|
Retired (2005-Present); President and Chief Operating Officer, Morgan Stanley Investment Management, Member Morgan Stanley & Co.
Management Committee (registered investment
adviser)
(1998-2005).
|
|
|
170
|
|
|
Director, Sun Life Financial (SLF) (2007
to
Present) (financial services and
insurance); Trustee, Trinity College,
Hartford, CT (2002-2010)
|
|
|
|
|
|
William G. Morton, Jr. (1937); Director of Fund since 2009; Director of heritage J.P. Morgan Funds since 2003.
|
|
Elected at 2009 Shareholder Meeting
|
|
Retired; Chairman Emeritus (2001-2002), and Chairman and Chief Executive Officer, Boston Stock Exchange (1985-2001).
|
|
|
170
|
|
|
Director, Radio Shack Corp. (1987-2008); Trustee, Stratton Mountain School (2001-present).
|
|
|
|
|
|
Dr. Robert A. Oden, Jr. (1946); Director of Fund since 2009; Director of heritage One Group Mutual Funds since 1997.
|
|
Elected at 2009 Shareholder Meeting
|
|
Retired; President, Carleton College (2002-2010); President, Kenyon College (1995-2002).
|
|
|
170
|
|
|
Trustee, American University in Cairo (1999-present); Chairman, Darthmouth- Hitchcock Medical Center (2013- present); Trustee, Dartmouth-Hitchcock Medical Center (2011-present); Trustee,
American Schools of Oriental Research (2011-present); Trustee, Carleton College (2002-2010).
|
|
|
|
|
|
Marian U. Pardo*** (1946);
Director of Fund since
2013
|
|
Appointed in 2013
|
|
Managing Director and Founder, Virtual Capital Management LLC (Investment Consulting) (2007-present); Managing Director, Credit Suisse Asset Management (portfolio manager)
(2003-2006).
|
|
|
170
|
|
|
Member, Board of Governors, Columbus Citizens Foundation (not-for profit supporting philanthropic and cultural programs)
(2006-Present)
|
43
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Directors (Unaudited) (concluded)
|
|
|
|
|
|
|
|
|
|
|
Name (Year of Birth);
Positions With
the
Fund
(1)
|
|
Length of Time Served
|
|
Principal Occupations
During Past
5 Years
|
|
Number of
Portfolios in Fund
Complex Overseen
by
Director
(2)
|
|
|
Other Directorships Held
Outside Fund
Complex
During Past 5 Years
|
|
Independent Directors (continued)
|
|
|
|
|
|
|
|
Frederick W. Ruebeck (1939); Director of Fund since 2009; Director of heritage One Group Mutual Funds since 1994.
|
|
Elected at 2009 Shareholder Meeting
|
|
Consultant (2000-present); Advisor, JP Greene & Associates, LLC (broker-dealer) (2000-2009); Chief Investment Officer, Wabash College (2004-present); Director of Investments, Eli Lilly
and Company (pharmaceuticals) (1988-1999).
|
|
|
170
|
|
|
Trustee, Wabash College (1988-present); Chairman, Indianapolis Symphony Orchestra Foundation (1994-present).
|
|
|
|
|
|
James J. Schonbachler (1943); Director of Fund since 2009; Director of heritage J.P. Morgan Funds since 2001.
|
|
Elected at 2009 Shareholder Meeting
|
|
Retired; Managing Director of Bankers Trust Company (financial services) (1968-1998).
|
|
|
170
|
|
|
None.
|
|
Interested Directors
|
|
|
|
|
|
|
|
Frankie D. Hughes** (1952), Director of Fund since 2009; Trust of J.P. Morgan Funds since 2008.
|
|
Elected at 2009 Shareholder Meeting
|
|
President and Chief Investment Officer, Hughes Capital Management, Inc. (fixed income asset management) (1993-present).
|
|
|
170
|
|
|
Trustee, The Victory Portfolios (2000-2008).
|
(1)
|
|
Each Director serves for an indefinite term, subject to the Funds current retirement policy, which is age 75 for all Directors, except that the Board has
determined Mr. Morton should continue to serve until December 31, 2014. In order to fill the vacancies created by the retirement of the Fergus Reid, III, William J. Armstrong, and Leonard J. Spalding, Jr., effective December 31, 2012,
the Board appointed Ms. Martinez and Mr. Merin to serve as Trustees effective January 1, 2013 and Marian U. Pardo to serve as Trustee effective February 1, 2013.
|
(2)
|
|
A Fund Complex means two or more registered investment companies that hold themselves out to investors as related companies for purposes of investment and
investor services or have a common investment advisor or have an investment advisor that is an affiliated person of the investment advisor of any of the other registered investment companies. The J.P. Morgan Funds Complex for which the Board of
Directors serves currently includes eleven registered investment companies (170 funds).
|
*
|
|
Ms. McCoy has served as Vice President of Administration and Planning for Northwestern University since 1985. William M. Daley was the Head of Corporate Responsibility for
JPMorgan Chase & Co. prior to January 2011 and served as a member of the Board of Trustees of Northwestern University from 2005 through 2010. JPMIM, the Funds investment adviser, is a wholly-owned subsidiary of JPMorgan
Chase & Co. Five other members of the Board of Trustees of Northwestern University are executive officers of registered investment advisers (not affiliated with JPMorgan) that are under common control with subadvisers to certain J.P.
Morgan Funds.
|
**
|
|
Ms. Hughes is treated as an interested person based on the portfolio holdings of clients of Hughes Capital Management, Inc.
|
***
|
|
In connection with prior employment with JPMorgan Chase, Ms. Pardo is the recipient of non-qualified pension plan payments from JPMorgan Chase in the amount of approximately
$2,055 per month, which she will irrevocably waive effective January 1, 2013, and deferred compensation payments from JPMorgan Chase in the amount of approximately $7,294 per year, which will end January 2013. In addition, Ms. Pardo
receives payments from a fully funded qualified plan, which is not an obligation of JPMorgan Chase.
|
44
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Officers (Unaudited)
|
|
|
Name (Year of Birth),
Positions Held with
the Fund (Since)
|
|
Principal Occupations During Past 5 Years
|
|
Patricia A. Maleski (1960),
President and
Principal Executive Officer
(Position held since 2010)
|
|
Vice President of the Fund from 2007 to 2010; Chief Administrative Officer and Treasurer of the Fund from 2008 to 2010; Managing Director, J.P. Morgan Investment Management Inc. and Chief
Administrative Officer, J.P. Morgan Funds and Institutional Pooled Vehicles since 2010; previously, Head of Funds Administration and Board Liaison, J.P. Morgan Funds prior to 2010. Ms. Maleski has been with JPMorgan Chase & Co.
since 2001.
|
|
|
Joy C. Dowd (1972),
Treasurer and Principal
Financial Officer
(Position held since 2010)
|
|
Assistant Treasurer of the Fund from 2009 to 2010; Executive Director, JPMorgan Funds Management, Inc. from February 2011; Vice President, JPMorgan Funds Management, Inc. from December 2008
to February 2011; prior to joining JPMorgan Chase, Ms. Dowd worked in MetLifes investments audit group from 2005 through 2008.
|
|
|
Frank J. Nasta (1964),
Secretary
(Position held since 2009)
|
|
Managing Director and Associate General Counsel, JPMorgan Chase since 2008; Previously, Director, Managing Director, General Counsel and Corporate Secretary, J. & W. Seligman & Co.
Incorporated; Secretary of each of the investment companies of the Seligman Group of Funds and Seligman Data Corp.; Director and Corporate Secretary, Seligman Advisors, Inc. and Seligman Services, Inc.
|
|
|
Stephen M. Ungerman (1953),
Chief Compliance
Officer
(Position held since 2008)
|
|
Managing Director, JPMorgan Chase & Co.; Mr. Ungerman has been with JPMorgan Chase & Co. since 2000.
|
The
|
|
contact address for each of the officers is 270 Park Avenue, New York, NY 10017.
|
45
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Board Approval of
Investment Advisory Agreement
The Board of Directors meets regularly throughout the year and considers factors that are relevant to its annual consideration of investment advisory agreements at
each meeting. The Board of Directors has established various standing committees, composed of Directors with diverse backgrounds, to which the Board of Directors has assigned specific subject matter responsibilities to further enhance the
effectiveness of the Boards oversight and decision making. The Board of Directors and its investment subcommittees (money market and alternative products, equity, and fixed income) also meet for the specific purpose of considering advisory
contract annual renewals. The Board of Directors held meetings in person in June and August 2012, at which the Directors considered the continuation of the investment advisory agreement for the Fund whose annual report is contained herein (the
Advisory Agreement). At the June meeting, the Boards investment subcommittees met to review and consider performance, expense and related information for the Fund and other J.P. Morgan Funds. Each investment subcommittee reported
to the full Board, which then considered the investment subcommittees preliminary findings. At the August meeting, the Directors continued their review and consideration. The Directors, including a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of any party to the Advisory Agreement or any of their affiliates, approved the continuation of the Advisory Agreement on August 23, 2012.
The Directors, as part of their review of the investment advisory arrangements for the
J.P. Morgan Funds, considered and reviewed performance and other information received from the Advisor on a regular basis over the course of the year, as well as information specifically prepared for their annual review. This information included
the Funds performance compared to the performance of the Funds peers and benchmarks and analyses by the Advisor of the Funds performance. In addition, the Directors have engaged an independent consultant to report on performance of
certain J.P. Morgan Funds at each of the Directors regular meetings. The Advisor also periodically provides comparative information regarding the Funds expense ratios and those of the peer groups. In addition, in preparation for the June
and August meetings, the Directors requested, received and evaluated extensive materials from the Advisor, including, with respect to the Fund, performance and expense information compiled by Lipper Inc. (Lipper), an independent provider
of investment company data. Prior to voting, the Directors reviewed the proposed approval of the Advisory Agreement with representatives of the Advisor and with counsels to the Fund and independent Directors and received a memorandum from
independent counsel to the Directors discussing the legal standards for their consideration of the proposed approval. The Directors also discussed the proposed approvals in executive sessions with counsels to the Fund and independent Directors at
which no representatives of the Advisor were present. Set forth below is a summary of the material factors evaluated by the Directors in determining whether to approve the Advisory Agreement.
In their deliberations, there was a comprehensive consideration of the information received by the Directors. Each Director attributed
different weights to the various factors and no factor alone was considered determinative. From year to year, the Directors consider and place emphasis on relevant information in light of changing circumstances in market and economic conditions. The
Directors determined that the compensation to be received by the Advisor from the Fund under the Advisory Agreement was fair and reasonable and that the continuance of the investment advisory contract was in the best interests of the Fund and its
shareholders.
The factors summarized below were considered and discussed by
the Directors in reaching their conclusions:
Nature,
Extent and Quality of Services Provided by the Advisor
The Directors
received and considered information regarding the nature, extent and quality of the services provided to the Fund under the Advisory Agreement. The Directors took into account information furnished throughout the year at Board meetings, as well as
the materials furnished specifically in connection with this annual review process. The Directors considered the background and experience of the Advisors senior management and the expertise of, and the amount of attention given to the Fund
by, investment personnel of the Advisor. In addition, the Directors reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund and the infrastructure
supporting the team. The Directors also reviewed information relating to the Advisors risk governance model and reports showing the Advisors compliance structure and ongoing compliance processes. The quality of the administrative
services provided by JPMorgan Funds Management, Inc. (JPMFM), an affiliate of the Advisor, was also considered.
The Board of Directors also considered its knowledge of the nature and quality of the services provided by the Advisor to the Fund gained from their experience as
Trustees of the J.P. Morgan Funds. In addition, they considered the overall reputation and capabilities of the Advisor and its affiliates, the commitment of the Advisor to provide high quality service to the Fund, their overall confidence in the
Advisors integrity and the Advisors responsiveness to questions or concerns raised by them, including the Advisors willingness to consider and implement organizational and operational changes designed to improve investment results
and the services provided to the Fund.
46
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Board Approval of Investment Advisory Agreement
(continued)
Based on these considerations and other factors, the Directors concluded that they were
satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by the Advisor.
Costs of Services Provided and Profitability to the Advisor and its Affiliates
The Directors received and considered information regarding the profitability to the Advisor and its affiliates in providing services to
the Fund. The Directors reviewed and discussed this data. The Directors recognized that this data is not audited and represents the Advisors determination of its and its affiliates revenues from the contractual services provided to the
Fund, less expenses of providing such services. Expenses include direct and indirect costs and are calculated using an allocation methodology developed by the Advisor. The Directors also recognized that it is difficult to make comparisons of
profitability from fund investment advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its
business mix, numerous assumptions regarding allocations and the fact that publicly-traded fund managers operating profits and net income are net of distribution and marketing expenses. Based on their review, the Directors concluded that the
profitability to the Advisor under the Advisory Agreement was not unreasonable in light of the services and benefits provided to the Fund.
Fall-Out Benefits
The Directors reviewed information regarding potential fallout or ancillary benefits received by the Advisor and its affiliates as a result of their
relationship with the Fund. The Directors also considered that JPMFM, an affiliate of the Advisor, earns fees from the Fund for providing administrative services. These fees were shown separately in the profitability analysis presented to the
Directors. The Directors also considered the fees paid to JPMorgan Chase Bank, N.A. (JPMCB) for custody and fund accounting, and other related services.
Economies of Scale
The Directors also considered possible economies of scale. The Directors noted that
the proposed investment advisory fee schedule does not contain breakpoints. Further, the Directors noted that although closed-end funds may from time-to-time make additional share offerings, the growth of their assets will occur primarily through
the appreciation of a funds investment portfolio. The Directors found that, based upon the size of the Fund, breakpoints were not warranted for the Fund. The Directors also considered managements investment in the business and that
certain fees are negotiated on a complex-wide basis, permitting the Fund to share in the scale of the organization.
In light of the foregoing and under the circumstances, the Board concluded that there was an acceptable sharing of any economies of scale at the present time.
Independent Written Evaluation of the Funds Chief Compliance
Officer
The Directors noted that, upon their direction, the Chief
Compliance Officer for the Fund had prepared an independent written evaluation in order to assist the Directors in determining the reasonableness of the proposed management fees. The Directors considered the written evaluation in determining whether
to continue the Advisory Agreement.
Fees Relative to
Advisors Other Clients
The Directors received and considered
information about the nature and extent of investment advisory services and fee rates offered to other clients of the Advisor for investment management styles substantially similar to that of the Fund. The Directors also considered the complexity of
investment management for the Fund relative to the Advisors other clients and the differences in the nature and extent of the services provided to the different clients. The Directors concluded that the fee rates charged to the Fund in
comparison to those charged to the Advisors other clients were reasonable.
Investment Performance
The Directors received and considered absolute and/or relative performance for the Fund in a report prepared by Lipper. The Directors considered the total return performance information, which included the ranking
of the Fund within a performance universe made up of funds with the same Lipper investment classification and objective (the Universe Group) by total return for applicable one-, three- and five-year periods. The Directors reviewed a
description of Lippers methodology for selecting closed end funds in the Funds Universe Group. As part of this review, the Directors also reviewed the Funds performance against its benchmark and considered the performance
information provided for the Fund at regular Board meetings by the Advisor. The Lipper performance data noted by the Directors as part of their review and the determinations made by the Directors with respect to the Fund are summarized below:
The Directors noted that the Funds performance was in the fifth
quintile for the one-year period and in the first quintile for each of the three-, five- and ten- year periods ended December 31, 2011. The Directors discussed the performance and investment strategy of the Fund with the Advisor and, based upon this
discussion and various other factors, concluded that the performance was reasonable.
47
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Board Approval of Investment Advisory Agreement
(concluded)
Advisory Fees and Total Expense
The Directors considered the contractual advisory fee rate paid by the Fund to the
Advisor and compared that rate to the information prepared by Lipper concerning management fee rates paid by other funds in the same Lipper category as the Fund. The Directors recognized that Lipper reported the Funds management fee rate as
the combined contractual advisory fee and administration fee rates. The Directors also reviewed information about other expenses and the expense ratios for the Fund. The Directors considered the fee waiver and/or expense reimbursement arrangements
currently in place for the Fund and considered the net advisory fee rate after taking into account any waivers and/or reimbursements. The Directors recognized that it is difficult to make comparisons of advisory fees because there are variations in
the services that are included in the fees paid by other funds. The Directors determinations as a result of the review of the Funds advisory fees and expense ratios are summarized below:
The Directors noted that the Funds net advisory fee and actual total expenses
were in the fifth quintile of the Universe Group. The Board also found that the Performance Fee was effective to align the Advisers interests with the interests of Fund shareholders, and to provide a level of compensation tied to investment
performance. After considering the factors identified above, in light of this information, the Directors concluded that the advisory fee was reasonable
48
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Supplemental
Information (Unaudited)
Portfolio Holdings Information
No sooner than 10 days after the end of each month, the Funds uncertified complete schedule of its portfolio holdings as well as certain other fund facts and
statistical information will be available on our website (www.pacholder.com). In addition, the Fund files its certified, complete schedule of its portfolio holdings with the U.S. Securities and Exchange Commission (SEC) for the first and
third quarters of each fiscal year on Form N-Q. The Funds Form N-Qs are available, without charge, on the SECs website at www.sec.gov. The Funds Form N-Qs may be reviewed and copied at the SECs Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
No sooner than 10 calendar days after the end of each month, the Funds top 10 holdings as of the last day of each month as well as certain other fund facts
and statistical information will also be available on the Funds website.
Statement of Additional Information
The Fund does not make available copies of its Statement of Additional Information because the Funds shares are not continuously offered, which means that the Statement of Additional Information has not been
updated after completion of the Funds offerings and the information contained therein may have become outdated.
Proxy Voting
A description of the policies and procedures used by the Fund to vote proxies relating to portfolio securities, as well as information regarding how the Fund voted
proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, on the Funds website at www.phf-hy.com and (ii) on the SECs website at www.sec.gov.
Dividend Reinvestment Plan
The Funds Dividend Reinvestment Plan (the Plan) offers Common
Stockholders (Shareholders) a convenient way to invest their income dividends and capital gain distributions in additional shares of the Funds common stock.
Shareholders who participate in the Plan will have all income dividends and capital
gain distributions automatically reinvested by Computershare Investor Services LLC (the Plan Agent) pursuant to the Plan. When a dividend is declared, Shareholders who do not participate in the Plan will receive all distributions in
cash, paid by check, mailed directly to the Shareholder of record (or if the shares are held in street name or nominee name, then to the nominee) by the Plan Agent, which serves as agent for the Shareholders in administering the Plan. Shareholders
who participate in the Plan will receive the equivalent in shares of the Fund valued at the lower of market price or net asset valued as described below. (i) If the shares are trading at net asset value or at a premium above net asset value on
the payment date, the Fund will issue new shares at the greater of net asset value or 95% of the current market price. (ii) If the shares are trading at a discount from net asset value on payment date, the Plan Agent will receive the dividend
or distribution in cash and apply it to the purchase of the Funds shares in the open market, on the NYSE Amex or elsewhere, for the participants accounts. If before the Plan Agent has completed its purchases, the market price exceeds the
net asset value per share, the average purchase price per share paid by the Plan Agent may exceed the exceed the net asset value of the Funds shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund. If the purchases have not been made prior to 30 days after the payment date, the Plan Agent may receive the uninvested portion in newly issued shares.
The Plan Agents fees for handling the reinvestment of Dividends will be paid by the Fund. There will be no brokerage charge to
Shareholders for shares issued directly by the Fund as a result of dividends or distributions payable either in stock or cash. Each Shareholder who participates in the Plan, however will pay pro rate share of brokerage commissions incurred with
respect to the Plan Agents open-market-purchases in connection with the reinvestment of dividends or distributions.
The automatic reinvestment of income dividends and capital gain distributions will not relieve a Shareholder of any federal, state or local income tax that may be
payable on such dividends. Therefore, income and capital gains may still be realized even though Shareholders do not receive cash.
A Shareholder may terminate his/her account under the Plan by notifying the Plan Agent in writing. Upon termination, a shareholder can either receive a certificate
for the number of full shares held in the Plan and a check for fractional shares or have shares sold by the Plan Agent and the proceeds sent to the shareholder, less a transaction fee of $15 plus $0.07 per share.
The Fund reserves the right to amend or terminate the Plan. All correspondence
concerning the Plan should be directed to the Plan Agent at Computershare Trust Company, N.A. Dividend Reinvestment Services, P.O. Box A3309, Chicago, IL 60690-3309, by calling 888-294-8217 or www.computershare.com.
49
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[THIS PAGE INTENTIONALLY LEFT BLANK]
Rev. January 2011
|
|
|
FACTS
|
|
WHAT DOES PACHOLDER HIGH YIELD FUND, INC. 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 depend on the product or service you have with us. This information can include:
n
Social Security number and account balances
n
transaction history and account transactions
n
checking account information and wire transfer instructions
When you are
no longer
our customer, we continue to share your information as described in this notice.
|
|
|
|
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 Pacholder High Yield Fund, Inc. chooses to share; and whether you can limit
this sharing.
|
|
|
|
|
|
Reasons we can share your personal information
|
|
Does Pacholder
High Yield Fund,
Inc. 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 and legal investigations, or report to credit
bureaus
|
|
Yes
|
|
No
|
For marketing purposes
to offer our products and services to you
|
|
Yes
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No
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For joint marketing with other financial companies
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No
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We dont share
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For our affiliates everyday
business purposes
information about your transactions and experiences
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|
No
|
|
We dont share
|
For our affiliates everyday
business purposes
information about your creditworthiness
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No
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We dont share
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For nonaffiliates to market to you
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No
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We dont share
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Questions?
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Call 1-877-217-9502 or go to www.pacholder.com
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Who we are
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Who is providing this notice?
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Pacholder High Yield Fund, Inc.
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What we do
|
How does Pacholder High Yield Fund, Inc. protect my
personal information?
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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. We authorize our employees to access your information only when they need it to do their work and we require companies that work for us to
protect your information.
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How does Pacholder High Yield Fund, Inc. collect my
personal information?
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We collect your personal information, for example,
when you:
n
open an account or provide account information
n
give us your account information or pay us by check
n
make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates and other companies.
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Why cant I limit all sharing?
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Federal law gives you the right to limit
only
n
sharing for affiliates everyday business purposes information about your
creditworthiness
n
affiliates from using your information to market to you
n
sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit
sharing.
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Definitions
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Affiliates
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Companies related by common ownership or control.
They can be financial and nonfinancial companies.
n
Pacholder High Yield Fund,
Inc. does not share with our affiliates.
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Nonaffiliates
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Companies not related by common ownership or
control. They can be financial and nonfinancial companies.
n
Pacholder High Yield Fund,
Inc. does not share with nonaffiliates so they can market to you.
|
Joint Marketing
|
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A formal agreement between nonaffiliated financial
companies that together market financial products or services to you.
n
Pacholder High Yield Fund,
Inc. doesnt jointly market.
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