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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05639

 

 

Pacholder High Yield Fund, Inc.

(Exact name of registrant as specified in charter)

 

 

270 Park Avenue

New York, NY 10017

(Address of principal executive offices) (Zip code)

 

 

Frank J. Nasta

270 Park Avenue

New York, NY 10017

(Name and Address of Agent for Service)

 

 

Registrant’s telephone number, including area code: (877) 217-9502

Date of fiscal year end: December 31

Date of reporting period: January 1, 2012 through December 31, 2012

 

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507.

 

 

 


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ITEM 1. REPORTS TO STOCKHOLDERS.

The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).


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P ACHOLDER H IGH Y IELD F UND, I NC.

 

 

Directors and Officers

 

John F. Finn

Director

 

Dr. Matthew Goldstein

Director

 

Robert J. Higgins

Director

 

Frankie D. Hughes

Director

 

Peter C. Marshall

Director

 

Mary E. Martinez

Director

 

Marilyn McCoy

Director

 

Mitchell M. Merin

Director

 

William G. Morton, Jr.

Director

 

Dr. Robert A. Oden, Jr.

Director

 

Marian U. Pardo

Director

 

Frederick W. Ruebeck

Director

 

James J. Schonbachler

Director

 

Patricia A. Maleski

President and Principal Executive Officer

 

Joy C. Dowd

Treasurer and Principal Financial Officer

 

Frank J. Nasta

Secretary

 

Stephen M. Ungerman

Chief Compliance Officer

 

Investment Objective

A closed-end fund seeking a high level of total return through current income and capital appreciation by investing primarily in high-yield, fixed income securities of domestic companies.

 

Investment Advisor

J.P. Morgan Investment Management Inc.

 

Administrator

JPMorgan Funds Management, Inc.

 

Custodian

JPMorgan Chase Bank, N.A.

 

Transfer Agent

Computershare Trust Company, N.A.

 

Legal Counsel

Dechert LLP

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

 

Independent Directors’ Counsel

Kramer Levin Naftalis & Frankel LLP

 

Executive Offices

Pacholder High Yield Fund, Inc.

270 Park Avenue

New York, NY 10017

 

Shareholder Services

(877) 217-9502

 

Please visit our web site, www.pacholder.com , for information on the Fund’s net asset value, share price, news releases, and Securities and Exchange Commission filings. We created this site to provide stockholders quick and easy access to the most timely information available regarding the Fund.

 

This report is for the information of stockholders of Pacholder High Yield Fund, Inc. It is not a prospectus, offering circular or other representation intended for use in connection with the purchase or sale of shares of the Fund or any securities mentioned in this report.

 

P ACHOLDER H IGH Y IELD F UND , I NC .

 

A NNUAL R EPORT

DECEMBER 31, 2012


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CONTENTS

 

Letter to Shareholders

     1   

Schedule of Portfolio Investments

     3   

Financial Statements

     27   

Financial Highlights

     29   

Notes to Financial Statements

     30   

Report of Independent Registered Public Accounting Firm

     40   

Tax Letter

     41   

Directors

     42   

Officers

     45   

Board Approval of Investment Advisory Agreement

     46   

Supplemental Information

     49   

Privacy Policy — Located at the back of this annual report

  

 

Investments in the Fund are not bank deposits or obligations of, or guaranteed or endorsed by, any bank and are not insured or guaranteed by the FDIC, the Federal Reserve Board or any other government agency. You could lose money if you sell when the Fund’s share price is lower than when you invested.

 

Past performance is no guarantee of future performance. The general market views expressed in this report are opinions based on market and other conditions through the end of the reporting period and are subject to change without notice. These views are not intended to predict the future performance of the Fund or the securities markets. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Such views are not meant as investment advice and may not be relied on as an indication of trading intent on behalf of the Fund.


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P ACHOLDER H IGH Y IELD F UND, I NC.

 

 

Dear Shareholders:

 

2012 Review

 

Early in the year, investors’ sentiment was buoyed by improving economic data, as durable goods consumption, equipment and software spending and vehicle sales showed positive trends. However, the debt crisis in Europe continued to be a major source of uncertainty in capital markets and fears of economic contagion triggered a decline in stock prices in the second quarter of 2012 and flight to U.S. Treasury securities. The European Central Bank reacted by announcing its plan to purchase 1-3 year bonds issued by the governments of troubled European countries, which quelled investors’ concerns and helped ignite a rally in stocks. The U.S. Federal Reserve also maintained its commitment to accommodative policies. The U.S. Federal Open Market Committee extended its $400 billion “Operation Twist” program through the end of 2012 and, in September, announced another asset purchase plan, indicating that it would buy $40 billion of agency mortgage-backed securities per month on an open-ended basis. Investors were also encouraged by improving economic data as the U.S. housing and labor markets showed signs of recovery. However, late in the reporting period, uncertainty surrounding the “fiscal cliff” dampened investors’ appetite for risk but high yield bonds still finished the reporting period with strong gains.

 

For twelve months ended December 31, 2012, the Pacholder High Yield Fund, Inc. (the “Fund”) returned 19.93% based on net asset value (“NAV”) compared to the 14.76% return for the Credit Suisse High Yield Index, Developed Countries Only (the “Index”) and the 19.76% average total return of the Morningstar Closed-End High Yield Category.

 

The Fund’s relative outperformance versus the Index for the reporting period was due in large part to security selection in the energy, financial, housing, media/telecom and transportation sectors. This was partially offset by negative security selection in the forest products & containers and healthcare sectors.

 

Fund Strategy

 

The Fund continued to use a credit bar bell investment strategy. To implement this strategy, the Fund invested a portion of its assets in relatively liquid high yield securities that demonstrated improving fundamentals, and took targeted credit risk when the Fund’s portfolio managers’ analysis indicated a favorable risk/reward opportunity. This targeted credit risk included investments in performing and non-performing bonds and loan assignments of firms that were trading at distressed levels or emerging from an administrative re-organization.

 

Auction Rate Preferred Shares and Dividends

 

Since February 2008, most auctions for preferred shares of closed-end funds and auction rate securities of other issuers have failed. The weekly auctions for the Fund’s ARPS have failed since February 13, 2008. Since that time, a number of broker-dealers have repurchased auction rate securities from certain clients. Any action taken by the Fund to provide liquidity to the ARPS must be in the best interest of the Fund as a whole.

 

On July 12, 2012, due to changes to its rating methodology for securities issued by Closed-End Funds, Moody’s downgraded the Fund’s ARPS from Aaa to Aa3. There was no impact to the Fund’s performance and no change to its investment strategy as a result of this downgrade.

 

From January 2012 thru December 2012, the Fund paid a monthly dividend of $0.07 per common share. 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. The Board of Directors will continue to monitor the appropriateness of the dividend level going forward in light of market conditions and income earned by the Fund over time. The amount of the monthly dividend, if any, may be more or less than the actual income earned by the Fund in a given month.

 

As always, we appreciate your interest in the Fund and look forward to your continued support.

 

Sincerely,

 

LOGO

George C.W. Gatch

CEO-Global Funds Management

J.P. Morgan Asset Management

 

The performance quoted is past performance and is not a guarantee of future results. Closed-end funds are subject to certain market risks. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data shown.

 

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.

 

 

 

1


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P ACHOLDER H IGH Y IELD F UND, I NC.

 

(Unaudited)

 

 

Securities rated below investment grade are called “high-yield bonds,” “non-investment grade bonds,” “below investment-grade bonds,” or “junk bonds.” They generally are rated in the fifth or lower rating categories of Standard & Poor’s and Moody’s Investors Service. Although these securities tend to provide higher yields than higher rated securities, there is a greater risk that the Fund’s share value will decline. Because this Fund primarily invests in bonds, it is subject to interest rate risks. Bond prices generally fall when interest rates rise.

 

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting and legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

 

Availability of Portfolio Holdings and Other Information

 

No sooner than 10 days after the end of each month, the Fund’s uncertified complete schedule of its portfolio holdings 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 Fund’s Form N-Qs are available, without charge, on the SEC’s website at www.sec.gov. The Fund’s Form N-Qs may be reviewed and copied at the SEC’s 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 Fund’s top ten holdings as of the last day of each month as well as certain other fund facts including estimated undistributed net income and statistical information will also be available on the Fund’s website.

 

 

LOGO

 

Total Return *

  Net Asset Value
(NAV)
    Market
Price
 

1 Year

    19.93 %**      9.02

5 Year

    10.56     14.08

10 Year

    15.94     15.50
 

 

 

   

 

 

 

Price per share at December 31, 2012

  $ 8.57      $ 8.87   
 

 

 

   

 

 

 

 

*   Total returns assume the reinvestment of all dividends and capital gains, if any. Total returns shown are average annual returns unless otherwise noted.
**   The return shown is based on net asset value which reflects adjustments made to the net asset value in accordance with accounting principles generally accepted in the United States of America.

 

 

 

2


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P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

CONVERTIBLE BONDS — 0.1%

  

CONSUMER DISCRETIONARY — 0.1%

  

HOTELS, RESTAURANTS & LEISURE — 0.1%

  

Real Mex Restaurants, Inc., PIK, 1.120%, 03/21/18 9

  $ 77      $ 76,923        0.1
   

 

 

   

 

 

 

MATERIALS — 0.0% 12

  

CONSTRUCTION MATERIALS — 0.0% 12

  

U.S. Concrete, Inc., Private Placement, Sec’d Nt, 9.500%, 08/31/15 2,7

    46        57,500        0.0 12  
   

 

 

   

 

 

 

Total Convertible Bonds

     

(Cost $122,923)

      134,423        0.1   
   

 

 

   

 

 

 

CORPORATE BONDS — 115.3%

  

CONSUMER DISCRETIONARY — 25.6%

  

AUTO COMPONENTS — 1.0%

  

Goodyear Tire & Rubber Co. (The), Co Guar, 7.000%, 05/15/22 10

    815        874,087        0.8  

UCI International, Inc., Co Guar, 8.625%, 02/15/19

    250        247,813        0.2  
   

 

 

   

 

 

 
      1,121,900        1.0   

AUTOMOBILES — 2.0%

  

Chrysler Group LLC/CG Co-Issuer, Inc., Sec’d Nt,

     

8.000%, 06/15/19

    200        218,000        0.2  

8.250%, 06/15/21 10

    600        660,000        0.6  

Ford Holdings LLC, 9.300%, 03/01/30

    237        325,579        0.3  

Ford Motor Co.,

     

7.750%, 06/15/43

    750        856,875        0.8  

8.900%, 01/15/32

    125        165,312        0.1  

Motors Liquidation Co.,

     

5.250%, 03/06/32 9

    25 Units        3        0.0 12  

6.250%, 07/15/33 9

    15 Units        1        0.0 12  

7.250%, 04/15/41 9

    —Units 11        —          0.0  

7.250%, 07/15/41 9

    —Units 11        —          0.0  

7.250%, 02/15/52 9

    7 Units        1        0.0 12  

7.375%, 05/15/48 9

    10 Units        1        0.0 12  

7.375%, 10/01/51 9

    —Units 11        —          0.0  

7.750%, 03/15/36 1,4,9

    55 Units        —          0.0  

Motors Liquidation Co., Debentures,

     

6.750%, 05/01/28 1,4,9

    50        —          0.0  

8.100%, 06/15/24 1,4,9

    1,725        2        0.0 12  

8.375%, 07/15/33 1,4,9

    425        —          0.0  
   

 

 

   

 

 

 
      2,225,774        2.0   
     

BROADCASTING & CABLE TV — 2.9%

  

Adelphia Communications Corp., Pfd, 6.000%, 02/15/06 1,4

  $ 125      $ —          0.0

Adelphia Communications Corp., Sr Nt,

     

8.125%, 07/15/03 1,4

    750        4,875        0.0 12  

9.375%, 11/15/09 1,4

    560        3,640        0.0 12  

CCO Holdings LLC/CCO Holdings Capital Corp., 7.000%, 01/15/19

    233        251,349        0.2  

CCO Holdings LLC/CCO Holdings Capital Corp., Co Guar,

     

5.125%, 02/15/23

    43        42,892        0.0 12  

6.625%, 01/31/22

    58        63,365        0.1  

8.125%, 04/30/20

    450        504,000        0.5  

Cequel Communications Holdings I LLC and Cequel Capital Corp., Private Placement, Sr Nt, 8.625%, 11/15/17 2

    401        429,070        0.4  

Cequel Communications Holdings I LLC/Cequel Capital Corp., Private Placement, Sr Unsec’d Nt, 6.375%, 09/15/20 2

    119        123,909        0.1  

CSC Holdings LLC, Private Placement, Sr Unsec’d, 6.750%, 11/15/21 2

    100        110,875        0.1  

DISH DBS Corp., Co Guar, 4.625%, 07/15/17

    17        17,722        0.0 12  

DISH DBS Corp., Private Placement, Sr Unsec’d Nt, 5.000%, 03/15/23 2

    217        217,000        0.2  

DISH DBS Corp., Sr Nt, Co Guar,

     

6.750%, 06/01/21 10

    465        530,100        0.5  

7.875%, 09/01/19

    110        130,350        0.1  

Harron Communications LP/Harron Finance Corp., Private Placement, Sr Nt, 9.125%, 04/01/20 2

    210        229,950        0.2  

Mediacom Broadband LLC/Mediacom Broadband Corp., Private Placement, Sr Nt, 6.375%, 04/01/23 2

    25        25,438        0.0 12  

Mediacom LLC/Mediacom Capital Corp., 9.125%, 08/15/19

    245        271,338        0.2  

Mediacom LLC/Mediacom Capital Corp., Sr Unsec’d,
7.250%, 02/15/22

    75        80,625        0.1  

Virgin Media Finance plc, (United Kingdom), 8.375%, 10/15/19

    151        171,385        0.2  
   

 

 

   

 

 

 
      3,207,883        2.9   

 

 

 

3


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P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

DIVERSIFIED CONSUMER SERVICES — 0.1%

  

Service Corp. International, Sr Unsec’d Nt, 4.500%, 11/15/20

  $ 150      $ 152,625        0.1
   

 

 

   

 

 

 

GAMING — 4.2%

  

American Casino & Entertainment Properties LLC, Sr Sec’d Nt,
11.000%, 06/15/14

    100        102,750        0.1  

Ameristar Casinos, Inc., Nt, Co Guar, 7.500%, 04/15/21

    180        195,075        0.2  

Boyd Acquisition Sub LLC/Boyd Acquisition Finance Corp., Private Placement, Co Guar, 8.375%, 02/15/18 2

    58        60,320        0.1  

Chukchansi Economic Development Authority, Private Placement, Sec’d Nt, 9.750%, 05/30/20 2,9

    724        428,773        0.4  

CityCenter Holdings LLC/CityCenter Finance Corp., Sec’d Nt, PIK,
11.500%, 01/15/17

    244        264,674        0.2  

Downstream Development Authority of the Quapaw Tribe of Oklahoma, Private Placement, Sr Sec’d Nt,
10.500%, 07/01/19 2

    225        243,000        0.2  

Graton Economic Development Authority, Private Placement, Sr Sec’d, 9.625%, 09/01/19 2

    115        123,194        0.1  

Isle of Capri Casinos, Inc., Sr Nt, Co Guar, 7.750%, 03/15/19 10

    260        280,150        0.2  

MCE Finance Ltd., Sr Sec’d Nt, (Cayman Islands),
10.250%, 05/15/18

    175        198,712        0.2  

MGM Resorts International, Co Guar,

     

7.625%, 01/15/17

    101        108,070        0.1  

7.750%, 03/15/22

    54        57,780        0.1  

10.000%, 11/01/16 10

    1,000        1,157,500        1.0  

MGM Resorts International, Private Placement, Co Guar,

     

6.750%, 10/01/20 2

    100        102,125        0.1  

8.625%, 02/01/19 2

    85        94,775        0.1  

Pinnacle Entertainment, Inc., 8.750%, 05/15/20

    95        102,600        0.1  

Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., Private Placement, Sr Sec’d, 9.500%, 06/15/19 2

    50        54,250        0.0 12  
     

GAMING (continued)

  

ROC Finance LLC/ROC Finance 1 Corp., Private Placement, Sec’d Nt,
12.125%, 09/01/18 2

  $ 180      $ 207,900        0.2

Seminole Hard Rock Entertainment, Inc., Private Placement, VAR,
2.808%, 03/15/14 2

    500        496,250        0.4  

Seneca Gaming Corp., Private Placement, 8.250%, 12/01/18 2

    210        221,550        0.2  

Shingle Springs Tribal Gaming Authority, Private Placement, Sr Nt,
9.375%, 06/15/15 2,10

    125        121,875        0.1  

Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp., Private Placement, Sec’d Nt, 8.625%, 04/15/16 2

    100        107,250        0.1  
   

 

 

   

 

 

 
      4,728,573        4.2   

HOTELS, RESTAURANTS & LEISURE — 1.2%

  

Burger King Corp., Sr Nt, Co Guar, 9.875%, 10/15/18

    50        57,250        0.0 12  

Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp., Co Guar, 9.125%, 08/01/18

    100        112,500        0.1  

Cinemark USA, Inc., Private Placement, Co Guar, 5.125%, 12/15/22 2

    75        75,938        0.1  

Cinemark USA, Inc., Sr Nt, Co Guar, 8.625%, 06/15/19

    185        204,887        0.2  

CKE Restaurants, Inc., Sr Sec’d Nt, 11.375%, 07/15/18

    209        240,350        0.2  

DineEquity, Inc., Sr Nt, Co Guar,
9.500%, 10/30/18

    90        102,263        0.1  

Real Mex Restaurants, Inc.,

     

11.000%, 03/15/14 9

    92        91,761        0.1  

PIK, 12.000%, 03/15/14 9

    152        151,856        0.1  

Ruby Tuesday, Inc., Private Placement, Co Guar, 7.625%, 05/15/20 2

    79        75,445        0.1  

Six Flags Entertainment Corp., Private Placement, Co Guar, 5.250%, 01/15/21 2

    185        185,000        0.2  

Viking Cruises Ltd., Private Placement, Sr Nt, (Bermuda), 8.500%, 10/15/22 2

    52        56,160        0.0 12  
   

 

 

   

 

 

 
      1,353,410        1.2   

 

 

 

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P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

HOUSEHOLD DURABLES — 2.8%

  

American Standard Americas, Private Placement, 10.750%, 01/15/16 2

  $ 100      $ 98,000        0.1

Brookfield Residential Properties, Inc., Private Placement, Co Guar, (Canada), 6.500%, 12/15/20 2

    112        114,800        0.1  

DR Horton, Inc., Co Guar, 4.375%, 09/15/22

    59        60,180        0.1  

K Hovnanian Enterprises, Inc., Co Guar, 11.875%, 10/15/15

    110        118,800        0.1  

K Hovnanian Enterprises, Inc., Private Placement, Sec’d Nt, 9.125%, 11/15/20 2

    47        49,820        0.1  

K Hovnanian Enterprises, Inc., Private Placement, Sr Sec’d Nt, 7.250%, 10/15/20 2

    128        137,600        0.1  

KB Home, Co Guar, 7.500%, 09/15/22

    245        267,050        0.2  

Lennar Corp., Nt, Co Guar, 12.250%, 06/01/17

    200        268,500        0.2  

Lennar Corp., Private Placement, Co Guar, 4.750%, 12/15/17 2

    60        62,100        0.1  

Lennar Corp., Sr Nt, 6.950%, 06/01/18

    190        212,325        0.2  

Libbey Glass, Inc., Sr Sec’d Nt, 6.875%, 05/15/20

    81        87,075        0.1  

M/I Homes, Inc., Co Guar, 8.625%, 11/15/18

    300        330,000        0.3  

Mattamy Group Corp., Private Placement, Sr Unsec’d Nt, (Canada), 6.500%, 11/15/20 2

    169        169,422        0.2  

Meritage Homes Corp., Co Guar, 7.000%, 04/01/22

    102        110,925        0.1  

Meritage Homes Corp., Sr Nt, Co Guar, 7.150%, 04/15/20

    150        164,250        0.2  

Serta Simmons Holdings LLC, Private Placement, Sr Nt,
8.125%, 10/01/20 2

    45        45,000        0.0 12  

Standard Pacific Corp., Sec’d Nt, 8.375%, 05/15/18

    270        313,200        0.3  

Standard Pacific Corp., Sr Nt, 10.750%, 09/15/16

    29        36,033        0.0 12  

Standard Pacific Corp., Sr Nt, Co Guar, 8.375%, 01/15/21

    135        156,600        0.1  

Taylor Morrison Communities, Inc./Monarch Communities, Inc., Private Placement, Co Guar,

     

7.750%, 04/15/20 2

    135        143,100        0.1  
     

HOUSEHOLD DURABLES (continued)

  

Toll Brothers Finance Corp., Co Guar, 5.875%, 02/15/22

  $ 118      $ 133,852        0.1 %
   

 

 

   

 

 

 
      3,078,632        2.8   

LEISURE EQUIPMENT & PRODUCTS — 0.3%

  

FGI Operating Co. LLC/FGI Finance, Inc., Private Placement, Sec’d, 7.875%, 05/01/20 2

    107        110,210        0.1   

Icon Health & Fitness, Private Placement, 11.875%, 10/15/16 2

    225        210,375        0.2  
   

 

 

   

 

 

 
      320,585        0.3   

MEDIA — 7.4%

  

Cablevision Systems Corp., 8.000%, 04/15/20 10

    470        529,337        0.5  

Cablevision Systems Corp., Sr Unsec’d Nt, 5.875%, 09/15/22

    105        105,131        0.1  

Clear Channel Communications, Inc., Private Placement, Sr Sec’d Nt, 9.000%, 12/15/19 2

    111        101,565        0.1  

Clear Channel Communications, Inc., Sr Sec’d Nt, 9.000%, 03/01/21

    275        245,437        0.2  

Clear Channel Worldwide Holdings, Inc., Co Guar,

     

7.625%, 03/15/20

    475        478,563        0.5  

7.625%, 03/15/20

    25        24,937        0.0 12  

Clear Channel Worldwide Holdings, Inc., Private Placement, Co Guar,

     

6.500%, 11/15/22 2

    135        138,712        0.1  

6.500%, 11/15/22 2

    365        378,688        0.4  

Gray Television, Inc., Private Placement, Co Guar, 7.500%, 10/01/20 2

    160        163,600        0.1  

Hughes Satellite Systems Corp., Sr Nt, Co Guar, 7.625%, 06/15/21

    85        96,688        0.1  

Intelsat Jackson Holdings S.A., Co Guar, (Luxembourg),

     

7.500%, 04/01/21

    150        165,375        0.1  

8.500%, 11/01/19

    350        392,000        0.4  

Intelsat Jackson Holdings S.A., Nt, Co Guar, (Luxembourg), 7.250%, 04/01/19

    200        215,000        0.2  

Intelsat Jackson Holdings S.A., Private Placement, Co Guar, (Luxembourg), 7.250%, 10/15/20 2

    225        244,125        0.2  

 

 

 

5


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

MEDIA (continued)

  

Intelsat Jackson Holdings S.A., Sr Nt, Co Guar, (Luxembourg), 7.250%, 10/15/20

  $ 150      $ 163,125        0.1

Intelsat Luxembourg S.A., (Luxembourg), PIK, 12.500%, 02/04/17 10

    1,167        1,239,804        1.1  

Intelsat Luxembourg S.A., Sr Nt, Co Guar, (Luxembourg), 11.250%, 02/04/17

    250        264,375        0.2  

Lamar Media Corp., Private Placement, Co Guar, 5.000%, 05/01/23 2

    91        93,503        0.1  

Media General, Inc., 11.750%, 02/15/17

    130        150,150        0.1  

Mood Media Corp., Private Placement, Sr Unsec’d Nt, (Canada), 9.250%, 10/15/20 2

    215        226,556        0.2  

Nexstar Broadcasting, Inc./Mission Broadcasting, Inc., 8.875%, 04/15/17 10

    400        439,000        0.4  

Quebecor Media, Inc., Private Placement, Sr Unsec’d Nt, (Canada), 5.750%, 01/15/23 2

    180        189,675        0.2  

Radio One, Inc., Sr Sub Nt, Co Guar, PIK, 12.500%, 05/24/16

    92        82,021        0.1  

Regal Cinemas Corp., Nt, Co Guar, 8.625%, 07/15/19

    150        165,750        0.1  

Regal Entertainment Group, Co Guar, 9.125%, 08/15/18

    150        167,250        0.1  

Sinclair Television Group, Inc., Co Guar, 8.375%, 10/15/18

    200        223,500        0.2  

Sinclair Television Group, Inc., Private Placement, Sr Nt, 6.125%, 10/01/22 2

    185        196,331        0.2  

Telesat Canada/Telesat LLC, (Canada), 12.500%, 11/01/17 10

    150        164,625        0.1  

Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH, Private Placement, Sr Sec’d Nt, (Germany), 5.500%, 01/15/23 2

    200        206,500        0.2  

Univision Communications, Inc., Private Placement, Co Guar,
8.500%, 05/15/21 2

    165        170,363        0.2  

Univision Communications, Inc., Private Placement, Sr Sec’d Nt,

     

6.750%, 09/15/22 2,10

    490        505,925        0.5  

7.875%, 11/01/20 2

    220        238,150        0.2  

Valassis Communications, Inc., Sr Nt, Co Guar, 6.625%, 02/01/21

    50        53,000        0.0 12  
     

MEDIA (continued)

  

WMG Acquisition Corp., Private Placement, Sr Sec’d Nt, 6.000%, 01/15/21 2

  $ 65      $ 68,575        0.1
   

 

 

   

 

 

 
      8,287,336        7.4   

MULTILINE RETAIL — 0.1%

  

Sears Holdings Corp., Sr Sec’d Nt, 6.625%, 10/15/18

    125        113,750        0.1  
   

 

 

   

 

 

 

SPECIALTY RETAIL — 2.9%

  

99 Cents Only Stores, Co Guar, 11.000%, 12/15/19

    125        142,500        0.1  

CDR DB Sub, Inc., Private Placement, Sr Unsec’d Nt, 7.750%, 10/15/20 2

    80        79,800        0.1  

Claire’s Stores, Inc., Private Placement, Sr Sec’d Nt, 9.000%, 03/15/19 2,10

    659        706,777        0.6  

Claire’s Stores, Inc., Sec’d Nt, 8.875%, 03/15/19 10

    907        857,115        0.8  

Gymboree Corp., Co Guar, 9.125%, 12/01/18

    300        267,000        0.2  

Jo-Ann Stores Holdings, Inc., Private Placement, Sr Unsec’d Nt, PIK, 10.500%, 10/15/19 2

    175        176,531        0.2  

Neebo, Inc., Private Placement, 15.000%, 06/30/16 2

    173        155,250        0.1  

Needle Merger Sub Corp., Private Placement, Sr Nt,
8.125%, 03/15/19 2

    200        203,500        0.2  

Party City Holdings, Inc., Private Placement, Sr Nt, 8.875%, 08/01/20 2

    179        191,978        0.2  

Penske Automotive Group, Inc., Private Placement, Co Guar, 5.750%, 10/01/22 2

    86        88,580        0.1  

Radio Systems Corp., Private Placement, Sec’d Nt, 8.375%, 11/01/19 2

    110        114,675        0.1  

Toys R Us — Delaware, Inc., Private Placement, Sr Sec’d,
7.375%, 09/01/16 2

    250        255,625        0.2  
   

 

 

   

 

 

 
      3,239,331        2.9   

TEXTILES, APPAREL & LUXURY GOODS — 0.7%

  

Quiksilver, Inc., 6.875%, 04/15/15 10

    748        734,910        0.7  
   

 

 

   

 

 

 

Total Consumer Discretionary

      28,564,709        25.6   
   

 

 

   

 

 

 

 

 

 

6


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

CONSUMER STAPLES — 3.3%

  

FOOD & STAPLES RETAILING — 1.8%

  

New Albertsons, Inc., Unsec’d Nt, 8.000%, 05/01/31 10

  $ 375      $ 210,937        0.2 %

Rite Aid Corp., 9.500%, 06/15/17 10

    650        678,438        0.6   

Rite Aid Corp., Co Guar, 9.250%, 03/15/20

    150        159,750        0.1  

SUPERVALU, Inc., Sr Unsec’d Nt,

     

7.500%, 11/15/14 10

    200        194,000        0.2  

8.000%, 05/01/16 10

    850        809,625        0.7  
   

 

 

   

 

 

 
      2,052,750        1.8   

FOOD PRODUCTS — 1.2%

     

Bumble Bee Acquisition Corp., Private Placement, Sr Sec’d Nt, 9.000%, 12/15/17 2

    196        210,700        0.2  

Dean Foods Co., Co Guar, 7.000%, 06/01/16

    110        120,725        0.1  

Dean Foods Co., Sr Nt, Co Guar, 9.750%, 12/15/18

    45        51,750        0.1  

Eurofresh, Inc., PIK, 15.000%, 11/18/16 9,16

    526        —          0.0  

JBS USA LLC/JBS USA Finance, Inc., Private Placement, Sr Unsec’d Nt,

     

7.250%, 06/01/21 2

    45        45,113        0.0 12  

8.250%, 02/01/20 2

    78        82,680        0.1  

JBS USA LLC/JBS USA Finance, Inc., Sr Nt, Co Guar, 11.625%, 05/01/14

    85        94,987        0.1  

Pilgrim’s Pride Corp., Co Guar, 7.875%, 12/15/18

    105        106,444        0.1  

Shearer’s Foods LLC/Chip Fin Corp., Private Placement, Sr Sec’d Nt, 9.000%, 11/01/19 2

    125        131,250        0.1  

Simmons Foods, Inc., Private Placement, 10.500%, 11/01/17 2

    130        117,975        0.1  

Smithfield Foods, Inc., Sr Unsec’d Nt,

     

6.625%, 08/15/22

    155        171,275        0.2  

7.750%, 07/01/17

    130        151,450        0.1  
   

 

 

   

 

 

 
      1,284,349        1.2   

HOUSEHOLD PRODUCTS — 0.1%

     

Alphabet Holding Co., Inc., Private Placement, Sr Unsec’d Nt, PIK, 8.500%, 11/01/17 2

    73        75,190        0.1  

Armored Autogroup, Inc., Co Guar, 9.250%, 11/01/18

    26        22,035        0.0 12  
     

HOUSEHOLD PRODUCTS (continued)

  

Spectrum Brands Escrow Corp., Private Placement, Sr Unsec’d Nt, 6.625%, 11/15/22 2

  $ 42      $ 45,045        0.0 % 12  
   

 

 

   

 

 

 
      142,270        0.1   

PERSONAL PRODUCTS — 0.1%

  

American Achievement Corp., Private Placement, 10.875%, 04/15/16 2

    110        94,050        0.1   

Visant Corp., Co Guar, 10.000%, 10/01/17

    52        46,670        0.0 12  
   

 

 

   

 

 

 
      140,720        0.1   

TOBACCO — 0.1%

  

Alliance One International, Inc., Nt, 10.000%, 07/15/16

    80        84,200        0.1  
   

 

 

   

 

 

 

Total Consumer Staples

      3,704,289        3.3   
   

 

 

   

 

 

 

ENERGY — 16.3%

  

ENERGY EQUIPMENT & SERVICES — 2.6%

  

Basic Energy Services, Inc., Private Placement, Co Guar, 7.750%, 10/15/22 2

    6        5,850        0.0 12  

Global Geophysical Services, Inc., 10.500%, 05/01/17

    50        44,500        0.0 12  

Helix Energy Solutions Group, Inc., Private Placement,
9.500%, 01/15/16 2,10

    72        73,800        0.1  

Key Energy Services, Inc., Nt, 6.750%, 03/01/21

    165        165,000        0.1  

Key Energy Services, Inc., Private Placement, Co Guar, 6.750%, 03/01/21 2

    90        89,550        0.1  

Ocean Rig UDW, Inc., Sr Unsec’d Nt, 9.500%, 04/27/16

    100        102,000        0.1  

Oil States International, Inc., Co Guar, 6.500%, 06/01/19 10

    360        383,400        0.3  

Oil States International, Inc., Private Placement, Co Guar, 5.125%, 01/15/23 2

    68        68,935        0.1  

Petroleum Geo-Services ASA, Private Placement, Co Guar, (Norway), 7.375%, 12/15/18 2

    400        432,000        0.4  

PHI, Inc., 8.625%, 10/15/18

    310        331,700        0.3  

Seadrill Ltd., (Bermuda), 6.500%, 10/05/15

    300        313,500        0.3  

 

 

 

7


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

ENERGY EQUIPMENT & SERVICES (continued)

  

Seadrill Ltd., Private Placement, Sr Unsec’d Nt, (Bermuda), 5.625%, 09/15/17 2

  $ 200      $ 198,500        0.2 %

Shelf Drilling Holdings Ltd., Private Placement, Sr Sec’d Nt, (Cayman Islands), 8.625%, 11/01/18 2

    125        128,125        0.1  

Sidewinder Drilling, Inc., Private Placement, Sr Unsec’d Nt, 9.750%, 11/15/19 2

    150        150,750        0.1   

Trinidad Drilling Ltd., Private Placement, Sr Unsec’d Nt, (Canada), 7.875%, 01/15/19 2

    130        138,125        0.1  

Unit Corp., Private Placement, Co Guar, 6.625%, 05/15/21 2

    313        321,216        0.3  
   

 

 

   

 

 

 
      2,946,951        2.6   

OIL, GAS & CONSUMABLE FUELS — 13.7%

  

Access Midstream Partners LP/ACMP Finance Corp., Co Guar, 4.875%, 05/15/23

    83        84,245        0.1  

Alpha Natural Resources, Inc., Co Guar,

     

6.000%, 06/01/19

    178        163,760        0.1  

6.250%, 06/01/21

    165        150,975        0.1  

9.750%, 04/15/18

    60        64,800        0.1  

Alta Mesa Holdings LP/Alta Mesa Finance Services Corp., Co Guar, 9.625%, 10/15/18 10

    240        247,200        0.2  

Alta Mesa Holdings LP/Alta Mesa Finance Services Corp., Private Placement, Co Guar, 9.625%, 10/15/18 2

    53        54,590        0.0 12  

AmeriGas Finance LLC/AmeriGas Finance Corp., Co Guar,
6.750%, 05/20/20

    126        138,285        0.1  

AmeriGas Partners LP/AmeriGas Finance Corp., 6.500%, 05/20/21

    70        75,950        0.1  

Antero Resources Finance Corp., Nt, 9.375%, 12/01/17

    102        111,945        0.1  

Antero Resources Finance Corp., Private Placement, Co Guar, 6.000%, 12/01/20 2

    115        116,437        0.1  

Arch Coal, Inc., Co Guar, 7.000%, 06/15/19

    125        116,250        0.1  

Arch Coal, Inc., Private Placement, Co Guar, 9.875%, 06/15/19 2

    60        62,400        0.1  

Bill Barrett Corp., 9.875%, 07/15/16

    85        92,225        0.1  
     

OIL, GAS & CONSUMABLE FUELS (continued)

  

Bill Barrett Corp., Co Guar, 7.000%, 10/15/22

  $ 65      $ 66,950        0.1 %

Bill Barrett Corp., Sr Nt, Co Guar, 7.625%, 10/01/19 10

    505        532,775        0.5  

Calumet Specialty Products Partners LP/Calumet Finance Corp., Co Guar, 9.375%, 05/01/19

    33        35,805        0.0 12  

Calumet Specialty Products Partners LP/Calumet Finance Corp., Nt, Co Guar, 9.375%, 05/01/19

    60        65,100        0.1   

Calumet Specialty Products Partners LP/Calumet Finance Corp., Private Placement, Sr Nt, 9.625%, 08/01/20 2

    150        163,125        0.1  

Chesapeake Energy Corp., Co Guar, 6.775%, 03/15/19

    200        200,250        0.2  

Chesapeake Midstream Partners LP/CHKM Finance Corp., Co Guar, 6.125%, 07/15/22

    156        168,090        0.1  

Chesapeake Oilfield Operating LLC/Chesapeake Oilfield Finance, Inc., Private Placement, Sr Nt, Co Guar, 6.625%, 11/15/19 2

    200        188,500        0.2  

Cimarex Energy Co., Co Guar, 5.875%, 05/01/22

    72        78,840        0.1  

Citgo Petroleum Corp., Private Placement, Sr Nt, 11.500%, 07/01/17 2

    300        346,500        0.3  

Cloud Peak Energy Resources LLC/Cloud Peak Energy Finance Corp., Co Guar, 8.500%, 12/15/19

    35        38,412        0.0 12  

Comstock Resources, Inc., 7.750%, 04/01/19

    75        76,125        0.1  

Comstock Resources, Inc., Sr Nt, 8.375%, 10/15/17 10

    331        347,550        0.3  

Comstock Resources, Inc., Sr Nt, Co Guar, 9.500%, 06/15/20

    154        165,550        0.1  

Concho Resources, Inc., Co Guar,

     

5.500%, 04/01/23

    90        94,275        0.1  

6.500%, 01/15/22

    230        253,000        0.2  

Consol Energy, Inc.,

     

8.000%, 04/01/17

    50        54,125        0.1  

8.250%, 04/01/20

    145        156,962        0.1  

Continental Resources, Inc.,

     

5.000%, 09/15/22

    260        280,150        0.2  

7.125%, 04/01/21

    75        84,750        0.1  

 

 

 

8


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

OIL, GAS & CONSUMABLE FUELS (continued)

  

Crosstex Energy LP/Crosstex Energy Finance Corp., Private Placement, Co Guar, 7.125%, 06/01/22 2

  $ 191      $ 199,117        0.2 %

CVR Refining LLC/Coffeyville Finance, Inc., Private Placement, Sec’d Nt, 6.500%, 11/01/22 2

    221        219,895        0.2  

El Paso Pipeline Partners Operating Co., LLC, 6.500%, 04/01/20

    85        103,643        0.1   

EP Energy LLC/EP Energy Finance, Inc., Sr Unsec’d Nt, 9.375%, 05/01/20

    478        538,945        0.5  

EP Energy LLC/Everest Acquisition Finance, Inc., Co Guar, 7.750%, 09/01/22

    142        150,520        0.1  

EP Energy LLC/Everest Acquisition Finance, Inc., Sr Sec’d Nt, 6.875%, 05/01/19

    97        105,245        0.1  

EPE Holdings LLC/EP Energy Bond Co., Inc., Private Placement, Sr Unsec’d Nt, PIK, 8.875%, 12/15/17 2

    100        99,125        0.1  

Ferrellgas LP/Ferrellgas Finance Corp., Sr Unsec’d Nt,

     

6.500%, 05/01/21

    93        92,070        0.1  

9.125%, 10/01/17

    82        88,765        0.1  

Forest Oil Corp., Nt, 7.250%, 06/15/19

    529        531,645        0.5  

Hiland Partners LP/Hiland Partners Finance Corp., Private Placement, Co Guar, 7.250%, 10/01/20 2

    92        98,440        0.1  

Hilcorp Energy I LP/Hilcorp Finance Co., Private Placement, 7.625%, 04/15/21 2

    75        81,750        0.1  

Holly Energy Partners LP/Holly Energy Finance Corp., Private Placement, Co Guar, 6.500%, 03/01/20 2

    125        133,750        0.1  

Inergy Midstream LP/NRGM Finance Corp., Private Placement, Co Guar, 6.000%, 12/15/20 2

    48        49,560        0.0 12  

Laredo Petroleum, Inc., Co Guar, 7.375%, 05/01/22

    195        211,575        0.2  

MarkWest Energy Partners LP/MarkWest Energy Finance Corp., Co Guar, 6.250%, 06/15/22

    210        228,900        0.2  

MEG Energy Corp., Private Placement, Co Guar, (Canada), 6.375%, 01/30/23 2

    81        84,442        0.1  

Midstates Petroleum Co., Inc./Midstates Petroleum Co LLC, Private Placement, Co Guar, 10.750%, 10/01/20 2

    234        248,625        0.2  
     

OIL, GAS & CONSUMABLE FUELS (continued)

  

Newfield Exploration Co., Sr Sec’d, 5.625%, 07/01/24

  $ 105      $ 113,400        0.1 %

NFR Energy LLC/NFR Energy Finance Corp., Co Guar, 9.750%, 02/15/17

    360        346,500        0.3   

NGPL PipeCo LLC, Private Placement, Sr Sec’d, 9.625%, 06/01/19 2

    78        89,700        0.1  

PBF Holding Co. LLC/PBF Finance Corp., Private Placement, Sr Sec’d Nt, 8.250%, 02/15/20 2

    285        307,087        0.3  

Peabody Energy Corp., Co Guar,

     

6.000%, 11/15/18

    115        122,188        0.1  

6.250%, 11/15/21

    200        212,500        0.2  

Pioneer Energy Services Corp., 9.875%, 03/15/18

    255        277,313        0.2  

Plains Exploration & Production Co., Co Guar,

     

6.500%, 11/15/20

    206        228,145        0.2  

6.750%, 02/01/22

    29        32,553        0.0 12  

6.875%, 02/15/23

    396        452,430        0.4  

QEP Resources, Inc.,
6.875%, 03/01/21

    140        161,350        0.1  

QEP Resources, Inc., Sr Unsec’d Nt,

     

5.250%, 05/01/23

    102        109,140        0.1  

5.375%, 10/01/22

    305        327,113        0.3  

Range Resources Corp., 6.750%, 08/01/20

    20        21,700        0.0 12  

Regency Energy Partners LP/Regency Energy Finance Corp., Co Guar, 6.500%, 07/15/21

    320        350,400        0.3  

Samson Investment Co., Private Placement, Sr Unsec’d Nt, 9.750%, 02/15/20 2,10

    595        629,213        0.6  

SM Energy Co., Sr Unsec’d Nt,

     

6.500%, 11/15/21 10

    400        428,000        0.4  

6.625%, 02/15/19

    130        137,150        0.1  

SM Energy Co., Sr Unsec’d Nt, 6.500%, 01/01/23

    115        123,050        0.1  

Stone Energy Corp., Co Guar, 7.500%, 11/15/22

    126        131,040        0.1  

Swift Energy Co., 8.875%, 01/15/20

    60        65,250        0.1  

Swift Energy Co., Co Guar,
7.875%, 03/01/22

    189        197,505        0.2  

Swift Energy Co., Sr Nt, 7.125%, 06/01/17 10

    510        525,300        0.5  

 

 

 

9


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

OIL, GAS & CONSUMABLE FUELS (continued)

  

Targa Resources Partners LP/Targa Resources Partners Finance Corp., Co Guar, 7.875%, 10/15/18

  $ 130      $ 142,350        0.1

Targa Resources Partners LP/Targa Resources Partners Finance Corp., Private Placement, Co Guar, 6.375%, 08/01/22 2

    70        76,300        0.1  

Targa Resources Partners LP/Targa Resources Partners Finance Corp., Sr Nt, Co Guar, 6.875%, 02/01/21

    200        219,000        0.2  

Tesoro Corp., Co Guar,

     

4.250%, 10/01/17

    22        22,770        0.0 12  

5.375%, 10/01/22

    35        37,275        0.1  

Tesoro Logistics LP/Tesoro Logistics Finance Corp., Private Placement, Sr Nt, 5.875%, 10/01/20 2

    95        98,563        0.1  

Vanguard Natural Resources LLC/VNR Finance Corp., Sr Unsec’d Nt, 7.875%, 04/01/20

    220        229,900        0.2  

W&T Offshore, Inc., Nt, Co Guar, 8.500%, 06/15/19

    460        494,500        0.4  

WPX Energy, Inc., Private Placement, Sr Unsec’d, 5.250%, 01/15/17 2

    185        196,100        0.2  

WPX Energy, Inc., Sr Unsec’d, 6.000%, 01/15/22

    185        199,338        0.2  
   

 

 

   

 

 

 
      15,246,031        13.7   

Total Energy

      18,192,982        16.3   
   

 

 

   

 

 

 

FINANCIALS — 15.4%

     

CAPITAL MARKETS — 0.3%

  

E*TRADE Financial Corp., Sr Unsec’d Nt,

     

6.000%, 11/15/17

    40        40,900        0.0 12  

6.375%, 11/15/19

    90        92,250        0.1  

Oppenheimer Holdings, Inc., Sr Sec’d Nt, 8.750%, 04/15/18

    135        140,400        0.2  
   

 

 

   

 

 

 
      273,550        0.3   

COMMERCIAL BANKS — 3.7%

     

Bank of America Corp.,

     

VAR, 8.000%, 01/30/18 14

    285        315,233        0.3  

VAR, 8.125%, 05/15/18 14

    665        736,328        0.6  

Bank of America Corp., Sr Unsec’d Nt, 5.875%, 01/05/21

    165        197,551        0.2  
     
     

COMMERCIAL BANKS (continued)

  

Barclays Bank plc, Private Placement, Sub Nt, (United Kingdom), 10.179%, 06/12/21 2

  $ 160      $ 217,827        0.2

CIT Group, Inc., Private Placement, Sr Unsec’d Nt, 6.625%, 04/01/18 2

    255        288,150        0.2  

CIT Group, Inc., Sr Unsec’d,

     

5.000%, 05/15/17

    116        122,960        0.1  

5.375%, 05/15/20

    60        65,550        0.1  

CIT Group, Inc., Sr Unsec’d Nt,

     

4.250%, 08/15/17 10

    408        420,135        0.4  

5.000%, 08/15/22

    327        348,685        0.3  

5.250%, 03/15/18

    85        90,950        0.1  

Regions Bank, Sub Nt, 6.450%, 06/26/37

    250        263,510        0.2  

Royal Bank of Scotland Group plc, Sub Nt, (United Kingdom),

     

5.050%, 01/08/15

    75        77,610        0.1  

6.125%, 12/15/22

    98        103,437        0.1  

Royal Bank of Scotland N.V., Sub Nt, (Netherlands), VAR, 1.010%, 03/09/15

    25        23,686        0.0 12  

Royal Bank of Scotland plc (The), Sub Nt, (United Kingdom), VAR, 9.500%, 03/16/22

    275        323,504        0.3  

Wachovia Capital Trust III, VAR, 5.570%, 03/15/13 10,14

    570        567,150        0.5  
   

 

 

   

 

 

 
      4,162,266        3.7   

CONSUMER FINANCE — 2.0%

     

Ally Financial, Inc., 8.000%, 11/01/31

    622        787,607        0.7  

Ally Financial, Inc., Co Guar,

     

6.250%, 12/01/17 10

    505        559,145        0.5  

8.000%, 03/15/20

    755        924,875        0.8  
   

 

 

   

 

 

 
      2,271,627        2.0   

DIVERSIFIED FINANCIAL SERVICES — 5.1%

  

   

ACE Cash Express, Inc., Private Placement, 11.000%, 02/01/19 2

    495        466,537        0.4  

Capmark Financial Group, Inc., 05/10/10 1,4

    2,460        43,048        0.0 12  

Citigroup, Inc., Jr Sub Nt, VAR, 5.950%, 01/30/23 14

    210        212,625        0.2  

CNG Holdings, Inc., Private Placement, Sr Sec’d, 9.375%, 05/15/20 2

    255        258,825        0.2  

Community Choice Financial, Inc., Sr Sec’d Nt, 10.750%, 05/01/19

    125        120,312        0.1   

 

 

 

10


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

DIVERSIFIED FINANCIAL SERVICES (continued)

  

ILFC E-Capital Trust I, Private Placement, VAR, 4.540%, 12/21/65 2

  $ 950      $ 720,765        0.7 %

ILFC E-Capital Trust II, Private Placement, VAR, 6.250%, 12/21/65 2

    520        444,600        0.4  

International Lease Finance Corp., 8.875%, 09/01/17

    125        146,885        0.1  

International Lease Finance Corp., Sr Unsec’d Nt,

     

5.875%, 08/15/22

    300        317,764        0.3  

8.250%, 12/15/20 10

    888        1,058,940        1.0  

8.625%, 01/15/22

    200        247,000        0.2  

Lender Processing Services, Inc., Sr Nt, Co Guar, 5.750%, 04/15/23

    125        129,688        0.1  

Nationstar Mortgage LLC/Nationstar Capital Corp., Private Placement, 9.625%, 05/01/19 2

    15        16,800        0.0 12  

Nationstar Mortgage LLC/Nationstar Capital Corp., Private Placement, Co Guar,

     

7.875%, 10/01/20 2

    111        117,105        0.1  

9.625%, 05/01/19 2

    39        43,875        0.1  

SquareTwo Financial Corp., Sr Sec’d Nt, 11.625%, 04/01/17

    112        106,120        0.1  

Tops Holding Corp./Tops Markets LLC, 10.125%, 10/15/15

    115        121,325        0.1  

Tops Holding Corp./Tops Markets LLC, Private Placement, Sr Sec’d Nt, 8.875%, 12/15/17 2

    170        176,375        0.2  

TransUnion Holding Co., Inc., Private Placement, Sr Unsec’d Nt, PIK, 8.875%, 06/15/18 2

    108        111,510        0.1  

UPCB Finance III Ltd., Private Placement, Sr Sec’d Nt, (Cayman Islands), 6.625%, 07/01/20 2

    150        160,125        0.1  

UPCB Finance V Ltd., Private Placement, Sr Sec’d Nt, (Cayman Islands), 7.250%, 11/15/21 2

    300        330,375        0.3  

UPCB Finance VI Ltd., Private Placement, Sr Sec’d Nt, (Cayman Islands), 6.875%, 01/15/22 2

    325        351,000        0.3  
   

 

 

   

 

 

 
      5,701,599        5.1   
     

INSURANCE — 3.5%

  

American International Group, Inc., VAR, 8.175%, 05/15/58

  $ 530      $ 690,325        0.6

A-S Co-Issuer Subsidiary, Inc./A-S Merger Sub LLC, Private Placement, Sr Unsec’d Nt, 7.875%, 12/15/20 2

    65        65,000        0.1  

Catlin Insurance Co., Ltd., Private Placement, Jr Sub Nt, (Bermuda), VAR, 7.249%, 01/19/17 2,14

    300        299,250        0.3  

Hartford Financial Services Group, Inc., Sub Nt, VAR, 8.125%, 06/15/38

    100        115,125        0.1  

Hub International Ltd., Private Placement, Co Guar, (Canada), 8.125%, 10/15/18 2

    254        260,350        0.2  

Liberty Mutual Group, Inc., Private Placement, VAR, 10.750%, 06/15/58 2

    1,045        1,557,050        1.4  

Liberty Mutual Group, Inc., Private Placement, Sr Nt, Co Guar, 6.500%, 05/01/42 2

    53        59,627        0.1  

Liberty Mutual Group, Inc., Private Placement, Sub Nt, Co Guar, 7.800%, 03/15/37 2

    250        278,125        0.2  

Onex USI Acquisition Corp., Private Placement, Sr Unsec’d Nt, 7.750%, 01/15/21 2

    343        337,855        0.3  

Prudential Financial, Inc., Jr Sub Nt, VAR, 5.625%, 06/15/43

    142        147,154        0.1  

XL Group plc, Sub Nt, (Ireland), VAR, 6.500%, 04/15/17 14

    125        116,875        0.1  
   

 

 

   

 

 

 
      3,926,736        3.5   

REAL ESTATE INVESTMENT TRUSTS (REITs) — 0.6%

  

CB Richard Ellis Services, Inc., 6.625%, 10/15/20

    150        164,062        0.2  

CNL Lifestyle Properties, Inc., Sr Nt, Co Guar, 7.250%, 04/15/19

    171        163,305        0.1  

CyrusOne LP/CyrusOne Finance Corp., Private Placement, Co Guar, 6.375%, 11/15/22 2

    58        60,465        0.1  

DuPont Fabros Technology LP, Nt, 8.500%, 12/15/17

    105        114,713        0.1  

First Industrial LP, Sr Nt, 6.420%, 06/01/14

    130        136,092        0.1  
   

 

 

   

 

 

 
      638,637        0.6   

 

 

 

11


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

REAL ESTATE MANAGEMENT & DEVELOPMENT — 0.2%

  

Kennedy-Wilson, Inc., Sr Nt, Co Guar, 8.750%, 04/01/19

  $ 160      $ 170,400        0.2 %
   

 

 

   

 

 

 

Total Financials

      17,144,815        15.4   
   

 

 

   

 

 

 

HEALTH CARE — 8.5%

  

HEALTH CARE EQUIPMENT & SUPPLIES — 0.7%

  

Biomet, Inc., Private Placement, Co Guar, 6.500%, 08/01/20 2

    285        302,812        0.3   

Biomet, Inc., Private Placement, Sr Sub Nt, 6.500%, 10/01/20 2

    125        124,219        0.1  

Hologic, Inc., Private Placement, Co Guar, 6.250%, 08/01/20 2

    70        75,425        0.1  

VWR Funding, Inc., Private Placement, Co Guar, 7.250%, 09/15/17 2

    220        231,000        0.2  
   

 

 

   

 

 

 
      733,456        0.7   

HEALTH CARE PROVIDERS & SERVICES — 6.8%

  

Amsurg Corp., Private Placement, Co Guar, 5.625%, 11/30/20 2

    65        67,600        0.1  

Capella Healthcare, Inc., Co Guar, 9.250%, 07/01/17

    51        54,697        0.1  

CHS/Community Health Systems, Inc., 7.125%, 07/15/20

    203        216,702        0.2  

CHS/Community Health Systems, Inc., Co Guar, 8.000%, 11/15/19

    310        335,575        0.3  

CHS/Community Health Systems, Inc., Sr Sec’d Nt, 5.125%, 08/15/18

    45        46,912        0.0 12  

DaVita HealthCare Partners, Inc., Co Guar, 6.625%, 11/01/20

    140        152,250        0.1  

Emergency Medical Services Corp., Co Guar, 8.125%, 06/01/19

    140        153,738        0.1  

Fresenius Medical Care U.S. Finance II, Inc., Private Placement, Co Guar,

     

5.625%, 07/31/19 2

    67        71,941        0.0 12  

5.750%, 02/15/21 2

    90        96,300        0.1  

5.875%, 01/31/22 2

    196        212,660        0.2  

HCA Holdings, Inc., Sr Unsec’d Nt, 6.250%, 02/15/21

    150        153,750        0.1  

HCA, Inc., 5.750%, 03/15/14 10

    195        203,775        0.2  

HCA, Inc., Co Guar, 7.500%, 02/15/22 10

    945        1,082,025        1.0  

HCA, Inc., Sr Sec’d Nt, 5.875%, 03/15/22 10

    500        543,750        0.5  

HCA, Inc., Sr Sec’d Nt, 4.750%, 05/01/23

    215        218,763        0.2  
     

HEALTH CARE PROVIDERS & SERVICES (continued)

  

HCA, Inc., Sr Unsec’d Nt, 8.000%, 10/01/18

  $ 180      $ 208,350        0.2 %

Health Management Associates, Inc., Co Guar, 7.375%, 01/15/20

    235        253,800        0.2  

IASIS Healthcare LLC/IASIS Capital Corp., Co Guar, 8.375%, 05/15/19

    112        105,840        0.1  

IMS Health, Inc., Private Placement, Sr Unsec’d Nt, 6.000%, 11/01/20 2

    180        188,550        0.2   

inVentiv Health, Inc., Private Placement, Co Guar, 10.000%, 08/15/18 2

    3        2,588        0.0 12  

inVentiv Health, Inc., Private Placement, Sr Nt, 10.000%, 08/15/18 2

    584        503,700        0.5  

inVentiv Health, Inc., Private Placement, Sr Sec’d Nt, 9.000%, 01/15/18 2

    140        141,400        0.1  

Jaguar Holding Co. I, Private Placement, Sr Unsec’d Nt, PIK, 10.125%, 10/15/17 2

    50        52,500        0.0 12  

Multiplan, Inc., Private Placement, Nt, 9.875%, 09/01/18 2,10

    700        780,500        0.7  

National Mentor Holdings, Inc., Private Placement, Nt, Co Guar, 12.500%, 02/15/18 2

    375        383,438        0.3  

OnCure Holdings, Inc., 11.750%, 05/15/17

    139        67,415        0.1  

Tenet Healthcare Corp., 8.875%, 07/01/19 10

    250        280,000        0.3  

Tenet Healthcare Corp., Private Placement, Sr Sec’d Nt, 4.750%, 06/01/20 2

    75        76,125        0.1  

Tenet Healthcare Corp., Sr Sec’d, 6.250%, 11/01/18

    180        197,550        0.2  

Tenet Healthcare Corp., Sr Unsec’d Nt, 8.000%, 08/01/20

    138        148,609        0.1  

United Surgical Partners International, Inc., Co Guar, 9.000%, 04/01/20

    175        194,250        0.2  

Vanguard Health Holding Co. II LLC/Vanguard Holding Co. II Inc, Co Guar,

     

7.750%, 02/01/19

    157        162,495        0.1  

8.000%, 02/01/18

    157        162,495        0.1  

Vanguard Health Holding Co. II LLC/Vanguard Holding Co. II, Inc., Private Placement, Sr Nt, Co Guar, 7.750%, 02/01/19 2

    50        51,750        0.1   
   

 

 

   

 

 

 
      7,571,793        6.8   

 

 

 

12


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

PHARMACEUTICALS — 1.0%

     

Catalent Pharma Solutions, Inc., Private Placement, Co Guar, 7.875%, 10/15/18 2

  $ 147      $ 148,102        0.1 %

Celtic Pharma Phinco B.V., (Bermuda), PIK, 17.000%, 06/15/12 9,16

    2,383        71,479        0.1   

Elan Finance plc/Elan Finance Corp., Private Placement, Co Guar, (Ireland), 6.250%, 10/15/19 2

    266        277,970        0.2  

Endo Pharmaceuticals Holdings, Inc., Co Guar,

     

7.000%, 07/15/19

    75        79,969        0.1  

7.250%, 01/15/22

    100        107,250        0.1  

Grifols, Inc., Sr Nt, Co Guar, 8.250%, 02/01/18

    100        110,125        0.1  

Sky Growth Acquisition Corp., Private Placement, Co Guar, 7.375%, 10/15/20 2

    60        59,700        0.1  

Valeant Pharmaceuticals International, Private Placement, Sr Nt, (Canada), 6.375%, 10/15/20 2

    55        58,988        0.0 12  

VPI Escrow Corp., Private Placement, Sr Nt, 6.375%, 10/15/20 2

    170        182,325        0.2  
   

 

 

   

 

 

 
      1,095,908        1.0   

Total Health Care

      9,401,157        8.5   
   

 

 

   

 

 

 

INDUSTRIALS — 12.4%

     

AEROSPACE & DEFENSE — 0.3%

     

BE Aerospace, Inc., Sr Unsec’d Nt, 5.250%, 04/01/22

    200        212,000        0.2  

Triumph Group, Inc., 8.625%, 07/15/18

    80        88,800        0.1  
   

 

 

   

 

 

 
      300,800        0.3   

AIRLINES — 2.0%

     

Continental Airlines 2005-ERJ1 Pass Through Trust, 9.798%, 04/01/21 10

    1,052        1,147,072        1.0  

Continental Airlines 2012-1 Class B Pass Through Trust, 6.250%, 04/11/20

    750        795,000        0.7  

UAL 2007-1 Pass Through Trust,

     

VAR, 2.984%, 07/02/14

    91        89,520        0.1  

VAR, 7.336%, 07/02/19

    77        77,739        0.1  

UAL 2009-2B Pass Through Trust, Private Placement, 12.000%, 01/15/16 2

    140        154,299        0.1  
   

 

 

   

 

 

 
      2,263,630        2.0   
     

BUILDING PRODUCTS — 1.0%

  

Boise Cascade LLC/Boise Cascade Finance Corp., Private Placement, Co Guar, 6.375%, 11/01/20 2

  $ 56      $ 57,680        0.0 % 12  

HD Supply, Inc., Private Placement, Sr Sec’d, 8.125%, 04/15/19 2

    246        280,440        0.3  

Masco Corp., Sr Unsec’d,

     

5.950%, 03/15/22

    43        47,665        0.1  

7.125%, 03/15/20

    10        11,634        0.0 12  

Masonite International Corp., Private Placement, Co Guar, (Canada), 8.250%, 04/15/21 2

    150        160,500        0.1  

Nortek, Inc., Co Guar, 8.500%, 04/15/21

    360        399,600        0.4  

Roofing Supply Group LLC/Roofing Supply Finance, Inc., Private Placement, Co Guar, 10.000%, 06/01/20 2

    145        162,400        0.1  
   

 

 

   

 

 

 
      1,119,919        1.0   

COMMERCIAL SERVICES & SUPPLIES — 2.3%

  

   

Cenveo Corp., Nt, 8.875%, 02/01/18

    575        546,250        0.5  

Clean Harbors, Inc., Private Placement, Co Guar, 5.125%, 06/01/21 2

    150        155,250        0.1  

Deluxe Corp., Sr Nt, Co Guar, 7.000%, 03/15/19

    256        270,720        0.2  

Garda World Security Corp., Private Placement, (Canada), 9.750%, 03/15/17 2

    285        298,537        0.3  

Harland Clarke Holdings Corp., VAR,

     

6.000%, 05/15/15 10

    447        385,538        0.4  

9.500%, 05/15/15

    40        36,900        0.0 12  

Iron Mountain, Inc., 8.375%, 08/15/21

    170        188,700        0.2  

Iron Mountain, Inc., Co Guar, 7.750%, 10/01/19

    100        112,750        0.1  

Iron Mountain, Inc., Sr Sub Nt, 5.750%, 08/15/24

    50        50,625        0.0 12  

Liberty Tire Recycling, Private Placement, Nt, 11.000%, 10/01/16 2

    95        87,875        0.1  

Mead Products LLC/ACCO Brands Corp., Private Placement, Co Guar, 6.750%, 04/30/20 2

    60        63,000        0.1  

Mobile Mini, Inc., Sr Nt, Co Guar, 7.875%, 12/01/20

    200        219,500        0.2  

 

 

 

13


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

COMMERCIAL SERVICES & SUPPLIES (continued)

  

Quebecor World Capital Escrow Corp., (Canada),

     

6.125%, 11/15/13 1,4

  $ 1,415      $ 14,150        0.0 % 12  

6.500%, 08/01/27 1,4

    810        8,100        0.0 12  

9.750%, 01/15/15 1,4

    585        5,850        0.0 12  

R.R. Donnelley & Sons Co., Sr Nt, 8.250%, 03/15/19

    40        40,400        0.0 12  

R.R. Donnelley & Sons Co., Sr Unsec’d Nt, 6.125%, 01/15/17

    150        145,125        0.1  
   

 

 

   

 

 

 
      2,629,270        2.3   

CONSTRUCTION & ENGINEERING — 1.8%

  

   

Ashtead Capital, Inc., Private Placement, Co Guar, 6.500%, 07/15/22 2,10

    200        217,000        0.2  

Dycom Investments, Inc., Private Placement, Co Guar, 7.125%, 01/15/21 2

    120        126,300        0.1  

Goodman Networks, Inc., Private Placement, Sr Sec’d Nt, 12.125%, 07/01/18 2

    320        350,400        0.3  

New Enterprise Stone & Lime Co., Sr Nt, Co Guar, 11.000%, 09/01/18

    300        225,000        0.2  

Production Resource Group, Inc., Sr Unsec’d, 8.875%, 05/01/19 9

    100        73,000        0.1  

Tutor Perini Corp., Co Guar, 7.625%, 11/01/18 10

    400        413,000        0.4  

United Rentals North America, Inc., Co Guar, 6.125%, 06/15/23

    150        158,250        0.2  

United Rentals North America, Inc., Private Placement, Sr Unsec’d Nt, 7.625%, 04/15/22 2

    150        167,625        0.1  

United Rentals North America, Inc., Sr Nt, Co Guar, 8.250%, 02/01/21

    160        180,400        0.2  
   

 

 

   

 

 

 
      1,910,975        1.8   

ELECTRICAL EQUIPMENT — 0.2%

     

General Cable Corp., Private Placement, Co Guar, 5.750%, 10/01/22 2

    82        84,870        0.1  

International Wire Group Holdings, Inc., Private Placement, 8.500%, 10/15/17 2

    145        146,450        0.1  
   

 

 

   

 

 

 
      231,320        0.2   
     

ENVIRONMENTAL SERVICES — 0.1%

  

   

Casella Waste Systems, Inc., Private Placement, Sr Sub Nt, 7.750%, 02/15/19 2

  $ 150      $ 142,500        0.1 %
   

 

 

   

 

 

 

INDUSTRIAL CONGLOMERATES — 0.3%

  

JB Poindexter & Co., Inc., Private Placement, Sr Nt, 9.000%, 04/01/22 2

    282        291,518        0.3   
   

 

 

   

 

 

 

MACHINERY — 0.9%

  

Boart Longyear Management Pty Ltd., Private Placement, Co Guar, (Australia), 7.000%, 04/01/21 2

    60        60,900        0.1  

Cleaver-Brooks, Inc., Private Placement, Sr Sec’d Nt, 8.750%, 12/15/19 2

    44        45,430        0.0 12  

Columbus McKinnon Corp., Co Guar, 7.875%, 02/01/19

    180        193,050        0.2  

Griffon Corp., Co Guar, 7.125%, 04/01/18

    150        159,000        0.1  

Thermadyne Holdings Corp., Sr Sec’d Nt, 9.000%, 12/15/17 10

    525        559,125        0.5  
   

 

 

   

 

 

 
      1,017,505        0.9   

MARINE — 1.7%

  

ACL I Corp., Sr Unsec’d Nt, PIK, 10.625%, 02/15/16

    479        484,282        0.4  

Bluewater Holding BV, Private Placement, Nt, (Netherlands), VAR, 3.330%, 07/17/14 2

    400        372,000        0.3  

Commercial Barge Line Co., Sr Nt, 12.500%, 07/15/17

    300        330,750        0.3  

Navigator Holdings Ltd., Sr Unsec’d Nt, 9.000%, 12/18/17

    200        200,000        0.2  

Navios Maritime Holdings, Inc./Navios Maritime Finance U.S., Inc., 8.875%, 11/01/17

    124        123,690        0.1  

Navios South American Logistics, Inc./Navios Logistics Finance U.S., Inc., Sr Nt, Co Guar, 9.250%, 04/15/19

    190        186,437        0.2  

Ultrapetrol Bahamas Ltd., 1st Mtg, (Bahamas), 9.000%, 11/24/14 10

    163        161,778        0.2  
   

 

 

   

 

 

 
      1,858,937        1.7   

 

 

 

14


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

ROAD & RAIL — 0.9%

  

Avis Budget Car Rental LLC/Avis Budget Finance, Inc.,

     

8.250%, 01/15/19

  $ 210      $ 232,050        0.2 %

9.625%, 03/15/18

    140        156,100        0.1  

9.750%, 03/15/20

    50        57,750        0.1  

HDTFS, Inc., Private Placement, Co Guar,

     

5.875%, 10/15/20 2

    54        56,430        0.1  

6.250%, 10/15/22 2

    39        41,535        0.0 12  

Hertz Corp. (The), Sr Nt, Co Guar, 7.500%, 10/15/18

    237        261,885        0.2   

Kansas City Southern de Mexico S.A. de C.V., Sr Unsec’d Nt, (Mexico),

     

6.125%, 06/15/21

    110        124,300        0.1  

6.625%, 12/15/20

    88        99,880        0.1  
   

 

 

   

 

 

 
      1,029,930        0.9   

TRADING COMPANIES & DISTRIBUTORS — 0.6%

  

 

Aircastle Ltd., Private Placement, Sr Unsec’d Nt, (Bermuda), 6.250%, 12/01/19 2

    30        31,275        0.0 12  

Aircastle Ltd., Sr Nt, (Bermuda), 9.750%, 08/01/18 10

    130        146,900        0.1  

Aircastle Ltd., Sr Unsec’d, (Bermuda), 7.625%, 04/15/20 10

    100        111,750        0.1  

H&E Equipment Services, Inc., Private Placement, Co Guar, 7.000%, 09/01/22 2

    84        89,460        0.1  

Suburban Propane Partners LP/Suburban Energy Finance Corp., Sr Unsec’d Nt,

     

7.375%, 08/01/21

    62        67,425        0.1  

7.500%, 10/01/18

    211        227,352        0.2  
   

 

 

   

 

 

 
      674,162        0.6   

TRANSPORTATION SERVICES — 0.3%

  

   

OSX 3 Leasing B.V., Private Placement, Co Guar, (Netherlands),

     

9.250%, 03/20/15 2

    200        206,250        0.2  

SPL Logistics Escrow LLC/SPL Logistics Finance Corp., Private Placement, Sr Sec’d, 8.875%, 08/01/20 2

    42        44,520        0.0 12  

TRAC Intermodal LLC/TRAC Intermodal Corp., Private Placement, Sr Sec’d, 11.000%, 08/15/19 2

    62        64,480        0.1  
   

 

 

   

 

 

 
      315,250        0.3   

Total Industrials

      13,785,716        12.4   
   

 

 

   

 

 

 
     

INFORMATION TECHNOLOGY — 6.5%

  

   

COMMUNICATIONS EQUIPMENT — 1.2%

  

   

Avaya, Inc., Private Placement, 7.000%, 04/01/19 2,10

  $ 360      $ 336,600        0.3 %

Avaya, Inc., Sr Nt, 9.750%, 11/01/15

    185        164,650        0.1  

Brightstar Corp., Private Placement, 9.500%, 12/01/16 2

    260        276,900        0.3  

Nokia OYJ, Sr Unsec’d, (Finland),

     

5.375%, 05/15/19

    103        98,107        0.1  

6.625%, 05/15/39

    100        89,750        0.1   

Syniverse Holdings, Inc., Co Guar, 9.125%, 01/15/19

    300        320,250        0.3  
   

 

 

   

 

 

 
      1,286,257        1.2   

COMPUTERS & PERIPHERALS — 0.8%

  

NCR Corp., Private Placement, Co Guar, 4.625%, 02/15/21 2

    22        22,000        0.0 12  

NCR Corp., Private Placement, Sr Nt, 5.000%, 07/15/22 2

    26        26,422        0.0 12  

Seagate HDD Cayman, Co Guar, (Cayman Islands), 7.750%, 12/15/18

    225        247,219        0.2  

Seagate HDD Cayman, Sr Nt, (Cayman Islands), 6.875%, 05/01/20

    170        180,837        0.2  

Sealed Air Corp., Private Placement, Sr Unsec’d Nt, 6.500%, 12/01/20 2

    120        129,600        0.1  

Sealed Air Corp., Private Placement, Sr Unsec’d Nt,

     

8.125%, 09/15/19 2

    70        78,750        0.1  

8.375%, 09/15/21 2

    205        234,213        0.2  
   

 

 

   

 

 

 
      919,041        0.8   

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS — 0.5%

  

Anixter, Inc., Sr Nt, Co Guar, 5.625%, 05/01/19

    50        52,625        0.1  

CDW LLC/CDW Finance Corp., Co Guar, 8.500%, 04/01/19

    229        247,892        0.2  

Intcomex, Inc., 13.250%, 12/15/14

    138        142,830        0.1  

Jabil Circuit, Inc., Sr Unsec’d Nt, 4.700%, 09/15/22

    55        57,819        0.1  

Viasystems, Inc., Private Placement, Sr Sec’d, 7.875%, 05/01/19 2

    42        41,160        0.0 12  
   

 

 

   

 

 

 
      542,326        0.5   

 

 

 

15


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

INTERNET SOFTWARE & SERVICES — 0.6%

  

   

eAccess Ltd., Private Placement, Co Guar, (Japan), 8.250%, 04/01/18 2

  $ 250      $ 280,000        0.2 %

Equinix, Inc., Sub Nt, 8.125%, 03/01/18

    185        203,963        0.2  

Sabre, Inc., Private Placement, Sr Sec’d, 8.500%, 05/15/19 2

    220        234,300        0.2  
   

 

 

   

 

 

 
      718,263        0.6   

IT SERVICES — 2.6%

  

Ceridian Corp., Private Placement, Sr Sec’d, 8.875%, 07/15/19 2

    85        92,225        0.1   

Fidelity National Information Services, Inc., Co Guar, 5.000%, 03/15/22

    150        160,875        0.2  

First Data Corp., 9.875%, 09/24/15

    19        19,380        0.0 12  

First Data Corp., Co Guar,

     

10.550%, 09/24/15

    155        158,681        0.1  

12.625%, 01/15/21

    308        324,170        0.3  

First Data Corp., Private Placement, Sec’d, PIK, 10.000%, 01/15/22 2

    220        225,246        0.2  

First Data Corp., Private Placement, Sr Nt, 8.250%, 01/15/21 2,10

    476        476,000        0.4  

First Data Corp., Private Placement, Sr Sec’d Nt, 6.750%, 11/01/20 2,10

    400        404,000        0.4  

iGate Corp., Sr Nt, Co Guar, 9.000%, 05/01/16

    203        220,001        0.2  

Igloo Holdings Corp., Private Placement, Sr Unsec’d Nt, PIK, 9.000%, 12/15/17 2

    99        98,258        0.1  

Sitel LLC/Sitel Finance Corp., Private Placement, Sr Sec’d, 11.000%, 08/01/17 2

    158        160,370        0.1  

Sitel LLC/Sitel Finance Corp., Sr Unsec’d Nt, 11.500%, 04/01/18

    350        246,750        0.2  

SunGard Data Systems, Inc., Nt, Co Guar, 7.625%, 11/15/20

    164        179,170        0.2  

SunGard Data Systems, Inc., Private Placement, Co Guar, 6.625%, 11/01/19 2

    100        102,250        0.1  
   

 

 

   

 

 

 
      2,867,376        2.6   

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 0.4%

  

Advanced Micro Devices, Inc., Sr Unsec’d Nt, 8.125%, 12/15/17

    50        45,625        0.1  

Amkor Technology, Inc., Private Placement, Co Guar, 6.375%, 10/01/22 2

    125        123,125        0.1  
     

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (continued)

  

Freescale Semiconductor, Inc., Sr Nt, Co Guar, 8.050%, 02/01/20

  $ 110      $ 109,450        0.1 %

NXP B.V./NXP Funding LLC, Private Placement, (Netherlands), 9.750%, 08/01/18 2

    100        115,875        0.1  
   

 

 

   

 

 

 
      394,075        0.4   

SOFTWARE — 0.4%

     

Audatex North America, Inc., Private Placement, Co Guar, 6.750%, 06/15/18 2

    125        133,750        0.1  

Infor U.S., Inc., Co Guar, 9.375%, 04/01/19

    170        190,825        0.2   

Nuance Communications, Inc., Private Placement, Co Guar, 5.375%, 08/15/20 2

    118        123,310        0.1  
   

 

 

   

 

 

 
      447,885        0.4   

Total Information Technology

      7,175,223        6.5   
   

 

 

   

 

 

 

MATERIALS — 14.0%

  

CHEMICALS — 1.3%

  

Chemtura Corp., Sr Nt, Co Guar, 7.875%, 09/01/18

    150        160,875        0.1  

J.M. Huber Corp., Private Placement, Sr Unsec’d Nt, 9.875%, 11/01/19 2

    75        83,250        0.1  

LyondellBasell Industries N.V., Sr Unsec’d Nt, (Netherlands), 6.000%, 11/15/21 10

    335        392,787        0.4  

Nufarm Australia Ltd., Private Placement, Co Guar, (Australia), 6.375%, 10/15/19 2

    91        95,095        0.1  

Omnova Solutions, Inc., Sr Nt, Co Guar, 7.875%, 11/01/18

    330        340,313        0.3  

PolyOne Corp., 7.375%, 09/15/20

    247        269,848        0.2  

Prince Mineral Holding Corp., Private Placement, Sr Sec’d Nt, 11.500%, 12/15/19 2

    50        51,750        0.0 12  

Tronox Finance LLC, Private Placement, Co Guar, 6.375%, 08/15/20 2

    160        161,600        0.1  
   

 

 

   

 

 

 
      1,555,518        1.3   

CONSTRUCTION MATERIALS — 2.7%

  

Cemex Espana Luxembourg, Private Placement, Sr Sec’d Nt, (Spain),

     

9.250%, 05/12/20 2

    225        244,125        0.2  

9.875%, 04/30/19 2

    750        836,250        0.8  

 

 

 

16


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

CONSTRUCTION MATERIALS (continued)

  

Cemex Finance LLC, Private Placement, Sr Sec’d Nt,

     

8.910%, 02/14/17 2,9

  $ 337      $ 335,655        0.3 %

9.500%, 12/14/16 2

    200        217,500        0.2  

Cemex S.A.B. de C.V., Private Placement, (Mexico), 9.000%, 01/11/18 2

    500        543,125        0.5  

Lafarge S.A., Sr Unsec’d Nt, (France), 7.125%, 07/15/36

    150        152,625        0.1  

Vulcan Materials Co., Sr Unsec’d Nt, 7.500%, 06/15/21 10

    548        624,720        0.6  
   

 

 

   

 

 

 
      2,954,000        2.7   

CONTAINERS & PACKAGING — 3.0%

  

Ardagh Packaging Finance plc, Private Placement, Sr Sec’d Nt, (Ireland), 7.375%, 10/15/17 2,10

    200        217,500        0.2   

Ardagh Packaging Finance plc, Private Placement, Sr Sub Nt, (Ireland), 9.125%, 10/15/20 2,10

    200        218,000        0.2  

Ardagh Packaging Finance plc/Ardagh MP Holdings USA, Inc., Private Placement, Sr Nt, Co Guar, (Ireland), 9.125%, 10/15/20 2,10

    200        217,000        0.2  

Berry Plastics Corp., 9.500%, 05/15/18

    370        407,000        0.4  

Berry Plastics Corp., Co Guar, 8.250%, 11/15/15

    165        172,425        0.2  

Berry Plastics Corp., Sr Sec’d Nt, 9.750%, 01/15/21

    300        345,750        0.3  

Constar International, Inc., 11.000%, 12/31/17 9

    346        183,529        0.2  

Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC, Co Guar,

     

8.250%, 02/15/21

    100        101,500        0.1  

8.500%, 05/15/18 10

    400        410,000        0.4  

9.875%, 08/15/19

    275        294,250        0.2  

Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC, Private Placement, Sr Sec’d Nt, 5.750%, 10/15/20 2,10

    460        474,950        0.4  

Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC, Sr Sec’d Nt, 7.875%, 08/15/19

    250        278,125        0.2  
   

 

 

   

 

 

 
      3,320,029        3.0   
     

METALS & MINING — 5.8%

     

AK Steel Corp., Private Placement, Sr Sec’d Nt, 8.750%, 12/01/18 2

  $ 90      $ 94,950        0.1 %

AK Steel Corp., Sr Nt, Co Guar, 8.375%, 04/01/22 10

    185        159,100        0.1  

APERAM, Private Placement, Sr Unsec’d Nt, (Luxembourg), 7.750%, 04/01/18 2

    300        264,000        0.2  

ArcelorMittal, Sr Unsec’d, (Luxembourg), 6.750%, 02/25/22

    310        325,350        0.3  

ArcelorMittal, Sr Unsec’d Nt, (Luxembourg),

     

7.500%, 10/15/39

    230        216,200        0.2  

9.850%, 06/01/19

    265        317,833        0.3  

Ausdrill Finance Pty Ltd., Private Placement, Co Guar, (Australia), 6.875%, 11/01/19 2

    200        198,000        0.2   

Commercial Metals Co., Sr Unsec’d Nt,

     

6.500%, 07/15/17

    150        160,125        0.1  

7.350%, 08/15/18

    75        81,375        0.1  

Constellation Enterprises LLC, Private Placement, 10.625%, 02/01/16 2

    275        288,750        0.3  

FMG Resources August 2006 Pty Ltd., Private Placement, (Australia), 7.000%, 11/01/15 2

    50        52,500        0.0 12  

FMG Resources August 2006 Pty Ltd., Private Placement, Co Guar, (Australia), 6.875%, 02/01/18 2,10

    545        562,712        0.5  

FMG Resources August 2006 Pty Ltd., Private Placement, Sr Unsec’d Nt, (Australia),

     

6.000%, 04/01/17 2

    54        55,080        0.0 12  

6.875%, 04/01/22 2

    205        209,613        0.2  

Gibraltar Industries, Inc., Sr Nt, Co Guar, 8.000%, 12/01/15

    300        304,530        0.3  

Inmet Mining Corp., Private Placement, Co Guar, (Canada), 7.500%, 06/01/21 2

    90        93,375        0.1  

JMC Steel Group, Inc., Private Placement, 8.250%, 03/15/18 2

    150        156,750        0.1  

Kaiser Aluminum Corp., Co Guar, 8.250%, 06/01/20

    461        502,490        0.5  

Murray Energy Corp., Private Placement, 10.250%, 10/15/15 2

    100        97,000        0.1  

 

 

 

17


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

METALS & MINING (continued)

  

New Gold, Inc., Private Placement, Co Guar, (Canada), 7.000%, 04/15/20 2

  $ 56      $ 59,780        0.1 %

New Gold, Inc., Private Placement, Sr Unsec’d Nt, (Canada), 6.250%, 11/15/22 2

    78        80,730        0.1  

Noranda Aluminum Acquisition Corp., Sr Nt, PIK, 4.524%, 05/15/15

    487        457,930        0.4  

Novelis, Inc., Co Guar, (Canada), 8.750%, 12/15/20 10

    429        478,335        0.4  

Rain CII Carbon LLC and CII Carbon Corp., Private Placement, Sec’d Nt, 8.000%, 12/01/18 2

    50        50,875        0.0 12  

Ryerson, Inc./Joseph T Ryerson & Son Inc., Private Placement, Sr Sec’d, 9.000%, 10/15/17 2

    110        112,200        0.1   

Severstal Columbus LLC, 10.250%, 02/15/18

    100        105,250        0.1  

Steel Dynamics, Inc., Co Guar, 7.625%, 03/15/20

    150        165,750        0.2  

Steel Dynamics, Inc., Private Placement, Co Guar,

     

6.125%, 08/15/19 2

    108        114,480        0.1  

6.375%, 08/15/22 2

    108        114,480        0.1  

Taseko Mines Ltd., Co Guar, (Canada), 7.750%, 04/15/19

    35        33,688        0.0 12  

United States Steel Corp., Sr Unsec’d Nt,

     

7.000%, 02/01/18

    21        22,418        0.0 12  

7.375%, 04/01/20

    254        271,145        0.3  

Wolverine Tube, Inc., Sr Sec’d Nt, 6.000%, 06/28/14 9

    188        178,804        0.2  
   

 

 

   

 

 

 
      6,385,598        5.8   

PAPER & FOREST PRODUCTS — 1.2%

  

   

Abitibi-Consolidated Co. of Canada, Escrow, (Canada),

     

6.000%, 06/20/13 1,4

    1,331        1,264        0.0 12  

7.500%, 04/01/28 1,4

    287        273        0.0 12  

Abitibi-Consolidated Co. of Canada, Sr Nt, Escrow, (Canada),

     

7.750%, 06/15/11 1,4

    479        455        0.0 12  

8.375%, 04/01/15 1,4

    2,485        2,361        0.0 12  

8.850%, 08/01/30 1,4

    102        97        0.0 12  

Ainsworth Lumber Co., Ltd., Private Placement, Sr Sec’d Nt, (Canada), 7.500%, 12/15/17 2

    90        94,275        0.1  
     

PAPER & FOREST PRODUCTS (continued)

  

Appleton Papers, Inc., Private Placement, Sr Sec’d Nt, 10.500%, 06/15/15 2,10

  $ 600      $ 636,000        0.5 %

Longview Fibre Paper & Packaging, Inc., Private Placement, Sr Sec’d Nt, 8.000%, 06/01/16 2

    100        105,000        0.1  

Louisiana-Pacific Corp., Co Guar, 7.500%, 06/01/20

    83        93,790        0.1  

Resolute Forest Products, Sr Sec’d Nt, 10.250%, 10/15/18

    386        441,970        0.4  

Smurfit-Stone Container Corp., Sr Nt, 8.000%, 03/15/17 1,4

    1,229        1,843        0.0 12  

Smurfit-Stone Container Enterprises, Inc., 8.375%, 07/01/12 1,4

    448        672        0.0 12   
   

 

 

   

 

 

 
      1,378,000        1.2   

Total Materials

      15,593,145        14.0   
   

 

 

   

 

 

 

TELECOMMUNICATION SERVICES — 10.1%

  

DIVERSIFIED TELECOMMUNICATION SERVICES — 3.9%

  

Cincinnati Bell, Inc., 8.750%, 03/15/18

    120        123,900        0.1  

Clearwire Communications LLC/Clearwire Finance, Inc., Private Placement, 12.000%, 12/01/15 2

    332        356,900        0.3  

Frontier Communications Corp., Sr Nt,

     

8.500%, 04/15/20

    115        132,250        0.1  

8.750%, 04/15/22

    110        127,600        0.1  

Frontier Communications Corp., Sr Unsec’d,

     

7.125%, 01/15/23

    167        177,020        0.2  

9.250%, 07/01/21

    325        381,062        0.3  

Level 3 Communications, Inc., Private Placement, Sr Unsec’d Nt, 8.875%, 06/01/19 2

    485        516,525        0.5  

Level 3 Communications, Inc., Sr Unsec’d Nt, 11.875%, 02/01/19

    200        230,500        0.2  

Level 3 Financing, Inc., Co Guar, 8.625%, 07/15/20

    234        259,740        0.2  

Level 3 Financing, Inc., Private Placement, Co Guar, 7.000%, 06/01/20 2

    357        373,065        0.3  

Level 3 Financing, Inc., Sr Nt, Co Guar,

     

8.125%, 07/01/19 10

    417        454,530        0.4  

9.375%, 04/01/19

    245        273,788        0.3  

PAETEC Holding Corp., Sr Sec’d Nt, 8.875%, 06/30/17

    200        214,500        0.2  

 

 

 

18


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

DIVERSIFIED TELECOMMUNICATION SERVICES (continued)

  

tw telecom holdings inc, Private Placement, Co Guar, 5.375%, 10/01/22 2

  $ 58      $ 60,755        0.1 %

Windstream Corp.,

     

7.875%, 11/01/17

    120        135,000        0.1  

8.125%, 09/01/18

    250        273,125        0.3  

Windstream Corp., Co Guar, 7.500%, 06/01/22

    70        74,200        0.1  

Zayo Group LLC/Zayo Capital, Inc., Sr Sec’d Nt, 8.125%, 01/01/20

    150        166,875        0.1   
   

 

 

   

 

 

 
      4,331,335        3.9   

WIRELESS TELECOMMUNICATION SERVICES — 6.2%

  

Cricket Communications, Inc.,

     

7.750%, 05/15/16

    180        190,575        0.2  

7.750%, 10/15/20

    667        680,340        0.6  

Crown Castle International Corp., Private Placement, Sr Unsec’d Nt, 5.250%, 01/15/23 2

    266        284,620        0.3  

MetroPCS Wireless, Inc., 7.875%, 09/01/18

    55        59,537        0.1  

MetroPCS Wireless, Inc., Sr Nt, Co Guar, 6.625%, 11/15/20

    377        400,563        0.4  

NII Capital Corp., Co Guar, 7.625%, 04/01/21

    356        269,670        0.2  

NII Capital Corp., Sr Nt, 8.875%, 12/15/19

    315        250,425        0.2  

SBA Telecommunications, Inc., Private Placement, Sr Nt, Co Guar, 5.750%, 07/15/20 2

    22        23,375        0.0 12  

Sprint Capital Corp., Co Guar, 8.750%, 03/15/32

    614        750,615        0.7  

Sprint Nextel Corp., Nt, 6.000%, 12/01/16 10

    800        870,000        0.8  

Sprint Nextel Corp., Private Placement, Co Guar,

     

7.000%, 03/01/20 2

    93        108,113        0.1  

9.000%, 11/15/18 2,10

    575        710,125        0.6  

Sprint Nextel Corp., Sr Unsec’d Nt,

     

7.000%, 08/15/20

    800        874,000        0.8  

11.500%, 11/15/21

    72        97,920        0.1  

Sprint Nextel Corp., Sr Unsec’d Nt, 6.000%, 11/15/22

    150        154,125        0.1  
     

WIRELESS TELECOMMUNICATION SERVICES (continued)

  

VimpelCom Holdings B.V., Private Placement, Co Guar, (Netherlands), 6.255%, 03/01/17 2

  $ 200      $ 214,000        0.2 %

VimpelCom Holdings B.V., Private Placement, Nt, Co Guar, (Netherlands), 7.504%, 03/01/22 2

    200        229,250        0.2  

Wind Acquisition Finance S.A., Private Placement, (Luxembourg), 7.250%, 02/15/18 2

    200        202,500        0.2  

Wind Acquisition Finance S.A., Private Placement, Sec’d Nt, (Luxembourg), 11.750%, 07/15/17 2

    160        167,600        0.1   

Wind Acquisition Finance S.A., Private Placement, Sr Sec’d, (Luxembourg), 7.250%, 02/15/18 2

    200        201,000        0.2  

Wind Acquisition Holdings Finance S.A., Private Placement, Sr Sec’d Nt, (Luxembourg), PIK, 12.250%, 07/15/17 2

    143        145,558        0.1  
   

 

 

   

 

 

 
      6,883,911        6.2   

Total Telecommunication Services

      11,215,246        10.1   
   

 

 

   

 

 

 

UTILITIES — 3.2%

  

GAS UTILITIES — 0.2%

  

Genesis Energy LP/Genesis Energy Finance Corp., Co Guar, 7.875%, 12/15/18

    200        213,500        0.2  
   

 

 

   

 

 

 

INDEPENDENT POWER PRODUCERS & ENERGY TRADERS — 1.4%

  

Dynegy Holdings LLC, Sr Unsec’d Nt,

     

7.125%, 05/15/18 1,4

    500        1,900        0.0 12  

7.750%, 06/01/19 1,4

    750        2,850        0.0 12  

Dynegy Roseton/Danskammer Pass Through Trust, Sr Unsec’d Nt, 7.670%, 11/08/16 1,4

    1,000        25,000        0.0 12  

Edison Mission Energy, 7.200%, 05/15/19 1,4

    500        265,000        0.2  

Edison Mission Energy, Sr Unsec’d Nt, 7.000%, 05/15/17 1,4

    1,000        530,000        0.5  

GenOn Energy, Inc., Sr Unsec’d Nt, 9.875%, 10/15/20

    290        334,950        0.3  

Homer City Generation LP, Sec’d Nt, 8.137%, 10/01/19

    94        102,692        0.1  

NRG Energy, Inc., Private Placement, Co Guar, 6.625%, 03/15/23 2

    214        228,980        0.2  

 

 

 

19


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (continued)

  

Texas Competitive Electric Holdings Co. LLC, Sr Nt, 10.250%, 11/01/15

  $ 268      $ 77,720        0.1 %
   

 

 

   

 

 

 
      1,569,092        1.4   

MULTI-UTILITIES — 1.6%

  

Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc., 10.000%, 12/01/20

    1,430        1,612,325        1.4   

Energy Future Intermediate Holding Co. LLC/EFIH Finance, Inc., Private Placement, Sec’d Nt, 11.750%, 03/01/22 2

    156        173,160        0.2  
   

 

 

   

 

 

 
      1,785,485        1.6   

Total Utilities

      3,568,077        3.2   
   

 

 

   

 

 

 

Total Corporate Bonds

     

(Cost $124,496,156)

      128,345,359        115.3   
   

 

 

   

 

 

 

LOAN PARTICIPATIONS & ASSIGNMENTS — 14.2%

  

CONSUMER DISCRETIONARY — 5.2%

  

BROADCASTING & CABLE TV — 0.0% 12

  

Wide Open West, Term Loan, VAR, 6.250%, 07/17/18

    50        50,259        0.0 12  
   

 

 

   

 

 

 

DIVERSIFIED CONSUMER SERVICES — 0.3%

  

Realogy Corp., Extended Synthetic Commitments, VAR, 4.464%, 10/10/16

    15        15,456        0.0 12  

Realogy Corp., Extended Term Loan, VAR, 4.461%, 10/10/16

    213        213,675        0.2  

Realogy Corp., Non-Extended Synthetic Commitment, VAR, 3.214%, 10/10/13

    1        1,075        0.0 12  

St. George’s University, Term Loan, VAR, 8.500%, 12/20/17

    100        98,375        0.1  
   

 

 

   

 

 

 
      328,581        0.3   

GAMING — 1.5%

  

Caesars Entertainment Operating Co., Inc., Extended B-6 Term Loan, VAR, 5.460%, 01/28/18 ^

    1,055        940,661        0.9  

Caesars Entertainment Operating Co., Inc., Term B-1 Loan, VAR, 3.210%, 01/28/15

    161        158,760        0.1  

Caesars Entertainment Operating Co., Inc., Term B-2 Loan, VAR, 3.210%, 01/28/15

    18        17,838        0.0 12  
     

GAMING (continued)

  

Caesars Entertainment Operating Co., Inc., Term B-3 Loan,

     

VAR, 3.210%, 01/28/15

  $ 45      $ 44,038        0.0 % 12  

VAR, 3.311%, 01/28/15

    —   11       446        0.0 12  

CCM Merger, Inc., Term Loan, VAR, 6.000%, 03/01/17

    69        69,114        0.1  

Jacobs Entertainment, Inc., Term Loan, VAR, 6.250%, 10/29/18

    66        65,585        0.1   

Mohegan Tribal Gaming Authority, Term Loan, VAR, 9.000%, 03/31/16

    175        178,937        0.2  

ROC Finance LLC, Funded Term B Loan, VAR, 8.500%, 08/19/17

    137        140,767        0.1  
   

 

 

   

 

 

 
      1,616,146        1.5   

HOTELS, RESTAURANTS & LEISURE — 0.4%

  

FOCUS Brands, Inc., 1st Lien Term Loan,

     

VAR, 6.250%, 02/21/18

    —   11       137        0.0 12  

VAR, 6.250%, 02/21/18

    —   11       341        0.0 12  

VAR, 6.250%, 02/21/18

    18        17,567        0.0 12  

VAR, 6.250%, 02/21/18

    6        6,220        0.0 12  

VAR, 7.250%, 02/21/18

    1        586        0.0 12  

Greektown Superholdings, Inc., Term Loan, VAR, 12/11/18 ^

    50        49,896        0.0 12  

Intrawest ULC, 1st Lien Term Loan,

     

VAR, 7.000%, 12/04/17

    82        82,144        0.1  

VAR, 7.000%, 12/04/17

    43        43,012        0.0 12  

Landry’s, Inc., Term Loan, VAR, 6.500%, 04/24/18

    54        54,985        0.1  

MTL Publishing LLC, Term B Loan,

     

VAR, 5.500%, 06/29/18

    11        10,570        0.0 12  

VAR, 5.500%, 06/29/18

    39        39,740        0.1  

Wendy’s/Arby’s Restaurants LLC, Term Loan, VAR, 4.750%, 05/15/19

    125        125,896        0.1  
   

 

 

   

 

 

 
      431,094        0.4   

HOUSEHOLD DURABLES — 0.2%

     

Aot Holding Ltd., 1st Lien Senior Secured Term Loan,

     

VAR, 5.000%, 10/01/19

    40        39,605        0.1  

VAR, 5.000%, 10/01/19

    77        76,753        0.1  

VAR, 5.000%, 10/01/19

    56        55,585        0.0 12  

VAR, 5.000%, 10/01/19

    7        7,411        0.0 12

VAR, 5.000%, 10/01/19

    7        7,411        0.0 12  

 

 

 

20


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

HOUSEHOLD DURABLES (continued)

     

VAR, 5.000%, 10/01/19

  $ 7      $ 7,411        0.0 % 12  
   

 

 

   

 

 

 
      194,176        0.2   

LEISURE EQUIPMENT & PRODUCTS — 0.1%

  

   

Freedom Group, Inc., Term B Loan, VAR, 5.500%, 04/19/19

    105        103,217        0.1  
   

 

 

   

 

 

 

MEDIA — 2.4%

     

Barrington Broadcasting Group LLC, Tranche 2 Term Loan,

     

VAR, 7.500%, 06/14/17

    102        102,537        0.1  

VAR, 10.250%, 06/14/17

    14        13,581        0.0 12  

Clear Channel Communications, Inc., Term Loan B, VAR, 3.862%, 01/29/16

    700        576,903        0.5

Entercom Radio LLC, Term Loan,

     

VAR, 5.000%, 11/23/18

    12        11,669        0.0 12  

VAR, 5.000%, 11/23/18

    80        80,475        0.1  

VAR, 5.000%, 11/23/18

    1        1,073        0.0 12  

Gray Television, Inc., 1st Lien Term Loan,

     

VAR, 4.750%, 10/12/19

    34        33,981        0.0 12

VAR, 4.750%, 10/12/19

    3        2,719        0.0 12  

VAR, 4.750%, 10/12/19

    108        108,738        0.1  

Hubbard Radio LLC, 1st Lien Term Loan B, VAR, 5.250%, 04/28/17

    81        81,252        0.1  

Hubbard Radio LLC, 2nd Lien Term Loan C, VAR, 8.750%, 04/30/18

    100        101,500        0.1  

R.H. Donnelley, Inc., Exit Term Loan,

     

VAR, 9.000%, 10/24/14

    74        50,476        0.0 12  

VAR, 9.000%, 10/24/14

    89        60,835        0.1  

VAR, 9.000%, 10/24/14

    26        17,474        0.0 12  

Radio One, Term Loan, VAR, 7.500%, 03/31/16

    427        432,121        0.4  

TL Acquisitions, Inc., Term Loan, VAR, 2.720%, 07/03/14 ^

    157        123,769        0.1  

Univision Communications, Inc., Extended 1st Lien Term Loan, VAR, 4.462%, 03/31/17

    612        600,977        0.6  

Vertis, Inc., 1st Lien Term Loan, VAR, 12/21/15 1,4,9

    396        97,631        0.1  

Warner Music Group Corp., 1st Lien Term Loan, VAR, 5.250%, 11/01/18

    136        137,262        0.1  
   

 

 

   

 

 

 
      2,634,973        2.4   
     

SPECIALTY RETAIL — 0.3%

     

Gymboree Corp., Initial Term Loan A and R, VAR, 5.000%, 02/23/18

  $ 355      $ 325,966        0.3 %

Payless, Term Loan, VAR, 7.250%, 10/09/19

    50        50,562        0.0 12  
   

 

 

   

 

 

 
      376,528        0.3   

Total Consumer Discretionary

      5,734,974        5.2   
   

 

 

   

 

 

 

CONSUMER STAPLES — 1.2%

     

FOOD & STAPLES RETAILING — 0.7%

  

   

Rite Aid Corp., 1st Lien Term Loan 5, VAR, 4.500%, 03/03/18

    482        480,921        0.4  

SUPERVALU, Inc., Term Loan, VAR, 8.000%, 08/30/18

    318        322,718        0.3  
   

 

 

   

 

 

 
      803,639        0.7   

HOUSEHOLD DURABLES — 0.5%

     

Targus, 1st Lien Term Loan, VAR, 11.000%, 05/24/16

    493        494,963        0.5   
   

 

 

   

 

 

 

Total Consumer Staples

      1,298,602        1.2   
   

 

 

   

 

 

 

ENERGY — 0.5%

  

OIL, GAS & CONSUMABLE FUELS — 0.5%

  

Arch Coal, Inc., Term Loan, VAR, 5.750%, 05/16/18

    191        192,554        0.2  

NGPL PipeCo LLC, Term Loan, VAR, 6.750%, 09/15/17

    282        288,047        0.3  

Patriot Coal, DIP Term Loan,

     

VAR, 9.250%, 10/02/13

    13        12,913        0.0 12  

VAR, 9.250%, 10/02/13

    26        25,826        0.0 12  
   

 

 

   

 

 

 

Total Energy

      519,340        0.5   
   

 

 

   

 

 

 

HEALTH CARE — 0.4%

     

HEALTH CARE PROVIDERS & SERVICES — 0.0% 12

  

 

inVentiv Health, Inc., Consolidated Term Loan, VAR, 7.500%, 08/04/16

    53        51,551        0.0 12  
   

 

 

   

 

 

 

PHARMACEUTICALS — 0.4%

     

Aptalis Pharma, Inc., Term B-2 Loan, VAR, 5.500%, 02/10/17

    223        224,244        0.2  

Aptalis Pharma, Inc., Term Loan,

     

VAR, 5.500%, 02/10/17

    11        11,015        0.0 12  

VAR, 5.500%, 02/10/17

    102        102,155        0.1  

 

 

 

21


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

PHARMACEUTICALS (continued)

     

Catalent Pharma Solutions, Inc., Dollar Term-2 Loan,

     

VAR, 5.250%, 09/15/17

  $ 49      $ 49,726        0.1 %

VAR, 5.250%, 09/15/17

    25        25,549        0.0 12
   

 

 

   

 

 

 
      412,689        0.4   

Total Health Care

      464,240        0.4   
   

 

 

   

 

 

 

INDUSTRIALS — 2.3%

     

BUILDING PRODUCTS — 0.1%

     

Alon USA Energy, Inc., Term Loan, VAR, 11/13/18 ^

    70        70,262        0.1  
   

 

 

   

 

 

 

COMMERCIAL SERVICES & SUPPLIES — 0.8%

  

   

Cenveo Corp., Term Loan B,
VAR, 7.000%, 12/21/16

    162        162,899        0.2  

Harland Clarke Holdings Corp., Extended Tranche B-2 Term Loan,

     

VAR, 5.462%, 06/30/17

    21        19,078        0.0 12

VAR, 5.462%, 06/30/17

    47        43,647        0.0 12

VAR, 5.462%, 06/30/17

    69        64,407        0.1  

VAR, 5.462%, 06/30/17

    25        23,002        0.0 12  

Harland Clarke Holdings Corp., Non-Extended Tranche B-1 Term Loan,

     

VAR, 2.712%, 06/30/14

    99        95,759        0.1  

VAR, 2.712%, 06/30/14

    72        69,807        0.1  

VAR, 2.712%, 06/30/14

    30        28,366        0.0 12  

VAR, 2.712%, 06/30/14

    35        34,199        0.0 12

SCH Group, 1st Lien Term Loan B, VAR, 6.625%, 04/28/17

    123        121,217        0.1   

SCH Group, 2nd Lien Term Loan C, VAR, 10.500%, 04/30/18

    225        203,626        0.2  
   

 

 

   

 

 

 
      866,007        0.8   

INDUSTRIAL CONGLOMERATES — 0.9%

  

   

BOC Edwards, Extended Term Loan, VAR, 5.500%, 05/31/16

    985        985,448        0.9  
   

 

 

   

 

 

 

INDUSTRIAL MACHINERY — 0.1%

     

Intelligrated, Inc., 1st Lien Term Loan, VAR, 6.750%, 07/30/18

    150        151,121        0.1  
   

 

 

   

 

 

 

MACHINERY — 0.4%

     

Hudson Products Holdings, Inc., Term Loan, VAR, 8.000%, 06/07/17

    500        500,625        0.4  
   

 

 

   

 

 

 

Total Industrials

      2,573,463        2.3   
   

 

 

   

 

 

 
Description   Par (000)     Value     Percent
of Net
Assets*
 
     

INFORMATION TECHNOLOGY — 1.7%

  

   

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS — 0.1%

  

Sensus USA, Inc., 2nd Lien Term Loan, VAR, 8.500%, 05/09/18

  $ 50      $ 50,000        0.1 %
   

 

 

   

 

 

 

INTERNET SOFTWARE & SERVICES — 0.2%

  

 

Go Daddy Group, Inc. (The),
Tranche B-1 Term Loan, VAR, 5.500%, 12/17/18

    247        247,287        0.2  
   

 

 

   

 

 

 

IT SERVICES — 0.2%

     

Ceridian Corp., Extended U.S. Term Loan, VAR, 5.959%, 05/09/17

    43        42,845        0.0 12  

First Data Corp., 2018 B Term Loan, VAR, 5.211%, 09/24/18

    180        176,272        0.2  

First Data Corp., Non-Extended B-3 Term Loan, VAR, 2.961%, 09/24/14

    40        39,968        0.0 12  
   

 

 

   

 

 

 
      259,085        0.2   

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 0.7%

  

 

Freescale Semiconductor, Inc., Tranche B-1 Term Loan, VAR, 4.464%, 12/01/16

    387        378,773        0.4  

NXP B.V., Tranche A-2 Loan, VAR, 5.500%, 03/03/17

    94        95,483        0.1  

NXP B.V., Tranche B Loan, VAR, 5.250%, 03/19/19

    149        149,694        0.1  

NXP B.V., Tranche C Term Loan, VAR, 4.750%, 01/10/20

    110        110,596        0.1  
   

 

 

   

 

 

 
      734,546        0.7   

SOFTWARE — 0.5%

     

Infor U.S., Inc., Tranche B-2 Term Loan, VAR, 5.250%, 04/05/18

    160        160,911        0.1   

Misys plc, 1st Lien Term Loan, VAR, 7.250%, 12/12/18

    150        150,934        0.1  

RedPrairie Holding, Inc., 1st Lien Term Loan, VAR, 12/03/17 ^

    279        278,223        0.3  
   

 

 

   

 

 

 
      590,068        0.5   

Total Information Technology

      1,880,986        1.7   
   

 

 

   

 

 

 

MATERIALS — 1.6%

  

CHEMICALS — 1.2%

  

AZ Chem US, Inc., Term Loan,

     

VAR, 7.250%, 12/22/17

    18        18,640        0.0 12  

VAR, 7.250%, 12/22/17

    80        80,461        0.1  

 

 

 

22


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Par (000)     Value     Percent
of Net
Assets*
 
     

CHEMICALS (continued)

  

Cristal Inorganic Chemicals (Millenium), 2nd Lien Term Loan, VAR, 6.061%, 11/15/14

  $ 500      $ 498,750        0.4 %

Harko C.V., Term Loan B,

     

VAR, 5.750%, 08/02/17

    66        66,109        0.1  

VAR, 5.750%, 08/02/17

    48        48,135        0.0 12  

PL Propylene LLC, Term Loan, VAR, 7.000%, 03/27/17

    105        106,157        0.1  

PolyOne Corp., Term Loan B, VAR, 5.000%, 12/20/17

    114        114,391        0.1  

Trinseo S.A., 1st Lien Term Loan, VAR, 8.000%, 08/02/17

    399        388,499        0.4  
   

 

 

   

 

 

 
      1,321,142        1.2   

CONTAINERS & PACKAGING — 0.1%

  

   

Reynolds Group Holdings,U.S. Term Loan,

     

VAR, 4.750%, 09/28/18

    29        29,592        0.0 12  

VAR, 4.750%, 09/28/18

    48        48,472        0.0 12  

VAR, 4.750%, 09/28/18

    56        56,471        0.1  
   

 

 

   

 

 

 
      134,535        0.1   

METALS & MINING — 0.3%

     

FMG Resources August 2006 Pty Ltd., Term Loan, (Australia), VAR, 5.250%, 10/18/17

    249        251,245        0.2  

Noranda Aluminum Acquisition Corp., Term B Loan, VAR, 5.750%, 02/28/19

    118        118,580        0.1  
   

 

 

   

 

 

 
      369,825        0.3   

Total Materials

      1,825,502        1.6   
   

 

 

   

 

 

 

TELECOMMUNICATION SERVICES — 0.1%

  

 

DIVERSIFIED TELECOMMUNICATION SERVICES — 0.1%

  

 

Zayo Group, Term Loan,

     

VAR, 5.250%, 07/02/19

    108        109,617        0.1  

VAR, 5.250%, 07/02/19

    —   11       276        0.0 12  
   

 

 

   

 

 

 

Total Telecommunication Services

  

    109,893        0.1   
   

 

 

   

 

 

 

UTILITIES — 1.2%

     

INDEPENDENT POWER PRODUCERS & ENERGY TRADERS — 1.2%

  

Texas Competitive Electric Holdings Co. LLC, Extended Term Loan,

     

VAR, 4.713%, 10/10/17

    450        298,863        0.3   

VAR, 4.810%, 10/10/17

    136        90,401        0.1  
     

INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (continued)

  

VAR, 4.810%, 10/10/17

  $ 94      $ 62,548        0.0 % 12  

Texas Competitive Electric Holdings Co. LLC, Non-Extended Term Loan,

     

VAR, 3.713%, 10/10/14

    450        338,422        0.3  

VAR, 3.810%, 10/10/14

    136        102,366        0.1  

VAR, 3.810%, 10/10/14

    94        70,827        0.0 12  

TPF Generation Holdings LLC, Term Commitment, VAR, 4.561%, 12/15/14

    409        407,737        0.4  
   

 

 

   

 

 

 

Total Utilities

      1,371,164        1.2   
   

 

 

   

 

 

 

Total Loan Participations & Assignments

  

   

(Cost $16,159,941)

      15,778,164        14.2   
   

 

 

   

 

 

 

ASSET-BACKED SECURITIES — 1.3%

  

 

Countrywide Asset-Backed Certificates, Series 2004-13, Class MV8, VAR, 1.910%, 01/25/35 9

    115        2,641        0.0 12  

Long Beach Mortgage Loan Trust, Series 2004-5, Class M6, VAR, 2.710%, 09/25/34 9

    45        5,066        0.0 12  

Unipac IX LLC, 13.000%, 04/11/13 9

    1,500        1,441,050        1.3  
   

 

 

   

 

 

 

Total Asset-Backed Securities

     

(Cost $1,628,979)

      1,448,757        1.3   
   

 

 

   

 

 

 

Total Fixed Income Investments

     

(Cost $142,407,999)

      145,706,703        130.9   
   

 

 

   

 

 

 

PREFERRED STOCKS — 2.4%

  

 

CONSUMER DISCRETIONARY — 1.0%

  

 

AUTO COMPONENTS — 0.0%

  

 

Glasstech, Inc., Pfd, Series C 1,9

    —   11       —          0.0  
   

 

 

   

 

 

 

AUTOMOBILES — 0.3%

     

General Motors Co., Convertible Pfd, Series B, 4.750%, 12/01/13
($50 par value)

    7        308,910        0.3  
   

 

 

   

 

 

 

DIVERSIFIED CONSUMER SERVICES — 0.6%

  

 

Carriage Services Capital Trust, Convertible Pfd, 7.000%, 06/01/29 ($50 par value) 15

    16        726,800        0.6  
   

 

 

   

 

 

 

 

 

 

23


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Shares (000)     Value     Percent
of Net
Assets*
 
     

MEDIA — 0.1%

     

Spanish Broadcasting System, Inc., Pfd 1,9

    481      $ 1,684        0.0 % 12  

Spanish Broadcasting System, Inc., Pfd, Series B, PIK,
10.750%, 08/01/12
($1,000 par value) 1,9,15

    —   11       106,050        0.1
   

 

 

   

 

 

 
      107,734        0.1   

Total Consumer Discretionary

      1,143,444        1.0   
   

 

 

   

 

 

 

CONSUMER STAPLES — 0.0%

     

FOOD PRODUCTS — 0.0%

     

Eurofresh, Inc., PIK, Pfd, ADR, 9,16

    —   11       —          0.0  
   

 

 

   

 

 

 

FINANCIALS — 1.4%

     

COMMERCIAL BANKS — 0.5%

     

CoBank ACB, Pfd, Series D, 11.000%, 10/01/14
($50 par value) 1,15

    10        554,688        0.5  
   

 

 

   

 

 

 

CONSUMER FINANCE — 0.6%

     

Ally Financial, Inc., Private Placement, 7.000%, 10/31/12 ($1,000 par value) 2,15

    1        600,136        0.5  

GMAC Capital Trust I, Series 2, VAR, 8.125%, 02/15/40
($25 par value) 15

    4        95,940        0.1  
   

 

 

   

 

 

 
      696,076        0.6   

INSURANCE — 0.3%

     

Hartford Financial Services Group, Inc., Pfd, VAR,
7.875%, 04/15/42
($25 par value) 1,15

    4        120,582        0.1  

XLIT Ltd., (Cayman Islands), Series D, VAR, 3.575%, 04/16/12 ($1,000 par value) 15

    —   11       191,969        0.2  
   

 

 

   

 

 

 
      312,551        0.3   

Total Financials

      1,563,315        1.4   
   

 

 

   

 

 

 

INFORMATION TECHNOLOGY — 0.0%

  

 

COMPUTERS & PERIPHERALS — 0.0%

  

 

Stratus Technologies Bermuda Holdings, Ltd., (Bermuda) 1,9

    2        —          0.0  
   

 

 

   

 

 

 
     

MATERIALS — 0.0%

     

CONTAINERS & PACKAGING — 0.0%

  

 

Constar International, Inc., Pfd 1,9

    —   11     $ —          0.0 %
   

 

 

   

 

 

 

Total Preferred Stocks)

     

(Cost $4,199,004

      2,706,759        2.4   
   

 

 

   

 

 

 

COMMON STOCKS — 2.2%

     

CONSUMER DISCRETIONARY — 0.4%

  

   

AUTO COMPONENTS — 0.0%

     

Glasstech, Inc., Class C 1,9

    —   11       —          0.0  
   

 

 

   

 

 

 

AUTOMOBILES — 0.3%

     

General Motors Co. 1

    12        358,443        0.3  
   

 

 

   

 

 

 

BROADCASTING & CABLE TV — 0.0% 12

  

 

Adelphia Recovery Trust 9

    157        2        0.0 12  

Adelphia Recovery Trust, Contingent Value 1,9

    1,297        5,836        0.0 12  
   

 

 

   

 

 

 
      5,838        0.0 12  

HOTELS, RESTAURANTS & LEISURE — 0.0% 12

  

 

Real Mex Restaurants, Inc., Class B, ADR 1,9

    200        11,400        0.0 12  
   

 

 

   

 

 

 

LEISURE EQUIPMENT & PRODUCTS — 0.1%

  

 

New True Temper Holdings Corp., Inc 1,9

    43        27,517        0.1  
   

 

 

   

 

 

 

SPECIALTY RETAIL — 0.0% 12

  

 

Neebo, Inc. 1,9

    12        17,393        0.0 12  
   

 

 

   

 

 

 

Total Consumer Discretionary

      420,591        0.4   
   

 

 

   

 

 

 

CONSUMER STAPLES — 0.0%

  

FOOD PRODUCTS — 0.0%

  

 

Eurofresh, Inc., ADR 1,9

    106        —          0.0  
   

 

 

   

 

 

 

FINANCIALS — 0.2%

  

DIVERSIFIED FINANCIAL SERVICES — 0.2%

  

 

Capmark Financial Group, Inc. 1

    21        259,122        0.2  
   

 

 

   

 

 

 

INDUSTRIALS — 0.0% 12

  

 

BUILDING PRODUCTS — 0.0% 12

  

 

Jupiter Holding I Corp. 1,9

    8        16,338        0.0 12  
   

 

 

   

 

 

 

MARINE — 0.0% 12

  

 

General Maritime Corp. 1,9

    —   11       7,050        0.0 12  
   

 

 

   

 

 

 

Total Industrials

      23,388        0.0 12  
   

 

 

   

 

 

 

 

 

 

24


Table of Contents

P ACHOLDER H IGH Y IELD F UND, I NC.

 

Schedule of Portfolio Investments (continued)

As of December 31, 2012

   

 

 

Description   Shares (000)     Value     Percent
of Net
Assets*
 
     

INFORMATION TECHNOLOGY — 0.1%

  

COMPUTERS & PERIPHERALS — 0.0%

  

 

Stratus Technologies Bermuda Holdings, Ltd., (Bermuda) 1,9

    8      $ —          0.0 %
   

 

 

   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 0.1%

  

 

Magnachip Semiconductor Corp., (Luxembourg) 1

    6        88,913        0.1  
   

 

 

   

 

 

 

Total Information Technology

      88,913        0.1   
   

 

 

   

 

 

 

MATERIALS — 0.8%

  

 

CONSTRUCTION MATERIALS — 0.1%

  

 

U.S. Concrete, Inc. 1

    10        90,690        0.1  
   

 

 

   

 

 

 

CONTAINERS & PACKAGING — 0.0% 12

  

 

Constar International, Inc., ADR 1,9

    4        —          0.0  

Rock-Tenn Co., Class A

    —   11       18,176        0.0 12  
   

 

 

   

 

 

 
      18,176        0.0 12  

METALS & MINING — 0.1%

  

 

Wolverine Tube, Inc., ADR, 1,9

    8        150,174        0.1  
   

 

 

   

 

 

 

PAPER & FOREST PRODUCTS — 0.6%

  

 

New Holdco 1,9

    6        523,140        0.5  

Resolute Forest Products, (Canada) 1

    10        134,014        0.1  
   

 

 

   

 

 

 
      657,154        0.6   

Total Materials

      916,194        0.8   
   

 

 

   

 

 

 

UTILITIES — 0.7%

  

Independent Power Producers & Energy Traders — 0.7%

  

Dynegy, Inc. 1

    39        746,070        0.7   
   

 

 

   

 

 

 

Total Common Stocks

     

(Cost $6,011,153)

      2,454,278        2.2   
   

 

 

   

 

 

 

WARRANTS — 0.1%

  

CONSUMER DISCRETIONARY — 0.1%

  

AUTOMOBILES — 0.1%

  

General Motors Co., expiring 07/10/16 1

    8        147,634        0.1  
   

 

 

   

 

 

 

SPECIALTY RETAIL — 0.0%

  

Neebo, Inc., expiring 06/20/19 1,9

    5        —          0.0  
   

 

 

   

 

 

 

Total Consumer Discretionary

      147,634        0.1   
   

 

 

   

 

 

 
     

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   
   

 

 

   

 

 

 

Total Equity Investments

     

(Cost $10,371,088)

      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  
   

 

 

   

 

 

 

TOTAL INVESTMENTS

     

(Cost $153,526,093)

      151,762,380        136.3   
   

 

 

   

 

 

 

Preferred Stock and Liabilities in Excess of Other Assets

      (40,417,940     (36.3
   

 

 

   

 

 

 

Net Assets Applicable to Common Stockholders

    $ 111,344,440        100.0
   

 

 

   

 

 

 

 

ADR   American Depositary Receipt
Co   Company
DIP   Debtor-in-Possession
Guar   Guaranteed
Jr   Junior
Mtg   Mortgage
Nt   Note
Pfd   Preferred
PIK   Payment in-kind
Sec’d   Secured
Sr   Senior
Sub   Subordinate
Unsec’d   Unsecured
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.

4  

Defaulted security.

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


Table of Contents

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


Table of Contents

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 Officer’s 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 Officer’s 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.

 

 

 

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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.

 

 

 

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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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s total liabilities (not including the preferred stock) from the Fund’s 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.

 

 

 

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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 Fund’s 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 company’s 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 Fund’s securities. JPMorgan Funds Management, Inc. (“JPMFM” or the Fund’s “Administrator”) has established a Valuation Committee (“VC”) that is comprised of senior representatives from JPMFM, J.P. Morgan Investment Management Inc. (“JPMIM” or the Fund’s “Advisor”), a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc. (“JPMAM”), which is a wholly-owned subsidiary of JPMorgan Chase & Co. (“JPMorgan”), JPMAM’s Legal and Compliance, JPMAM’s Risk Management and the Fund’s Chief Compliance Officer. The VC’s responsibilities include making determinations regarding Level 3 fair value measurements (“Fair Values”) and/or providing recommendations for approval to the Board’s Audit and Valuation Committee, in accordance with the Fund’s 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

 

 

 

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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 Fund’s 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 Fund’s own assumptions in determining the fair value of investments)

 

A financial instrument’s 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  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

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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  
 

 

 

   

 

 

   

 

 

   

 

 

 
(a)    

Value is zero.

 

There were no transfers between Levels 1 and 2 during the year ended December 31, 2012.

 

 

 

32


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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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(a)    

Value is zero.

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.

 

 

 

 

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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 Fund’s 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.

 

 

 

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  B.   FEDERAL TAXES    It is the Fund’s 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 Fund’s conclusions may be subject to future review based on changes in, or the interpretation of, the accounting standards or tax laws and regulations. The Fund’s 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 Fund’s 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 Fund’s 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

 

 

 

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borrower. In contrast, the Fund has direct rights against the borrower on a loan when it purchases an assignment; provided, however, that the Fund’s 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 Fund’s 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

 

 

 

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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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s administrative services contract through December 31, 2012.

 

JPMorgan Chase Bank, N.A. (“JPMCB”), a wholly-owned subsidiary of JPMorgan serves as the Fund’s 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

 

 

 

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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 Fund’s 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 Fund’s 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 Officer’s 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   

 

 

 

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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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 market’s 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 Fund’s 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.

 

 

 

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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 Fund’s 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

 

 

 

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Tax Letter (Unaudited)

 

 

Certain tax information for the Fund is required to be provided to shareholders based upon the Fund’s 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 Fund’s fiscal year ended December 31, 2012.

 

 

 

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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 Christie’s

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)

 

 

 

 

 

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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)

 

 

 

 

 

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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 Fund’s 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.

 

 

 

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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 MetLife’s 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.

 

 

 

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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 Board’s 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 Board’s 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 subcommittee’s 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 Fund’s performance compared to the performance of the Fund’s peers and benchmarks and analyses by the Advisor of the Fund’s 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 Fund’s 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 Advisor’s 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 Advisor’s risk governance model and reports showing the Advisor’s 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 Advisor’s integrity and the Advisor’s responsiveness to questions or concerns raised by them, including the Advisor’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Fund.

 

 

 

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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 Advisor’s 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 fund’s investment portfolio. The Directors found that, based upon the size of the Fund, breakpoints were not warranted for the Fund. The Directors also considered management’s 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 Fund’s 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 Advisor’s 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 Advisor’s 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 Advisor’s 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 Lipper’s methodology for selecting closed end funds in the Fund’s Universe Group. As part of this review, the Directors also reviewed the Fund’s 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 Fund’s 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.

 

 

 

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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 Fund’s 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 Fund’s advisory fees and expense ratios are summarized below:

 

The Directors noted that the Fund’s 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 Adviser’s 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

 

 

 

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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 Fund’s 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 Fund’s Form N-Qs are available, without charge, on the SEC’s website at www.sec.gov. The Fund’s Form N-Qs may be reviewed and copied at the SEC’s 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 Fund’s 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 Fund’s website.

 

Statement of Additional Information

 

The Fund does not make available copies of its Statement of Additional Information because the Fund’s shares are not continuously offered, which means that the Statement of Additional Information has not been updated after completion of the Fund’s 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 Fund’s website at www.phf-hy.com and (ii) on the SEC’s website at www.sec.gov.

 

Dividend Reinvestment Plan

 

The Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Agent’s 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 Agent’s 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.

 

 

 

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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   No
For joint marketing with other financial companies   No   We don’t share

For our affiliates’ everyday business purposes –

information about your transactions and experiences

  No   We don’t share

For our affiliates’ everyday business purposes –

information about your creditworthiness

  No   We don’t share
For nonaffiliates to market to you   No   We don’t share

 

 

   
Questions?   Call 1-877-217-9502 or go to www.pacholder.com

 


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Page 2

   

 

 

Who we are
Who is providing this notice?   Pacholder High Yield Fund, Inc.

 

What we do
How does Pacholder High Yield Fund, Inc. protect my personal information?   To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. 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.
How does Pacholder High Yield Fund, Inc. collect my personal information?  

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.

Why can’t I limit all sharing?  

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.

 

Definitions
Affiliates  

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.

Nonaffiliates  

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  

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

 

n   Pacholder High Yield Fund, Inc. doesn’t jointly market.


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ITEM 2. CODE OF ETHICS.

Disclose whether, as of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, explain why it has not done so.

The registrant must briefly describe the nature of any amendment, during the period covered by the report, to a provision of its code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item. The registrant must file a copy of any such amendment as an exhibit pursuant to Item 12(a)(1), unless the registrant has elected to satisfy paragraph (f) of this Item by positing its code of ethics on its website pursuant to paragraph (f)(2) of this Item, or by undertaking to provide its code of ethics to any person without charge, upon request, pursuant to paragraph (f)(3) of this Item.

If the registrant has, during the period covered by the report, granted a waiver, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or third party, that relates to one or more items set forth in paragraph (b) of this Item, the registrant must briefly describe the nature of the waiver, the name of the person to whom the waiver was granted, and the date of the waiver.

The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer and principal financial officer. There were no amendments to the code of ethics or waivers granted with respect to the code of ethics in the period covered by the report.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a) (1) Disclose that the registrant’s board of directors has determined that the registrant either:

 

  (i) Has at least one audit committee financial expert serving on its audit committee; or

 

  (ii) Does not have an audit committee financial expert serving on its audit committee.

The Registrant’s Board of Trustees has determined that the Registrant has at least one audit committee financial expert serving on its audit committee. The Securities and Exchange Commission has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liabilities that are greater than the duties, obligations and liabilities imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.

(2) If the registrant provides the disclosure required by paragraph (a)(1)(i) of this Item, it must disclose the name of the audit committee financial expert and whether that person is “independent.” In order to be considered “independent” for purposes of this Item, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee:

(i) Accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer; or

(ii) Be an “interested person” of the investment company as defined in Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)).

The audit committee financial expert is Mitchell M. Merin. He is not an “interested person” of the Registrant and is also “independent” as defined by the U.S. Securities and Exchange Commission for purposes of audit committee financial expert determinations.

(3) If the registrant provides the disclosure required by paragraph (a)(1)(ii) of this Item, it must explain why it does not have an audit committee financial expert.

Not applicable.


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ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Disclose, under the caption Audit Fees, the aggregate fees billed for each of the last two fiscal years for professional

services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.

 

AUDIT FEES

     
2012 – $89,500  
2011 – $70,000  

(b) Disclose, under the caption Audit-Related Fees, the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category.

 

AUDIT-RELATED FEES

     
2012 – $25,600  
2011 – $30,800  

Audit-related fees consists of semi-annual financial statement reviews and security count procedures performed as required under Rule 17f-2 of the Investment Company Act of 1940 during the Registrant’s fiscal year.

(c) Disclose, under the caption Tax Fees, the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category.

 

TAX FEES

     
2012 – $15,900  
2011 – $13,250  

The tax fees consist of fees billed in connection with preparing the federal regulated investment company income tax returns for the Registrant for the tax years ended December 31, 2012 and 2011, respectively.

For the last fiscal year, no tax fees were required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

(d) Disclose, under the caption All Other Fees, the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category.

 

ALL OTHER FEES

     
2012 – Not applicable  
2011 – Not applicable  

(e) (1) Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.

Pursuant to the Registrant’s Audit Committee Charter and written policies and procedures for the pre-approval of audit and non-audit services (the “Pre-approval Policy”), the Audit Committee pre-approves all audit and non-audit services performed by the Registrant’s independent public registered accounting firm for the Registrant. In addition, the Audit Committee pre-approves the auditor’s engagement for non-audit services with the Registrant’s investment adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any Service Affiliate in accordance with paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, if the engagement relates directly to the operations and financial reporting of the Registrant. Proposed services may be pre-


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approved either 1) without consideration of specific case-by-case services or 2) require the specific pre-approval of the Audit Committee. Therefore, initially the Pre-approval Policy listed a number of audit and non-audit services that have been approved by the Audit Committee, or which were not subject to pre-approval under the transition provisions of Sarbanes-Oxley Act of 2002 (the “Pre-approval List”). The Audit Committee annually reviews and pre-approves the services included on the Pre-approval List that may be provided by the independent public registered accounting firm without obtaining additional specific pre-approval of individual services from the Audit Committee. The Audit Committee adds to, or subtracts from, the list of general pre-approved services from time to time, based on subsequent determinations. All other audit and non-audit services not on the Pre-approval List must be specifically pre-approved by the Audit Committee.

One or more members of the Audit Committee may be appointed as the Committee’s delegate for the purposes of considering whether to approve such services. Any pre-approvals granted by the delegate will be reported, for informational purposes only, to the Audit Committee at its next scheduled meeting. The Audit Committee’s responsibilities to pre-approve services performed by the independent public registered accounting firm are not delegated to management.

(2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

     
2012 – 0.0%  
2011 – 0.0%  

(f) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

None.

(g) Disclose the aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant.

The aggregate non-audit fees billed by the independent registered public accounting firm for services rendered to the Registrant, and rendered to Service Affiliates, for the last two calendar year ends were:

 

     
2012 – $31.6 million  
2011 – $33.6 million  

These amounts also include the aggregate non audit fees billed by the Independent Registered Public Accounting firm for services rendered to J.P. Morgan Chase & Co. (“JPMC”) and certain related entities.

(h) Disclose whether the registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

The Registrant’s Audit Committee has considered whether the provision of the non-audit services that were rendered to Service Affiliates that were not pre-approved (not requiring pre-approval) is compatible with maintaining the independent public registered accounting firm’s independence. All services provided by the independent public registered accounting firm to the Registrant or to Service Affiliates that were required to be pre-approved were pre-approved as required.


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ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

(a) If the registrant is a listed issuer as defined in Rule 10A-3 under the Exchange Act (17CFR 240.10A-3), state whether or not the registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). If the registrant has such a committee, however designated, identify each committee member. If the entire board of directors is acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so state.

The Registrant has a separately-designated standing Audit Committee established by the Board of Directors of the Registrant in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. It is composed of the following Directors, each of whom is not an “interested person” as defined in the Investment Company Act of 1940, as amended:

Mary E. Martinez

Mitchell M. Merin

Frederick W. Ruebeck

James J. Schonbachler

(b) If applicable, provide the disclosure required by Rule 10A-3(d) under the Exchange Act (17CFR 240.10A-3(d)) regarding an exemption from the listing standards for all audit committees.

Not applicable.

ITEM 6. SCHEDULE OF INVESTMENTS.

File Schedule I – Investments in securities of unaffiliated issuers as of the close of the reporting period as set forth in Section 210.12-12 of Regulation S-X, unless the schedule is included as part of the report to shareholders filed under Item 1 of this Form.

Included in Item 1.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

A closed-end management investment company that is filing an annual report on this Form N-CSR must, unless it invests exclusively in non-voting securities, describe the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities, including the procedures that the company uses when a vote presents a conflict between the interests of its shareholders, on the one hand, and those of the company’s investment adviser; principal underwriter; or any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules thereunder) of the company, its investment adviser, or its principal underwriter, on the other. Include any policies and procedures of the company’s investment adviser, or any other third party, that the company uses, or that are used on the company’s behalf, to determine how to vote proxies relating to portfolio securities.

The Registrant has adopted proxy voting policies and procedures, as defined in Item 7 of Form N-CSR. A copy of the policies and procedures is filed as Exhibit 12(a)(3) to this Form. The Board of Directors has delegated to the Fund’s investment adviser (the “Adviser”), proxy voting authority with respect to the Fund’s portfolio securities. To ensure that the proxies of portfolio companies are voted in the best interests of the Fund, the Fund’s Board of Directors has adopted the Adviser’s detailed proxy voting procedures (the “Procedures”) that incorporate guidelines (“Guidelines”) for voting proxies on specific types of issues.

The Adviser and its affiliated advisers are part of a global asset management organization with the capability to invest in securities of issuers located around the globe. Because the regulatory framework and the business cultures and practices vary from region to region, the Guidelines are customized for each region to take into account such variations. Separate Guidelines cover the regions of (1) North America, (2) Europe, Middle East, Africa, Central America and South America, (3) Asia (ex-Japan) and (4) Japan, respectively.

Notwithstanding the variations among the Guidelines, all of the Guidelines have been designed with the uniform objective of encouraging corporate action that enhances shareholder value. As a general rule, in voting proxies of a particular


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security, the Adviser will apply the Guidelines of the region in which the issuer of such security is organized. Except as noted below, proxy voting decisions will be made in accordance with the Guidelines covering a multitude of both routine and non-routine matters that the Adviser and its affiliated advisers have encountered globally, based on many years of collective investment management experience.

To oversee and monitor the proxy-voting process, the Adviser has established a proxy committee and appointed a proxy administrator in each global location where proxies are voted. The primary function of each proxy committee is to review periodically general proxy-voting matters, review and approve the Guidelines annually, and provide advice and recommendations on general proxy-voting matters as well as on specific voting issues. The procedures permit an independent voting service to perform certain services otherwise carried out or coordinated by the proxy administrator.

Although for many matters the Guidelines specify the votes to be cast, for many others, the Guidelines contemplate case-by-case determinations. In addition, there will undoubtedly be proxy matters that are not contemplated by the Guidelines. For both of these categories of matters and to override the Guidelines, the Procedures require a certification and review process to be completed before the vote is cast. That process is designed to identify actual or potential material conflicts of interest (between the Fund on the one hand, and the Fund’s investment adviser or an affiliate of any of the foregoing, on the other hand) and ensure that the proxy vote is cast in the best interests of the Fund. A conflict is deemed to exist when the proxy is for JPMorgan Chase & Co. stock or for J.P. Morgan Funds, or when the proxy administrator has actual knowledge indicating that a JPMorgan affiliate is an investment banker or rendered a fairness opinion with respect to the matter that is the subject of the proxy vote. When such conflicts are identified, the proxy will be voted by an independent third party either in accordance with JPMorgan proxy voting guidelines or by the third party using its own guidelines

When other types of potential material conflicts of interest are identified, the proxy administrator and JPMAM’s Chief Fiduciary Officer will evaluate the potential conflict of interest and determine whether such conflict actually exists, and if so, will recommend how the Adviser will vote the proxy. In addressing any material conflict, the Adviser may take one or more of the following measures (or other appropriate action): removing or “walling off” from the proxy voting process certain Adviser personnel with knowledge of the conflict, voting in accordance with any applicable Guideline if the application of the Guideline would objectively result in the casting of a proxy vote in a predetermined manner, or deferring the vote to or obtaining a recommendation from an third independent party, in which case the proxy will be voted by, or in accordance with the recommendation of, the independent third party.

The following summarizes some of the more noteworthy types of proxy voting policies of the non-U.S. Guidelines:

 

   

Corporate governance procedures differ among the countries. Because of time constraints and local customs, it is not always possible for the Adviser to receive and review all proxy materials in connection with each item submitted for a vote. Many proxy statements are in foreign languages. Proxy materials are generally mailed by the issuer to the sub-custodian which holds the securities for the client in the country where the portfolio company is organized, and there may not be sufficient time for such materials to be transmitted to the Adviser in time for a vote to be cast. In some countries, proxy statements are not mailed at all, and in some locations, the deadline for voting is two to four days after the initial announcement that a vote is to be solicited and it may not always be possible to obtain sufficient information to make an informed decision in good time to vote.

 

   

Certain markets require that shares being tendered for voting purposes are temporarily immobilized from trading until after the shareholder meeting has taken place. Elsewhere, notably emerging markets, it may not always be possible to obtain sufficient information to make an informed decision in good time to vote. Some markets require a local representative to be hired in order to attend the meeting and vote in person on our behalf, which can result in considerable cost. The Adviser also considers the cost of voting in light of the expected benefit of the vote. In certain instances, it may sometimes be in the Fund’s best interests to intentionally refrain from voting in certain overseas markets from time to time.

 

   

Where proxy issues concern corporate governance, takeover defense measures, compensation plans, capital structure changes and so forth, the Adviser pays particular attention to management’s arguments for promoting the prospective change. The Adviser’s sole criterion in determining its voting stance is whether such changes will be to the economic benefit of the beneficial owners of the shares.

 

   

The Adviser is in favor of a unitary board structure of the type found in the United Kingdom as opposed to tiered board structures. Thus, the Adviser will generally vote to encourage the gradual phasing out of tiered board structures, in favor of unitary boards. However, since tiered boards are still very prevalent in markets outside of the United Kingdom, local market practice will always be taken into account.

 

   

The Adviser will use its voting powers to encourage appropriate levels of board independence, taking into account local market practice.


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The Adviser will usually vote against discharging the board from responsibility in cases of pending litigation, or if there is evidence of wrongdoing for which the board must be held accountable

 

   

The Adviser will vote in favor of increases in capital which enhance a company’s long-term prospects. The Adviser will also vote in favor of the partial suspension of preemptive rights if they are for purely technical reasons (e.g., rights offers which may not be legally offered to shareholders in certain jurisdictions). However, the Adviser will vote against increases in capital which would allow the company to adopt “poison pill” takeover defense tactics, or where the increase in authorized capital would dilute shareholder value in the long term.

 

   

The Adviser will vote in favor of proposals which will enhance a company’s long-term prospects. The Adviser will vote against an increase in bank borrowing powers which would result in the company reaching an unacceptable level of financial leverage, where such borrowing is expressly intended as part of a takeover defense, or where there is a material reduction in shareholder value.

 

   

The Adviser will generally vote against anti-takeover devices.

 

   

Where social or environmental issues are the subject of a proxy vote, the Adviser will consider the issue on a case-by-case basis, keeping in mind at all times the best economic interests of its clients.

 

   

With respect to Asia, for routine proxies (e.g., in respect of voting at the Annual General Meeting of Shareholders) the Adviser’s position is to neither vote in favor or against. For Extraordinary General Meetings of Shareholders, however, where specific issues are put to a shareholder vote, these issues are analyzed by the respective country specialist concerned. A decision is then made based on his or her judgment.

The following summarizes some of the more noteworthy types of proxy voting policies of the U.S. Guidelines:

 

   

The Adviser considers votes on director nominees on a case-by-case basis. Votes generally will be withheld from directors who: (a) attend less than 75% of board and committee meetings without a valid excuse; (b) implement or renew a dead-hand poison pill; (c) are affiliated directors who serve on audit, compensation or nominating committees or are affiliated directors and the full board serves on such committees or the company does not have such committees; or (d) ignore a shareholder proposal that is approved for two consecutive years by a majority of either the shares outstanding or the votes cast.

 

   

The Adviser votes proposals to classify boards on a case-by-case basis, but normally will vote in favor of such proposal if the issuer’s governing documents contain each of eight enumerated safeguards (for example, a majority of the board is composed of independent directors and the nominating committee is composed solely of such directors).

 

   

The Adviser also considers management poison pill proposals on a case-by-case basis, looking for shareholder-friendly provisions before voting in favor.

 

   

The Adviser votes against proposals for a super-majority vote to approve a merger.

 

   

The Adviser considers proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan on a case-by-case basis, taking into account such factors as the extent of dilution and whether the transaction will result in a change in control.

 

   

The Adviser votes proposals on a stock option plan based primarily on a detailed, quantitative analysis that takes into account factors such as estimated dilution to shareholders’ equity and dilution to voting power. The Adviser generally considers other management compensation proposals on a case-by-case basis.

 

   

The Adviser also considers on a case-by-case basis proposals to change an issuer’s state of incorporation, mergers and acquisitions and other corporate restructuring proposals and certain social and environmental issue proposals.

 

   

The Adviser reviews Say on Pay proposals on a case by case basis with additional review of proposals where the issuer’s previous year’s proposal received a low level of support.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

PORTFOLIO MANAGEMENT TEAM

The portfolio management team for the Fund is led by William J. Morgan, Managing Director. Mr. Morgan has been the lead portfolio manager for the Fund since June 2000 and has been part of the team responsible for management of the Fund since its inception. Currently, Mr. Morgan is a high-yield team leader and the portfolio manager for accounts in the high yield, aggressive income high yield, and insurance asset BB styles. Mr. Morgan earned a B.A. from Kenyon College and an M.B.A. from Xavier University. James P. Shanahan, Jr., Managing Director, also serves as portfolio manager for the Fund focusing primarily on investments in distressed debt. Mr. Shanahan has been part of the team responsible for the


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management of the Fund since 1988. Mr. Shanahan holds a B.A. from Xavier University and a J.D. from the University of Cincinnati College of Law. James E. Gibson, Vice President, is primarily responsible for trading on behalf of the Fund and has been part of the portfolio management team for the Fund since 1988. Mr. Gibson is one of the principal high yield traders in the Adviser’s U.S. Fixed Income Group. Mr. Gibson holds a B.S. from the University of Cincinnati College of Business Administration in finance. Mr. Morgan, Mr. Shanahan, and Mr. Gibson were officers of the Fund’s former adviser, Pacholder & Company, LLC, since its inception in 1998 and have been officers of and/or associated with the Adviser since March 1, 2005.

OTHER ACCOUNTS MANAGED

As of December 31, 2012, Mr. Morgan was part of the portfolio management team for 10 other mutual funds with a total of approximately $15.2 billion in assets; 15 pooled investment vehicles with a total of approximately $6.4 billion in assets; 15 other accounts with a total of approximately $1.9 million in assets. As of December 31, 2012, Mr. Shanahan was part of the portfolio management team for 10 other mutual funds with a total of approximately $21.1 billion in assets; 13 pooled investment vehicles with a total of approximately $5.1 billion in assets; 14 other accounts with a total of approximately $2.8 billion in assets. As of December 31, 2012, Mr. Gibson was part of the portfolio management team for 4 other mutual funds with a total of approximately $12.6 billion in assets. The Adviser is not paid a performance based fee in connection with the other mutual funds, the pooled investment vehicles or the separate accounts.

POTENTIAL CONFLICTS OF INTEREST

The potential for conflicts of interest exists when a portfolio manager manages other accounts with similar investment objectives and strategies as the Fund (“Similar Accounts”). Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities.

Responsibility for managing the Adviser’s and its affiliates’ clients’ portfolios is organized according to investment strategies within asset classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management group using the same objectives, approach and philosophy. Underlying sectors or strategy allocations within a larger portfolio are likewise managed by portfolio managers who use the same approach and philosophy as similarly managed portfolios. Therefore, portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios and strategies, which minimizes the potential for conflicts of interest.

The Adviser and/or its affiliates may receive more compensation with respect to certain Similar Accounts than that received with respect to the Fund or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for the Adviser and its affiliates or a portfolio manager by providing an incentive to favor these Similar Accounts when, for example, placing securities transactions. In addition, the Adviser or its affiliates could be viewed as having a conflict of interest to the extent that the Adviser or an affiliate has a proprietary investment in Similar Accounts, a portfolio manager has personal investments in Similar Accounts or the Similar Accounts are investment options in the Adviser’s or its affiliates’ employee benefit plans. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of investment opportunities because of market factors or investment restrictions imposed upon the Adviser and its affiliates by law, regulation, contract or internal policies. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as the Adviser or its affiliates may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. The Adviser and its affiliates may be perceived as causing accounts they manage to participate in an offering to increase the Adviser’s and its affiliates’ overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If the Adviser or its affiliates manage accounts that engage in short sales of securities of the type in which the Fund invests, the Adviser or its affiliates could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall.

As an internal policy matter, the Adviser or its affiliates may from time to time maintain certain overall investment limitations on the securities positions or positions in other financial instruments the Adviser or its affiliates will take on behalf of its various clients due to, among other things, liquidity concerns and regulatory restrictions. Such policies may preclude the Fund from purchasing particular securities or financial instruments, even if such securities or financial instruments would otherwise meet the Fund’s objectives.

The goal of the Adviser and its affiliates is to meet their fiduciary obligation with respect to all clients. The Adviser and its affiliates have policies and procedures that seek to manage conflicts. The Adviser and its affiliates monitor a variety


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of areas, including compliance with fund guidelines, review of allocation decisions and compliance with the Adviser’s Codes of Ethics and JPMorgan Chase & Co.’s Code of Conduct. With respect to the allocation of investment opportunities, the Adviser and its affiliates also have certain policies designed to achieve fair and equitable allocation of investment opportunities among its clients over time. For example:

Orders for the same equity security traded through a single trading desk or system are aggregated on a continual basis throughout each trading day consistent with the Adviser’s and its affiliates’ duty of best execution for its clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders generally will be allocated among the participating accounts on a pro-rata average price basis, subject to certain limited exceptions. For example, accounts that would receive a de minimis allocation relative to their size may be excluded from the order. Another exception may occur when thin markets or price volatility require that an aggregated order be completed in multiple executions over several days. If partial completion of the order would result in an uneconomic allocation to an account due to fixed transaction or custody costs, the Adviser and its affiliates may exclude small orders until 50% of the total order is completed. Then the small orders will be executed. Following this procedure, small orders will lag in the early execution of the order, but will be completed before completion of the total order.

Purchases of money market instruments and fixed income securities cannot always be allocated pro-rata across the accounts with the same investment strategy and objective. However, the Adviser and its affiliates attempt to mitigate any potential unfairness by basing non-pro rata allocations traded through a single trading desk or system upon an objective predetermined criteria for the selection of investments and a disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of the Adviser or its affiliates so that fair and equitable allocation will occur over time.

PORTFOLIO MANAGER COMPENSATION

The portfolio managers’ total compensation program includes a base salary fixed from year to year and a variable performance bonus consisting of cash incentives and restricted stock and may include mandatory notional investments (as described below) in selected funds advised by the Adviser or its affiliates. These elements reflect individual performance and the performance of the Adviser’s business as a whole.

The portfolio managers’ performance is formally evaluated annually based on a variety of factors including the aggregate size and blended performance of the portfolios a portfolio manager manages. Individual contribution relative to client goals carries the highest impact. Portfolio manager compensation is primarily driven by meeting or exceeding clients’ risk and return objectives, relative performance to competitors or competitive indices and compliance with firm policies and regulatory requirements. In evaluating a portfolio manager’s performance with respect to the funds he manages, the funds’ pre-tax performance is compared to the appropriate market peer group and to each fund’s benchmark over one, three and five year periods (or such shorter time as the portfolio manager has managed a fund). Investment performance is generally more heavily weighted to the long-term.

Awards of restricted stock are granted as part of an employee’s annual performance bonus and comprise from 0% to 35% of a portfolio manager’s total bonus. As the level of incentive compensation increases, the percentage of compensation awarded in restricted stock also increases. Up to 50% of the restricted stock portion of a portfolio manager’s bonus may instead be subject to mandatory notional investment in selected mutual funds advised by the Adviser or its affiliates. When these awards vest over time, the portfolio manager receives cash equal to the market value of the notional investment in the selected funds.

SECURITIES OWNERSHIP OF PORTFOLIO MANAGEMENT TEAM

Information concerning ownership of securities of the Fund owned by Mr. Morgan, Mr. Shanahan and Mr. Gibson as of

December 31, 2012 is set forth below:

William J. Morgan: $500,001 - $1,000,000

James P. Shanahan, Jr.: $100,001 - $500,000

James E. Gibson: $100,001 - $500,000


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ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

(a) If the registrant is a closed-end management investment company, provide the information specified in paragraph (b) of this Item with respect to any purchase made by or on behalf of the registrant or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the registrant’s equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act (15 U.S.C. 78 1 ).

There were no purchases covered by this Item during the period covered by this report.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Describe any material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item.

No material changes to report.

ITEM 11. CONTROLS AND PROCEDURES.

(a) Disclose the conclusions of the registrant’s principal executive and principal financial officers, or persons performing similar functions, regarding the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)).

The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Disclose any change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

There were no changes in the Registrant’s internal control over financial reporting that occurred during the last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

ITEM 12. EXHIBITS.

(a) File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated.

(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

Code of Ethics applicable to its Principal Executive and Principal Financial Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 attached hereto.

The Registrant has adopted proxy voting policies and procedures, as defined in Item 7 of Form N-CSR. A copy of the policies and procedures is filed as Exhibit 12(a)(3) to this Form.


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(a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2).

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto.

(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons.

Not applicable.

(b) A separate or combined certification for each principal executive officer and principal officer of the registrant as required by Rule 30a-2(b) under the Act of 1940.

Certifications pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto.


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SIGNATURES

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

 

Pacholder High Yield Fund, Inc.
By:  

/s/ Patricia A. Maleski

  Patricia A. Maleski
  President and Principal Executive Officer
  March 6, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:  

/s/ Patricia A. Maleski

  Patricia A. Maleski
  President and Principal Executive Officer
  March 6, 2013

 

By:  

/s/ Joy C. Dowd

  Joy C. Dowd
  Treasurer and Principal Financial Officer
  March 6, 2013
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