P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Schedule of Portfolio Investments (concluded)
As of June 30, 2013 (Unaudited)
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Description
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Shares (000)
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Value
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Percent
of Net
Assets*
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PAPER & FOREST PRODUCTS — 0.5%
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New Holdco
1,9
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$
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6
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$
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523,140
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0.5
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%
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Total Materials
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687,685
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0.6
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UTILITIES — 0.4%
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INDEPENDENT POWER PRODUCERS & ENERGY TRADERS — 0.4%
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Dynegy, Inc.
1
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20
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451,000
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0.4
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Total Common Stocks
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(Cost $3,778,850)
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1,967,442
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1.8
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WARRANTS — 0.1%
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CONSUMER DISCRETIONARY — 0.1%
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AUTOMOBILES — 0.1%
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General Motors Co., expiring 07/10/16
1
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8
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181,704
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0.1
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%
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SPECIALTY RETAIL — 0.0%
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Neebo, Inc., expiring 06/20/19
1,9
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5
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—
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0.0
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Total Consumer Discretionary
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181,704
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0.1
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INDUSTRIALS — 0.0%
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MARINE — 0.0%
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General Maritime Corp.,
expiring 05/17/17
1,9
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—
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11
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—
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0.0
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Total Warrants
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(Cost $160,930)
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181,704
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0.1
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Total Equity Investments
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(Cost $8,330,259)
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5,073,139
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4.6
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SHORT-TERM INVESTMENT — 2.2%
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INVESTMENT COMPANY — 2.2%
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JPMorgan Prime Money Market Fund, Institutional Class Shares,
0.030%
5,13
(Cost $2,375,532)
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2,376
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2,375,532
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2.2
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TOTAL INVESTMENTS
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(Cost $155,647,114)
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151,583,879
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138.8
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Preferred Stock and Liabilities in Excess of Other Assets
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(42,383,208
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)
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(38.8
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)
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Net Assets Applicable to Common Stockholders
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$
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109,200,671
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100.0
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%
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ADR
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American Depositary Receipt
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VAR
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Variable Rate Security. The interest rate shown is the rate in effect as of June 30, 2013.
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*
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Applicable to common stockholders.
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1
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Non-income
producing security.
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2
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Security is exempt from registration under Rule 144A of the Securities Act of 1933. 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 $52,907,130 and 48.4% of net assets applicable to common
stockholders.
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5
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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.
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9
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Security deemed to be illiquid. These securities amounted to $3,635,971 and 3.3% of net assets applicable to common stockholders.
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10
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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.
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11
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Amount rounds to less than one thousand (par or shares).
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12
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Amount rounds to less than 0.1%.
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13
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The rate shown is the current yield as of June 30, 2013.
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14
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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, if applicable, reflects the next call date. The coupon rate shown is the rate in effect as of June 30, 2013.
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15
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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 June 30, 2013.
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16
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Security is distressed as of June 30, 2013. The rate at which income is accrued on the security is lower than the stated PIK coupon rate.
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^
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All or a portion of the security is unsettled as of June 30, 2013. Unless otherwise indicated, the coupon rate is undetermined. The coupon rate shown may
not be accrued for the entire position.
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See Notes to Financial Statements.
26
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Statement of Assets and Liabilities
As of June 30,
2013 (Unaudited)
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ASSETS:
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Investments in
non-affiliates,
at value
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$
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149,208,347
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Investments in affiliates, at value
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2,375,532
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Total investment securities, at value
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151,583,879
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Cash
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738,968
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Receivables:
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Investment securities sold
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358,045
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Interest and dividends from
non-affiliates
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2,403,673
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Dividends from affiliates
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72
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Other assets
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9,156
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Total Assets
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155,093,793
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LIABILITIES:
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Payables:
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Dividends on preferred stock
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738
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Investment securities purchased
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2,558,482
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Accrued liabilities:
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Investment advisory fees
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173,624
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Administration fees
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9,986
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Custodian and accounting fees
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24,730
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Directors’ and Chief Compliance Officer’s fees
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347
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Audit fees
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89,572
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Other
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35,643
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Total Liabilities
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2,893,122
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Less: Outstanding Preferred Stock (1,720 shares at $25,000 per share) at liquidation value
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$
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43,000,000
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Net Assets applicable to common shareholders
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$
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109,200,671
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NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
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Common Stock, $0.01 par value; 49,996,320 shares authorized, 12,993,142 shares issued and outstanding
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$
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129,931
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Capital in excess of par
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138,417,173
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Accumulated undistributed (distributions in excess of) net investment income
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(292,992
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)
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Accumulated net realized gains (losses)
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(24,990,206
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)
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Net unrealized appreciation (depreciation)
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(4,063,235
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)
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Total Net Assets applicable to common shareholders
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$
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109,200,671
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Shares Outstanding
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12,993,142
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Net Asset Value per Common Share ($109,200,671/12,993,142)
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$
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8.40
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Cost of investments in
non-affiliates
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$
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153,271,582
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Cost of investments in affiliates
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2,375,532
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See Notes to Financial Statements.
Statement of Operations
For the Six Months Ended June 30, 2013 (Unaudited)
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INVESTMENT INCOME:
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Interest income from
non-affiliates
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$
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5,643,219
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Dividend income from
non-affiliates
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111,733
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Dividend income from affiliates
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541
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Total investment income
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5,755,493
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EXPENSES:
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Investment advisory fees (Note 5)
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983,638
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Administration fees (Note 5)
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77,689
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Custodian and accounting fees (Note 5)
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28,719
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Audit fees
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65,671
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Legal fees
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21,499
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Directors’ and Chief Compliance Officer’s fees
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678
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Printing and mailing costs
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68,011
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Transfer agent fees
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8,702
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Stock exchange listing fees
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9,893
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Other
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17,177
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Operating expenses
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1,281,677
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Commissions on auction rate preferred stock
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14,716
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Total expenses
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1,296,393
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Less amounts waived (Note 5)
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(1,867
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)
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Net expenses
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1,294,526
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Net investment income (loss)
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4,460,967
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REALIZED/UNREALIZED GAINS (LOSSES):
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Net realized gain (loss) on transactions from investments in
non-affiliates
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788,674
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Change in net unrealized appreciation/depreciation of:
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|
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Investments in
non-affiliates
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(2,299,522
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)
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Unfunded commitments
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|
|
(400
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)
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|
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|
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Change in net unrealized appreciation/depreciation
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|
|
(2,299,922
|
)
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Net realized/unrealized gains (losses)
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|
(1,511,248
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)
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Change in net assets resulting from operations
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2,949,719
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DISTRIBUTIONS TO PREFERRED STOCKHOLDERS FROM NET INVESTMENT INCOME
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(26,198
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)
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NET INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
RESULTING FROM OPERATIONS
|
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$
|
2,923,521
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|
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|
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|
See Notes to Financial Statements.
27
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Statements of Changes in Net Assets
For the Periods Indicated
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Six Months
Ended
6/30/2013
(Unaudited)
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Year Ended
12/31/2012
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INCREASE/(DECREASE) IN NET ASSETS:
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Operations:
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|
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|
|
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Net investment income (loss)
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$
|
4,460,967
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|
$
|
10,245,385
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|
|
Net realized gain (loss)
|
|
|
788,674
|
|
|
|
2,342,379
|
|
|
Change in net unrealized appreciation/depreciation
|
|
|
(2,299,922
|
)
|
|
|
7,618,936
|
|
|
Distributions to preferred stockholders from net investment income
|
|
|
(26,198
|
)
|
|
|
(58,708
|
)
|
|
|
|
|
|
|
|
|
|
|
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Net increase/(decrease) in net assets resulting from operations applicable to common stockholders
|
|
|
2,923,521
|
|
|
|
20,147,992
|
|
|
|
|
|
|
|
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|
|
DISTRIBUTIONS TO COMMON STOCKHOLDERS FROM:
|
|
|
|
|
|
|
|
|
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Net investment income
|
|
|
(5,130,792
|
)
|
|
|
(10,900,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(5,130,792
|
)
|
|
|
(10,900,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
FUND SHARE TRANSACTIONS (NOTE 2):
|
|
|
|
|
|
|
|
|
|
Value of 7,192 and 17,080 shares issued in reinvestment of dividends to common stockholders in 2013 and 2012, respectively
|
|
|
63,502
|
|
|
|
150,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in net assets derived from fund share transactions
|
|
|
63,502
|
|
|
|
150,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net increase/(decrease) in net assets applicable to common stockholders
|
|
|
(2,143,769
|
)
|
|
|
9,397,860
|
|
|
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
111,344,440
|
|
|
|
101,946,580
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
109,200,671
|
|
|
$
|
111,344,440
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated undistributed (distributions in excess of) net investment income
|
|
$
|
(292,992
|
)
|
|
$
|
403,031
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
28
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Financial Highlights
(Contained below is per share operating performance data for a share of common stock outstanding, total return performance, ratios
to average net assets and other supplemental data. This information has been derived from information provided in the financial statements calculated using average shares outstanding and market price data for the Fund’s shares.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended
June 30,
2013
(Unaudited)
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net asset value, beginning of period
|
|
$
|
8.57
|
|
|
$
|
7.86
|
|
|
$
|
8.65
|
|
|
$
|
7.79
|
|
|
$
|
4.14
|
|
|
$
|
9.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.34
|
|
|
|
0.79
|
|
|
|
0.84
|
|
|
|
0.90
|
|
|
|
0.76
|
|
|
|
1.21
|
|
|
Net realized and unrealized gain/(loss) on investments
|
|
|
(0.11
|
)
|
|
|
0.76
|
|
|
|
(0.74
|
)
|
|
|
0.89
|
|
|
|
3.56
|
|
|
|
(5.18
|
)
|
|
Distributions to preferred stockholders from net investment income
|
|
|
—
|
(16)
|
|
|
—
|
(16)
|
|
|
—
|
(16)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in net asset value resulting from operations
|
|
|
0.23
|
|
|
|
1.55
|
|
|
|
0.10
|
|
|
|
1.78
|
|
|
|
4.31
|
|
|
|
(4.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Stockholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.40
|
)
|
|
|
(0.84
|
)
|
|
|
(0.89
|
)
|
|
|
(0.92
|
)
|
|
|
(0.66
|
)
|
|
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common stockholders
|
|
|
(0.40
|
)
|
|
|
(0.84
|
)
|
|
|
(0.89
|
)
|
|
|
(0.92
|
)
|
|
|
(0.66
|
)
|
|
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
8.40
|
|
|
$
|
8.57
|
|
|
$
|
7.86
|
|
|
$
|
8.65
|
|
|
$
|
7.79
|
|
|
$
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per share, end of period
|
|
$
|
8.48
|
|
|
$
|
8.87
|
|
|
$
|
8.95
|
|
|
$
|
8.45
|
|
|
$
|
7.38
|
|
|
$
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT
RETURN:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on market value per common share
(2)(3)
|
|
|
(0.03
|
%)
|
|
|
9.02
|
%
|
|
|
17.09
|
%
|
|
|
27.90
|
%
|
|
|
126.57
|
%
|
|
|
(47.76
|
%)
|
|
Based on net asset value per common
share
(3)(4)(5)
|
|
|
2.54
|
%
|
|
|
19.93
|
%
|
|
|
0.42
|
%
|
|
|
24.03
|
%
|
|
|
112.51
|
%
|
|
|
(47.98
|
%)
|
|
RATIOS TO AVERAGE NET
ASSETS:
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Expenses (including expenses related to
leverage)
(8)(9)(10)
|
|
|
1.67
|
%
(14)
|
|
|
1.24
|
%
(14)
|
|
|
1.56
|
%
(14)
|
|
|
1.74
|
%
(14)
|
|
|
1.73
|
%
(14)
|
|
|
0.59
|
%
|
|
Applicable to common stockholders
only
(8)(10)(11)
|
|
|
2.31
|
%
(15)
|
|
|
1.74
|
%
(15)
|
|
|
2.17
|
%
(15)
|
|
|
2.43
|
%
(15)
|
|
|
2.70
|
%
(15)
|
|
|
0.99
|
%
|
|
Net Expenses (prior to expenses related to
leverage)
(8)(9)(10)
|
|
|
1.65
|
%
(14)
|
|
|
1.22
|
%
(14)
|
|
|
1.54
|
%
(14)
|
|
|
1.67
|
%
(14)
|
|
|
1.64
|
%
(14)
|
|
|
0.49
|
%
|
|
Applicable to common stockholders
only
(8)(10)(11)
|
|
|
2.28
|
%
(15)
|
|
|
1.71
|
%
(15)
|
|
|
2.14
|
%
(15)
|
|
|
2.34
|
%
(15)
|
|
|
2.56
|
%
(15)
|
|
|
0.82
|
%
|
|
Net investment income
(10)(11)
|
|
|
7.95
|
%
|
|
|
9.47
|
%
|
|
|
9.90
|
%
|
|
|
10.81
|
%
|
|
|
12.80
|
%
|
|
|
16.22
|
%
|
|
SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at end of period, net of preferred stock
|
|
$
|
109,200,671
|
|
|
$
|
111,344,440
|
|
|
$
|
101,946,580
|
|
|
$
|
112,123,086
|
|
|
$
|
100,899,931
|
|
|
$
|
53,537,351
|
|
|
Portfolio turnover rate
(3)(12)
|
|
|
27
|
%
|
|
|
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
|
|
|
|
1,720
|
|
|
Asset coverage per share of preferred stock outstanding at end of
period
(13)
|
|
$
|
88,489
|
|
|
$
|
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
|
|
|
$
|
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
|
|
Not annualized for periods less than one year.
|
|
4
|
|
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.
|
|
5
|
|
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.
|
|
6
|
|
Ratios do not include the effect of dividends to preferred stock.
|
|
7
|
|
See Note 5 in the Notes to Financial Statements.
|
|
8
|
|
Includes earnings credits and interest expense, if applicable, each of which is less than 0.01%, unless otherwise noted.
|
|
9
|
|
Ratios calculated relative to the average net assets of both common and preferred stockholders.
|
|
10
|
|
Annualized for periods less than one year.
|
|
11
|
|
Ratios calculated relative to the average net assets of common stockholders only.
|
|
12
|
|
Portfolio turnover is calculated by dividing the lesser of total purchases or sales of portfolio securities for the reporting period by the monthly average value
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.
|
|
13
|
|
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.
|
|
14
|
|
The Advisor and Administrator voluntarily agreed to waive/reimburse fees during the six months ended June 30, 2013 and 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%, less than 0.01%, 0.03% and 0.17%, respectively.
|
|
15
|
|
The Advisor and Administrator voluntarily agreed to waive/reimburse fees during the
six months ended June 30, 2013 and 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%, less than 0.01%, 0.04% and 0.27%,
respectively.
|
|
16
|
|
Amount rounds to less than $0.01.
|
See Notes
to Financial Statements.
29
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial
Statements (Unaudited)
|
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 (“GAAP”). 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 pricing services or broker-dealers use multiple valuation techniques to determine fair value. In
instances where sufficient market activity exists, the pricing services or broker-dealers 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 pricing services or broker-dealers also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair 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 fair value. Investments in other
open-end
investment
companies are valued at each investment company’s net asset value per share as of the report date.
|
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 these 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.
Securities or other assets for which market quotations are not readily available or for which market quotations are deemed to 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”), JPMorgan’s Legal and Compliance and 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 employs 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 investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on
30
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
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 held by the Fund at June 30, 2013.
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 on 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
|
|
$
|
305,886
|
|
|
$
|
—
|
|
|
$
|
127,962
|
|
|
$
|
433,848
|
|
|
Consumer Staples
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
Financials
|
|
|
134,985
|
|
|
|
—
|
|
|
|
5,838
|
|
|
|
140,823
|
|
|
Industrials
|
|
|
—
|
|
|
|
—
|
|
|
|
254,086
|
|
|
|
254,086
|
|
|
Information Technology
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
Materials
|
|
|
164,545
|
|
|
|
—
|
|
|
|
523,140
|
|
|
|
687,685
|
|
|
Utilities
|
|
|
451,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
451,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks
|
|
|
1,056,416
|
|
|
|
—
|
|
|
|
911,026
|
|
|
|
1,967,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
233,576
|
|
|
|
—
|
|
|
|
200,078
|
|
|
|
433,654
|
|
|
Consumer Staples
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
Financials
|
|
|
217,596
|
|
|
|
1,712,282
|
|
|
|
—
|
|
|
|
1,929,878
|
|
|
Health Care
|
|
|
392,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
392,000
|
|
|
Industrials
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
Information Technology
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
Materials
|
|
|
168,461
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
168,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Stocks
|
|
|
1,011,633
|
|
|
|
1,712,282
|
|
|
|
200,078
|
|
|
|
2,923,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
Quoted prices
|
|
|
Level 2
Other significant
observable inputs
|
|
|
Level 3
Significant
unobservable inputs
|
|
|
Total
|
|
|
Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,498,324
|
|
|
$
|
1,498,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Bond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Bond
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
—
|
|
|
|
27,602,656
|
|
|
|
489,330
|
|
|
|
28,091,986
|
|
|
Consumer Staples
|
|
|
—
|
|
|
|
5,541,326
|
|
|
|
—
|
(a)
|
|
|
5,541,326
|
|
|
Energy
|
|
|
—
|
|
|
|
17,519,534
|
|
|
|
—
|
|
|
|
17,519,534
|
|
|
Financials
|
|
|
—
|
|
|
|
15,705,743
|
|
|
|
32,593
|
|
|
|
15,738,336
|
|
|
Health Care
|
|
|
—
|
|
|
|
10,622,136
|
|
|
|
84,147
|
|
|
|
10,706,283
|
|
|
Industrials
|
|
|
—
|
|
|
|
12,360,837
|
|
|
|
2,466,541
|
|
|
|
14,827,378
|
|
|
Information Technology
|
|
|
—
|
|
|
|
5,767,111
|
|
|
|
—
|
|
|
|
5,767,111
|
|
|
Materials
|
|
|
—
|
|
|
|
14,595,841
|
|
|
|
391,477
|
|
|
|
14,987,318
|
|
|
Telecommunication Services
|
|
|
—
|
|
|
|
11,919,029
|
|
|
|
—
|
|
|
|
11,919,029
|
|
|
Utilities
|
|
|
—
|
|
|
|
5,497,976
|
|
|
|
20,625
|
|
|
|
5,518,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate Bonds
|
|
|
—
|
|
|
|
127,132,189
|
|
|
|
3,484,713
|
|
|
|
130,616,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Assignments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
—
|
|
|
|
5,156,062
|
|
|
|
12,863
|
|
|
|
5,168,925
|
|
|
Consumer Staples
|
|
|
—
|
|
|
|
1,046,681
|
|
|
|
—
|
|
|
|
1,046,681
|
|
|
Energy
|
|
|
—
|
|
|
|
677,455
|
|
|
|
—
|
|
|
|
677,455
|
|
|
Financials
|
|
|
—
|
|
|
|
277,473
|
|
|
|
—
|
|
|
|
277,473
|
|
|
Health Care
|
|
|
—
|
|
|
|
52,082
|
|
|
|
—
|
|
|
|
52,082
|
|
|
Industrials
|
|
|
—
|
|
|
|
992,112
|
|
|
|
—
|
|
|
|
992,112
|
|
|
Information Technology
|
|
|
—
|
|
|
|
1,536,123
|
|
|
|
—
|
|
|
|
1,536,123
|
|
|
Materials
|
|
|
—
|
|
|
|
1,041,002
|
|
|
|
—
|
|
|
|
1,041,002
|
|
|
Telecommunication Services
|
|
|
—
|
|
|
|
267,492
|
|
|
|
—
|
|
|
|
267,492
|
|
|
Utilities
|
|
|
—
|
|
|
|
960,637
|
|
|
|
—
|
|
|
|
960,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loan Assignments
|
|
|
—
|
|
|
|
12,007,119
|
|
|
|
12,863
|
|
|
|
12,019,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
181,704
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
181,704
|
|
|
Industrials
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
—
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants
|
|
|
181,704
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
181,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Company
|
|
|
2,375,532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,375,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments in Securities
|
|
$
|
4,625,285
|
|
|
$
|
140,851,590
|
|
|
$
|
6,107,004
|
|
|
$
|
151,583,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Levels 1 and 2 during the six months ended June 30, 2013.
32
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
The following is a summary of investments for which significant unobservable inputs
(Level 3) were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of
12/31/12
|
|
|
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
06/30/13
|
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
$
|
1,448,757
|
|
|
$
|
—
|
|
|
$
|
122,915
|
|
|
$
|
3,051
|
|
|
$
|
—
|
|
|
$
|
(76,399
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,498,324
|
|
|
Common Stocks — Consumer Discretionary
|
|
|
56,310
|
|
|
|
—
|
|
|
|
40,777
|
|
|
|
—
|
|
|
|
30,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127,962
|
|
|
Common Stocks — Consumer Staples
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Common Stocks — Financials
|
|
|
5,838
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,838
|
|
|
Common Stocks — Industrials
|
|
|
173,562
|
|
|
|
—
|
|
|
|
80,524
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
254,086
|
|
|
Common Stocks — Information Technology
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Common Stocks — Materials
|
|
|
523,140
|
|
|
|
—
|
|
|
|
12,797
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,797
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
523,140
|
|
|
Convertible Bond — Consumer Discretionary
|
|
|
76,923
|
|
|
|
—
|
|
|
|
(77,605
|
)
|
|
|
—
|
|
|
|
682
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Corporate Bonds — Consumer Discretionary
|
|
|
745,398
|
|
|
|
(25,901
|
)
|
|
|
(906
|
)
|
|
|
(3,036
|
)
|
|
|
293,704
|
|
|
|
(662,759
|
)
|
|
|
142,830
|
|
|
|
—
|
|
|
|
489,330
|
|
|
Corporate Bonds — Consumer Staples
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
(19,189
|
)
|
|
|
—
|
|
|
|
19,189
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Corporate Bonds — Financials
|
|
|
141,306
|
|
|
|
—
|
|
|
|
(10,455
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(98,258
|
)
|
|
|
32,593
|
|
|
Corporate Bonds — Health Care
|
|
|
71,479
|
|
|
|
—
|
|
|
|
12,843
|
|
|
|
(175
|
)
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
84,147
|
|
|
Corporate Bonds — Industrials
|
|
|
2,642,434
|
|
|
|
—
|
|
|
|
46,331
|
|
|
|
(2,918
|
)
|
|
|
223,334
|
|
|
|
(270,740
|
)
|
|
|
28,100
|
|
|
|
(200,000
|
)
|
|
|
2,466,541
|
|
|
Corporate Bonds — Materials
|
|
|
519,184
|
|
|
|
—
|
|
|
|
(143,194
|
)
|
|
|
867
|
|
|
|
372,471
|
|
|
|
(357,851
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
391,477
|
|
|
Corporate Bonds — Utilities
|
|
|
29,750
|
|
|
|
—
|
|
|
|
(9,125
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,625
|
|
|
Loan Assignments — Consumer Discretionary
|
|
|
97,631
|
|
|
|
111,707
|
|
|
|
(84,768
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(111,707
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,863
|
|
|
Preferred Stocks — Consumer Discretionary
|
|
|
107,734
|
|
|
|
—
|
|
|
|
92,344
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,078
|
|
|
Preferred Stocks — Consumer Staples
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Preferred Stocks — Industrials
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Preferred Stocks — Information Technology
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Preferred Stocks — Materials
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Warrants — Consumer Discretionary
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
Warrants — Industrials
|
|
|
—
|
(a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,639,446
|
|
|
$
|
85,806
|
|
|
$
|
63,289
|
|
|
$
|
(2,211
|
)
|
|
$
|
940,255
|
|
|
$
|
(1,492,253
|
)
|
|
$
|
170,930
|
|
|
$
|
(298,258
|
)
|
|
$
|
6,107,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2013, which were valued using significant unobservable inputs (Level 3) amounted to $26,878. This amount is included in Change in net unrealized appreciation (depreciation) of investments in
non-affiliates
on the Statement of Operations.
33
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements#
|
|
|
|
|
Fair Value at
6/30/13
|
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Weighted Average)
|
|
|
|
|
$
|
770,176
|
|
|
Market Comparable Companies
|
|
EBITDA Multiple(a)
|
|
|
5.00x - 7.00x (5.64x)
|
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
0% - 30% (11.60%)
|
|
|
|
|
|
30,875
|
|
|
Issuance Price
|
|
Percent of Par
|
|
|
100% (N/A)
|
|
|
|
|
|
7,050
|
|
|
Terms of Plan of Reorganization
|
|
Discount for lack of marketability(b)
|
|
|
25% (N/A)
|
|
|
|
|
|
0
|
|
|
|
|
Discount for potential outcome
|
|
|
100% (N/A)
|
|
|
|
|
|
27,517
|
|
|
Mergers and Acquisitions
|
|
Discount for lack of marketability(b)
|
|
|
25% (N/A)
|
|
|
|
|
|
|
|
|
|
|
Discount for potential outcome
|
|
|
20% (N/A)
|
|
|
|
|
|
0
|
|
|
Discounted Cash Flow
|
|
Probability of Insolvency
|
|
|
100% (N/A)
|
|
|
|
|
|
69,570
|
|
|
Consensus Pricing
|
|
Median Offered quote
|
|
|
$6.00 (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
905,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Discounted Cash Flow
|
|
Discount for lack of marketability(b)
|
|
|
22.50% (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,650
|
|
|
Market Comparable Companies
|
|
EBITDA Multiple(a)
|
|
|
5.50x - 6.80x (6.52x)
|
|
|
|
|
|
|
|
|
|
|
Discount for lack of marketability(b)
|
|
|
20% - 30% (22.06%)
|
|
|
|
|
|
|
|
|
|
|
Probability of Default
|
|
|
97% (N/A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bond
|
|
|
335,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Intrinsic Value
|
|
Issue Price vs. Strike Price
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,494,450
|
|
|
Discounted Cash Flow
|
|
Liquidity Discount
Implied Spread to
Index
|
|
|
4.50% (N/A)
2.00% (N/A)
|
|
|
|
|
|
3,874
|
|
|
|
|
Prepayment Speed
|
|
|
0.00 - 1.00 (0.97)
|
|
|
|
|
|
|
|
|
|
|
Constant Default Rate
|
|
|
7.00 - 14.78 (7.21)
|
|
|
|
|
|
|
|
|
|
|
Yield (Discount Rate of Cash Flows)
|
|
|
75.15% - 125.00% (76.51%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
1,498,324
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,739,162
|
|
|
|
|
|
|
|
|
|
|
#
|
|
The table above does not include Level 3 securities that are valued by brokers and pricing services. At June 30, 2013, the value of these securities was $3,367,842. The
inputs for these securities are not readily available or cannot be reasonably estimated and are generally those inputs described in Note 1.A. The appropriateness of fair values for these securities is monitored on an ongoing basis which may include
results of back testing, unchanged price review, results of broker and vendor due diligence and consideration of macro or security specific events.
|
|
(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, probability of default, default rate, and yield may decrease (increase) the fair value measurement. A significant change
in broker pricing information and prepayment speeds could result in a significantly higher or lower value in such Level 3 instruments.
34
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
|
|
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.
Management has reviewed the Fund’s tax positions for all open tax years and has determined that as of June 30, 3013, no liability for
income tax is required in the Fund’s financials statements for net unrecognized tax benefits. However, management’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.
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 GAAP. 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.
|
|
C.
|
|
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
—
Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are
calculated on a specifically 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 net
of foreign taxes withheld, if any, is recorded on the ex-dividend date or when the Fund first learns of the dividend.
|
|
|
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 ASSIGNMENTS
—
The Fund may invest in loan assignments of all or a portion of the loans. 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 any other persons interpositioned between the Fund and the borrower (“Intermediate Participants”). Although certain loan 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 assignments are vulnerable to market conditions such that economic conditions or other events may reduce
the demand for loan assignments and certain loan 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 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 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
|
35
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
|
|
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 June 30, 2013, the Fund did not have any outstanding unfunded loan commitments.
|
2.
|
|
COMMON STOCK
—
At June 30, 2013, there were 49,996,320 shares of common stock with a $0.01 par value authorized and 12,993,142 shares outstanding.
During the six months ended June 30, 2013 and the year ended December 31, 2012, the Fund issued 7,192 and 17,080 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 June 30, 2013, accrued ARPS dividends were $738.
|
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 ARPS 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 ARPS 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 six months ended June 30, 2013, ranged from 0.03% to 0.195%. The maximum rate as of the
August 7, 2013 auction was 0.06%, 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 six months ended June 30, 2013, aggregated $41,925,825 and
$42,121,031, respectively. During the six months ended June 30, 2013, 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
|
36
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
|
|
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 six months ended June 30, 2013 amounted to $983,638 which calculated to an annualized effective rate of 1.27%. The
advisory fee rate calculated for the one month ended June 30, 2013 was a rate of 1.22%.
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 June 30, 2013, accrued administrative fees were $9,986.
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, if any, 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.
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 six months ended June 30, 2013 was $1,867.
JPMCB provides derivative collateral management services for the Fund. The amounts paid directly to JPMCB by the Fund for these services are
included in Custodian and accounting 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 on 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 June 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
Gross unrealized appreciation on investments
|
|
$
|
9,975,424
|
|
|
Gross unrealized depreciation on investments
|
|
|
(14,038,659
|
)
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) on investments
|
|
$
|
(4,063,235
|
)
|
|
|
|
|
|
|
|
Cost of investments for Federal Tax purposes
|
|
$
|
155,647,114
|
|
Under the Regulated Investment Company
Modernization Act of 2010 (the “Act”), net capital losses recognized by the Fund after December 31, 2010 are 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.
37
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Notes to Financial Statements (Unaudited)
(continued)
At December 31, 2012, the Fund did not have any post-enactment net capital loss carryforwards.
At December 31, 2012, the Fund had
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
|
|
|
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
June 30, 2013, the Fund had no investments in restricted securities other than securities sold to the Fund under Rule 144A under the Securities Act. At June 30, 2013, the Fund held illiquid securities representing 3.3% of net assets
applicable to common stockholders.
|
|
8.
|
|
OTHER
—
The Fund may use related party broker-dealers. For the six months ended June 30, 2013, 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 June 30, 2013, the Fund is a party
to certain securities loans and loan 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.
38
P
ACHOLDER
H
IGH
Y
IELD
F
UND,
I
NC.
Annual Meeting Results (Unaudited)
The Fund held its 2013 annual meeting of shareholders on April 24,
2013, for the purpose of considering and voting upon the following proposals:
The results of voting were as follows (by number of shares):
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|
Proposal 1: For nominees to the Board of Directors
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John F. Finn
1
|
|
|
|
|
|
In favor
|
|
|
10,449,870
|
|
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Against/Withheld
|
|
|
360,813
|
|
|
|
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|
Dr. Matthew
Goldstein
1
|
|
|
|
|
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In favor
|
|
|
10,441,621
|
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Against/Withheld
|
|
|
369,062
|
|
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Robert J.
Higgins
1
|
|
|
|
|
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In favor
|
|
|
10,515,529
|
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Against/Withheld
|
|
|
295,154
|
|
|
|
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Frankie D.
Hughes
1
|
|
|
|
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In favor
|
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|
10,507,883
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Against/Withheld
|
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|
302,800
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Peter C.
Marshall
1
|
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In favor
|
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|
10,462,357
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Against/Withheld
|
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|
348,326
|
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|
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|
Mary E.
Martinez
1
|
|
|
|
|
|
In favor
|
|
|
10,468,124
|
|
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Against/Withheld
|
|
|
342,559
|
|
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|
Marilyn
McCoy
1
|
|
|
|
|
|
In favor
|
|
|
10,443,001
|
|
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Against/Withheld
|
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|
377,682
|
|
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Mitchell M.
Merin
1
|
|
|
|
|
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In favor
|
|
|
10,518,248
|
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|
Against/Withheld
|
|
|
292,435
|
|
|
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|
|
William G. Morton,
Jr.
1
|
|
|
|
|
|
In favor
|
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10,411,648
|
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Against/Withheld
|
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|
399,035
|
|
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Dr. Robert A. Oden,
Jr.
1
|
|
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In favor
|
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10,511,573
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Against/Withheld
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299,110
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Marian U.
Pardo
1
|
|
|
|
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In favor
|
|
|
10,460,554
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Against/Withheld
|
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350,129
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Frederick W.
Ruebeck
2
|
|
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In favor
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1,584
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Against/Withheld
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43
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James J.
Schonbachler
2
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In favor
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1,584
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Against/Withheld
|
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43
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1
|
|
Elected by the holders of the Fund’s Auction Rate Preferred Stock and Common Stock voting together as a single class.
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2
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Elected by holders of the Fund’s Auction Rate Preferred Stock voting separately as a class.
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39
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.pacholder.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 MKT 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.
40