TABLE OF CONTENTS
This report is for shareholder information. This is not a prospectus intended for the use in the purchase or sale of
Fund shares.
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NOT FDIC INSURED
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MAY LOSE VALUE
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NOT BANK GUARANTEED
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©
Copyright 2013. Brookfield Investment Management Inc.
[THIS PAGE INTENTIONALLY LEFT BLANK]
LETTER TO SHAREHOLDERS
Dear Shareholders,
I am pleased to provide the Annual Report for Helios High Yield Fund (the “Fund”) for the fiscal year ended June 30, 2013.
Global capital market performance continued to follow a rather volatile path over the last year, as periods of positive performance were often followed
by intervals of enhanced investor anxiety. Fiscal and political uncertainties dominated headlines through the year, but these concerns were often offset by ongoing global liquidity and continued signs of stabilization and modest growth within the
U.S. economy.
In the most recent installment of the market’s twists and turns, investor sentiment weakened meaningfully toward the end of the
period, following indications the Federal Reserve may begin to taper monetary stimulus later this year. In response, interest rates and bond yields spiked while capital markets faltered. Fortunately, signs of stabilization once again emerged, as the
Federal Reserve more clearly defined the parameters around which monetary stimulus would be narrowed, indicating that such activity would be dependent upon economic growth and that interest rate policy would remain accommodative for the foreseeable
future. We also note that despite the recent increase in interest rates, yields remain near historic lows and remain supportive of the overall economy.
Within this environment, demand for income-producing asset classes was shaped by broader capital market volatility, as positive sentiment turned more
uncertain following the back-up in interest rates. However, fundamentals of these asset classes generally continued to improve, reflecting the ongoing recovery of many developed economies. In particular, corporate credit conditions among high yield
borrowers remained very healthy, supporting the cash flow streams underlying these investments.
Moving forward, we anticipate continued volatility
in the short term, leading to a period of normalizing interest rates and economic growth in the medium term. In this environment, we believe our fundamental, bottom-up approach to investing will be well-suited to identify attractive investment
opportunities.
We remain positively disposed toward high yield investments, as we believe recent volatility has restored value to the market while
robust corporate cash flows and solid credit continue to provide a positive fundamental backdrop. We acknowledge potential challenges to future performance, from uncertain global monetary policy actions and volatile investor sentiment to low nominal
yields and above par pricing in the high yield market. However, yield spreads remain attractive and corporate earnings are generally positive, suggesting high yield bonds will continue to offer a compelling source of current yield.
Importantly, our experience suggests that a diversified portfolio of income producing corporate bonds with a conservative risk profile should support an
attractive dividend stream for investors. We continue to believe the Fund is well-positioned to generate sustainable yields over the course of an entire market cycle.
In addition to performance information, this report provides an overview of market conditions and a discussion of factors affecting the Fund’s
investment performance, together with the Fund’s audited financial statements and schedule of investments as of June 30, 2013.
We welcome
your questions and comments, and encourage you to contact our Investor Relations team at (855) 777-8001 or visit us at www.brookfieldim.com for more information. Thank you for your support.
Sincerely,
Kim G. Redding
President
2013 Annual
Report
1
HELIOS HIGH YIELD FUND
OBJECTIVE & STRATEGY
Helios High Yield Fund (the “Fund”) seeks a primary objective of high current income. The Fund will also seek capital growth to the extent it
is consistent with its primary investment objective. The Fund is a non-diversified fund that will invest primarily in high yield bonds, debentures, notes, corporate loans, convertible debentures and other debt instruments rated below-investment
grade or determined by the Fund’s investment manager to be of comparable quality. The Fund may invest up to 30% of its total assets in the securities, including high yield obligations, of issuers domiciled outside of the United States. The Fund
may also invest up to 10% of its total assets in securities that are the subject of bankruptcy proceedings or in default.
Investment Risks:
Investors in any bond fund should anticipate fluctuations in price. Bond prices and the value of bond funds decline as interest rates rise. Bonds with longer-term maturities generally are more vulnerable to interest rate risk than bonds with
shorter-term maturities. Below-investment grade bonds involve greater credit risk, which is the risk that the issuer will not make interest or principal payments when due. An economic downturn or period of rising interest rates could adversely
affect the ability of issuers, especially issuers of below-investment grade debt, to service primary obligations, and an unanticipated default could cause the Fund to experience a reduction in the value of its shares. Below-investment grade bonds
also are subject to greater price volatility and are less liquid, especially during periods of economic uncertainty or change, than higher-rated debt securities. Leverage creates an opportunity for an increased return to common shareholders, but
unless the income and capital appreciation, if any, on securities acquired with leverage proceeds exceed the costs of the leverage, the use of leverage will diminish the investment performance of the Fund’s shares. Use of leverage also may
increase the likelihood that the net asset value of the Fund and the market value of its common shares will be more volatile, and the yield and total return to common shareholders will tend to fluctuate more in response to changes in interest rates
and creditworthiness.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended June 30, 2013, Helios High Yield Fund (NYSE: HHY) had a total return based on net asset value of 12.28% and a total return
based on market price of 5.12%, which assumes the reinvestment of dividends and is exclusive of brokerage commissions. Based on the NYSE closing price of $9.62 on June 30, 2013, the Fund’s shares had a dividend yield of 9.36%. The dividend
yield is calculated as the annualized amount of the reporting period’s most recent monthly dividend declared divided by the stated stock price.
During the period, the Fund was overweight in Basic Industry, Automotive and the Capital Goods sectors. These allocations benefited performance during
the fiscal year as strong cash flows drove bond prices higher. In particular, an overweight allocation in the Forestry and Paper sectors was beneficial, as was positive security selection in Building Materials. In the Automotive sector, strong
performance by Chrysler and Jaguar Land Rover boosted the Fund’s performance. Capital Goods outperformed due to positive security selection in the Packaging area.
The Fund’s underweights include few, if any, holdings in Banking, Financial Services, and Technology. The underweight in Banking detracted from the
Fund’s performance as the Fund’s more conservative holdings lagged the strong performance in the sector, which is still rebounding from the financial meltdown of 2008. The underweight in Financial Services and Technology proved to be
beneficial for performance as those sectors lagged the overall market. The other underperforming sector was Consumer Cyclical, specifically an overweight in Apparel and Textiles, which lagged the market, coupled with negative security selection in
Department Stores and Food and Drug Retailing where a number of troubled names, which the Fund did not own during the period, saw their bonds rally sharply in the up market.
HIGH YIELD MARKET OVERVIEW
The fiscal year was positive for
risk-oriented investors. Following the third consecutive summer slowdown in May 2012, equity markets and the high yield bond market began the period strongly. Fears of a summer economic slowdown proved to be unfounded and markets moved generally
higher through the summer. Late autumn brought
2
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
concerns about the outcome of the presidential election in the United States which was too close to
call until the last moment. Political risks were heightened by automatic tax increases and federal spending cuts, referred to as the “Fiscal Cliff”, scheduled to take effect January 2013, with commentators suggesting the changes could
trigger a recession. While both parties professed a desire to avoid this situation, Washington’s history of division worried investors. An 11th hour compromise was reached resulting in more modest tax increases, which relieved investors. Focus
quickly turned to the so-called “sequester,” a series of automatic across-the-board spending cuts by the federal government. While compromise was not reached, the spending cuts turned out to be manageable. Toward the end of the Fund’s
fiscal year, Federal Reserve Chairman Ben Bernanke commented that the Fed’s stimulative program of bond buying could end sooner than the market had anticipated. This caused a rush for the exits on the part of fixed income investors and heavy
redemptions from bond mutual funds, including high-yield.
Despite the market’s zigs and zags, the high yield market had a return of 9.57%, as
measured by the BofA/Merrill Lynch U.S. High Yield Master II Index. As is typical in most bull markets, lower quality securities outperformed with CCC-rated bonds returning 14.75% and BB-bonds returning 7.38%. Strong equity markets provided a
tailwind for high yield investors, with the Russell 2000
®
Index up 24.2% for the year ended June 30, 2013. Investors’ risk appetite remained generally stable with Chicago Board
Options Exchange Market (VIX) relatively unchanged. Interest rates, however, were a headwind as the 10-Year U.S. Treasury bond’s rate rose from 1.65% to 2.49% as of June 30, 2013. This rate increase was absorbed by the high yield spread
which fell from 635 basis points to 515 basis points.
Corporate credit has been solid since the 2009 recession and strong underlying fundamentals
persisted into the fiscal year. High yield defaults were extremely modest at 1.1%.
i
Defaults have fluctuated between 1% to 2% since the 2010 recovery which is typical during the mid-part of a
credit cycle. Credit conditions were generally stable, showing a slight decline at the end of the Fund’s fiscal year. The upgrade/downgrade ratio ended at 0.87
ii
indicating only a modest
decline in credit quality as measured by the credit rating agencies. Brookfield remains positively inclined toward credit, supported by generally positive indicators. The volume of lower-rated new issues as a percent of total new issuance ended the
fiscal year at 16.7%.
iii
This number, which can rise to 20% to 30% when companies re-risk, indicates a high level of credit discipline on the part of high yield bond investors. Most lower quality
new issuance has gone to refinance debt. Approximately 62.5% of lower quality issuance went for refinancing, which typically serves to reduce risk in the most volatile part of the market by extending maturities and reducing companies’
dependence on capital markets.
iii
Following a long period of near record inflows into high
yield mutual funds, flows turned sharply negative in June 2013. For the calendar year ended December 31, 2012, high yield investors bought $24.6 billion of high yield mutual funds.
iv
By
contrast, investors redeemed $13.5 billion in June 2013 alone.
iv
Redemptions set an all-time record for the high yield bond market, representing 7.4% of high yield mutual fund assets.
v
OUTLOOK
A surprising aspect about the sharp correction in June 2013 was the nature of the Fed’s comments. The Fed did not say they intended to tighten
credit or raise interest rates, they simply said that their foot may come off the accelerator sooner than the market was anticipating. The wholesale rush for the exits, combined with low trading capital on Wall Street, created the “perfect
storm” for lower markets. Stepping back, however, the correction at the end of the Fund’s fiscal year was similar to other mid-cycle corrections experienced over the past few years, especially in late 2011. A substantive difference is the
record redemptions from high yield funds, including the relatively untested Exchange-Traded Funds (ETF).
Brookfield has noted in prior updates that
the high yield market has historically demonstrated a seasonality of returns; November through May typically representing seasonally strong periods, while June through October is typically more challenging. It is not clear how much of this
correction can be attributed to seasonality.
Taking the longer view, our analysts continue to see responsible behavior on the part of high yield
borrowers, with most companies managing adequate, even abundant, cash balances, maintaining responsible leverage ratios and enjoying adequate operating cash flow, with few examples of “animal spirits” on the part of leveraged buyout
2013 Annual
Report
3
HELIOS HIGH YIELD FUND
arrangers. Somewhat stronger economic growth is absorbing some of the cash cushion companies built in during the recession, however we are not yet seeing companies re-leveraging on a wide scale.
As in past years, we remain concerned about global political and economic risks more than high yield specific risks. As we saw in the Fund’s
fiscal year, macroeconomic risk can transmit quickly and unpleasantly into high yield markets, pushing prices lower. The three primary macroeconomic risks remain the same: the pace of economic expansion, (China and Europe are most concerning), the
risk of fiscal policy error as countries seek to rein in ballooning budget deficits, retirement and healthcare costs, (the U.S. and Europe are most concerning), and the ever present question of tightening monetary policy by either the Federal
Reserve or another central bank. What investors learned this fiscal year is that central banks don’t need to actually tighten credit; simply the prospect of less accommodative policy may cause market corrections.
As noted in past reports, the high yield market is trading at a premium to par which limits upside price potential. While the correction at the end of
the fiscal year pushed prices lower, they still remain above par, albeit less than before. We consequently believe the market has regained some upside price potential at this point. Spreads have widened in the correction and yields have come off
all-time lows. This has restored some value to the market, however spreads remain tighter than they were at the end of the last fiscal year. Consequently, we continue to remain positively disposed toward high yield investments.
Forward-Looking Information
This management discussion
contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements that are based on
various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,”
“anticipate,” “continue,” “should,” “intend,” or similar terms or variations on those terms or the negative of those terms. Although we believe that the expectations contained in any forward-looking statement
are based on reasonable assumptions, we can give no assurance that our expectations will be attained. We do not undertake, and specifically disclaim any obligation, to publicly release any update or supplement to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Disclosure
The Fund’s portfolio holdings are subject to change without notice. The mention of specific securities is not a recommendation or solicitation for
any person to buy, sell or hold any particular security. There is no assurance that the Helios High Yield Fund currently holds these securities.
The BofA/Merrill Lynch U.S. High Yield Master II Index tracks the performance of U.S. dollar denominated below investment-grade corporate debt publicly
issued in the U.S. domestic market. Qualifying securities must have a below investment-grade rating (based on an average of Moody’s, S&P and Fitch) and an investment grade rated country of risk (based on an average of Moody’s, S&P
and Fitch foreign currency long term sovereign debt ratings). In addition, qualifying securities must have at least one year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Original issue
zero coupon bonds, “global” securities (debt issued simultaneously in the Eurobond and U.S. domestic bond markets), 144a securities and pay-in-kind securities, including toggle notes, qualify for inclusion in the Index. Callable perpetual
securities qualify provided they are at least one year from the first call date. Fixed-to-floating rate securities also qualify provided they are callable within the fixed rate period and are at least one year from the last call prior to the date
the bond transitions from a fixed to a floating rate security. DRD-eligible and defaulted securities are excluded from the index.
Performance data
quoted represents past performance results and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. These views represent the opinions of Brookfield Investment Management Inc. and are not
intended to predict or depict the performance of any
4
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
investment. These views are as of the close of business on June 30, 2013 and subject to change based on subsequent developments.
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i
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JP Morgan, High Yield Default Monitor, July 1, 2013 p. 4.
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ii
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JP Morgan, High Yield Default Monitor, July 1, 2013 p. 10.
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iii
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JP Morgan, High Yield Default Monitor, July 1, 2013 p. 11.
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iv
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Credit Suisse “Leveraged Finance Strategy Monthly”, July 2, 2013 p. 2.
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v
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JP Morgan, High-Yield Market Monitor, July 1, 2013 p. 9.
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2013 Annual
Report
5
HELIOS HIGH YIELD FUND
Portfolio Characteristics (Unaudited)
June 30, 2013
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PORTFOLIO STATISTICS
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Annualized dividend yield
1
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9.36
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%
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Weighted average coupon
|
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8.16
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%
|
|
Weighted average life
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5.25 years
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Percentage of leveraged assets
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30.03
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%
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Total number of holdings
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135
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CREDIT QUALITY
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BBB
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2
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%
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BB
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14
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%
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B
|
|
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55
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%
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CCC
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23
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%
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Unrated
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|
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5
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%
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Cash
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1
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%
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|
|
|
|
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Total
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100
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%
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ASSET ALLOCATION
2
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Investment Grade Corporate Bonds
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3
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%
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High Yield Corporate Bonds
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92
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%
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Term Loans, Common Stocks and Warrants
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4
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%
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|
Short Term Investments
|
|
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1
|
%
|
|
|
|
|
|
|
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Total
|
|
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100
|
%
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|
|
|
|
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1
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Dividends may include net investment income, capital gains and/or return of capital. The dividend yield referenced above is calculated as the annualized
amount of the most recent monthly dividend declared divided by June 30, 2013 stock price.
|
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2
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Includes only invested assets; excludes cash.
|
6
Brookfield
Investment Management Inc.
The following notes should be read in conjunction with the accompanying Schedule of Investments.
HELIOS HIGH YIELD FUND
Statement of Assets and Liabilities
June 30, 2013
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Assets:
|
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|
|
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Investments in securities, at value (Note 2)
|
|
$
|
97,620,344
|
|
|
Investments in short term securities, at value
|
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|
1,124,942
|
|
|
|
|
|
|
|
|
Total investments, at value
|
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98,745,286
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Cash
|
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111,350
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Interest and dividends receivable
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1,800,088
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Receivable for investments sold
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549,594
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Prepaid expenses
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16,585
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|
|
|
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|
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Total assets
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101,222,903
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Liabilities:
|
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|
|
Payable for credit facility (Note 7)
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30,400,000
|
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|
Payable for credit facility interest (Note 7)
|
|
|
3,948
|
|
|
Payable for investments purchased
|
|
|
1,212,625
|
|
|
Investment advisory fee payable (Note 4)
|
|
|
58,216
|
|
|
Shareholder servicing fee payable (Note 4)
|
|
|
1,663
|
|
|
Trustees fees payable
|
|
|
2,750
|
|
|
Accrued expenses
|
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|
80,800
|
|
|
|
|
|
|
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Total liabilities
|
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31,760,002
|
|
|
|
|
|
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Net Assets
|
|
$
|
69,462,901
|
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|
|
|
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Composition of Net Assets:
|
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|
Capital stock, at par value ($0.001 par value, unlimited shares authorized) (Note 8)
|
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$
|
6,848
|
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|
Additional paid-in capital (Note 8)
|
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75,793,166
|
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Undistributed net investment income
|
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187,691
|
|
|
Accumulated net realized loss on investment transactions and foreign currency transactions
|
|
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(8,794,817
|
)
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Net unrealized appreciation on investments and foreign currency
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2,270,013
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Net assets applicable to capital stock outstanding
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$
|
69,462,901
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|
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Total investments at cost
|
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$
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96,475,199
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Shares Outstanding and Net Asset Value Per Share:
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Shares outstanding
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6,847,565
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Net asset value per share
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$
|
10.14
|
|
See
Notes to Financial Statements.
2013 Annual
Report
13
HELIOS HIGH YIELD FUND
Statement of Operations
For the Fiscal Year Ended June 30, 2013
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Investment Income (Note 2):
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Interest
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$
|
7,707,213
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Dividends
|
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33,910
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|
|
|
|
|
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Total investment income
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7,741,123
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Expenses:
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|
|
Investment advisory fees (Note 4)
|
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708,828
|
|
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Fund accounting servicing fees (Note 5)
|
|
|
106,188
|
|
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Shareholder service fees (Note 4)
|
|
|
101,261
|
|
|
Trustees’ fees
|
|
|
40,793
|
|
|
Reports to shareholders
|
|
|
40,584
|
|
|
Legal fees
|
|
|
38,735
|
|
|
Audit and tax services
|
|
|
38,000
|
|
|
Insurance
|
|
|
26,865
|
|
|
Registration fees
|
|
|
23,805
|
|
|
Transfer agent fees (Note 5)
|
|
|
16,661
|
|
|
Miscellaneous
|
|
|
9,183
|
|
|
Custodian fees (Note 5)
|
|
|
7,223
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,158,126
|
|
|
Interest expense on credit facility (Note 7)
|
|
|
375,793
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,533,919
|
|
|
Less expenses waived by the investment advisor (Note 4)
|
|
|
(81,009
|
)
|
|
|
|
|
|
|
|
Net expenses
|
|
|
1,452,910
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6,288,213
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain on Investments (Note 2):
|
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
Investments
|
|
|
1,607,243
|
|
|
Foreign currency transactions
|
|
|
(18,292
|
)
|
|
|
|
|
|
|
|
Net realized gain on investments, foreign currency and foreign currency transactions
|
|
|
1,588,951
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
|
|
|
Investments
|
|
|
293,926
|
|
|
Foreign currency and foreign currency transactions
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
Net change in unrealized appreciation on investments and foreign currency transactions
|
|
|
293,852
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on investments and foreign currency transactions
|
|
|
1,882,803
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,171,016
|
|
|
|
|
|
|
|
See
Notes to Financial Statements.
14
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal
Year Ended
June 30, 2013
|
|
|
For the Fiscal
Year Ended
June 30, 2012
|
|
|
Increase (Decrease) in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
6,288,213
|
|
|
$
|
6,231,779
|
|
|
Net realized gain (loss) on investment transactions and foreign currency transactions
|
|
|
1,588,951
|
|
|
|
(203,200
|
)
|
|
Net change in unrealized appreciation (depreciation) on investments
|
|
|
293,852
|
|
|
|
(15,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
8,171,016
|
|
|
|
6,012,741
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Shareholders (Note 2):
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(6,230,324
|
)
|
|
|
(6,431,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock Transactions (Note 8):
|
|
|
|
|
|
|
|
|
|
Reinvestment of distributions
|
|
|
31,261
|
|
|
|
38,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets
|
|
|
1,971,953
|
|
|
|
(379,756
|
)
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
67,490,948
|
|
|
|
67,870,704
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
69,462,901
|
|
|
$
|
67,490,948
|
|
|
|
|
|
|
|
|
|
|
|
|
(including undistributed net investment income of)
|
|
$
|
187,691
|
|
|
$
|
148,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
|
|
|
Reinvested shares
|
|
|
3,045
|
|
|
|
4,059
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Financial Statements.
2013 Annual
Report
15
HELIOS HIGH YIELD FUND
Statement of Cash Flows
For the Fiscal Year Ended June 30, 2013
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,171,016
|
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities
|
|
|
|
|
|
Purchases of long-term portfolio investments
|
|
|
(29,824,429
|
)
|
|
Proceeds from disposition of long-term portfolio investments
|
|
|
27,190,602
|
|
|
Sales of short-term portfolio investments, net
|
|
|
2,577,483
|
|
|
Decrease in interest and dividend receivable
|
|
|
23,488
|
|
|
Decrease in receivable for investments sold
|
|
|
173,716
|
|
|
Decrease in prepaid expenses
|
|
|
341
|
|
|
Increase in payable for credit facility interest
|
|
|
474
|
|
|
Decrease in payable for investments purchased
|
|
|
(4,884
|
)
|
|
Increase in investment advisory fee payable
|
|
|
2,754
|
|
|
Increase in shareholder servicing fee payable
|
|
|
78
|
|
|
Decrease in trustees fee payable
|
|
|
(830
|
)
|
|
Decrease in accrued expenses
|
|
|
(400
|
)
|
|
Net amortization on investments
|
|
|
(101,580
|
)
|
|
Net change in unrealized appreciation on investments
|
|
|
(293,926
|
)
|
|
Net realized gain on investments
|
|
|
(1,607,243
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,306,660
|
|
|
|
|
|
|
|
|
Cash flows used for financing activities:
|
|
|
|
|
|
Distributions paid to shareholders, net of reinvestments
|
|
|
(6,199,063
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(6,199,063
|
)
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
107,597
|
|
|
Cash at the beginning of year
|
|
|
3,753
|
|
|
|
|
|
|
|
|
Cash at the end of year
|
|
$
|
111,350
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
Interest payments for the year ended June 30, 2013, totaled $375,319.
Non-cash
financing activities included reinvestment of distributions $31,261.
See Notes to Financial Statements.
16
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
9.86
|
|
|
$
|
9.92
|
|
|
$
|
9.25
|
|
|
$
|
8.34
|
|
|
$
|
9.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
1
|
|
|
0.92
|
|
|
|
0.91
|
|
|
|
0.93
|
|
|
|
0.67
|
|
|
|
0.67
|
|
|
Net realized and unrealized gain (loss) on investment transactions, futures transactions and swap contracts
|
|
|
0.27
|
|
|
|
(0.03
|
)
|
|
|
0.69
|
|
|
|
0.80
|
|
|
|
(1.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net asset value resulting from operations
|
|
|
1.19
|
|
|
|
0.88
|
|
|
|
1.62
|
|
|
|
1.47
|
|
|
|
(0.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from net investment income
|
|
|
(0.91
|
)
|
|
|
(0.94
|
)
|
|
|
(0.95
|
)
|
|
|
(0.56
|
)
|
|
|
(0.65
|
)
|
|
Return of capital distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions paid
|
|
|
(0.91
|
)
|
|
|
(0.94
|
)
|
|
|
(0.95
|
)
|
|
|
(0.56
|
)
|
|
|
(0.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
10.14
|
|
|
$
|
9.86
|
|
|
$
|
9.92
|
|
|
$
|
9.25
|
|
|
$
|
8.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
9.62
|
|
|
$
|
10.00
|
|
|
$
|
9.90
|
|
|
$
|
8.45
|
|
|
$
|
7.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Return
†
|
|
|
5.12
|
%
|
|
|
11.37
|
%
|
|
|
29.77
|
%
|
|
|
29.31
|
%
|
|
|
(8.56
|
)%
|
|
Ratios to Average Net Assets/Supplementary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s)
|
|
$
|
69,463
|
|
|
$
|
67,491
|
|
|
$
|
67,871
|
|
|
$
|
63,263
|
|
|
$
|
57,050
|
|
|
Operating expenses
|
|
|
1.63
|
%
|
|
|
1.71
|
%
|
|
|
1.65
|
%
|
|
|
1.72
|
%
|
|
|
2.08
|
%
|
|
Interest expense
3
|
|
|
0.53
|
%
|
|
|
0.62
|
%
|
|
|
0.42
|
%
|
|
|
0.11
|
%
|
|
|
0.30
|
%
|
|
Total expenses
2
|
|
|
2.16
|
%
|
|
|
2.33
|
%
|
|
|
2.07
|
%
|
|
|
1.83
|
%
|
|
|
2.38
|
%
|
|
Net expenses, including fee waivers and reimbursement and excluding interest expense
|
|
|
1.52
|
%
|
|
|
1.59
|
%
|
|
|
1.53
|
%
|
|
|
1.63
|
%
|
|
|
1.77
|
%
|
|
Net investment income
|
|
|
8.87
|
%
|
|
|
9.45
|
%
|
|
|
9.36
|
%
|
|
|
7.33
|
%
|
|
|
8.23
|
%
|
|
Net investment income, excluding the effect of fee waivers and reimbursement
3
|
|
|
8.76
|
%
|
|
|
9.33
|
%
|
|
|
9.25
|
%
|
|
|
7.24
|
%
|
|
|
7.92
|
%
|
|
Portfolio turnover rate
|
|
|
28
|
%
|
|
|
24
|
%
|
|
|
46
|
%
|
|
|
67
|
%
|
|
|
20
|
%
|
|
†
|
Total investment return is computed based upon the New York Stock Exchange market price of the Fund’s shares and excludes the effect of broker
commissions. Dividends and distributions are assumed to be reinvested at the prices obtained under the Fund’s dividend reinvestment plan.
|
|
1
|
Per share amounts presented are based on average shares outstanding throughout the period indicated.
|
|
2
|
The Fund’s Shareholder Servicing Agent and Former Adviser contractually agreed to waive their respective fees as discussed in Note 4.
|
|
3
|
Certain re-classifications have been made to the financial highlights for the fiscal year ended June 30, 2009 to conform to the presentation followed in
the preparation of the financial highlights for the years ended June 30, 2010-2013.
|
See Notes to Financial Statements.
2013 Annual
Report
17
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
1. Organization
Helios High Yield Fund (the “Fund”) was organized as a business trust under the laws of the Commonwealth of Massachusetts on June 2, 1998, and
commenced operations on July 31, 1998. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company with its own investment objective.
Brookfield Investment Management Inc. (“BIM” or “Adviser”), a wholly-owned subsidiary of Brookfield Asset Management Inc., is a
registered investment advisor under the Investment Advisers Act of 1940, as amended, and serves as investment adviser to the Fund.
The Fund’s
primary investment objective is to seek a high level of current income with capital growth as a secondary investment objective. No assurance can be given that the Fund’s investment objective will be achieved.
2. Significant Accounting Policies
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Valuation of Investments:
Debt securities, including U.S. government securities, listed corporate bonds, other fixed income and asset-backed
securities, and unlisted securities and private placement securities, are generally valued at the bid prices furnished by an independent pricing service or, if not valued by an independent pricing service, using bid prices obtained from at least two
active and reliable market makers in any such security or a broker-dealer. Short-term debt securities with remaining maturities of sixty days or less are valued at cost with interest accrued or discount accreted to the date of maturity, unless such
valuation, in the judgment of the Adviser’s Valuation Committee, does not represent market value.
Investments in equity securities listed or
traded on any securities exchange or traded in the over-the-counter market are valued at the last trade price as of the close of business on the valuation date. Equity securities for which no sales were reported for that date are valued at
“fair value” as determined in good faith by the Adviser’s Valuation Committee. Investments in open-end registered investment companies, if any, are valued at the net asset value (“NAV”) as reported by those investment
companies.
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has designated
the day to day responsibilities for valuation determinations under these procedures to the Adviser. The Board has reviewed and approved the valuation procedures utilized by the Adviser and regularly reviews the application of the procedures to the
securities in the Fund’s portfolio. Securities are valued using unadjusted quoted market prices, when available, as supplied primarily by third party pricing services or dealers. When price quotations for certain securities are not readily
available or cannot be determined, a significant event has occurred that would materially affect the value of the security, or if the available quotations are not believed to be reflective of the market value by the Adviser, those securities will be
valued at “fair value” as determined in good faith by the Adviser’s Valuation Committee using procedures adopted by and under the supervision of the Fund’s Board of Trustees. The Valuation Committee is comprised of senior members
of the Adviser’s management team. There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund’s NAV.
Fair valuation procedures may be used to value a substantial portion of the assets of the Fund. The Fund may use the fair value of a security to
calculate its NAV when, for example, (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed, (2) trading in a portfolio security is suspended and not resumed prior to the normal
market close, (3) a portfolio security is not traded in significant volume for a
18
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
substantial period, or (4) the Adviser determines that the quotation or price for a portfolio security provided by a broker-dealer or an independent pricing service is inaccurate.
The “fair value” of securities may be difficult to determine and thus judgment plays a greater role in the valuation process. The fair
valuation methodology may include or consider the following guidelines, as appropriate: (1) evaluation of all relevant factors, including but not limited to, pricing history, current market level, supply and demand of the respective security;
(2) comparison to the values and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to the security; (4) other factors relevant to the security which would
include, but not be limited to, duration, yield, fundamental analytical data, the Treasury yield curve, and credit quality.
The values assigned to
fair valued investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Changes in the fair valuation
of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, by an independent pricing service, or based on market quotations. Imprecision in estimating fair
value can also impact the amount of unrealized appreciation or depreciation recorded for a particular portfolio security and differences in the assumptions used could result in a different determination of fair value, and those differences could be
material.
The Fund has established methods of fair value measurements in accordance with GAAP. Fair value denotes the price that the Fund would
receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy has been established to maximize the use of observable market data and minimize
the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that
reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is
summarized in the three broad levels listed below.
|
|
• Level 1 -
|
quoted prices in active markets for identical investments
|
|
|
• Level 2 -
|
quoted prices in markets that are not active or other significant observable inputs (including, but not limited to: quoted prices for similar investments,
quoted prices based on recently executed transactions, 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)
|
The Adviser’s valuation policy, as previously stated, establishes parameters for the sources and types of valuation analysis, as well as, the
methodologies and inputs the Adviser uses in determining fair value, including the use of the Adviser’s Valuation Committee. If the Valuation Committee determines that additional techniques, sources or inputs are appropriate or necessary in a
given situation, such additional work will be undertaken.
To assess the continuing appropriateness of security valuations, the Adviser (or its
third party service provider who is subject to oversight by the Adviser), compares daily its prior day prices, prices on comparable securities and sales prices and challenges those prices that either remain unchanged or exceeds certain tolerance
levels with the third party pricing service or broker source. For those securities valued by fair valuations, the Valuation Committee reviews and affirms the reasonableness of the valuations based on such methodologies and fair valuation
determinations on a regular basis after considering all relevant information that is reasonably available.
2013 Annual
Report
19
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
The inputs or methodology used for valuing investments are not necessarily an indication of the risk
associated with investing in those securities.
The following table summarizes the Fund’s investments categorized in the disclosure hierarchy
as of June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Investment
Grade
Corporate
Bonds
|
|
|
High Yield
Corporate
Bonds
|
|
|
Term Loans
|
|
|
Common
Stocks
|
|
|
Warrants
|
|
|
Short Term
Investment
|
|
|
Total
|
|
|
Level 1 — Quoted Prices
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,776,645
|
|
|
$
|
372,794
|
|
|
$
|
1,124,942
|
|
|
$
|
3,274,381
|
|
|
Level 2 — Quoted Prices in Inactive Markets or Other Significant Observable Inputs
|
|
|
3,356,617
|
|
|
|
90,267,850
|
|
|
|
1,845,613
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,470,080
|
|
|
Level 3 — Significant Unobservable Inputs
|
|
|
—
|
|
|
|
825
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,356,617
|
|
|
$
|
90,268,675
|
|
|
$
|
1,845,613
|
|
|
$
|
1,776,645
|
|
|
$
|
372,794
|
|
|
$
|
1,124,942
|
|
|
$
|
98,745,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides quantitative information about the Fund’s Level 3 values, as well as their inputs, as
of June 30, 2013. The table is not all-inclusive, but provides information on the significant Level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
Assets
|
|
Fair Value as of
June 30, 2013
|
|
|
Valuation
Methodology
|
|
Significant
Unobservable
Input
|
|
Price
|
|
|
High Yield Corporate Bonds
|
|
$
|
825
|
|
|
Discounted cash flows
|
|
Estimated residual value
|
|
$
|
0.01
|
|
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining
fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Securities
|
|
High Yield
Corporate
Bonds
|
|
|
Structured
Notes
|
|
|
Term
Loans
|
|
|
Total
|
|
|
Balance at June 30, 2012
|
|
$
|
25,257,386
|
|
|
$
|
14,734
|
|
|
$
|
256,299
|
|
|
$
|
25,528,419
|
|
|
Accrued Discounts (Premiums)
|
|
|
41,855
|
|
|
|
—
|
|
|
|
5,249
|
|
|
|
47,104
|
|
|
Realized Gain/(Loss)
|
|
|
198,686
|
|
|
|
—
|
|
|
|
—
|
|
|
|
198,686
|
|
|
Change in Unrealized Appreciation
|
|
|
497,991
|
|
|
|
165
|
|
|
|
64,029
|
|
|
|
562,185
|
|
|
Purchases at Cost
|
|
|
59,310
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59,310
|
|
|
Sales proceeds
|
|
|
(7,895,923
|
)
|
|
|
(14,899
|
)
|
|
|
(127,720
|
)
|
|
|
(8,038,542
|
)
|
|
Transfers out of Level 3
|
|
|
(18,158,480
|
)
|
|
|
—
|
|
|
|
(197,857
|
)
|
|
|
(18,356,337
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
825
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses relating to assets still held at the reporting date
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Transfers in and out of Level 3 are due to a decline or an increase in market activity (e.g. frequency of trades), which resulted in a lack of or an increase
in available market inputs to determine price.
|
For the fiscal year ended June 30, 2013, there was no security transfer
activity between Level 1 and Level 2. The basis for recognizing and valuing transfers is as of the end of the period in which transfers occur.
Investment Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized
20
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
gains and losses from securities transactions are calculated on the identified cost basis. Interest
income is recorded on the accrual basis. Discounts and premiums on securities are accreted and amortized, respectively, using the effective yield to maturity method adjusted based on management’s assessment of the collectability of such
interest. Dividend income is recorded on the ex-dividend date.
Taxes:
The Fund intends to continue to meet the requirements of the Internal
Revenue Code of 1986 as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income or excise tax provision is required. The Fund may incur an
excise tax to the extent it has not distributed all of its taxable income on a calendar year basis.
GAAP provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the financial statements. An evaluation of tax positions taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are
“more-likely-than-not” of being sustained by the taxing authority is required. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a
liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. As of June 30, 2013, the Fund has determined that there
are no uncertain tax positions or tax liabilities required to be accrued.
The Fund has reviewed all taxable years that are open for examination
(i.
e.
, not barred by the applicable statute of limitations) by taxing authorities of all major jurisdictions, including the Internal Revenue Service. As of June 30, 2013, open taxable years consisted of the taxable years ended
June 30, 2010 through June 30, 2013. No examination of the Fund’s tax returns is currently in progress.
Expenses:
Expenses
directly attributable to the Fund are charged directly to the Fund, while expenses which are attributable to the Fund and other investment companies advised by the Adviser are allocated among the respective investment companies, including the Fund,
based upon relative net assets.
Dividends and Distributions:
The Fund declares and pays dividends monthly from net investment income. To the
extent that these distributions exceed net investment income, they may be classified as return of capital. The Fund also pays a distribution at least annually from its net realized capital gains, if any. Dividends and distributions are recorded on
the ex-dividend date. All common shares have equal dividend and other distribution rights. A notice disclosing the source(s) of a distribution will be provided if payment is made from any source other than net investment income. Any such notice
would be provided only for informational purposes in order to comply with the requirements of Section 19(a) of the 1940 Act and not for tax reporting purposes. The tax composition of the Fund’s distributions for each calendar year is
reported on IRS Form 1099-DIV.
Dividends from net investment income and distributions from realized gains from investment transactions have been
determined in accordance with Federal income tax regulations and may differ from net investment income and realized gains recorded by the Fund for financial reporting purposes. These differences, which could be temporary or permanent in nature may
result in reclassification of distributions; however, net investment income, net realized gains and losses and net assets are not affected.
Cash
Flow Information:
The Fund invests in securities and distributes dividends and distributions which are paid in cash or are reinvested at the discretion of shareholders. These activities are reported in the Statements of Changes in Net Assets.
Additional information on cash receipts and cash payments is presented in the Statement of Cash Flows. Cash, as used in the Statement of Cash Flows, is the amount reported as “Cash” in the Statements of Assets and Liabilities, and does not
include short-term investments. Accounting practices that do not affect reporting activities on a cash basis include carrying investments at value and accreting discounts and amortizing premiums on debt obligations.
2013 Annual
Report
21
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
3. Risks of Investing in Below-Investment Grade Securities
The Fund has investments in below-investment grade debt securities. Below-investment grade securities involve a higher degree of credit risk than
investment grade debt securities. In the event of an unanticipated default, the Fund would experience a reduction in its income, a decline in the market value of the securities so affected and a decline in the NAV of its shares. During an economic
downturn or period of rising interest rates, highly leveraged and other below-investment grade issuers frequently experience financial stress that could adversely affect their ability to service principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. The market prices of below-investment grade debt securities are generally less sensitive to interest rate changes than higher-rated investments but are more sensitive to adverse economic
or political changes or individual developments specific to the issuer than higher-rated investments. Periods of economic or political uncertainty and change can be expected to result in significant volatility of prices for these securities. Rating
services consider these securities to be speculative in nature.
Below-investment grade securities may be subject to market conditions, events of
default or other circumstances which cause them to be considered “distressed securities.” Distressed securities frequently do not produce income while they are outstanding. The Fund may be required to bear certain extraordinary expenses in
order to protect and recover its investments in certain distressed securities. Therefore, to the extent the Fund seeks capital growth through investment in such securities, the Fund’s ability to achieve current income for its shareholders may
be diminished. The Fund is also subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by distressed securities will eventually be satisfied (e.
g.
, through a liquidation of the
obligor’s assets, an exchange offer or plan of reorganization involving the securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization is adopted with
respect to distressed securities held by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential
than may have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund’s participation in
negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of such securities, the Fund may be restricted from disposing of distressed securities.
4. Investment Advisory Agreement and Related Party Transactions
The Fund entered into an Investment Management and Administration Agreement (the “Advisory Agreement”) with the Adviser under which the Adviser
is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. The Advisory Agreement provides, among other things, that
the Adviser will bear all expenses of its employees and overhead incurred in connection with the performance of its duties under the Advisory Agreement, and will pay all salaries of the Fund’s trustees and officers who are affiliated persons
(as such term is defined in the 1940 Act) of the Adviser. The Advisory Agreement also provides that the Fund shall pay the Adviser a monthly fee for its services at the annual rate of 0.70% of the Fund’s average weekly value of the total assets
of the Fund minus the sum of accrued liabilities (other than the aggregate indebtedness constituting financial leverage).
For the fiscal year ended
June 30, 2013, the Adviser earned $708,828 in investment advisory fees under the Advisory Agreement.
Effective August 26, 2009, the Fund
entered into a Shareholder Servicing Agreement with the Adviser to act as the shareholder servicing agent to the Fund. As compensation for its services, the Fund has agreed to pay the Adviser a fee computed weekly and payable monthly at an
annualized rate of 0.10% of the Fund’s average weekly value of the total assets of the Fund minus the sum of accrued liabilities (other than the aggregate indebtedness constituting financial leverage). The Adviser has contractually agreed to
reduce the shareholder servicing fees with respect to the Fund to an annualized rate of 0.02% of the Fund’s average weekly value of the total assets of the Fund minus the sum of accrued liabilities (other than the aggregate indebtedness
constituting financial leverage).
22
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
For the fiscal year ended June 30, 2013, the Adviser earned $101,261 in shareholder servicing fees
of which $81,009 was waived.
Certain officers and/or Trustees of the Fund are officers and/or directors of the Adviser.
5. Service Agreements
In addition to the services provided
by the Adviser, which are discussed in Note 4 above, effective July 1, 2009, the Fund entered into a Fund Accounting Servicing Agreement with U.S. Bancorp Fund Services, LLC (“USBFS”). For its services, USBFS receives a monthly fee
equal to an annual rate of 0.10% of the first $100 million of average daily net assets; 0.08% of the next $200 million of average daily net assets; and 0.04% of average daily net assets in excess of $300 million, subject to a minimum annual fee of
$80,000 plus certain out of pocket expenses. For the fiscal year ended June 30, 2013, USBFS earned $106,188 in fund accounting servicing fees.
Effective July 1, 2009, the Fund has entered into a Closed-End Fund Custody Agreement with U.S. Bank, N.A. (“USB”). For its services, USB
receives a monthly fee equal to an annual rate of 0.004% of the average daily market value of the Fund’s assets plus portfolio transaction fees, subject to a minimum annual fee of $6,000. For the fiscal year ended June 30, 2013, USB earned
$7,223 in custody fees.
The Fund has contracted for transfer agency and certain shareholder services, including the administration of the
Fund’s Automatic Dividend Reinvestment Plan with Computershare Trust Company, N.A. and Computershare Shareholder Services, Inc. (collectively, the “Transfer Agent”). For the fiscal year ended June 30, 2013, the Transfer Agent
earned $16,661 in transfer agency and registrar fees.
6. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities and U.S. Government securities, for the fiscal year ended June 30, 2013, were
$29,824,429 and $27,190,602, respectively. For the fiscal year ended June 30, 2013, there were no transactions in U.S. Government securities.
7. Borrowings
Credit facility:
The Fund has established a line of credit with BNP Paribas for investment purposes subject to the limitations of the
1940 Act for borrowings by registered investment companies. The Fund pays interest in the amount of 0.80% plus the 3-month London Interbank Offered Rate on the amount outstanding and 0.80% on the line of credit that is unused.
For the fiscal year ended June 30, 2013, the average interest rate paid under the line of credit was 1.11% of the total line of credit amount
available to the Fund.
|
|
|
|
|
|
|
Total line of credit amount available
|
|
$
|
34,000,000
|
|
|
Line of credit outstanding at June 30, 2013
|
|
|
30,400,000
|
|
|
Line of credit amount unused at June 30, 2013
|
|
|
3,600,000
|
|
|
Average balance outstanding during the year
|
|
|
30,400,000
|
|
|
Interest expense incurred on line of credit during the year
|
|
|
375,793
|
|
8. Shares of Beneficial Interest
The Fund is authorized to issue an unlimited number of shares with a par value of $0.001 per share. The Fund’s Board of Trustees in their discretion
may, from time to time without the vote of the Fund’s shareholders, issue shares, in addition to the then issued and outstanding shares and shares held in the treasury, to such party or parties and for such amount and type of consideration,
including cash or property, at such time and on such terms as the Trustees may deem best, subject to the provisions of the 1940 Act. Shares of the Fund do not entitle the holder to preference, preemptive, appraisal, conversion or exchange rights.
Each whole share is entitled to one
2013 Annual
Report
23
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
vote as to any matter on which it is entitled to vote and each fractional share is entitled to a proportionate fractional vote, except that shares held in the treasury of the Fund as of the
record date, as determined in accordance with the By-Laws of the Fund, shall not be voted. There is no cumulative voting in the election of Trustees. The Fund has no present intentions of offering additional shares, except in accordance with the
Fund’s Automatic Dividend Reinvestment Plan. For the fiscal year ended June 30, 2013, the Fund issued 3,045 shares for the reinvestment of distributions.
9. Federal Income Tax Information
Income and capital gain
distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. During the fiscal year ended June 30, 2012, the tax character of the $6,431,445 of distributions paid was all from ordinary income.
During the fiscal year ended June 30, 2013, the tax character of the $6,230,324 of distributions paid was all from ordinary income. Total ordinary
income distributions paid may differ from amounts shown in the Statements of Changes in Net Assets because for tax purposes dividends are recognized when actually paid.
At June 30, 2013, the Fund’s most recently completed tax year-end, the components of net assets (excluding paid-in capital) on a tax basis
were as follows:
|
|
|
|
|
|
|
Undistributed ordinary income
|
|
$
|
186,016
|
|
|
Capital loss carryforward
1,2
|
|
|
(8,794,192
|
)
|
|
Unrealized appreciation
|
|
|
2,271,063
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,337,113
|
)
|
|
|
|
|
|
|
|
1
|
To the extent that future capital gains are offset by capital loss carryforwards, such gains will not be distributed.
|
|
2
|
Capital losses incurred after October 31 (“post-October losses”) within the taxable year are deemed to arise on the first business day of the
Fund’s next taxable year.
|
As of June 30, 2013, the Fund’s capital loss carryforwards were as follows:
|
|
|
|
|
|
|
Expiring In:
|
|
|
|
|
2017
|
|
$
|
5,576,521
|
|
|
2018
|
|
|
3,217,671
|
|
Federal Income Tax Basis:
The federal income tax basis of the Fund’s investments at June 30, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Investments
|
|
Gross Unrealized Appreciation
|
|
|
Gross Unrealized Depreciation
|
|
|
Net Unrealized Appreciation
|
|
|
$ 96,474,149
|
|
$
|
3,905,088
|
|
|
$
|
(1,633,951
|
)
|
|
$
|
2,271,137
|
|
Capital Account Reclassifications:
Because federal income tax regulations differ in certain respects from GAAP,
income and capital gain distributions, if any, determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. These differences are primarily due to differing
treatments for wash sales and partnership adjustments. Permanent book and tax differences, if any, relating to shareholder distributions will result in reclassifications to paid-in-capital or to undistributed capital gains. These reclassifications
have no effect on net assets or NAV per share.
|
|
|
|
|
|
|
|
|
Undistributed Net Investment Income
|
|
|
Accumulated Net Realized Loss
|
|
|
$
|
(18,292
|
)
|
|
$
|
18,292
|
|
24
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
10. Indemnification
Under the Fund’s organizational documents, its officers and trustees 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 indemnification. The Fund’s maximum exposure under these arrangements is unknown, since this
would involve the resolution of certain claims, as well as future claims that may be made, against the Fund. Thus, an estimate of the financial impact, if any, of these arrangements cannot be made at this time. However, based on experience, the Fund
expects the risk of loss due to these warranties and indemnities to be unlikely.
11. New Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11
“Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 requires disclosures to make financial statements that are prepared under GAAP more comparable to those prepared under IFRS. The new disclosure requirements mandate that
entities disclose both gross and net information about instruments and transactions eligible for offset in the Statement of Assets and Liabilities as well as instruments and transactions subject to an agreement similar to a master netting
arrangement. In addition, ASU 2011-11 requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. New disclosures are required for annual reporting periods beginning on or after
January 1, 2013, and interim periods within those annual periods.
In January 2013, the FASB issued ASU No. 2013-01 “Clarifying the
Scope of Disclosures about Offsetting Assets and Liabilities.” ASU No. 2013-01 clarifies that ordinary trade receivables and payables are not included in the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives,
repurchase agreements and reverse repurchase agreements, and securities borrowing and lending that are offset in accordance with specific criteria contained in the FASB Accounting Standards codification.
Management is currently evaluating the impact these amendments will have on the Fund’s financial statements and disclosures.
12. Exclusion from Definition of Commodity Pool Operator
Pursuant to amendments by the Commodity Futures Trading Commission to Rule 4.5 under the Commodity Exchange Act (“CEA”), the Adviser has filed
a notice of exemption from registering as a “commodity pool operator” with respect to the Fund. The Fund and the Adviser are therefore not subject to registration or regulation as a pool operator under the CEA. Effective December 31,
2012, in order to claim the Rule 4.5 exemption, the Fund is limited in its ability to invest in commodity futures, options, swaps (including securities futures, broad-based stock index futures and financial futures contracts). The Fund will limit
its transactions in such instruments (excluding transactions entered into for “bona fide hedging purposes,” as defined under the Commodity Futures Trading Commission regulations) such that either: (i) the aggregate initial margin and
premiums required to establish its futures, options on futures and swaps do not exceed 5% of the liquidation value of the Fund’s portfolio, after taking into account unrealized profits and losses on such positions; or (ii) the aggregate
net notional value of its futures, options on futures and swaps does not exceed 100% of the liquidation value of the Fund’s portfolio, after taking into account unrealized profits and losses on such positions. The Fund and the Adviser do not
believe that complying with the amended rule will limit the Fund’s ability to use commodity, futures, options and swaps to the extent that it has used them in the past. These limitations, however, may have an impact on the ability of the
Adviser to manage the Fund in the future and on the Fund’s performance.
13. Subsequent Events
GAAP requires recognition in the financial statements of the effects of all subsequent events that provide additional evidence about conditions that
existed at the date of the Statement of Assets and Liabilities. For
2013 Annual
Report
25
HELIOS HIGH YIELD FUND
Notes to Financial Statements
June 30, 2013
non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Fund is required to disclose the nature of the event as well as an estimate of
its financial effect, or a statement that such an estimate cannot be made.
On August 9, 2013, the Fund filed an initial Registration Statement
under the Securities Act of 1933 and the Investment Company Act of 1940 on Form N-2, in connection with a proposed rights offering. The Board has not approved the terms of the proposed rights offering, only the initial filing of the Registration
Statement. If the terms of the proposed rights offering are approved by the Board, the Fund will issue a press release announcing such terms.
Dividends:
The Fund’s Board of Trustees declared the following monthly dividends:
|
|
|
|
|
|
|
|
|
Dividend Per Share
|
|
|
Record Date
|
|
Payable Date
|
|
$
|
0.0750
|
|
|
July 18, 2013
|
|
July 26, 2013
|
|
$
|
0.0750
|
|
|
August 15, 2013
|
|
August 30, 2013
|
Management has evaluated subsequent events in the preparation of the Fund’s financial statements and has determined
that other than the items listed herein, there are no events that require recognition or disclosure in the financial statements.
26
Brookfield
Investment Management Inc.
HELIOS HIGH YIELD FUND
Report of Independent Registered Public Accounting Firm
June 30, 2013
To the Shareholders and Board of Trustees
of Helios High Yield Fund
We have audited the accompanying
statement of assets and liabilities of the Helios High Yield Fund, including the schedule of investments, as of June 30, 2013, and the related statements of operations and cash flows for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management.
Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended June 30, 2009 have been audited by other auditors, whose report dated
August 17, 2009 expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2013, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the
financial position of the Helios High Yield Fund as of June 30, 2013, the results of its operations and its cash flows 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 four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BBD,
LLP
Philadelphia, Pennsylvania
August 27, 2013
2013 Annual
Report
27
HELIOS HIGH YIELD FUND