HELIOS HIGH YIELD FUND
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended
December 31, 2013
(Unaudited)
|
|
|
For the Fiscal
Year Ended
June 30, 2013
|
|
|
Increase in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
3,283,997
|
|
|
$
|
6,288,213
|
|
|
Net realized gain on investments, foreign currency transactions and forward foreign currency contracts
|
|
|
565,189
|
|
|
|
1,588,951
|
|
|
Net change in unrealized appreciation on investments, foreign currency translations and forward foreign currency contracts
|
|
|
1,956,912
|
|
|
|
293,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
5,806,098
|
|
|
|
8,171,016
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Shareholders (Note 2):
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(3,218,356
|
)
|
|
|
(6,230,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock Transactions (Note 8):
|
|
|
|
|
|
|
|
|
|
Reinvestment of distributions
|
|
|
—
|
|
|
|
31,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in net assets
|
|
|
2,587,742
|
|
|
|
1,971,953
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
69,462,901
|
|
|
|
67,490,948
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
72,050,643
|
|
|
$
|
69,462,901
|
|
|
|
|
|
|
|
|
|
|
|
|
(including undistributed net investment income of)
|
|
$
|
253,332
|
|
|
$
|
187,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
|
|
|
Reinvested shares
|
|
|
—
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
2013 Semi-Annual Report
13
|
HELIOS HIGH YIELD FUND
Statement of Cash Flows (Unaudited)
For the Six Months Ended December 31, 2013
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
5,806,098
|
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities
|
|
|
|
|
|
Purchases of long-term portfolio investments
|
|
|
(11,387,688
|
)
|
|
Proceeds from disposition of long-term portfolio investments
|
|
|
13,175,100
|
|
|
Sales of short-term portfolio investments, net
|
|
|
1,068,120
|
|
|
Return of capital distributions from portfolio investments
|
|
|
5,862
|
|
|
Increase in interest and dividends receivable
|
|
|
(10,487
|
)
|
|
Decrease in receivable for investments sold
|
|
|
548,219
|
|
|
Decrease in prepaid expenses
|
|
|
12,233
|
|
|
Decrease in payable for credit facility interest
|
|
|
(2,157
|
)
|
|
Decrease in payable for investments purchased
|
|
|
(1,212,625
|
)
|
|
Increase in payable for open forward currency exchange contracts
|
|
|
74,956
|
|
|
Increase in investment advisory fee payable
|
|
|
1,113
|
|
|
Increase in shareholder servicing fee payable
|
|
|
32
|
|
|
Increase in trustees fee payable
|
|
|
5,177
|
|
|
Decrease in accrued expenses
|
|
|
(32,003
|
)
|
|
Net amortization on investments
|
|
|
(40,291
|
)
|
|
Net change in unrealized appreciation on investments
|
|
|
(2,031,191
|
)
|
|
Net realized gain on investments
|
|
|
(594,347
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,386,121
|
|
|
|
|
|
|
|
|
Cash flows used for financing activities:
|
|
|
|
|
|
Net cash used for credit facility
|
|
|
(2,250,000
|
)
|
|
Distributions paid to shareholders, net of reinvestments
|
|
|
(3,218,356
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(5,468,356
|
)
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(82,235
|
)
|
|
Cash at the beginning of period
|
|
|
111,350
|
|
|
|
|
|
|
|
|
Cash at the end of period
|
|
$
|
29,115
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
Interest payments for the six months ended December 31, 2013, totaled $178,907.
See Notes to Financial Statements.
|
|
|
|
|
14
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
Ended
December 31,
2013
(Unaudited)
|
|
|
For the Fiscal Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
10.14
|
|
|
$
|
9.86
|
|
|
$
|
9.92
|
|
|
$
|
9.25
|
|
|
$
|
8.34
|
|
|
$
|
9.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
1
|
|
|
0.48
|
|
|
|
0.92
|
|
|
|
0.91
|
|
|
|
0.93
|
|
|
|
0.67
|
|
|
|
0.67
|
|
|
Net realized and unrealized gain (loss) on investment transactions, forward foreign currency contracts and foreign currency translations
|
|
|
0.37
|
|
|
|
0.27
|
|
|
|
(0.03
|
)
|
|
|
0.69
|
|
|
|
0.80
|
|
|
|
(1.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net asset value resulting from operations
|
|
|
0.85
|
|
|
|
1.19
|
|
|
|
0.88
|
|
|
|
1.62
|
|
|
|
1.47
|
|
|
|
(0.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income
|
|
|
(0.47
|
)
|
|
|
(0.91
|
)
|
|
|
(0.94
|
)
|
|
|
(0.95
|
)
|
|
|
(0.56
|
)
|
|
|
(0.65
|
)
|
|
Return of capital distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid
|
|
|
(0.47
|
)
|
|
|
(0.91
|
)
|
|
|
(0.94
|
)
|
|
|
(0.95
|
)
|
|
|
(0.56
|
)
|
|
|
(0.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
10.52
|
|
|
$
|
10.14
|
|
|
$
|
9.86
|
|
|
$
|
9.92
|
|
|
$
|
9.25
|
|
|
$
|
8.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
$
|
9.70
|
|
|
$
|
9.62
|
|
|
$
|
10.00
|
|
|
$
|
9.90
|
|
|
$
|
8.45
|
|
|
$
|
7.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Return
†
|
|
|
5.80
|
%
5
|
|
|
5.12
|
%
|
|
|
11.37
|
%
|
|
|
29.77
|
%
|
|
|
29.31
|
%
|
|
|
(8.56
|
)%
|
|
Ratios to Average Net Assets/
Supplementary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
$
|
72,051
|
|
|
$
|
69,463
|
|
|
$
|
67,491
|
|
|
$
|
67,871
|
|
|
$
|
63,263
|
|
|
$
|
57,050
|
|
|
Operating expenses
|
|
|
1.61
|
%
4
|
|
|
1.63
|
%
|
|
|
1.71
|
%
|
|
|
1.65
|
%
|
|
|
1.72
|
%
|
|
|
2.08
|
%
|
|
Interest expense
3
|
|
|
0.49
|
%
4
|
|
|
0.53
|
%
|
|
|
0.62
|
%
|
|
|
0.42
|
%
|
|
|
0.11
|
%
|
|
|
0.30
|
%
|
|
Total expenses
2
|
|
|
2.10
|
%
4
|
|
|
2.16
|
%
|
|
|
2.33
|
%
|
|
|
2.07
|
%
|
|
|
1.83
|
%
|
|
|
2.38
|
%
|
|
Net expenses, including fee waivers and reimbursement and excluding interest expense
|
|
|
1.50
|
%
4
|
|
|
1.52
|
%
|
|
|
1.59
|
%
|
|
|
1.53
|
%
|
|
|
1.63
|
%
|
|
|
1.77
|
%
4
|
|
Net investment income
|
|
|
9.15
|
%
4
|
|
|
8.87
|
%
|
|
|
9.45
|
%
|
|
|
9.36
|
%
|
|
|
7.33
|
%
|
|
|
8.23
|
%
|
|
Net investment income, excluding the effect of fee waivers and reimbursement
3
|
|
|
9.04
|
%
4
|
|
|
8.76
|
%
|
|
|
9.33
|
%
|
|
|
9.25
|
%
4
|
|
|
7.24
|
%
|
|
|
7.92
|
%
4
|
|
Portfolio turnover rate
|
|
|
12
|
%
5
|
|
|
28
|
%
|
|
|
24
|
%
|
|
|
46
|
%
|
|
|
67
|
%
|
|
|
20
|
%
|
|
Loans Outstanding, end of period
|
|
$
|
28,150
|
|
|
$
|
30,400
|
|
|
$
|
30,400
|
|
|
$
|
29,400
|
|
|
$
|
18,662
|
|
|
$
|
—
|
|
|
Asset Coverage per $1,000 unit of senior indebtedness
6
|
|
$
|
3,560
|
|
|
$
|
3,280
|
|
|
$
|
3,220
|
|
|
$
|
3,310
|
|
|
$
|
4,390
|
|
|
$
|
—
|
|
|
†
|
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 a portion of 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 fiscal years ended June 30, 2010, June 30, 2011, June 30, 2012 and June 30, 2013 and for the six months ended December 31, 2013.
|
|
6
|
Calculated by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing by the total number of
senior indebtedness units, where one unit equals $1,000 of senior indebtedness.
|
See Notes to Financial Statements.
|
|
|
|
|
|
|
2013 Semi-Annual Report
15
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited)
December 31, 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 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 adviser 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 increases and
decreases in net assets from operations 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 active and reliable market makers in any such security or a broker-dealer. The broker-dealers or pricing services use multiple valuation
techniques to determine fair value. In instances where sufficient market activity exists, the broker-dealers or pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In
instances where sufficient market activity may not exist or is limited, the broker-dealers or pricing services also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships
between securities in determining fair value and/or market 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. 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 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.
When price
quotations for certain securities are not readily available, or if the available quotations are not believed to be reflective of 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 “Board”). 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
|
|
|
|
|
16
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
and not resumed prior to the normal market close, (3) a portfolio security is not traded in significant volume for a 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 Board has adopted procedures for the valuation of the Fund’s securities and has delegated 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’ portfolios.
Securities are valued using unadjusted quoted market prices, when available, as supplied primarily by third party pricing services or dealers. If a market value or price cannot be determined for a security or a significant event has occurred that
would materially affect the value of the security, the security is fair valued by the Adviser’s Valuation Committee. The Adviser’s Valuation Committee is comprised of senior members of the Adviser’s management team.
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 assets or liabilities
|
|
|
• Level 2 -
|
quoted prices in markets that are not active or other significant observable inputs (including, but not limited to: quoted prices for similar assets or
liabilities, quoted prices based on recently executed transactions, interest rates, credit risk, etc.)
|
|
|
• Level 3 -
|
significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets or liabilities)
|
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
Adviser’s Valuation Committee determines that additional techniques, sources or inputs are appropriate or necessary in a given situation, such additional work will be undertaken.
|
|
|
|
|
|
|
2013 Semi-Annual Report
17
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
Significant increases or decreases in any of the unobservable inputs in isolation
may result in a lower or higher fair value measurement.
To assess the continuing appropriateness of security valuations, the Adviser (or its third
party service provider, who is subject to oversight by the Adviser), regularly compares one of its prior day prices, prices on comparable securities and sale prices to the current day prices and challenges those prices that exceed certain tolerance
levels with the third party pricing service or broker source. For those securities valued by fair valuations, the Adviser’s 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.
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 December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Corporate
Bonds
|
|
|
Term Loans
|
|
|
Common
Stocks
|
|
|
Warrants
|
|
|
Short Term
Investments
|
|
|
Total
|
|
|
|
|
|
Level 1 — Quoted Prices
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,216,526
|
|
|
$
|
501,585
|
|
|
$
|
56,822
|
|
|
$
|
1,774,933
|
|
|
Level 2 — Quoted Prices in Inactive Markets or Other Significant Observable Inputs
|
|
|
94,897,591
|
|
|
|
1,876,372
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,773,963
|
|
|
Level 3 — Significant Unobservable Inputs
|
|
|
825
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,898,416
|
|
|
$
|
1,876,372
|
|
|
$
|
1,216,526
|
|
|
$
|
501,585
|
|
|
$
|
56,822
|
|
|
$
|
98,549,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Inputs
|
|
Other Financial
Instruments*
|
|
|
|
|
|
Level 1 — Quoted Prices
|
|
$
|
—
|
|
|
Level 2 — Quoted Prices in Inactive Markets or Other Significant Observable Inputs
|
|
|
(74,956
|
)
|
|
Level 3 — Significant Unobservable Inputs
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(74,956
|
)
|
|
|
|
|
|
|
|
*
|
Other financial instruments includes forward foreign currency contracts.
|
The following table provides quantitative information about the Fund’s Level 3 values, as well as their inputs, as of December 31, 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
December 31,
2013
|
|
|
Valuation
Methodology
|
|
Significant
Unobservable
Input
|
|
|
Price
|
|
|
|
|
|
Corporate Bonds
|
|
$
|
825
|
|
|
Market
Comparable
Companies
|
|
|
Discounted
Cash Flow
|
|
|
$
|
0.01
|
|
|
|
|
|
|
18
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
The following is a reconciliation of assets in which significant unobservable
inputs (Level 3) were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Securities
|
|
Corporate
Bonds
|
|
Total
|
|
|
|
|
Balance at June 30, 2013
|
|
|
$
|
825
|
|
|
|
$
|
825
|
|
|
Accrued Discounts (Premiums)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Realized Gain/(Loss)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Change in Unrealized Appreciation
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Purchases at Cost
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Sales proceeds
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Transfers out of Level 3
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
$
|
825
|
|
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses relating to assets still held at the reporting date
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended December 31, 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 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 a deferred tax asset; an increase in a deferred tax liability; or a combination thereof. As of December 31, 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 December 31, 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 more than one Fund are allocated among the respective Funds 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.
|
|
|
|
|
|
|
2013 Semi-Annual Report
19
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
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.
Foreign Currency Translations:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at the date of valuation. Purchases and sales of securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund isolates the portion of
realized gains or losses resulting from changes in foreign exchange rates on securities from the fluctuations arising from changes in market prices of securities held. The Fund does not isolate the portion of unrealized gains or losses resulting
from changes in foreign exchange rates on securities from the fluctuations arising from changes in market prices of securities held.
Reported net
realized foreign exchange gains or losses arise from sales of securities, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign
withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid.
Forward Foreign
Currency Contracts:
A forward foreign currency contract (“forward contract”) is an agreement between two parties to buy or sell a currency at an agreed upon price for settlement at a future date. During the period the forward contract
is in existence changes in the value of the forward contract will fluctuate with changes in the currency exchange rates. The forward contract is marked to market daily and these changes are recorded as an unrealized gain or loss. Gain or loss on the
purchase or sale of a forward contract is realized on the settlement date.
The Fund invests in forward contracts to hedge against fluctuations in
the value of foreign currencies caused by changes in the prevailing currency exchange rates. The use of forward contracts involves the risk that the counterparties may be unable to meet the terms of their contracts and may be negatively impacted
from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
All contracts were done with Bank of New York Mellon
as the counterparty. As of December 31, 2013, the following forward contracts were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
Date
|
|
Currency to be Delivered
|
|
U.S. $ Value at
December 31,
2013
|
|
|
Currency to be Received
|
|
U.S. $ Value at
December 31,
2013
|
|
|
Unrealized
Depreciation
|
|
|
|
|
|
01/13/14
|
|
|
2,580,000
|
|
|
Euros
|
|
$
|
3,549,264
|
|
|
|
3,475,420
|
|
|
U.S. Dollars
|
|
$
|
3,475,420
|
|
|
$
|
(73,844
|
)
|
|
01/13/14
|
|
|
331,276
|
|
|
U.S. Dollars
|
|
|
331,276
|
|
|
|
240,000
|
|
|
Euros
|
|
|
330,164
|
|
|
|
(1,112
|
)
|
The following table sets forth the fair value of the Fund’s derivative instruments:
|
|
|
|
|
|
|
|
Derivatives Not Accounted for
as Hedging Instruments
|
|
Statement of Assets and Liabilities
|
|
Unrealized Depreciation
as of December 31, 2013
|
|
|
Forward Contracts
|
|
Payable for open forward foreign currency contracts
|
|
$
|
(74,956
|
)
|
|
|
|
|
|
|
|
|
The following table sets forth the effect of derivative instruments on the Statement of Operations for the six months
ended December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Accounted for
as Hedging
Instruments
|
|
Location of Gains (Losses) on
Derivatives Recognized in Income
|
|
Net Realized Loss on
Forward Foreign
Currency Contracts
|
|
|
Net Change in
Unrealized Depreciation
on Forward Foreign
Currency Contracts
|
|
|
|
|
|
Forward Contracts
|
|
Forward foreign currency contracts
|
|
$
|
(24,434
|
)
|
|
$
|
(74,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
Below is the 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts not offset in the
Statement of Assets and Liabilities
|
|
|
|
|
|
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
|
Gross
Amounts
Offset in the
Statement
of Assets and
Liabilities
|
|
|
Net Amounts
Presented in
the Statement
of Assets and
Liabilities
|
|
|
Financial
Instruments
|
|
|
Collateral
Pledged
(Received)
|
|
|
Net
Amount
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts
|
|
$
|
(74,956
|
)
|
|
$
|
—
|
|
|
$
|
(74,956
|
)
|
|
$
|
(74,956
|
)
|
|
$
|
—
|
|
|
$
|
(74,956
|
)
|
The Fund has elected to not offset derivative assets and liabilities or financial assets, including cash, that may be
received or paid as part of collateral arrangements, even when an enforceable master netting agreement is in place that provides the Fund, in the event of counterparty default, the right to liquidate collateral and the right to offset a
counterparty’s rights and obligations.
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 Statement 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.
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
|
|
|
|
|
|
|
2013 Semi-Annual Report
21
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
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 has 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) (“Managed Assets”).
For the six months ended December 31, 2013, the Adviser earned $357,688 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 daily and payable monthly at an annualized rate of 0.10% of the Fund’s Managed Assets. 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 Managed Assets until June 30, 2014. For the six months ended December 31, 2013, the Adviser earned $51,098 in shareholder servicing fees
of which $40,879 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 has 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 six months ended December 31, 2013, USBFS earned $50,173 in fund accounting servicing fees.
Effective July 1, 2009, the Fund has entered into a Closed-End Fund Custody Agreement with U.S. Bank, National Association. (“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 six months ended
December 31, 2013, USB earned $8,107 in custodian 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 six months ended
December 31, 2013, the Transfer Agent earned $7,438 in transfer agency fees.
|
|
|
|
|
22
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
6. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities, the credit facility and U.S. Government securities, for the six months ended
December 31, 2013, were $11,387,688 and $13,175,100, respectively. For the six months ended December 31, 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 six months ended
December 31, 2013, the average interest rate paid under the line of credit was 1.03% 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 December 31, 2013
|
|
|
28,150,000
|
|
|
Line of credit amount unused at December 31, 2013
|
|
|
5,850,000
|
|
|
Average balance outstanding during the period
|
|
|
30,150,815
|
|
|
Interest expense incurred on line of credit during the period
|
|
|
176,750
|
|
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 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. For the six months ended December 31, 2013, the Fund did not issue any 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.
The tax character of distributions for the six months ended December 31, 2013 is expected to be from ordinary income but will be determined at the
end of the Fund’s current fiscal year.
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.
|
|
|
|
|
|
|
2013 Semi-Annual Report
23
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
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, not including foreign
currency translations and forward foreign currency contracts at December 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
Cost of Investments
|
|
Gross Unrealized Appreciation
|
|
Gross Unrealized Depreciation
|
|
Net Unrealized Appreciation
|
|
|
|
$94,248,443
|
|
$5,287,887
|
|
$(986,609)
|
|
$4,301,278
|
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. Any undistributed net income and realized gain remaining at fiscal year end is distributed in the following year.
10. Indemnification
Under the Fund’s organizational documents, its 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 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. 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 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.
|
|
|
|
|
24
Brookfield
Investment Management Inc.
|
|
|
HELIOS HIGH YIELD FUND
Notes to Financial Statements (Unaudited) (continued)
December 31, 2013
Dividends:
The Fund’s Board of Trustees declared the following monthly dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per Share
|
|
Record Date
|
|
Payable Date
|
|
|
|
|
$0.0750
|
|
|
|
January 16, 2014
|
|
|
|
|
January 30, 2014
|
|
|
$0.0750
|
|
|
|
February 20, 2014
|
|
|
|
|
February 27, 2014
|
|
At a special shareholder meeting held on January 31, 2014, shareholders of the Fund approved the redomestication of
the Fund to a Maryland corporation and amendments to the Fund’s governing documents. Additionally, shareholders approved a new investment advisory agreement between the Fund and Brookfield Investment Management. The redomestication and
implementation of the new investment advisory agreement is expected to be consummated on or about February 28, 2014. In addition, the Fund will change its name to “Brookfield High Income Fund Inc.” effective March 1, 2014. The
table below shows the number of shares voted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Voted
For
|
|
|
Shares Voted
Against
|
|
|
Shares Voted
Abstain
|
|
|
|
|
|
1
|
|
An Agreement and Plan of Reorganization that provides for the reorganization of the Fund.
|
|
|
3,644,440
|
|
|
|
194,783
|
|
|
|
97,705
|
|
|
|
|
|
2
|
|
A charter and bylaw provision regarding the vote required to elect a director.
|
|
|
3,639,016
|
|
|
|
208,514
|
|
|
|
89,398
|
|
|
|
|
|
3
|
|
A charter provision regarding the vote required to remove a director.
|
|
|
3,449,908
|
|
|
|
404,119
|
|
|
|
82,901
|
|
|
|
|
|
4
|
|
A charter provision regarding the vote required for certain extraordinary transactions.
|
|
|
3,348,003
|
|
|
|
488,627
|
|
|
|
100,298
|
|
|
|
|
|
5
|
|
A charter provision regarding the vote required for certain amendments to the charter.
|
|
|
3,372,797
|
|
|
|
460,934
|
|
|
|
103,197
|
|
|
|
|
|
6
|
|
A charter and bylaw provision regarding amendments to the bylaws.
|
|
|
3,518,902
|
|
|
|
313,204
|
|
|
|
91,088
|
|
|
|
|
|
7
|
|
A bylaw provision regarding a shareholder’s right to call a special meeting.
|
|
|
3,437,195
|
|
|
|
396,655
|
|
|
|
89,344
|
|
|
|
|
|
8
|
|
A bylaw provision regarding advance notice for shareholder nominees for director and other shareholder proposals.
|
|
|
3,563,336
|
|
|
|
87,649
|
|
|
|
87,649
|
|
|
|
|
|
9
|
|
A new investment advisory agreement between the Fund and Brookfield Investment Management Inc.
|
|
|
3,570,900
|
|
|
|
83,593
|
|
|
|
83,593
|
|
|
|
|
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.
|
|
|
|
|
|
|
2013 Semi-Annual Report
25
|
HELIOS HIGH YIELD FUND