UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08795
BROOKFIELD HIGH INCOME FUND INC.
(Exact name of registrant as specified in charter)
BROOKFIELD PLACE
250 VESEY STREET
NEW YORK, NEW YORK 10281-1023
(Address of principal executive offices) (Zip code)
BRIAN F. HURLEY, PRESIDENT
BROOKFIELD HIGH INCOME FUND INC.
BROOKFIELD PLACE
250 VESEY STREET
NEW YORK, NEW YORK 10281-1023
(Name and address of agent for service)
Registrant’s telephone number, including area code: (855) 777-8001
Date of fiscal year end: September 30, 2016
Date of
reporting period: September 30, 2016
Item 1. Reports to Shareholders.
Brookfield Investment
Management
ANNUAL REPORT
September 30, 2016
Brookfield High Income Fund Inc.
Brookfield Investment Management (the “Firm”) is
an SEC-registered investment adviser and represents the Public Securities platform of Brookfield Asset Management. The Firm provides global listed real assets strategies including real estate equities, infrastructure equities, real asset debt and
diversified real assets. With approximately $15 of assets under management as of September 30, 2016, the Firm manages separate accounts, registered funds and opportunistic strategies for institutional and individual clients, including financial
institutions, public and private pension plans, insurance companies, endowments and foundations, sovereign wealth funds and high net worth investors. The Firm is a wholly owned subsidiary of Brookfield Asset Management, a leading global alternative
asset manager with approximately $250 billion of assets under management as of September 30, 2016. For more information, go to www.brookfield.com.
Brookfield High Income Fund Inc. is managed by Brookfield
Investment Management. The Fund uses its website as a channel of distribution of material company information. Financial and other material information regarding the Fund is routinely posted on and accessible at www.brookfield.com.
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund shares.
| NOT
FDIC INSURED |
MAY
LOSE VALUE |
NOT
BANK GUARANTEED |
© Copyright 2016. Brookfield Investment Management Inc.
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
Dear Stockholders,
We are pleased to provide the Annual Report for Brookfield
High Income Fund Inc. (“HHY” or the “Fund”) for the fiscal year ended September 30, 2016.
We also are pleased to have recently announced that the
proposed reorganization of the Fund, Brookfield Total Return Fund Inc. and Brookfield Mortgage Opportunity Income Fund Inc. into Brookfield Real Assets Income Fund Inc. has been approved by stockholders of each fund. We currently expect that the
reorganizations will be completed after the close of the New York Stock Exchange on December 2, 2016, subject to all applicable regulatory requirements and other customary closing conditions being satisfied. We appreciate the support of our
stockholders in approving the reorganization and are excited to begin managing the multi-asset investment strategy of the Brookfield Real Assets Income Fund.
Over the past 12 months, financial markets have been marked
with uncertainty due to a number of factors, including volatility in commodity markets (particularly oil), geopolitical uncertainty and central bank intervention.
Early in the period, volatility in capital markets was
driven largely by falling oil prices on both supply and demand concerns. In December the Organization of Petroleum Exporting Countries (OPEC) announced it would abandon its target output of 30 million barrels per day in an attempt to further defend
its market share against U.S. shale producers. Fears of a slowing Chinese economy also put pressure on oil into early 2016. Through February 11, the price of West Texas Intermediate Crude declined 29% on a year-to-date basis, closing at $26.19 per
barrel.
Around mid-February, a new narrative emerged
and risk assets began a meaningful rally amid rising commodity prices and improving sentiment for global growth. That rally was temporarily disrupted following a June 23 U.K. referendum, in which voters elected to leave the European Union. Global
equities fell sharply immediately following the vote, but despite the uncertainty, risk assets continued to rally during the remainder of the period. For the 12-months ended September 30, 2016, the MSCI World Index returned 12.0% and the Barclays
U.S. and Global High-Yield Corporate Indexes gained 12.7% and 11.5%, respectively.
Across the globe central banks continue to maintain
accommodative stances. While in December 2015 the U.S. Federal Reserve announced its federal funds rate would be raised for the first time since 2006, the upper limit was still only 0.50% during the remainder of the period. In Europe, the European
Central Bank continued its easing measures, even expanding its bond-buying program to include corporate bonds. And in Japan, the Bank of Japan adopted negative interest rates in an effort to stave off the deflation that has plagued the country since
the 1990s.
On September 28, 2016, OPEC members
agreed in principle to limit oil production, which should help investors gain more certainty on the timing of rebalancing in the oil market moving forward. But uncertainty persists around Britain’s exit from the European Union and its ultimate
impact on economies and markets around the globe. Emerging signs of inflation in the U.S. could be an indicator the Fed will raise rates again in the near future. But given the scale of easing monetary policies from central banks around the globe,
it appears likely that global interest rates will remain well below their long-term historical averages for some time.
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 as of September 30, 2016.
Letter to Stockholders (continued)
We welcome your questions and comments, and encourage you to contact our
Investor Relations team at (855) 777-8001 or to visit us at www.brookfieldim.com for more information. Thank you for your support.
Sincerely,
Brian F. Hurley
President
Brookfield High Income Fund Inc.
Craig Noble, CFA
CEO, Chief Investment Officer and Portfolio Manager
Brookfield Investment Management Inc.
2Brookfield
Investment Management Inc.
Brookfield High Income Fund
Inc.
OBJECTIVE & STRATEGY
The primary investment objective of Brookfield High Income
Fund Inc. (the “Fund”) is the generation of high current income. The Fund will also seek capital growth to the extent consistent with its primary investment objective. The Fund is a 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 that are 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 stockholders, 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 stockholders will tend to fluctuate more in response to
changes in interest rates and creditworthiness.
Management Discussion of Fund Performance
For the fiscal year ended September 30, 2016, Brookfield
High Income Fund (NYSE:
HHY) (the “Fund”) had a total return based on net asset value of 10.59% and a total return based on market price of 13.09%, which assumes the reinvestment of distributions and is exclusive of brokerage
commissions. Based on the NYSE closing price of $7.32 on September 30, 2016, the Fund’s shares had a distribution rate of 9.84%. The distribution rate is calculated as the annualized amount of the reporting period’s most recent monthly
distribution declared divided by the stated stock price.
On an NAV basis, the Fund underperformed the BofA Merrill
Lynch US High Yield Index, which returned 12.8% for the 12-month period, although it outperformed on a market basis. During the 12-month period, the Fund was overweight the telecommunications, energy, and services sectors, which had a combined
negative contribution to relative performance. The Fund’s energy exposure was concentrated in the more stable natural gas distribution pipeline sub-sector, which is typically less sensitive to declining oil and gas prices. In the
Adviser’s view, this more conservative approach lagged the strong rally in energy prices in the February through September timeframe. The Fund’s overweight in telecommunications was concentrated in the wireline sub-sector, which
generated positive returns for the period; however, the Adviser believes that the Fund’s conservative positioning in the wireless sub-sector detracted from relative performance.
The Fund’s relative underweights included technology,
banking and basic industry. While the banking underweight helped relatively, the underweight in the strong performing technology and basic industry sectors detracted.
The Fund is leveraged in order to take advantage of low
borrowing costs and generous yields in the market. This year the Fund’s leverage had a positive impact on the Fund’s dividend and magnified the strong market returns, thereby contributing to overall performance.
The Fund’s allocation to securitized bonds was a minor
negative to performance as securitized bonds lagged the strong rally seen in high-yield corporates.
Brookfield High Income Fund
Inc.
HIGH
YIELD MARKET OVERVIEW
The 2016 calendar year has
proven to be a favorable one for the high-yield bond market, which did not look to be the case when the Fund’s fiscal year began. Following a difficult fourth quarter of last year, high-yield bonds moved sharply lower in January and the first
half of February. Oil prices at that point were continuing their decline which had so rattled the market in 2015. In the face of high levels of investor selling, spreads moved to extremely attractive levels thereby providing the fuel for the rally
seen to date in 2016.
As measured by the BofA
Merrill Lynch US High Yield Index, the high yield market returned 12.8% in the past 12 months. Equities, as measured by the S&P 500 Index were up 15.4% for the same time period. High-yield securities have benefited from the twin tailwinds of
positive equity markets and lower interest rates with the 10-year US treasury yield falling from 2.0% to 1.6%. Investors have been willing to take credit risk throughout the year, with lower quality bonds outperforming higher quality. Many of last
year’s industry laggards have been the winners in 2016, to date. Stronger product prices in metals and energy pushed bonds in those sectors much higher.
Market mechanisms have appeared healthy in 2016, relieving
concerns some had at the end of 2015. New issue volume which was only $5 billion in December 2015 has been healthy throughout the year, rising to $35 billion in September.1 Shareholder flows into high-yield mutual funds, which have been negative each of the past three years, have suddenly turned positive totaling $10 billion
in the first three quarters of 2016.2 Further supporting market prices, company tenders for their own debt are running $51 billion through September,
exceeding the $49.8 billion for all of last year. Bond tenders reduce the outstanding supply of securities and can serve to push prices higher. Also, despite seven years of lower interest rates, companies are still actively calling their high-yield
bonds prior to maturity. Year to date, $81.1 billion of bonds have been called, down only slightly from 2015’s full year amount of $126.3 billion.3
The Adviser believes that the new issue market is healthy and functioning well as is the secondary trading market.
The biggest surprise for credit investors has been this
year’s default rate. The largest sector in the US high-yield bond market is energy, which had suffered from a 75% decline in oil prices over the last two years. Oil prices bottomed in mid-February and nearly doubled since then. Still, they
remain substantially below last year’s prices. Many strategists expected substantial defaults in the energy sector and indeed, many companies chose to restructure their debts. However, while many were expecting the 12-month high-yield bond
default rate to rise to the 6% level or higher, the J.P. Morgan calculation of high-yield bond defaults peaked several months ago at the 4% level and have declined to the 3.5% rate as of September 2016. Put simply, not as many energy companies
defaulted as had been expected.
OUTLOOK
The Adviser believes corporate credit conditions in the US
have been positive for some time. In addition to a surprisingly low default rate currently, a turn in the upgrade/downgrade ratio is also occurring. This metric measures the volume of debt being upgraded by credit rating agencies versus downgraded.
The measure turned negative last year and was running 0.5%, (which means the agencies were upgrading half as many bonds as they were downgrading). Beginning in the second quarter of 2016 and continuing through the third quarter, this trend reversed
and companies are being upgraded at roughly 1.5 times the rate as downgrades.4
The downside to this year’s market performance is it
has compressed yields and spreads. At the end of September, the JP Morgan US high yield index had a spread of 558 basis points over the 10-year Treasury bond which is less than its 20-year median of 573 basis points. While this represents a
reasonably attractive spread
4Brookfield
Investment Management Inc.
Brookfield High Income Fund
Inc.
given current
default rates and credit conditions, the Adviser believes this means the market may be in the latter stages of the credit cycle and therefore views current spreads as being neutral value.
1 J.P. Morgan High-Yield Market Monitor, October 3, 2016, page 9.
2 J.P. Morgan High-Yield Market Monitor, October 3, 2016, page 18.
3 J.P. Morgan High-Yield Market Monitor, October 3, 2016, page 18.
4 J.P. Morgan High Yield Market Monitor, October 3, 2016, page 20.
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 Brookfield High Income Fund Inc. currently holds these
securities.
The BofA Merrill Lynch US High Yield
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.
The quoted benchmarks within this report do not reflect
deductions for fees, expenses or taxes. These benchmarks are unmanaged and cannot be purchased directly by investors. Benchmark performance is shown for illustrative purposes only and does not predict or depict the performance of any investment.
There may be material factors relevant to any such comparison such as differences in the volatility, and regulatory and legal restrictions between the indices shown and the Fund.
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 investment. These views are as of the close of business on September 30, 2016 and subject to change based on subsequent developments.
Fixed income investing entails credit and interest rate
risks. Interest rate risk is the risk that rising interest rates or
Brookfield High Income Fund
Inc.
an expectation of
rising interest rates in the near future, will cause the values of the portfolio’s investments to decline. Risks associated with rising interest rates are heightened given that rates in the U.S. are at or near historic lows. When interest
rates rise, bond prices generally fall, and the value of the portfolio can fall. Below-investment-grade (“high yield” or "junk") bonds are more at risk of default and are subject to liquidity risk. Mortgage-backed securities are subject
to prepayment risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be
especially volatile. Derivative instruments entail higher volatility and risk of loss compared to traditional stock or bond investments.
The Fund may utilize leverage to seek to enhance the yield
and net asset value of its common stock, as described in the Fund’s prospectus. These objectives will not necessarily be achieved in all interest rate environments. The leverage strategy of the Fund assumes a positive slope to the yield curve
(short-term interest rates lower than long-term rates). Otherwise, the benefits of leverage will be reduced or eliminated completely. The use of leverage involves risk, including the potential for higher volatility and greater declines of the
Fund’s net asset value, fluctuations of dividends and other distributions paid by the Fund and the market price of the Fund’s common stock, among others.
6Brookfield
Investment Management Inc.
Brookfield High Income Fund Inc.
Portfolio Characteristics (Unaudited)
September 30, 2016
| PORTFOLIO
STATISTICS |
|
| Annualized
distribution rate1 |
9.84%
|
| Weighted
average coupon |
6.41%
|
| Weighted
average life |
5.64
years |
| Percentage
of leveraged assets |
26.57%
|
| Total
number of holdings |
108
|
| CREDIT
QUALITY2 |
|
| BBB
and Above |
4.6%
|
| BB
|
33.9%
|
| B
|
40.3%
|
| CCC
and Below |
10.8%
|
| Securitized
Products |
2.7%
|
| Equities
|
3.3%
|
| Unrated
|
2.6%
|
| Cash
|
1.8%
|
| Total
|
100.0%
|
| ASSET
ALLOCATION3 |
|
| Residential
Mortgage Related Holdings |
3.6%
|
| Corporate
Bonds |
119.7%
|
| Term
Loans |
4.2%
|
| Common
Stocks |
2.9%
|
| Exchange
Traded Fund |
1.4%
|
| Warrant
|
0.2%
|
| Liabilities
in Excess of Other Assets |
(32.0%)
|
| Total
|
100.0%
|
1 The distribution rate referenced above is calculated as the annualized amount of the most recent monthly
distribution declared divided by September 30, 2016 stock price. This calculation does not include any non-income items such as loan proceeds or borrowings. The Fund estimates that it has distributed more than its net investment income and net
realized capital gains; therefore, a portion of your distribution may be a return of capital. For the fiscal year ended September 30, 2016, 29.65% of the Fund’s distributions is a return of capital.
2 Sector and credit ratings allocations are expressed as a percentage of total investments (by market value),
not total assets and will vary over time. Credit ratings are expressed as a percentage of total investments (by market value) and will vary over time. Credit allocation excludes equities. The higher of an S&P or Moody’s rating was used. If
a Moody’s rating was used, we converted such rating to a comparable S&P rating.
3 Percentages are based on net assets.
Brookfield High Income Fund Inc.
Schedule of Investments
September 30, 2016
| |
Interest
Rate |
Maturity
|
Principal
Amount
(000s) |
Value
|
| RESIDENTIAL
MORTGAGE RELATED HOLDINGS – 3.6% |
|
|
|
| Non-Agency
Mortgage-Backed Securities – 3.6% |
|
|
|
| Alternative
Loan Trust |
|
|
|
|
|
Series 2007-OA3, Class 1A1
1,2,3
|
0.67%
|
04/25/47
|
$
1,380 |
$
1,175,647 |
| GSAMP
Trust |
|
|
|
|
|
Series 2006-HE8, Class A2C
2,3
|
0.70
|
01/25/37
|
1,388
|
1,147,951
|
| Home
Equity Asset Trust |
|
|
|
|
|
Series 2006-7, Class 2A3
2,3
|
0.68
|
01/25/37
|
1,934
|
1,404,484
|
| Nomura
Resecuritization Trust |
|
|
|
|
|
Series 2014-1R, Class 2A11
2,4
|
0.82
|
02/26/37
|
4,326
|
2,427,855
|
| Securitized
Asset Backed Receivables LLC Trust |
|
|
|
|
|
Series 2007-BR4, Class A2B
2,3
|
0.73
|
05/25/37
|
2,385
|
1,491,855
|
| Total
Non-Agency Mortgage-Backed Securities |
|
|
|
7,647,792
|
|
Total RESIDENTIAL MORTGAGE RELATED HOLDINGS
(Cost
$8,025,243)
|
|
|
|
7,647,792
|
| CORPORATE
BONDS – 119.7% |
|
|
|
| Automotive
– 3.6% |
|
|
|
|
American Axle & Manufacturing, Inc.
1
|
6.25
|
03/15/21
|
3,190
|
3,333,550
|
|
American Axle & Manufacturing, Inc.
1
|
7.75
|
11/15/19
|
650
|
736,125
|
|
Ford Motor Co.
1
|
6.50
|
08/01/18
|
3,100
|
3,375,773
|
|
Motors Liquidation Co.
5,6
|
8.38
|
07/15/33
|
8,250
|
825
|
| Total
Automotive |
|
|
|
7,446,273
|
| Basic
Industry – 9.2% |
|
|
|
|
AK Steel Corp.
|
7.63
|
05/15/20
|
1,425
|
1,389,375
|
|
Alcoa, Inc.
1
|
5.55
|
02/01/17
|
1,000
|
1,012,590
|
|
Arch Coal, Inc.
1,6
|
7.25
|
06/15/21
|
6,100
|
289,750
|
|
Cascades, Inc.
1,4,7
|
5.50
|
07/15/22
|
3,000
|
3,048,750
|
|
Hexion, Inc.
|
8.88
|
02/01/18
|
1,425
|
1,357,313
|
|
Hexion, Inc.
1
|
9.00
|
11/15/20
|
1,925
|
1,398,031
|
|
INEOS Group Holdings SA
4,7
|
5.63
|
08/01/24
|
4,300
|
4,219,375
|
|
Millar Western Forest Products Ltd.
7
|
8.50
|
04/01/21
|
1,575
|
828,844
|
|
PulteGroup, Inc.
1
|
6.38
|
05/15/33
|
2,350
|
2,447,917
|
|
USG Corp.
1
|
9.50
|
01/15/18
|
3,075
|
3,339,450
|
| Total
Basic Industry |
|
|
|
19,331,395
|
| Capital
Goods – 3.9% |
|
|
|
|
Ardagh Packaging Finance PLC
1,4,7
|
6.75
|
01/31/21
|
3,625
|
3,742,813
|
|
Crown Cork & Seal Company, Inc.
1
|
7.38
|
12/15/26
|
3,950
|
4,419,062
|
| Total
Capital Goods |
|
|
|
8,161,875
|
| Consumer
Goods – 2.4% |
|
|
|
|
ACCO Brands Corp.
1
|
6.75
|
04/30/20
|
3,575
|
3,771,625
|
|
Anheuser-Busch InBev Worldwide, Inc.
1
|
7.75
|
01/15/19
|
1,000
|
1,137,600
|
| Total
Consumer Goods |
|
|
|
4,909,225
|
| Energy
– 26.9% |
|
|
|
|
AmeriGas Finance LLC
1
|
7.00
|
05/20/22
|
1,025
|
1,083,938
|
|
Blue Racer Midstream LLC
1,4
|
6.13
|
11/15/22
|
4,550
|
4,447,625
|
|
Concho Resources, Inc.
|
5.50
|
04/01/23
|
2,725
|
2,810,156
|
See Notes to Financial Statements.
8Brookfield
Investment Management Inc.
Brookfield High Income Fund Inc.
Schedule of
Investments (continued)
September 30, 2016
| |
Interest
Rate |
Maturity
|
Principal
Amount
(000s) |
Value
|
| CORPORATE
BONDS (continued) |
|
|
|
|
Crestwood Midstream Partners LP
|
6.25%
|
04/01/23
|
$
2,950 |
$
2,986,875 |
|
Dynagas LNG Partners LP
1,7
|
6.25
|
10/30/19
|
2,825
|
2,620,188
|
|
EP Energy LLC
1
|
6.38
|
06/15/23
|
3,725
|
2,225,688
|
|
Ferrellgas Partners LP
1
|
8.63
|
06/15/20
|
3,375
|
3,315,937
|
|
Global Partners LP
|
6.25
|
07/15/22
|
3,225
|
2,991,187
|
|
Holly Energy Partners LP
|
6.50
|
03/01/20
|
3,000
|
3,093,750
|
|
ION Geophysical Corp.
4
|
9.13
|
12/15/21
|
1,975
|
1,204,750
|
|
LBC Tank Terminals Holding Netherlands BV
1,4,7
|
6.88
|
05/15/23
|
3,325
|
3,308,375
|
|
MPLX LP
|
4.88
|
12/01/24
|
5,850
|
6,050,807
|
|
Pioneer Natural Resources Co.
|
6.65
|
03/15/17
|
1,250
|
1,278,625
|
|
Precision Drilling Corp.
1,7
|
6.63
|
11/15/20
|
1,800
|
1,669,500
|
|
Puma International Financing SA
4,7
|
6.75
|
02/01/21
|
3,125
|
3,224,719
|
|
Suburban Propane Partners LP
|
7.38
|
08/01/21
|
2,800
|
2,912,000
|
|
Targa Pipeline Partners LP
1
|
5.88
|
08/01/23
|
4,000
|
3,970,000
|
|
Tesoro Logistics LP
1
|
6.13
|
10/15/21
|
4,250
|
4,441,250
|
|
Trinidad Drilling Ltd.
1,4,7
|
7.88
|
01/15/19
|
2,865
|
2,664,450
|
| Total
Energy |
|
|
|
56,299,820
|
| Healthcare
– 9.3% |
|
|
|
|
CHS/Community Health Systems, Inc.
|
6.88
|
02/01/22
|
1,525
|
1,311,500
|
|
CHS/Community Health Systems, Inc.
1
|
7.13
|
07/15/20
|
3,050
|
2,834,975
|
|
HCA, Inc.
1
|
5.25
|
06/15/26
|
5,250
|
5,578,125
|
|
Kindred Healthcare, Inc.
|
6.38
|
04/15/22
|
3,750
|
3,553,125
|
|
Quorum Health Corp.
4
|
11.63
|
04/15/23
|
1,850
|
1,535,500
|
|
Tenet Healthcare Corp.
|
8.13
|
04/01/22
|
4,750
|
4,750,000
|
| Total
Healthcare |
|
|
|
19,563,225
|
| Media
– 8.8% |
|
|
|
|
CCO Holdings LLC
|
5.75
|
01/15/24
|
5,550
|
5,896,875
|
|
CSC Holdings LLC
4
|
10.88
|
10/15/25
|
4,125
|
4,826,250
|
|
Cumulus Media Holdings, Inc.
1
|
7.75
|
05/01/19
|
2,455
|
994,275
|
|
iHeart Communications, Inc.
1
|
9.00
|
03/01/21
|
3,550
|
2,644,750
|
|
Mediacom Broadband LLC
|
6.38
|
04/01/23
|
3,950
|
4,167,250
|
| Total
Media |
|
|
|
18,529,400
|
| Real
Estate – 5.7% |
|
|
|
|
Cedar Fair LP
1
|
5.25
|
03/15/21
|
4,200
|
4,347,000
|
|
Lamar Media Corp.
|
5.38
|
01/15/24
|
4,150
|
4,357,500
|
|
New Albertsons, Inc.
1
|
7.75
|
06/15/26
|
3,300
|
3,300,000
|
| Total
Real Estate |
|
|
|
12,004,500
|
| Retail
– 1.7% |
|
|
|
|
L Brands, Inc.
1
|
7.60
|
07/15/37
|
2,500
|
2,687,500
|
|
L Brands, Inc.
|
8.50
|
06/15/19
|
800
|
934,000
|
| Total
Retail |
|
|
|
3,621,500
|
| Services
– 14.7% |
|
|
|
|
Avis Budget Car Rental LLC
1
|
5.50
|
04/01/23
|
1,550
|
1,563,563
|
|
Boyd Gaming Corp.
4
|
6.38
|
04/01/26
|
2,600
|
2,788,500
|
|
Casella Waste Systems, Inc.
1
|
7.75
|
02/15/19
|
3,283
|
3,348,660
|
|
GLP Capital LP
1
|
5.38
|
11/01/23
|
4,525
|
4,875,687
|
See Notes to Financial Statements.
Brookfield High Income Fund Inc.
Schedule of
Investments (continued)
September 30, 2016
| |
Interest
Rate |
Maturity
|
Principal
Amount
(000s) |
Value
|
| CORPORATE
BONDS (continued) |
|
|
|
|
H&E Equipment Services, Inc.
1
|
7.00%
|
09/01/22
|
$
4,250 |
$
4,483,750 |
|
Isle of Capri Casinos, Inc.
|
5.88
|
03/15/21
|
1,700
|
1,774,375
|
|
MGM Growth Properties Operating Partnership LP
4
|
5.63
|
05/01/24
|
2,550
|
2,765,985
|
|
Terex Corp.
1
|
6.00
|
05/15/21
|
3,000
|
3,067,500
|
|
Terex Corp.
1
|
6.50
|
04/01/20
|
1,100
|
1,127,500
|
|
United Rentals North America, Inc.
1
|
5.75
|
11/15/24
|
3,625
|
3,760,937
|
|
United Rentals North America, Inc.
|
7.63
|
04/15/22
|
1,225
|
1,304,625
|
| Total
Services |
|
|
|
30,861,082
|
| Telecommunications
– 22.0% |
|
|
|
|
CenturyLink, Inc.
1
|
7.65
|
03/15/42
|
5,950
|
5,131,875
|
|
CyrusOne LP
1
|
6.38
|
11/15/22
|
4,425
|
4,686,349
|
|
FairPoint Communications, Inc.
1,4
|
8.75
|
08/15/19
|
4,325
|
4,411,500
|
|
Frontier Communications Corp.
1
|
11.00
|
09/15/25
|
3,825
|
3,992,344
|
|
Intelsat Luxembourg SA
1,7
|
7.75
|
06/01/21
|
6,425
|
2,152,375
|
|
Level 3 Financing, Inc.
1
|
5.38
|
05/01/25
|
5,775
|
6,020,438
|
|
Qwest Capital Funding, Inc.
1
|
6.88
|
07/15/28
|
475
|
448,875
|
|
SBA Communications Corp.
|
4.88
|
07/15/22
|
5,000
|
5,175,000
|
|
T-Mobile USA, Inc.
1
|
6.63
|
04/01/23
|
3,340
|
3,586,325
|
|
Tyco Electronics Group SA
1,7
|
6.55
|
10/01/17
|
500
|
525,338
|
|
Windstream Services LLC
1
|
7.50
|
06/01/22
|
5,950
|
5,712,000
|
|
Zayo Group LLC
|
6.00
|
04/01/23
|
4,000
|
4,200,000
|
| Total
Telecommunications |
|
|
|
46,042,419
|
| Transportation
– 3.4% |
|
|
|
|
DP World Ltd.
4,7
|
6.85
|
07/02/37
|
200
|
231,290
|
|
DP World Sukuk Ltd.
4,7
|
6.25
|
07/02/17
|
400
|
412,632
|
|
Teekay Offshore Partners LP
1,7
|
6.00
|
07/30/19
|
3,750
|
3,093,750
|
|
Watco Companies LLC
1,4
|
6.38
|
04/01/23
|
3,275
|
3,307,750
|
| Total
Transportation |
|
|
|
7,045,422
|
| Utility
– 8.1% |
|
|
|
|
AES Corp.
1
|
4.88
|
05/15/23
|
4,250
|
4,313,750
|
|
Dynegy, Inc.
|
6.75
|
11/01/19
|
4,075
|
4,176,875
|
|
NRG Energy, Inc.
|
6.25
|
07/15/22
|
4,125
|
4,186,875
|
|
NRG Yield Operating LLC
|
5.38
|
08/15/24
|
4,175
|
4,289,812
|
| Total
Utility |
|
|
|
16,967,312
|
|
Total CORPORATE BONDS
(Cost
$259,917,245)
|
|
|
|
250,783,448
|
| TERM
LOANS – 4.2% |
|
|
|
|
FMG Resources August 2006 Property Ltd.
2,8
|
3.75
|
06/30/19
|
2,101
|
2,098,473
|
|
Four Seasons Holdings, Inc.
2,8
|
6.25
|
12/13/20
|
3,325
|
3,329,156
|
|
MEG Energy Corp.
2,8
|
3.75
|
03/31/20
|
3,114
|
2,898,966
|
|
Texas Competitive Electric Holdings Company LLC
2,8
|
5.00
|
10/10/17
|
16
|
4,577
|
|
Texas Competitive Electric Holdings Company LLC
2,8
|
5.00
|
10/10/17
|
1,550
|
445,973
|
|
Total TERM LOANS
(Cost
$9,353,418)
|
|
|
|
8,777,145
|
See Notes to Financial Statements.
10Brookfield
Investment Management Inc.
Brookfield High Income Fund Inc.
Schedule of
Investments (continued)
September 30, 2016
| |
|
|
Shares
|
Value
|
| COMMON
STOCKS – 2.9% |
|
|
|
| Automotive
– 0.4% |
|
|
|
|
Ford Motor Co.
|
|
|
61,300
|
$
739,891 |
| Basic
Industry – 0.1% |
|
|
|
|
EnLink Midstream Partners LP
|
|
|
7,800
|
138,138
|
| Capital
Goods – 0.5% |
|
|
|
|
General Electric Co.
|
|
|
37,450
|
1,109,269
|
| Consumer
Discretionary – 0.3% |
|
|
|
|
General Motors Company
|
|
|
22,276
|
707,709
|
| Consumer
Staples – 0.3% |
|
|
|
|
B&G Foods, Inc.
|
|
|
13,810
|
679,176
|
| Energy
– 0.3% |
|
|
|
|
BreitBurn Energy Partners LP
|
|
|
13,075
|
819
|
|
EV Energy Partners LP
|
|
|
7,900
|
18,960
|
|
ION Geophysical Corp.
9
|
|
|
19,750
|
135,287
|
|
Thunderbird Resources Equity, Inc.
5,9
|
|
|
11
|
425,422
|
| Total
Energy |
|
|
|
580,488
|
| Telecommunications
– 0.6% |
|
|
|
|
CenturyLink, Inc.
|
|
|
33,160
|
909,579
|
|
Verizon Communications, Inc.
|
|
|
7,500
|
389,850
|
| Total
Telecommunications |
|
|
|
1,299,429
|
| Utility
– 0.4% |
|
|
|
|
AES Corp.
|
|
|
66,250
|
851,313
|
|
Total COMMON STOCKS
(Cost
$7,262,464)
|
|
|
|
6,105,413
|
| EXCHANGE
TRADED FUND – 1.4% |
|
|
|
| Other
– 1.4% |
|
|
|
|
SPDR® Barclays High Yield Bond ETF
|
|
|
80,500
|
2,955,960
|
|
Total EXCHANGE TRADED FUND
(Cost
$2,656,613)
|
|
|
|
2,955,960
|
| |
|
|
Shares
|
Value
|
| WARRANT –
0.2% |
|
|
|
| Automotive
– 0.2% |
|
|
|
|
General Motors Co. 9
Expiration: July 2019
Exercise Price:
$18.33
|
|
|
34,193
|
$
477,334 |
|
Total WARRANT
(Cost
$854,740)
|
|
|
|
477,334
|
|
Total Investments – 132.0%
(Cost $288,069,723)
|
|
|
|
276,747,092
|
|
Liabilities in Excess of Other Assets – (32.0)%
|
|
|
|
(67,154,436)
|
|
TOTAL NET ASSETS – 100.0%
|
|
|
|
$
209,592,656 |
See Notes to Financial Statements.
Brookfield High Income Fund Inc.
Schedule of
Investments (continued)
September 30, 2016
| The
following notes should be read in conjunction with the accompanying Schedule of Investments. |
| 1
|
—
All or a portion of this security is pledged as collateral for credit facility. |
| 2
|
—
Variable rate security – Interest rate shown is the rate in effect as of September 30, 2016. |
| 3
|
—
Security is a “step up” bond where the coupon increases or steps up at a predetermined date. |
| 4
|
—
Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from registration, normally to qualified institutional buyers. As of September 30, 2016, the total value of
all such securities was $48,568,119 or 23.2% of net assets. |
| 5
|
—
Security fair valued in good faith pursuant to the fair value procedures adopted by the Board of Directors. As of September 30, 2016, the total value of all such securities was $426,247 or 0.2% of net assets. |
| 6
|
—
Issuer is currently in default on its regularly scheduled interest payment. |
| 7
|
—
Foreign security or a U.S. security of a foreign company. |
| 8
|
—
Private Placement. |
| 9
|
—
Non-income producing security. |
See Notes to Financial Statements.
12Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Statement of Assets and Liabilities
September 30, 2016
| Assets:
|
|
|
Investments in securities, at value (cost
$288,069,723)
|
$276,747,092
|
|
Cash
|
5,457,373
|
|
Interest and dividends
receivable
|
4,973,537
|
|
Prepaid
expenses
|
4,754
|
|
Total
assets
|
287,182,756
|
| Liabilities:
|
|
|
Payable for credit facility (Note
6)
|
76,316,860
|
|
Payable for credit facility interest (Note
6)
|
8,885
|
|
Payable for investments
purchased
|
742,998
|
|
Investment advisory fee payable (Note
4)
|
308,827
|
|
Administration fee payable (Note
4)
|
71,268
|
|
Directors' fees
payable
|
7,502
|
|
Accrued
expenses
|
133,760
|
|
Total
liabilities
|
77,590,100
|
|
Commitments and contingencies (Note
9)
|
|
|
Net
Assets
|
$209,592,656
|
| Composition
of Net Assets: |
|
|
Capital stock, at par value ($0.001 par value, 1,000,000,000 shares authorized) (Note
7)
|
$
25,532 |
|
Additional paid-in capital (Note
7)
|
265,523,111
|
|
Distributions in excess of net investment
income
|
(164,616)
|
|
Accumulated net realized loss on investments, foreign currency transactions and forward currency
contracts
|
(44,466,475)
|
|
Net unrealized depreciation on investments and foreign currency
translations
|
(11,324,896)
|
|
Net assets applicable to capital stock
outstanding
|
$209,592,656
|
| Shares
Outstanding and Net Asset Value Per Share: |
|
|
Shares
outstanding
|
25,532,427
|
|
Net asset value per
share
|
$
8.21 |
See Notes to Financial Statements.
BROOKFIELD HIGH INCOME FUND INC.
Statement of Operations
For the Fiscal Year Ended September 30, 2016
| Investment
Income (Note 2): |
|
|
Interest
|
$
19,362,538 |
|
Dividends (net of foreign withholding tax of
$349)
|
336,660
|
|
Total investment
income
|
19,699,198
|
| Expenses:
|
|
|
Investment advisory fees (Note
4)
|
1,813,858
|
|
Administration fees (Note
4)
|
418,583
|
|
Legal
fees
|
540,911
|
|
Directors'
fees
|
91,428
|
|
Reports to
stockholders
|
90,826
|
|
Fund accounting servicing
fees
|
72,914
|
|
Transfer agency
fees
|
34,356
|
|
Registration
fees
|
28,756
|
|
Audit and tax
services
|
23,009
|
|
Insurance
|
18,036
|
|
Custodian
fees
|
16,364
|
|
Miscellaneous
|
15,148
|
|
Total operating
expenses
|
3,164,189
|
|
Interest expense on credit facility (Note
6)
|
1,459,973
|
|
Total
expenses
|
4,624,162
|
|
Net investment
income
|
15,075,036
|
| Net
Realized and Unrealized Gain (Loss) on Investments, Foreign Currency Transactions and Forward Currency Contracts (Note 2): |
|
| Net
realized gain (loss) on: |
|
|
Investments
|
(17,898,013)
|
|
Foreign currency
transactions
|
3,263
|
|
Forward currency
contracts
|
(48,059)
|
|
Net realized
loss
|
(17,942,809)
|
| Net
change in unrealized appreciation on: |
|
|
Investments
|
22,854,105
|
|
Foreign currency
translations
|
3,167
|
|
Forward currency
contracts
|
67,110
|
|
Net change in unrealized
appreciation
|
22,924,382
|
|
Net realized and unrealized gain on
investments
|
4,981,573
|
|
Net increase in net assets resulting from
operations
|
$
20,056,609 |
See Notes to Financial Statements.
14Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Statements of Changes in Net Assets
| |
For
the Fiscal
Year Ended September 30, 2016 |
|
For
the Fiscal
Year Ended September 30, 2015 |
| Increase
(Decrease) in Net Assets Resulting from Operations: |
|
|
|
|
Net investment
income
|
$
15,075,036 |
|
$
19,405,117 |
|
Net realized loss on investments, foreign currency transactions and forward currency
contracts
|
(17,942,809)
|
|
(4,352,235)
|
|
Net change in unrealized appreciation (depreciation) on investments, foreign currency translations and forward currency
contracts
|
22,924,382
|
|
(39,575,693)
|
|
Net increase (decrease) in net assets resulting from
operations
|
20,056,609
|
|
(24,522,811)
|
| Distributions
to Stockholders (Note 2): |
|
|
|
|
Net investment
income
|
(15,085,223)
|
|
(19,844,487)
|
|
Return of
capital
|
(6,362,016)
|
|
(4,002,800)
|
|
Total
distributions
|
(21,447,239)
|
|
(23,847,287)
|
|
Total decrease in net
assets
|
(1,390,630)
|
|
(48,370,098)
|
| Net
Assets: |
|
|
|
|
Beginning of
year
|
210,983,286
|
|
259,353,384
|
|
End of
year
|
$209,592,656
|
|
$210,983,286
|
|
(including distributions in excess of net investment
income)
|
$
(164,616) |
|
$
(41,670) |
See Notes to Financial Statements.
BROOKFIELD HIGH INCOME FUND INC.
Statement of Cash Flows
For the Fiscal Year Ended September 30, 2016
| Increase
(Decrease) in Cash: |
| Cash
flows provided by (used for) operating activities: |
|
Net increase in net assets resulting from
operations
|
$
20,056,609 |
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating
activities
|
|
Purchases of long-term portfolio investments and principal
payups
|
(79,168,500)
|
|
Proceeds from disposition of long-term portfolio investments and principal
paydowns
|
96,308,295
|
|
Sales of short-term portfolio investments,
net
|
1,568,619
|
|
Return of capital distributions from portfolio
investments
|
34,238
|
|
Decrease in interest and dividends
receivable
|
1,119,649
|
|
Decrease in prepaid
expenses
|
3,935
|
|
Decrease in receivable for investments
sold
|
9,375
|
|
Decrease in payable to
custodian
|
(8,410)
|
|
Decrease in payable for open forward currency
contracts
|
(67,110)
|
|
Increase in payable for credit facility
interest
|
2,065
|
|
Decrease in payable for investments
purchased
|
(1,580,884)
|
|
Increase in investment advisory fee
payable
|
142,998
|
|
Increase in administration fee
payable
|
33,000
|
|
Decrease in directors' fee
payable
|
(745)
|
|
Decrease in accrued
expenses
|
(42,124)
|
|
Net amortization on investments and paydown gains or
losses
|
(583,290)
|
|
Net change in unrealized appreciation on
investments
|
(22,854,105)
|
|
Net realized loss on
investments
|
17,898,013
|
|
Net cash provided by operating
activities
|
32,871,628
|
| Cash
flows used for financing activities: |
|
Net cash used for credit
facility
|
(6,000,000)
|
|
Distributions paid to
stockholders
|
(21,447,239)
|
|
Net cash used for financing
activities
|
(27,447,239)
|
|
Net increase in
cash
|
5,424,389
|
|
Cash at the beginning of
year
|
32,984
|
|
Cash at the end of
year
|
$
5,457,373 |
| Supplemental
Disclosure of Cash Flow Information: |
| Interest
payments for the fiscal year ended September 30, 2016, totaled $1,457,908. |
See Notes to Financial Statements.
16Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Financial Highlights
| |
|
|
For
the Fiscal Years Ended September 30, |
|
For
the Three Months Ended September 30, |
|
For
the Fiscal Years Ended June 30, |
|
| |
2016
|
|
2015
|
|
2014
2 |
|
2014
|
|
2013
|
|
2012
|
| Per
Share Operating Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
period
|
$
8.26 |
|
$
10.16 |
|
$
10.70 |
|
$
10.14 |
|
$
9.86 |
|
$
9.92 |
|
Net investment
income1
|
0.59
|
|
0.76
|
|
0.21
|
|
0.88
|
|
0.92
|
|
0.91
|
|
Net realized and unrealized gain (loss) on investment
transactions
|
0.20
|
|
(1.73)
|
|
(0.52)
|
|
0.60
|
|
0.27
|
|
(0.03)
|
|
Net increase (decrease) in net asset value resulting from
operations
|
0.79
|
|
(0.97)
|
|
(0.31)
|
|
1.48
|
|
1.19
|
|
0.88
|
|
Distributions from net investment
income
|
(0.59)
|
|
(0.77)
|
|
(0.23)
|
|
(0.91)
|
|
(0.91)
|
|
(0.94)
|
|
Return of capital
distributions
|
(0.25)
|
|
(0.16)
|
|
—
|
|
(0.01)
|
|
—
|
|
—
|
|
Total distributions
paid
|
(0.84)
|
|
(0.93)
|
|
(0.23)
|
|
(0.92)
|
|
(0.91)
|
|
(0.94)
|
|
Net asset value, end of
period
|
$
8.21 |
|
$
8.26 |
|
$
10.16 |
|
$
10.70 |
|
$
10.14 |
|
$
9.86 |
|
Market price, end of
period
|
$
7.32 |
|
$
7.29 |
|
$
9.37 |
|
$
10.54 |
|
$
9.62 |
|
$
10.00 |
|
Total Investment
Return†
|
13.09%
|
|
-13.26%
|
|
-9.05%
4 |
|
20.13%
|
|
5.12%
|
|
11.37%
|
| Ratios
to Average Net Assets/Supplementary Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
(000s)
|
$209,593
|
|
$210,983
|
|
$259,353
|
|
$73,260
|
|
$69,463
|
|
$67,491
|
|
Operating
expenses
|
1.57%
|
|
1.41%
|
|
1.82%
3 |
|
2.06%
|
|
1.63%
|
|
1.71%
|
|
Interest
expense
|
0.73%
|
|
0.51%
|
|
0.45%
3 |
|
0.48%
|
|
0.53%
|
|
0.62%
|
|
Total
expenses
|
2.30%
|
|
1.92%
|
|
2.27%
3 |
|
2.54%
|
|
2.16%
|
|
2.33%
|
|
Net expenses, including fee waivers and reimbursement and excluding interest
expense
|
1.57%
|
|
1.41%
|
|
1.82%
3 |
|
1.95%
|
|
1.52%
|
|
1.59%
|
|
Net investment
income
|
7.49%
|
|
8.04%
|
|
8.04%
3 |
|
8.47%
|
|
8.87%
|
|
9.45%
|
|
Net investment income, excluding the effect of fee waivers and
reimbursement
|
7.49%
|
|
8.04%
|
|
8.04%
3 |
|
8.36%
|
|
8.76%
|
|
9.33%
|
|
Portfolio turnover
rate
|
29%
|
|
27%
|
|
11%
4 |
|
28%
|
|
28%
|
|
24%
|
|
Credit facility, end of period
(000s)
|
$
76,317 |
|
$
82,317 |
|
$102,800
|
|
$28,000
|
|
$30,400
|
|
$30,400
|
|
Asset coverage per $1,000 unit of senior
indebtedness5
|
$
3,746 |
|
$
3,563 |
|
$
3,523 |
|
$
3,616 |
|
$
3,280 |
|
$
3,220 |
|
† |
Total
investment return based on market price is the combination of changes in the New York Stock Exchange market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. The actual reinvestment for the last dividend declared in the period may take place over several days as described in the Fund’s dividend reinvestment plan, and in some instances may not be based on the
market price, so the actual reinvestment price may be different from the price used in the calculation. Total investment return excludes the effect of broker commissions. |
|
1 |
Per
share amounts presented are based on average shares outstanding throughout the period indicated. |
|
2 |
Amounts
shown are for the three months ended September 30, 2014 and are not necessarily indicative of a full year of operations. The Fund changed its fiscal year end from June 30 to September 30. |
|
3 |
Annualized.
|
|
4 |
Not
annualized. |
|
5 |
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.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements
September 30, 2016
1.Organization
Brookfield High Income Fund Inc. (the “Fund”)
was incorporated under the laws of the State of Maryland as a corporation on November 22, 2013. Prior to March 1, 2014, the Fund was a business trust under the laws of the Commonwealth of Massachusetts (organized 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.
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
high current income. The Fund will seek capital growth as a secondary investment objective, when consistent with its primary investment objective. The Fund's investment objective is fundamental and may not be changed without approval by the majority
(as defined in the 1940 Act) of the Fund's outstanding voting securities. 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. The Fund is an investment company within the
scope of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2013-08, follows accounting and reporting guidance under FASB Accounting Standards Codification Topics (“ASC”) 946, “Financial Services-Investment Companies”.
Valuation of Investments:
The Fund’s Board of Directors (the “Board”) has adopted procedures for the valuation of the Fund’s securities. The Adviser's Valuation Committee oversees the day to day responsibilities for
valuation determinations under these procedures. The Board regularly reviews the application of these procedures to the securities in the Fund’s portfolio. The Adviser’s 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.
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 adjusted by the amortization of discount or premium to maturity,
unless such valuation, in the judgment of the Adviser’s Valuation Committee, does not represent fair value.
18Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
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. Investments in open-end registered investment companies, if any, are valued at the net asset value
(“NAV”) as reported by those investment companies.
Securities for which market prices are not readily
available or which cannot be valued using the sources described above will be valued using an internal proprietary fair value methodology. For any security warranting such fair value measurement, a memorandum, including the specific methodology and
supporting information, will be provided to the Valuation Committee by a portfolio manager or analyst looking to fair value a particular security. A portfolio manager or analyst shall use their best efforts to maximize the use of relevant observable
inputs and minimize the use of unobservable inputs within their valuation technique. The Valuation Committee shall review the memorandum and supporting information provided by a portfolio manager or analyst and consider all relevant factors as it
deems appropriate before approving the fair value recommendation.
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 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 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.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
| 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, prepayment speeds, 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 Valuation Committee uses in determining fair value. 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.
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), 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.
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 September 30, 2016:
| Valuation
Inputs |
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total
|
|
Residential Mortgage Related
Holdings
|
$
— |
|
$
— |
|
$
7,647,792 |
|
$
7,647,792 |
|
Corporate
Bonds
|
—
|
|
250,782,623
|
|
825
|
|
250,783,448
|
|
Term
Loans
|
—
|
|
8,777,145
|
|
—
|
|
8,777,145
|
|
Common
Stocks
|
5,679,991
|
|
—
|
|
425,422
|
|
6,105,413
|
|
Exchange Traded
Fund
|
2,955,960
|
|
—
|
|
—
|
|
2,955,960
|
|
Warrant
|
477,334
|
|
—
|
|
—
|
|
477,334
|
|
Total
|
$
9,113,285 |
|
$
259,559,768 |
|
$
8,074,039 |
|
$
276,747,092 |
20Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
The table below shows the significant unobservable valuation inputs that were
used by the Adviser’s Valuation Committee to fair value the Level 3 investments as of September 30, 2016.
| |
Quantitative
Information about Level 3 Fair Value Measurements(1) |
| Assets
|
Value
as of September 30, 2016 |
Valuation
Methodology |
Significant
Unobservable Input |
Range
(Weighted Average) |
| Corporate
Bond: |
|
|
|
|
| Motors
Liquidation Co. |
$
825 |
Discounted
Cash
Flow |
Anticipated
Residual Value |
$0.01
|
| Common
Stock: |
|
|
|
|
| Thunderbird
Resources Equity, Inc. |
425,422
|
Analysis
of
Enterprise Value |
Various
assumptions of
value of assets
and liabilities |
$36,055-$43,539
($39,750) |
|
Total
|
$426,247
|
|
|
|
(1) The table above does not include Level 3 securities that are valued by brokers and pricing services. At
September 30, 2016, the value of these securities was approximately $7,647,792. The inputs for these securities are not readily available or cannot be reasonably estimated and are generally those inputs described in the Valuation of Investments in
Note 2. The appropriateness of fair values for these securities is monitored on an ongoing basis which may include results of back testing, unchanged price review, results of broker and vendor due diligence and consideration of macro or security
specific events.
The significant unobservable
inputs used in the fair value measurement of the Fund’s investments are listed above. Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the
unobservable inputs may significantly impact the fair value measurement. The impact is based on the relationship between each unobservable input and the fair value measurement. Significant increases (decreases) in enterprise multiples may increase
(decrease) the fair value measurement. Significant increases (decreases) in the discount for lack of marketability, liquidity discount, probability of default, yield, and default rate may decrease (increase) the fair value measurement. A significant
change in the prepayment rate (Constant Prepayment Rate or PSA Prepayment Model) may decrease or increase the fair value measurement.
The following is a reconciliation of assets in which
significant unobservable inputs (Level 3) were used in determining fair value:
| Investments
in Securities |
Residential
Mortgage Related Holdings |
|
Corporate
Bonds |
|
Common
Stocks |
|
Total
|
|
Balance as of September 30,
2015
|
$8,079,848
|
|
$
4,120,625 |
|
$399,350
|
|
$12,599,823
|
|
Accrued Discounts
(Premiums)
|
404,320
|
|
20,002
|
|
—
|
|
424,322
|
|
Realized Gain
(Loss)
|
208,403
|
|
—
|
|
—
|
|
208,403
|
|
Change in Unrealized Appreciation
(Depreciation)
|
(305,211)
|
|
(169,802)
|
|
26,072
|
|
(448,941)
|
|
Purchases at
cost
|
63,668
|
|
—
|
|
—
|
|
63,668
|
|
Sales
proceeds
|
(803,236)
|
|
—
|
|
—
|
|
(803,236)
|
|
Transfers out of Level
3
|
—
|
|
(3,970,000)
|
|
—
|
|
(3,970,000)
(a) |
| Balance
as of September 30, 2016 |
$7,647,792
|
|
$
825 |
|
$425,422
|
|
$
8,074,039 |
|
Change in unrealized gains or losses relating to assets still held at reporting
date
|
$
(305,211) |
|
$
— |
|
$
26,072 |
|
$
(279,139) |
(a) Transferred due to an increase of observable market data for these securities.
For the fiscal year ended September 30, 2016, 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.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
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
stockholders. 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 September 30, 2016, 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 September 30, 2016, open taxable years
consisted of the taxable years ended June 30, 2014 through September 30, 2016. 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, evenly or a combination of both.
Distributions: The Fund
declares and pays distributions, which includes dividends paid 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.
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 unrealized
22Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
currency gains and losses arise from translation of assets and liabilities
denominated in foreign currency other than securities.
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 Currency Contracts: A forward 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. The Fund did not have any forward contracts outstanding as of September 30, 2016.
The following table sets forth the effect of derivative
instruments on the Statement of Operations for the fiscal year ended September 30, 2016:
| Derivatives
|
Location
of Gains (Losses) on Derivatives Recognized in Income |
Net
Realized Loss on
Forward currency contracts |
Net
Change in
Unrealized
Appreciation
on Forward
currency contracts |
|
Forward
contracts
|
Forward
currency contracts |
$(48,059)
|
$67,110
|
The Fund had a monthly average of
1 forward currency contract open during the fiscal year ended September 30, 2016.
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 stockholders may be diminished. The Fund is also subject to significant uncertainty as to when and in what manner and for what value
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
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 Affiliated Transactions
The Fund has entered into an Investment Advisory 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 that the Fund shall pay the Adviser a monthly fee for its services at the annual rate of 0.65% of the Fund’s average weekly total assets minus liabilities (other than aggregate
indebtedness leverage) ("Managed Assets").
The Fund
has entered into an Administration Agreement with the Adviser. The Adviser has entered into a sub-administration agreement with U.S. Bancorp Fund Services, LLC ("Sub-Administrator"). The Adviser and the Sub-Administrator perform administrative
services necessary for the operation of the Fund, including maintaining certain books and records of the Fund and preparing reports and other documents required by federal, state and other applicable laws and regulations, and providing the Fund with
administrative office facilities. For these services, the Fund pays to the Adviser a monthly fee at an annual rate of 0.15% of its Managed Assets, payable monthly in arrears. The Adviser is responsible for any fees due to the
Sub-Administrator.
Certain officers and/or Directors of
the Fund are officers and/or employees of the Adviser.
5.Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term
investments, the credit facility and U.S. Government securities, for the fiscal year ended September 30, 2016, were $79,168,500 and $96,308,295, respectively. For the fiscal year ended September 30, 2016, there were no transactions in U.S.
Government securities.
6.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 September 30, 2016, the average
interest rate paid under the line of credit was 1.22% of the total line of credit amount available to the Fund.
|
Total line of credit amount
available
|
$120,000,000
|
|
Line of credit outstanding at September 30,
2016
|
76,316,860
|
|
Line of credit amount unused at September 30,
2016
|
43,683,140
|
|
Average balance outstanding during the
year
|
77,684,346
|
|
Interest expense incurred on line of credit during the
year
|
1,459,973
|
24Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
7.Capital Stock
The Fund has 1,000,000,000 shares of $0.001 par value
common stock authorized. The Fund’s Board is authorized to classify and reclassify any unissued shares of capital stock into other classes or series of stock and authorize the issuance of shares of stock without obtaining stockholder approval.
The Board, without any action by the stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the series that the Fund has authority to issue.
The common shares have no preemptive, conversion, exchange
or redemption rights. All shares of the Fund’s common stock have equal voting, dividend, distribution and liquidation rights. The common shares are fully paid and non-assessable. Common stockholders are entitled to one vote per share and all
voting rights for the election of directors are non-cumulative. For the fiscal year ended September 30, 2016, the Fund did not issue any shares for the reinvestment of distributions.
8.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 the distributions paid during the fiscal
years ended September 30 were as follows:
| |
2016
|
|
2015
|
|
Ordinary
income
|
$15,085,223
|
|
$19,844,487
|
|
Return of
capital
|
6,362,016
|
|
4,002,800
|
|
Total
|
$21,447,239
|
|
$23,847,287
|
At September 30, 2016, 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:
|
Capital loss
carryforward1
|
$(44,654,010)
|
|
Other accumulated
losses
|
(166,881)
|
|
Tax basis unrealized
depreciation
|
(11,135,096)
|
|
Total tax basis net accumulated
losses
|
$(55,955,987)
|
1 To the extent that future capital gains are offset by capital loss carryforwards, such gains will not be
distributed.
As of September 30, 2016, the Fund
had capital loss carryforwards of:
| Expiring
In: |
|
|
2017
|
$22,547,226
|
|
Infinite
(Short-Term)
|
2,651,657
|
|
Infinite
(Long-Term)
|
19,455,127
|
Federal Income Tax Basis: The federal income tax basis of the Fund's investments at September 30, 2016 was as follows:
| Cost
of Investments |
Gross
Unrealized Appreciation |
Gross
Unrealized Depreciation |
Net
Unrealized Depreciation |
| $287,882,188
|
$10,519,332
|
$(21,654,428)
|
$(11,135,096)
|
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 forward currency contracts and partnership adjustments. Permanent book and tax
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
differences, if any, 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.
At September 30, 2016, the Fund's most recently completed tax
year-end, the Fund's components of net assets were increased or (decreased) by the amounts shown in the table below:
| Additional
paid-in capital |
Distributions
in excess of net investment income |
Accumulated
net realized loss |
| $(3,361,935)
|
$(112,759)
|
$3,474,694
|
9.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.
10.Significant Events
during the Fiscal Year
As previously noted, on May
16, 2016, the Board of Directors of the Fund and the Boards of Directors of each of Brookfield Mortgage Opportunity Income Fund Inc. (BOI) and Brookfield Total Return Fund Inc. (HTR) approved the reorganizations of each Fund into a new fund,
Brookfield Real Assets Income Fund Inc. On September 1, 2016, the stockholders of the Fund approved the reorganization. On September 9, 2016, and November 18, 2016, the stockholders of HTR and BOI, respectively, approved the reorganization. It is
currently expected that the reorganizations will be completed after the close of the New York Stock Exchange on December 2, 2016, subject to all applicable regulatory requirements and other customary closing conditions being satisfied.
11.Pending
Litigation
In connection with the reorganization of
each of Helios Advantage Income Fund, Inc., Helios High Income Fund, Inc., Helios Multi-Sector High Income Fund, Inc. and Helios Strategic Income Fund, Inc. (together with their predecessors, the “Closed-End Funds”) into the Fund, all
rights, defenses, potential liabilities and/or claims associated with the Opt-Out Actions (defined below) were assumed by the Fund, including any potential claims by the Closed-End Funds for indemnification and/or contribution or any similar claims
against any released defendant parties related to any Opt-Out Actions related to the Class Action (defined below).
On August 5, 2013, the federal court in the Western
District of Tennessee entered an order approving a settlement of a securities class action proceeding captioned In re Morgan Keegan Closed-End Fund Litigation (the "Class Action") against the Closed-End Funds and other defendants. Subsequent to the
Class Action settlement, five separate purported Opt-Out Actions were filed against the Closed-End Funds in the Western District of Tennessee on behalf of a number of investors (the "Opt-Out Actions").
One action, the Warwick Action, has been entirely
dismissed by the Court. In another, the Small Action, the Court dismissed all claims against the Closed-End Funds except for a Section 11 claim against RMK Multi-Sector High Income Fund, Inc. ("RHY", i.e., Helios Multi-Sector High Income Fund, Inc.)
which Plaintiff alleged resulted in damages in excess of $342,000. The parties to the Small Action subsequently settled the case at a Court-ordered mediation.
In another case, the Starnes Action, the Court initially
dismissed all claims brought by three of the five plaintiffs. For the remaining two plaintiffs in the Starnes Action, and for all three plaintiffs in a separate case, the Stein
26Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Notes to Financial Statements (continued)
September 30, 2016
Action, the Court initially dismissed the Section 12(a)(2) claim against
RHY, but declined to dismiss a Section 10b-5 claim against all the Closed-End Funds, and a Section 11 claim against RHY. The Closed-End Funds and non-fund defendants thereafter filed motions to reconsider the Court's rulings in the Starnes Action
and Stein Action, which the Court granted, dismissing both cases in their entirety. Plaintiffs appealed the dismissals of the Starnes Action and Stein Action to the Sixth Circuit Court of Appeals (the "Sixth Circuit"), and the cases were
consolidated for briefing. The Sixth Circuit heard oral argument on the appeal on April 19, 2016 and affirmed the dismissals of the Starnes Action and Stein Action in a May 19, 2016 opinion.
In the Adkins Action, brought on behalf of approximately
one hundred plaintiffs, the Court granted defendants' motion to dismiss in its entirety. Plaintiffs filed a motion to reconsider the Court's ruling. On March 9, 2016, the Court granted plaintiffs' motion to reconsider and vacated its prior order
dismissing the case. On April 21, 2016, defendants filed a motion to reconsider the Court's March 9, 2016 ruling. On November 15, 2016, the Court granted defendents' motion to reconsider and dismissed all of plaintiffs' claims against all defendents
with prejudice.
No estimate of the effect, if any, of
these pending lawsuits on the Fund can be made at this time.
12.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.
Dividends: The Fund’s
Board declared the following monthly dividends:
| Dividend
Per Share |
Record
Date |
Payable
Date |
| $0.06
|
October
20, 2016 |
October
27, 2016 |
| $0.06
|
November
17, 2016 |
November
23, 2016 |
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.
BROOKFIELD HIGH INCOME FUND INC.
Report of Independent Registered Public
Accounting Firm
September 30, 2016
To the Board of Directors and Stockholders
of Brookfield High Income Fund Inc.
We have audited the accompanying statement of assets and
liabilities of the Brookfield High Income Fund Inc., including the schedule of investments, as of September 30, 2016, 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 two years in the period then ended, for the three months ended September 30, 2014 and for each of the years in the three year period ended June 30, 2014. 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.
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 September 30, 2016 by correspondence with the
custodian and brokers or other appropriate parties, or by other appropriate auditing procedures where replies were not received. 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 Brookfield High Income Fund Inc. as of September 30, 2016, and 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 its financial highlights for each of the years and period presented, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
November 28, 2016
28Brookfield Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Tax Information (Unaudited)
September
30, 2016
The Fund is required by subchapter M of the Internal
Revenue Code of 1986, as amended, to advise you within 60 days of the Fund’s fiscal year end (September 30, 2016) as to the federal tax status of distributions received by stockholders during such fiscal period. Accordingly, we are advising
you that 29.65% of the distributions paid from net investment income for the Fund was reclassified as return of capital and is reflected as such in the Fund’s Statements of Changes in Net Assets and Financial Highlights.
Because the Fund’s fiscal year is not a calendar
year, another notification will be sent with respect to calendar year 2016. The second notification, which will reflect the amount to be used by calendar year taxpayers on their federal, state and local income tax returns, will be made in
conjunction with Form 1099-DIV and will be mailed in January 2017. Stockholders are advised to consult their own tax advisors with respect to the tax consequences of their investments in the Fund.
For the fiscal year ended September 30, 2016, certain
dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income
was 0.00%.
For corporate stockholders, the percent of
ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2016 was 0.00%.
The percentage of taxable ordinary income distributions that
are designated as short-term capital gain distributions under Internal Revenue Section 871(k)(2)(C) was 0.00%.
BROOKFIELD HIGH INCOME FUND INC.
Compliance Certification (Unaudited)
September
30, 2016
On
February 26, 2016, the Fund submitted a CEO annual certification to the New York Stock Exchange (“NYSE”) on which the Fund’s principal executive officer certified that he was not aware, as of that date, of any violation by the Fund
of the NYSE’s Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund’s principal executive and principal financial officers have made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Fund’s disclosure controls and procedures and internal control over financial reporting, as applicable.
30Brookfield Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Proxy Results (Unaudited)
September
30, 2016
At
a Special Meeting of Stockholders of the Fund held on September 1, 2016, stockholders of the Fund voted on an Agreement and Plan of Reorganization of the Fund into Brookfield Real Assets Income Fund Inc., a newly organized Maryland corporation. A
description of the proposal and the shares voted in favor, shares voted against and shares abstaining with respect to the proposal are as follows:
| |
|
Shares
Voted For |
Shares
Voted Against |
Shares
Voted Abstain |
| 1.
|
To
approve the agreement and plan of reorganization and the transactions contemplated thereby, including the transfer of all assets and liabilities of the Fund into the Brookfield Real Assets Income Fund Inc. |
13,467,009
|
2,054,456
|
433,569
|
BROOKFIELD HIGH INCOME FUND INC.
Information Concerning Directors and
Officers (Unaudited)
The following tables provide information concerning the
directors and officers of the Fund.
Directors of the
Fund
| Name,
Address and Year of Birth |
Position(s)
Held with Funds |
Principal
Occupation(s) During Past 5 Years and Other Directorships Held by Director |
Number
of Portfolios in Fund Complex |
Independent
Directors
Class I Director to serve until 2018 Annual Meeting of Stockholders: |
|
|
|
Stuart
A. McFarland
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1947 |
Director,
Member of the Audit Committee, Member of the Nominating and Compensation Committee
Elected since 2008 |
Director/Trustee
of several investment companies advised by the Adviser (2006-Present); Director of United Guaranty Corporation (2011-Present); Director of Brandywine Funds (2003-2013); Director of New Castle Investment Corp. (2000-Present); Managing Partner of
Federal City Capital Advisors (1997-Present); Director of New America High Income Fund (2013-Present); Director of New Senior Investment Group, Inc. (2014-Present). |
10
|
Edward
A. Kuczmarski
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1949 |
Director,
Chairman of the Board, Member of the Audit Committee, Chairman of the Nominating and Compensation Committee
Elected since 2013 |
Director/Trustee
of several investment companies advised by the Adviser (2011-Present); Certified Public Accountant and Retired Partner of Crowe Horwath LLP (1980-2013); Trustee of the Empire Builder Tax Free Bond Fund (1984-2013); Director of ISI Funds
(2007-2015); Trustee of the Daily Income Fund (2006-2015), Director of the California Daily Tax Free Income Fund, Inc. (2006-2015); Trustee of the Stralem Funds (2014-Present). |
10
|
Independent
Director
Class II Directors to serve until 2019 Annual Meeting of Stockholders: |
|
|
|
Heather
Goldman
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1967 |
Director,
Member of the Audit Committee, Member of the Nominating and Compensation Committee
Elected since 2013 |
Director/Trustee
of several investment companies advised by the Adviser (2013-Present); Global Head of Marketing and Business Development of the Adviser (2011-2013); Managing Partner of Brookfield Financial (2009-2011); Director and Board Chair of University
Settlement House (2003-2013); Member of the Honorary Board of University Settlement House (2014-Present); Co-Founder & President of Capstak, Inc. (2014-Present); Chairman of Capstak, Inc. (2016-Present). |
10
|
Independent
Director
Class III Director to serve until 2017 Annual Meeting of Stockholders: |
|
|
|
Louis
P. Salvatore
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1946 |
Director,
Chairman of the Audit Committee, Member of the Nominating and Compensation Committee
Elected since 2008 |
Director/Trustee
of several investment companies advised by the Adviser (2005-Present); Director of SP Fiber Technologies, Inc. (2012-2015); Director of Gramercy Property Trust (2012-Present); Director of Turner Corp. (2003-Present); Director of Jackson Hewitt Tax
Services, Inc. (2004-2011); Employee of Arthur Andersen LLP (2002-Present). |
10
|
32Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC. Information Concerning Directors and Officers (Unaudited) (continued)
Directors of the
Fund (continued)
| Name,
Address and Year of Birth |
Position(s)
Held with Funds |
Principal
Occupation(s) During Past 5 Years and Other Directorships Held by Director |
Number
of Portfolios in Fund Complex |
Interested
Director
Class III Director to serve until 2017 Annual Meeting of Stockholders: |
|
|
|
Jonathan
C. Tyras
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1968 |
Director
Elected since 2014 |
Managing
Director and Chief Financial Officer of the Adviser (2010-Present); General Counsel and Secretary of the Adviser (2006-Present); Director/Trustee of several investment companies advised by the Adviser (2012-Present); Secretary of several investment
companies advised by the Adviser (2006-2014); Vice President of Brookfield Investment Funds (2011-2014); Chief Financial Officer of Brookfield Investment Management (UK) Limited (2011-Present); Director of Brookfield Investment Management (UK)
Limited (2013-Present); Chief Financial Officer of Brookfield Investment Management (Canada) Inc. (2011-Present); Director of Brookfield Investment Management (Canada) Inc. (2015-Present); Chief Executive Officer of Brookfield Investment Management
(US) LLC (2011-Present); Managing Director of AMP Capital Brookfield Pty Limited (2011-2012); Chairman of Brookfield Soundvest Capital Management (2015-Present). |
10
|
BROOKFIELD HIGH INCOME FUND INC. Information Concerning Directors and Officers (Unaudited) (continued)
Officers of the Fund
| Name,
Address and Year of Birth |
Position(s)
Held with Funds |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past 5 Years |
Brian
F. Hurley*
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1977 |
President
|
Since
2014 |
President
of several investment companies advised by the Adviser (2014-Present); Managing Director (2014-Present) and Assistant General Counsel (2010-Present) of the Adviser; Director of the Adviser (2010-2014); Secretary of Brookfield Investment Funds
(2011-2014); Director of Brookfield Soundvest Capital Management (2015-Present). |
Angela
W. Ghantous*
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1975 |
Treasurer
|
Since
2013 |
Treasurer
of several investment companies advised by the Adviser (2012-Present); Director of the Adviser (2012-Present); Vice President of the Adviser (2009-2012). |
Alexis
I. Rieger*
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1980 |
Secretary
|
Since
2014 |
Secretary
of several investment companies advised by the Adviser (2014-Present); Vice President and Associate General Counsel of the Adviser (2011-Present). |
Seth
Gelman*
c/o Brookfield Place,
250 Vesey Street,
New York, New York
10281-1023
Born: 1975 |
Chief
Compliance Officer (“CCO”) |
Since
2009 |
CCO
of several investment companies advised by the Adviser (2009-Present); CCO of the Adviser (2009-Present). |
* Interested person as defined by the Investment Company Act of 1940, as
amended (the “1940 Act”) because of affiliations with Brookfield Investment Management Inc., Adviser of the Fund.
The Fund’s Statement of Additional Information includes
additional information about the directors, and is available, without charge, upon request by calling 1-855-777-8001.
34Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Board Considerations Relating to the
Investment Advisory Agreement (Unaudited)
September 30, 2016
At an in-person meeting held on May 12, 2016, the Board,
including a majority of the Independent Directors, considered and approved the continuation of the investment advisory agreement (the "Advisory Agreement") between Brookfield Investment Management Inc. (the "Adviser") and the Fund. In approving the
Advisory Agreement, the Board, including a majority of the Independent Directors, determined that the fee structure was fair and reasonable and that approval of the Advisory Agreement was in the best interests of the Fund and its stockholders. The
Independent Directors were separately advised by independent legal counsel throughout the process, and discussed the legal standards for their consideration of the continuation of the Advisory Agreement. In their deliberations, the Board of
Directors considered a wide range of information, including information regularly received from the Adviser at the quarterly Board meetings. While attention was given to all information furnished, the following discusses the primary factors relevant
to the Board's decision.
NATURE, EXTENT AND QUALITY OF
SERVICES. The Board considered the level and depth of knowledge of the Adviser. In evaluating the quality of services provided by the Adviser, the Board took into account its familiarity with the Adviser’s
management through Board meetings, conversations and reports. The Board noted that the Adviser is responsible for managing the Fund's investment program, the general operations and the day-to-day management of the Fund and for compliance with
applicable laws, regulations, policies and procedures. The Board concluded that the nature, extent and quality of the overall services provided by the Adviser and its affiliates are satisfactory. The Board's conclusion was based, in part, upon
services provided to the Fund such as quarterly reports provided by the Adviser: 1) comparing the performance of the Fund with a peer group, 2) showing that the investment policies and restrictions for the Fund were followed, and 3) covering matters
such as the compliance of investment personnel and other access persons with the Adviser's and the Fund's codes of ethics, the adherence to fair value pricing procedures established by the Board, the monitoring of portfolio compliance and
presentations regarding the economic environment. The Board also considered the experience of the Adviser as an investment adviser and the experience of the team of portfolio managers that manages the Fund, and its current experience in acting as
investment adviser to other investment funds and institutional clients.
INVESTMENT PERFORMANCE. The
Board placed significant emphasis on the investment performance of the Fund in view of its importance to stockholders. While consideration was given to performance reports and discussions at Board meetings throughout the year, particular attention
in assessing the performance was given to a report (the “Broadridge Report”) for the Fund prepared by Broadridge, an independent third party provider of investment company data, furnished in connection with the contract renewal process.
The Broadridge Report compared the Fund’s performance with a peer group of other funds (the “Performance Universe”), as selected by Broadridge, and an index of similarly managed funds for the one-, two-, three-, four-, five- and
ten-year periods ending April 30, 2016. The Board noted that the Fund performed below the median of its Performance Universe for all periods. The Board noted that the Fund performed below the index for the one-, two-, three-, four- and five-year
periods, while it performed above the median for the ten-year period. Based on the Adviser’s explanation of the Fund’s performance in the current market, the Board concluded that the Fund's performance was satisfactory.
PROFITABILITY. The Board
also considered the level of profits expected to be realized by the Adviser and its affiliates in connection with the operation of the Fund. In this regard, the Board reviewed the Fund profitability analysis addressing the overall profitability of
the Adviser for its management of the Brookfield fund family, as well as its expected profits and that of its affiliates for providing administrative support for the Fund. The Board further noted that the methodology followed in allocating costs to
the Fund appeared reasonable, while also recognizing that allocation methodologies are inherently subjective. The Board concluded that the expected profitability to the Adviser from the Fund was reasonable.
MANAGEMENT FEE AND TOTAL EXPENSES. The Board also placed significant emphasis on the review of the Fund’s expenses. The Board compared the advisory fees and total expense ratio of the Fund with various comparative data that it had been provided,
including comparisons of the Fund’s management fee and total expense level to those of a peer group selected by Broadridge (the “Expense Group”) and a peer group selected by management. The Board noted that the Fund’s total
expenses were above the median and total advisory and administrative fee were below the median of its Expense Group, while total expenses and total advisory and administrative fee were higher than the median of its peer group selected by management.
The Board also noted that the fees and expenses payable by the Fund were comparable to those payable by other client accounts managed by the Adviser and concluded that the Fund's management fee and total expenses were reasonable.
ECONOMIES OF SCALE. The
Board considered the potential economies of scale that may be realized if the assets of the Fund grow. The Board noted that if the Fund’s assets increase proportionally more than certain other
BROOKFIELD HIGH INCOME FUND INC.
Board Considerations Relating to the
Investment Advisory Agreement (Unaudited) (continued)
September 30, 2016
fixed expenses over time, the stockholders might benefit from lower
operating expenses as a result of an increasing amount of assets being spread over the fixed expenses of the Fund, but noted that, as a closed-end fund, the Fund was unlikely to grow significantly.
In considering the approval of the Advisory Agreement, the
Board, including the Independent Directors, did not identify any single factor as controlling. Based on the Board’s evaluation of all factors that it deemed to be relevant, the Board, including the Independent Directors, concluded that the
Adviser has demonstrated that it possesses the capability and resources necessary to perform the duties required of it under the Advisory Agreement; the Adviser was taking steps to address the Fund’s performance; and the proposed Advisory fees
are fair and reasonable, given the nature, extent and quality of the services to be rendered by the Adviser. In addition, the Board took into account management’s plans for the Fund.
After carefully reviewing all of these factors, the Board,
including the Independent Directors, unanimously approved the continuation of the Advisory Agreement.
36Brookfield
Investment Management Inc.
BROOKFIELD HIGH INCOME FUND INC.
Dividend Reinvestment Plan (Unaudited)
A
Dividend Reinvestment Plan (the “Plan”) is available to stockholders of the Fund pursuant to which they may elect to have all distributions of dividends and capital gains automatically reinvested by Computershare Trust Company, N.A. and
Computershare Shareholder Services, Inc. (the “Plan Agent”) in additional Fund shares. Stockholders who do not participate in the Plan will receive all distributions in cash paid by check mailed directly to the stockholder of record (or
if the shares are held in street or other nominee name, then to the nominee) by the Fund’s Custodian, as Dividend Disbursing Agent.
The Plan Agent serves as agent for the stockholders in
administering the Plan. After the Fund declares a dividend or determines to make a capital gain distribution, payable in cash, if (1) the market price is lower than the net asset value, the participants in the Plan will receive the equivalent in
Fund shares valued at the market price determined as of the time of purchase (generally, the payment date of the dividend or distribution); or if (2) the market price of the shares on the payment date of the dividend or distribution is equal to or
exceeds their net asset value, participants will be issued Fund shares at the higher of net asset value or 95% of the market price. This discount reflects savings in underwriting and other costs that the Fund otherwise will be required to incur to
raise additional capital. If the net asset value exceeds the market price of the Fund shares on the payment date or the Fund declares a dividend or other distribution payable only in cash (i.e., if the Board
of Trustees precludes reinvestment in Fund shares for that purpose), the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants’ accounts. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of the Fund’s shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value
of the Fund’s shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. The Fund will not issue shares under the Plan below net asset value.
Participants in the Plan may withdraw from the Plan upon
written notice to the Plan Agent. When a participant withdraws from the Plan or upon termination of the Plan by the Fund, certificates for whole shares credited to his or her account under the Plan will be issued and a cash payment will be made for
any fraction of a share credited to such account.
There is no charge to participants for reinvesting
dividends or capital gain distributions, except for certain brokerage commissions, as described below. The Plan Agent’s fees for handling the reinvestment of dividends and distributions are paid by the Fund. There are no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open market purchases in connection with the reinvestment of
dividends and distributions.
The automatic reinvestment
of dividends and distributions will not relieve participants of any federal income tax that may be payable on such dividends or distributions.
A brochure describing the Plan is available from the Plan
Agent, by calling 1-800-426-5523.
If you wish to
participate in the Plan and your shares are held in your name, you may simply complete and mail the enrollment form in the brochure. If your shares are held in the name of your brokerage firm, bank or other nominee, you should ask them whether or
how you can participate in the Plan. Stockholders whose shares are held in the name of a brokerage firm, bank or other nominee and are participating in the Plan may not be able to continue participating in the Plan if they transfer their shares to a
different brokerage firm, bank or other nominee, since such stockholders may participate only if permitted by the brokerage firm, bank or other nominee to which their shares are transferred.
BROOKFIELD HIGH INCOME FUND INC.
Joint Notice of Privacy Policy (Unaudited)
September
30, 2016
Brookfield Investment Management Inc. (“BIM”),
on its own behalf and on behalf of the funds managed by BIM and its affiliates, recognizes and appreciates the importance of respecting the privacy of our clients and shareholders. Our relationships are based on integrity and trust and we maintain
high standards to safeguard your non-public personal information (“Personal Information”) at all times. This privacy policy (“Policy”) describes the types of Personal Information we collect about you, the steps we take to
safeguard that information and the circumstances in which it may be disclosed.
If you hold shares of a Fund through a financial
intermediary, such as a broker, investment adviser, bank or trust company, the privacy policy of your financial intermediary will also govern how your Personal Information will be shared with other parties.
WHAT INFORMATION DO WE COLLECT?
We collect the following Personal Information about you:
| •
|
Information
we receive from you in applications or other forms, correspondence or conversations, including but not limited to name, address, phone number, social security number, assets, income and date of birth. |
| •
|
Information
about transactions with us, our affiliates, or others, including but not limited to account number, balance and payment history, parties to transactions, cost basis information, and other financial information. |
| •
|
Information
we may receive from our due diligence, such as your creditworthiness and your credit history. |
WHAT IS OUR PRIVACY POLICY?
We may share your Personal Information with our affiliates
in order to provide products or services to you or to support our business needs. We will not disclose your Personal Information to nonaffiliated third parties unless 1) we have received proper consent from you; 2) we are legally permitted to do so;
or 3) we reasonably believe, in good faith, that we are legally required to do so. For example, we may disclose your Personal Information with the following in order to assist us with various aspects of conducting our business, to comply with laws
or industry regulations, and/or to effect any transaction on your behalf;
| •
|
Unaffiliated
service providers (e.g. transfer agents, securities broker-dealers, administrators, investment advisors or other firms that assist us in maintaining and supporting financial products and services provided to
you); |
| •
|
Government
agencies, other regulatory bodies and law enforcement officials (e.g. for reporting suspicious transactions); |
| •
|
Other organizations, with
your consent or as directed by you; and |
| •
|
Other
organizations, as permitted or required by law (e.g. for fraud protection) |
When we share your Personal Information, the information is
made available for limited purposes and under controlled circumstances designed to protect your privacy. We require third parties to comply with our standards for security and confidentiality.
HOW DO WE PROTECT CLIENT INFORMATION?
We restrict access to your Personal Information to those
persons who require such information to assist us with providing products or services to you. It is our practice to maintain and monitor physical, electronic, and procedural safeguards that comply with federal standards to guard client nonpublic
personal information. We regularly train our employees on privacy and information security and on their obligations to protect client information.
CONTACT INFORMATION
For questions concerning our Privacy Policy, please contact
our client services representative at 1-855-777-8001.
38Brookfield
Investment Management Inc.
Investment Adviser and Administrator
Brookfield Investment Management Inc.
Brookfield Place
250 Vesey Street, 15th Floor
New York, New York 10281-1023
www.brookfieldim.com
Please direct your inquiries to:
Investor Relations
Phone: 1-855-777-8001
Transfer Agent
Stockholder inquiries relating to distributions, address
changes and stockholder account information should be directed to the Fund’s transfer agent:
Computershare Shareholder Services, Inc.
250 Royall Street
Canton, Massachusetts 02021
1-800-426-5523
Fund Accounting Agent
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
Sub-Administrator
U.S. Bancorp Fund Services, LLC
1201 South Alma School Road, Suite 3000
Mesa, Arizona 85210
Independent Registered Public Accounting Firm
BBD, LLP
1835 Market Street, 26th Floor
Philadelphia, Pennsylvania 19103
Legal Counsel
Paul Hastings LLP
75 East 55th Street
New York, New York 10022
Custodian
U.S. Bank National Association
1555 North Rivercenter Drive, Suite 302
Milwaukee, Wisconsin 53212
The Fund files its complete schedule of
portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Form N-Q are available on the SEC’s website at www.sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at
the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
You may obtain a description of the Fund’s
proxy voting policies and procedures, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request by calling 1-855-777-8001, or go to the
SEC’s website at www.sec.gov.
Brookfield Investment Management Inc.
Brookfield Place
250 Vesey Street, 15th Floor
New York, New York 10281-1023
1-855-777-8001
www.brookfieldim.com
Item 2. Code of Ethics.
As of the end of the period covered by this report, the Registrant had adopted a Code of Ethics for Principal Executive and
Principal Financial Officers (the “Code”). There were no amendments to or waivers from the Code during the period covered by this report. A copy of the Registrant’s Code will be provided upon request to any person without charge by
contacting Investor Relations at (855) 777-8001 or by writing to Secretary, Brookfield High Income Fund Inc., Brookfield Place, 250 Vesey Street, 15th Floor, New York, NY 10281-1023.
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Directors has determined that four members serving on the Registrant’s audit committee are
audit committee financial experts. Their names are Stuart A. McFarland, Edward A. Kuczmarski, Louis P. Salvatore and Heather S. Goldman. Messrs. McFarland, Kuczmarski, Salvatore and Mme. Goldman are each independent.
Item 4. Principal Accountant Fees and Services.
The aggregate fees billed by the Fund’s independent registered public accounting firm,
BBD, LLP (“BBD”), to the Funds for the Fund’s two most recent fiscal years for professional services rendered for the audit of the Registrant’s annual financial statements and the review of financial statements that are included
in the Registrant’s annual and semi-annual reports to shareholders (“Audit Fees”) were $25,000 and $37,500 for the fiscal years ended September 30, 2016 and September 30, 2015, respectively.
There were no fees billed by BBD to the Fund in its two recent fiscal years for
services rendered for assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements, but are not reported as Audit Fees (“Audit-Related Fees”).
For the Fund’s two most recent fiscal years, there were no Audit-Related Fees billed by BBD for engagements related directly to the operations and
financial reporting of one or more Funds by a Fund Service Provider. A Fund Service Provider is (a) any investment adviser to the Fund (not including any Subadvisor whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser) or (b) any entity that provides ongoing services to the Fund and is controlling, controlled by or under common control with a Fund investment adviser described in (a).
2
For the fiscal years ended September 30, 2016 and September 30, 2015, BBD billed
the Registrant aggregate fees of $3,500 and $3,500, respectively. The nature of the services for which Tax Fees were charged comprise all services performed by professional staff in BBD’s tax division except those services related to the audit.
Typically, this category would include fees for tax compliance, tax planning, and tax advice. Tax compliance, tax advice, and tax planning services include preparation of original and amended tax returns, claims for refund and tax payment-planning
services, assistance with tax audits and appeals, tax advice related to mergers and acquisitions and requests for rulings or technical advice from taxing authorities.
For the Fund’s two most recent fiscal years, Tax Fees billed by BBD for engagements by Fund Service Providers that related directly to the operations and
financial reporting of the Funds were $0 for the fiscal year ended September 30, 2016 and $0 for the fiscal year ended September 30, 2015, respectively.
The services for which Tax Fees were charged comprise all services performed by professional staff in BBD’s tax division except those services related to
the audit. Typically, this category would include fees for tax compliance, tax planning, and tax advice. Tax compliance, tax advice, and tax planning services include preparation of original and amended tax returns, claims for refund and tax
payment-planning services, assistance with tax audits and appeals, tax advice related to mergers and acquisitions and requests for rulings or technical advice from taxing authorities
There were no other fees billed by BBD to the Fund for all other non-audit services
(“Other Fees”) for the fiscal years ended September 30, 2016 and September 30, 2015. During the same period, there were no Other Fees billed by BBD for engagements by Fund Service Providers that related directly to the operations
and financial reporting of the Fund.
(e) (1) According to policies adopted by the Audit Committee, services provided by BBD to the Funds must be
pre-approved by the Audit Committee. On an annual basis, the Audit Committee reviews and pre-approves various types of services that BBD may perform for the Funds without specific approval of each engagement, subject to specified budget limitations.
As contemplated by the Sarbanes-Oxley Act of 2002 and related SEC rules, the Audit Committee also pre-approves non-audit services provided by BBD to any Fund Service Provider for any engagement that relates directly to the operations and financial
reporting of the Funds. Any engagement that is not already pre-approved or that will exceed a pre-approved budget must be submitted to the Audit Committee for pre-approval.
(e) (2) None.
(f) Not applicable.
(g) The aggregate fees billed by BBD for the fiscal years ended September 30, 2016 and September 30, 2015, for non-audit services rendered to the Fund and
Fund Service Providers were $3,500 and $3,500, respectively. For the fiscal year ended September 30, 2016, this amount reflects the amounts disclosed above in Item 4(b),(c),(d), plus $0 in fees billed to the Fund Service Providers for
non-audit services that did not relate directly to the operations and financial reporting of the Fund. For the fiscal year ended September 30, 2015, this amount reflects the amounts disclosed above in Item 4(b),(c),(d), plus $0 in fees
billed to the Fund Service Providers for non-audit services that did not relate directly to the operations and financial reporting of the Fund.
3
(h) The Fund’s Audit Committee has considered whether the provision of non-audit services by
registrant’s independent registered public accounting firm to the registrant’s investment advisor, and any entity controlling, controlled, or under common control with the investment advisor that provided ongoing services to the registrant
that were not pre-approved by the Committee (because such services did not relate directly to the operations and financial reporting of the registrant) was compatible with maintaining the independence of the independent registered public accounting
firm.
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The Registrant’s Audit Committee members include Stuart A. McFarland, Edward A. Kuczmarski, Louis P. Salvatore and Heather S. Goldman.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
| Item 7. |
Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
BROOKFIELD INVESTMENT MANAGEMENT INC.
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
May 2012
The Portfolio
Proxy Voting Policies and Procedures (the “Policies and Procedures”) set forth the proxy voting policies, procedures and guidelines to be followed by Brookfield Investment Management Inc. and its subsidiaries and affiliates (collectively,
“BIM”) in voting portfolio proxies relating to securities that are held in the portfolios of the investment companies or other clients (“Clients”) for which BIM has been delegated such proxy voting authority.
| A. |
Proxy Voting Committee |
BIM’s internal proxy voting committee (the
“Committee”) is responsible for overseeing the proxy voting process and ensuring that BIM meets its regulatory and corporate governance obligations in voting of portfolio proxies.
The Committee shall oversee the proxy voting agent’s compliance with these Policies and Procedures, including any deviations by the proxy
voting agent from the proxy voting guidelines (“Guidelines”).
4
| B. |
Administration and Voting of Portfolio Proxies |
| 1. |
Fiduciary Duty and Objective |
As an investment adviser that has been granted the
authority to vote on portfolio proxies, BIM owes a fiduciary duty to its Clients to monitor corporate events and to vote portfolio proxies consistent with the best interests of its Clients. In this regard, BIM seeks to ensure that all votes are free
from unwarranted and inappropriate influences. Accordingly, BIM generally votes portfolio proxies in a uniform manner for its Clients and in accordance with these Policies and Procedures and the Guidelines.
In meeting its fiduciary duty, BIM generally view proxy voting as a way to enhance the value of the company’s stock held by the Clients.
Similarly, when voting on matters for which the Guidelines dictate a vote be decided on a case-by-case basis, BIM’s primary consideration is the economic interests its Clients.
BIM may retain an independent third party proxy voting agent to
assist BIM in its proxy voting responsibilities in accordance with these Policies and Procedures and in particular, with the Guidelines. As discussed above, the Committee is responsible for monitoring the proxy voting agent.
In general, BIM may consider the proxy voting agent’s research and analysis as part of BIM’s own review of a proxy proposal in which
the Guidelines recommend that the vote be considered on a case-by-case basis. BIM bears ultimate responsibility for how portfolio proxies are voted. Unless instructed otherwise by BIM, the proxy voting agent, when retained, will vote each portfolio
proxy in accordance with the Guidelines. The proxy voting agent also will assist BIM in maintaining records of BIM’s portfolio proxy votes, including the appropriate records necessary for registered investment companies to meet their regulatory
obligations regarding the annual filing of proxy voting records on Form N-PX with the Securities and Exchange Commission (“SEC”).
| 3. |
Material Conflicts of Interest |
BIM votes portfolio proxies without regard to any other
business relationship between BIM and the company to which the portfolio proxy relates. To this end, BIM must identify material conflicts of interest that may arise between a Client and BIM, such as the following relationships:
| |
● |
|
BIM provides significant investment advisory or other services to a portfolio company or its affiliates (the
“Company”) whose management is soliciting proxies or BIM is seeking to provide such services; |
| |
● |
|
BIM serves as an investment adviser to the pension or other investment account of the Company or BIM is
seeking to serve in that capacity; or |
| |
● |
|
BIM and the Company have a lending or other financial-related relationship. |
In each of these
situations, voting against the Company management’s recommendation may cause BIM a loss of revenue or other benefit.
5
BIM generally seeks to avoid such material conflicts of interest by maintaining separate
investment decision-making and proxy voting decision-making processes. To further minimize possible conflicts of interest, BIM and the Committee employ the following procedures, as long as BIM determines that the course of action is consistent with
the best interests of the Clients:
| |
● |
|
If the proposal that gives rise to a material conflict is specifically addressed in the Guidelines, BIM will
vote the portfolio proxy in accordance with the Guidelines, provided that the Guidelines do not provide discretion to BIM on how to vote on the matter (i.e., case-by-case); or |
| |
● |
|
If the previous procedure does not provide an appropriate voting recommendation, BIM may retain an independent
fiduciary for advice on how to vote the proposal or the Committee may direct BIM to abstain from voting because voting on the particular proposal is impracticable and/or is outweighed by the cost of voting. |
| 4. |
Certain Foreign Securities |
Portfolio proxies relating to foreign securities held by Clients are subject to these Policies and Procedures. In certain foreign
jurisdictions, however, the voting of portfolio proxies can result in additional restrictions that have an economic impact to the security, such as “share-blocking.” If BIM votes on the portfolio proxy, share-blocking may prevent BIM from
selling the shares of the foreign security for a period of time. In determining whether to vote portfolio proxies subject to such restrictions, BIM, in consultation with the Committee, considers whether the vote, either in itself or together with
the votes of other shareholders, is expected to affect the value of the security that outweighs the cost of voting. If BIM votes on a portfolio proxy and during the “share-blocking period,” BIM would like to sell the affected foreign
security, BIM, in consultation with the Committee, will attempt to recall the shares (as allowable within the market time-frame and practices).
| C. |
Fund Board Reporting and Recordkeeping |
BIM will prepare periodic reports for submission to the Boards of Directors of its affiliated funds (the “Funds”) describing:
| |
● |
|
any issues arising under these Policies and Procedures since the last report to the Funds’ Boards of
Directors/Trustees and the resolution of such issues, including but not limited to, information about conflicts of interest not addressed in the Policies and Procedures; and |
| |
● |
|
any proxy votes taken by BIM on behalf of the Funds since the last report to such Funds’ Boards of
Directors/Trustees that deviated from these Policies and Procedures, with reasons for any such deviations. |
In addition,
no less frequently than annually, BIM will provide the Boards of Directors/Trustees of the Funds with a written report of any recommended changes based upon BIM’s experience under these Policies and Procedures, evolving industry practices and
developments in the applicable laws or regulations.
BIM will maintain all records that are required under, and in accordance with, all
applicable regulations, including the Investment Company Act of 1940, as amended, and the Investment Advisers Act of 1940, which include, but not limited to:
| |
● |
|
these Policies and Procedures, as amended from time to time; |
| |
● |
|
records of votes cast with respect to portfolio proxies, reflecting the information required to be included in
Form N-PX, as applicable; |
6
| |
● |
|
records of written client requests for proxy voting information and any written responses of BIM to such
requests; and |
| |
● |
|
any written materials prepared by BIM that were material to making a decision in how to vote, or that
memorialized the basis for the decision. |
| D. |
Amendments to these Procedures |
The Committee shall periodically review and update these Policies and Procedures as necessary. Any amendments to these Procedures and Policies
(including the Guidelines) shall be provided to the Board of Directors of BIM and to the Boards of Directors of the Funds for review and approval.
| E. |
Proxy Voting Guidelines |
Guidelines are available upon request.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Investment Team – Portfolio Managers
Mr. Dana Erikson, CFA – Managing Director and Portfolio Manager
Dana Erikson is a Portfolio Manager, Head of the Real Asset Debt team and has 30 years of investment experience. Prior to joining the Firm, he
was with Evergreen Investments or one of its predecessor firms since 1996. He was a Senior Portfolio Manager and the Head of the High Yield team. Prior to that, he was Head of High Yield Research. Dana earned a Master of Business Administration
degree, with honors, from Northeastern University and a Bachelor of Arts degree in Economics from Brown University. He holds the Chartered Financial Analyst® designation and is a member of the
Boston Security Analysts Society, Inc.
Mark Shipley, CFA – Managing Director and Portfolio Manager
Mark Shipley is a Portfolio Manager on the Real Asset Debt team and has 26 years of investment experience. Prior to joining the Firm, he was
with Evergreen Investments or one of its predecessor firms since 1991. He was a Senior Credit Analyst and Senior Trader on the High Yield Team. Mark earned a Bachelor of Arts degree in Finance from Northeastern University. He holds the Chartered
Financial Analyst® designation and is a member of The Boston Security Analysts Society, Inc.
Mr. Erikson leads the management of the Fund and Mr. Shipley shares equally the day-to-day portfolio management responsibilities.
7
Management of Other Accounts
Mr. Erikson manages other investment companies and/or investment vehicles and accounts in addition to the Registrant. The tables below
show the number of other accounts managed by Mr. Erikson as of October 31, 2016 and the total assets in each of the following categories: (a) registered investment companies; (b) other pooled investment vehicles; and
(c) other accounts. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Portfolio
Manager |
|
Type of Accounts |
|
Total # of
Other Accounts
Managed |
|
|
Total Assets |
|
|
# of Accounts
Managed with
Advisory Fee
Based on
Performance |
|
|
Total Assets with
Advisory Fee Based
on Performance |
|
| Dana Erikson |
|
Other Registered
Investment
Company |
|
|
4 |
|
|
$ |
214,208,247 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Pooled
Investment
Vehicles |
|
|
2 |
|
|
$ |
47,950,288 |
|
|
|
1 |
|
|
$ |
35,403,758 |
|
|
|
Other
Accounts |
|
|
3 |
|
|
$ |
11,354,605 |
|
|
|
0 |
|
|
$ |
0 |
|
Mr. Shipley manages other investment companies and/or investment vehicles and accounts in addition to the
Registrant. The tables below show the number of other accounts managed by Mr. Shipley as of October 31, 2016 and the total assets in each of the following categories: (a) registered investment companies; (b) other pooled
investment vehicles; and (c) other accounts. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Portfolio
Manager |
|
Type of Accounts |
|
Total # of
Other Accounts
Managed |
|
|
Total Assets |
|
|
# of Accounts
Managed with
Advisory Fee
Based on
Performance |
|
|
Total Assets with
Advisory Fee Based
on Performance |
|
| Mark Shipley |
|
Other Registered
Investment
Company |
|
|
4 |
|
|
$ |
214,208,247 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Pooled
Investment
Vehicles |
|
|
2 |
|
|
$ |
47,950,288 |
|
|
|
1 |
|
|
$ |
35,403,758 |
|
|
|
Other
Accounts |
|
|
3 |
|
|
$ |
11,354,605 |
|
|
|
0 |
|
|
$ |
0 |
|
8
Share Ownership
The following table indicates the dollar range of securities of the Registrant owned by the Registrant’s portfolio managers as
October 31, 2016.
|
|
|
|
|
Dollar Range of Securities Owned |
| Dana Erikson |
|
Over $100,000 |
| Mark Shipley |
|
$10,001 – $50,000 |
Portfolio Manager Material Conflict of Interest
Potential conflicts of interest may arise when a fund’s portfolio manager has day-to-day management responsibilities with respect to one
or more other funds or other accounts, as is the case for the portfolio managers of the Registrant.
These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may
devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those
accounts as the case may be if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio
manager have different investment strategies.
Allocation of Limited Investment Opportunities. If a portfolio manager identifies a
limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s ability to take full advantage of the investment
opportunity.
Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be
appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these
cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds
and/or accounts.
Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the
portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the investment adviser’s management fee and/or the portfolio manager’s compensation differs among funds and/or accounts (such as where
certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor funds and/or
accounts in which he or she has an interest or in which the investment adviser and/or its affiliates have interests. Similarly, the desire to maintain or raise assets under management or to enhance the portfolio manager’s performance record or
to derive other rewards, financial or otherwise, could influence the portfolio manager to lend preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.
Related Business Opportunities. The investment adviser or its affiliates may provide more services (such as distribution or
recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater
overall returns to the investment manager and its affiliates.
9
The Adviser and the Registrants have adopted compliance policies and procedures that are designed to address the
various conflicts of interest that may arise for the Adviser and the individuals that it employs. For example, the Adviser seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio
managers to manage funds and accounts that share a similar investment style. The Adviser has also adopted trade allocation procedures that are designed to facilitate the fair allocation of limited investment opportunities among multiple funds and
accounts. There is, however, no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may appear.
Portfolio Manager Compensation
The Registrant’s
portfolio manager is compensated by the Adviser. The compensation structure of the Adviser’s portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and
(3) if applicable, long-term stock-based compensation consisting generally of restricted stock units of the Adviser’s indirect parent company, Brookfield Asset Management, Inc. The portfolio managers also receive certain retirement,
insurance and other benefits that are broadly available to all of the Adviser’s employees. Compensation of the portfolio managers is reviewed on an annual basis by senior management.
The Adviser compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities, the total return performance
of funds and accounts managed by the portfolio manager on an absolute basis and versus appropriate peer groups of similar size and strategy, as well as the management skills displayed in managing their subordinates and the teamwork displayed in
working with other members of the firm. Since the portfolio managers are responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis almost equally weighted among performance, management and teamwork. Base
compensation for the Adviser’s portfolio managers varies in line with the portfolio manager’s seniority and position. The compensation of portfolio managers with other job responsibilities (such as acting as an executive officer of the
Adviser and supervising various departments) will include consideration of the scope of such responsibilities and the portfolio manager’s performance in meeting them. The Adviser seeks to compensate portfolio managers commensurate with their
responsibilities and performance, and competitive with other firms within the investment management industry. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of the Adviser and its indirect parent.
While the salaries of the Adviser’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in the portfolio manager’s performance and other
factors as described herein.
| Item 9. |
Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
None.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant’s nominating committee charter does not contain any procedure by which
shareholders may recommend nominees to the registrant’s board of directors.
10
Item 11. Controls and Procedures.
(a) The Registrant’s principal executive officer and principal financial officer have concluded that the
Registrant’s Disclosure Controls and Procedures are effective, based on their evaluation of such Disclosure Controls and Procedures as of a date within 90 days of the filing of this report on Form N-CSR.
(b) As of the date of filing this Form N-CSR, the Registrant’s principal executive officer and principal
financial officer are aware of no changes in the Registrant’s internal control over financial reporting that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected or is
reasonably likely to materially affect the Registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) None.
(2) A separate certification for each principal executive officer and principal financial officer of the Registrant as
required by Rule 30a-2(a) under the Investment Company Act of 1940 is attached as an exhibit to this Form N-CSR.
(3) None.
(b) A separate certification for each principal executive officer and principal financial officer of the
Registrant as required by Rule 30a-2(b) under the Investment Company Act of 1940 is attached as an exhibit to this Form N-CSR.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BROOKFIELD HIGH INCOME FUND INC.
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| By: |
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/s/ Brian F. Hurley |
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Brian F. Hurley |
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President and Principal Executive Officer |
Date: December 9, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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| By: |
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/s/ Brian F. Hurley |
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Brian F. Hurley |
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President and Principal Executive Officer |
Date: December 9, 2016
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| By: |
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/s/ Angela W. Ghantous |
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Angela W. Ghantous |
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Treasurer and Principal Financial Officer |
Date: December 9, 2016
12
EX-99.CERT
CERTIFICATION
I, Brian F. Hurley,
certify that:
1. I have reviewed this report on Form N-CSR of BROOKFIELD HIGH INCOME FUND INC.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the second
fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s
board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
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| Dated: December 9, 2016 |
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/s/ Brian F. Hurley |
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Brian F. Hurley |
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President and Principal Executive Officer |
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13
CERTIFICATION
I, Angela W. Ghantous, certify that:
1. I have reviewed this
report on Form N-CSR of BROOKFIELD HIGH INCOME FUND INC.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the second
fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s
board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize, and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
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| Dated: December 9, 2016 |
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/s/ Angela W. Ghantous |
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Angela W. Ghantous |
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Treasurer and Principal Financial Officer |
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14
EX-99.906CERT
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT
Brian F. Hurley, President and Principal Executive Officer, and Angela W. Ghantous, Treasurer and Principal Financial Officer, of BROOKFIELD HIGH INCOME FUND
INC. (the “Registrant”), each certify as evidenced below that:
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1. |
The N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
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| Dated: December 9, 2016 |
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/s/ Brian F. Hurley |
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Brian F. Hurley |
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President and Principal Executive Officer |
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BROOKFIELD HIGH INCOME FUND INC. |
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| Dated: December 9, 2016 |
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/s/ Angela W. Ghantous |
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Angela W. Ghantous |
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Treasurer and Principal Financial Officer |
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BROOKFIELD HIGH INCOME FUND INC. |
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A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided BROOKFIELD HIGH INCOME FUND INC. and will be retained by BROOKFIELD HIGH INCOME FUND
INC. and furnished to the Securities and Exchange Commission or its staff upon request.
15
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