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 811-07359
650 HIGH INCOME FUND, INC.
(Exact name of registrant as specified in charter)
650 MADISON AVENUE, 19TH FLOOR
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip code)
CLIFFORD E. LAI, PRESIDENT
650 HIGH INCOME FUND, INC.
650 MADISON AVENUE, 19TH FLOOR
NEW YORK, NEW YORK 10022
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-212-558-2000
Date of fiscal year end: July 31
Date of reporting period: January 31, 2011
Item 1. Reports to Shareholders.
650 High Income Fund, Inc.
Semi-Annual Report
January 31, 2011
This report is for shareholder 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 |
650 HIGH INCOME FUND, INC.
Portfolio Characteristics (Unaudited)
January 31, 2011
PORTFOLIO STATISTICS
Weighted average coupon | 4.17% | |
Average effective maturity | 3.80 years | |
Total number of holdings | 126 |
CREDIT QUALITY
A | 4.33 | % | ||
BBB | 13.19 | % | ||
BB | 13.44 | % | ||
B | 15.00 | % | ||
Below B | 25.25 | % | ||
NR | 10.74 | % | ||
Money Market-Treasury | 18.05 | % | ||
Total | 100 | % |
ASSET ALLOCATION1
Asset-Backed Securities | 5.13 | % | ||
Commercial Mortgage-Backed Securities | 83.99 | % | ||
Non-Agency Residential Mortgage-Backed Securities | 8.23 | % | ||
Preferred Securities | 2.65 | % | ||
Total | 100 | % |
1 | Includes only invested assets; excludes cash. |
2011 Semi-Annual Report
1
650 HIGH INCOME FUND, INC.
Portfolio of Investments (Unaudited)
January 31, 2011
Interest Rate | Maturity | Principal Amount (000s) | Value (Note 2) | |||||||||||||
ASSET-BACKED SECURITIES – 4.1% | ||||||||||||||||
Long Beach Mortgage Loan Trust | 6.00 | % | 11/25/32 | $ | 400 | $ | 57,619 | |||||||||
Mid-State Trust | 8.90 | 08/15/37 | 1,441 | 1,358,747 | ||||||||||||
Sail Net Interest Margin Notes | ||||||||||||||||
Series 2004-BN2A, Class B 1,4,7 | 7.00 | 12/27/34 | 467 | 1 | ||||||||||||
Series 2003-5, Class A 1,4,5,7 | 7.35 | 06/27/33 | 24 | 2 | ||||||||||||
Series 2003-3, Class A 1,4,7 | 7.75 | 04/27/33 | 59 | — | ||||||||||||
Structured Asset Investment Loan Trust | 6.00/6.50 | 04/25/34 | 129 | 16,146 | ||||||||||||
Total ASSET-BACKED SECURITIES | 1,432,515 | |||||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 67.3% |
| |||||||||||||||
Commercial Mortgage-Backed Securities – 63.2% | ||||||||||||||||
Banc of America Commercial Mortgage, Inc. | ||||||||||||||||
Series 2006-2, Class XW 1,2,4,7 | 0.04 | 05/10/45 | — | — | ||||||||||||
Series 2007-2, Class XW 2,7 | 0.04 | 04/10/49 | — | — | ||||||||||||
Series 2004-6, Class F 1,2,4 | 5.23 | 12/10/42 | 1,889 | 1,400,915 | ||||||||||||
Series 2007-2, Class L 1,4 | 5.37 | 04/10/49 | 1,144 | 10,866 | ||||||||||||
Series 2007-2, Class M 1,4 | 5.37 | 04/10/49 | 525 | 3,413 | ||||||||||||
Series 2007-2, Class N 1,4 | 5.37 | 04/10/49 | 1,768 | 7,955 | ||||||||||||
Series 2007-2, Class O 1,4 | 5.37 | 04/10/49 | 672 | 1,679 | ||||||||||||
Series 2007-2, Class P 1,4 | 5.37 | 04/10/49 | 638 | 574 | ||||||||||||
Series 2007-2, Class Q 1,4 | 5.37 | 04/10/49 | 2,365 | 946 | ||||||||||||
Series 2007-2, Class S 1,4 | 5.37 | 04/10/49 | 7,432 | 743 | ||||||||||||
Series 2006-2, Class J 1,4 | 5.48 | 05/10/45 | 667 | 38,817 | ||||||||||||
Series 2006-2, Class K 1,4 | 5.48 | 05/10/45 | 1,047 | 35,215 | ||||||||||||
Series 2006-2, Class L 1,4 | 5.48 | 05/10/45 | 1,202 | 20,434 | ||||||||||||
Series 2006-2, Class M 1,4 | 5.48 | 05/10/45 | 786 | 5,500 | ||||||||||||
Series 2006-2, Class N 1,4 | 5.48 | 05/10/45 | 1,571 | 3,143 | ||||||||||||
Series 2006-2, Class O 1,4 | 5.48 | 05/10/45 | 1,537 | 1,537 | ||||||||||||
Series 2006-2, Class P 1,4 | 5.48 | 05/10/45 | 5,413 | 541 | ||||||||||||
Series 2007-2, Class K 1,2,4 | 5.70 | 04/10/49 | 2,727 | 40,909 | ||||||||||||
Series 2002-PB2, Class K 1,4 | 6.29 | 06/11/35 | 1,511 | 1,387,098 | ||||||||||||
Bear Stearns Commercial Mortgage Securities | ||||||||||||||||
Series 2006-PW13, Class X1 1,2,4,7 | 0.14 | 09/11/41 | — | — | ||||||||||||
Series 2005-PWR9, Class L 1,4 | 4.66 | 09/11/42 | 3,777 | 171,899 | ||||||||||||
Series 2006-PW13, Class J 1,4 | 5.26 | 09/11/41 | 2,406 | 45,718 | ||||||||||||
Series 2006-PW13, Class K 1,4 | 5.26 | 09/11/41 | 302 | 5,126 | ||||||||||||
Series 2006-PW13, Class L 1,4 | 5.26 | 09/11/41 | 2,012 | 28,165 | ||||||||||||
Series 2006-PW13, Class M 1,4 | 5.26 | 09/11/41 | 1,644 | 14,791 | ||||||||||||
Series 2006-PW13, Class N 1,4 | 5.26 | 09/11/41 | 980 | 6,857 | ||||||||||||
Series 2006-PW13, Class O 1,4 | 5.26 | 09/11/41 | 1,641 | 3,282 | ||||||||||||
Series 2006-PW13, Class P 1,4 | 5.26 | 09/11/41 | 6,196 | 62 | ||||||||||||
Series 2004-PWR6, Class F 1,2,4 | 5.44 | 11/11/41 | 1,700 | 1,066,054 | ||||||||||||
Series 2004-PWR5, Class F 1,4 | 5.48 | 07/11/42 | 2,644 | 1,890,525 | ||||||||||||
Series 1999-C1, Class J 1,4 | 5.64 | 02/14/31 | 1,154 | 115 |
See Notes to Portfolio of Investments and Notes to Financial Statements.
650 High Income Fund, Inc.
2
650 HIGH INCOME FUND, INC.
Portfolio of Investments (Unaudited)
January 31, 2011
Interest Rate | Maturity | Principal Amount (000s) | Value (Note 2) | |||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) |
| |||||||||||||||
CD 2006 CD2 Mortgage Trust | ||||||||||||||||
Series 2006-CD2, Class K 1,4 | 5.09 | % | 01/15/46 | $ | 1,233 | $ | 9,248 | |||||||||
Series 2006-CD2, Class L 1,4 | 5.09 | 01/15/46 | 881 | 2,202 | ||||||||||||
Series 2006-CD2, Class M 1,4 | 5.09 | 01/15/46 | 1,496 | 3,740 | ||||||||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | 5.22 | 07/15/44 | 3,777 | 1,657,199 | ||||||||||||
Commercial Mortgage Pass-Through Certificates | ||||||||||||||||
Series 2006-C8, Class L 1,4 | 5.06 | 12/10/46 | 1,667 | 1,667 | ||||||||||||
Series 2006-C8, Class M 1,4 | 5.06 | 12/10/46 | 1,667 | 167 | ||||||||||||
Series 2006-C8, Class N 1,4 | 5.06 | 12/10/46 | 416 | 42 | ||||||||||||
Series 2007-C9, Class L 1,4 | 5.24 | 12/10/49 | 3,171 | 409,525 | ||||||||||||
Series 2007-C9, Class M 1,4 | 5.24 | 12/10/49 | 1,244 | 120,337 | ||||||||||||
Series 2007-C9, Class N 1,4 | 5.24 | 12/10/49 | 1,343 | 108,593 | ||||||||||||
Series 2007-C9, Class O 1,4 | 5.24 | 12/10/49 | 1,142 | 64,121 | ||||||||||||
Series 2007-C9, Class P 1,4 | 5.24 | 12/10/49 | 1,926 | 77,953 | ||||||||||||
Series 2007-C9, Class Q 1,4 | 5.24 | 12/10/49 | 1,154 | 32,329 | ||||||||||||
Series 2007-C9, Class S 1,4 | 5.24 | 12/10/49 | 7,245 | 72,452 | ||||||||||||
Credit Suisse First Boston Mortgage Securities Corp. | ||||||||||||||||
Series 2006-C1, Class AX 1,2,4,7 | 0.01 | 02/15/39 | — | — | ||||||||||||
Series 2003-C3, Class J 1,4 | 4.23 | 05/15/38 | 907 | 654,282 | ||||||||||||
Series 2004-C3, Class J 1,4 | 4.78 | 07/15/36 | 208 | 520 | ||||||||||||
Credit Suisse Mortgage Capital Certificates | ||||||||||||||||
Series 2006-C4, Class L 1,4 | 5.15 | 09/15/39 | 471 | 2,354 | ||||||||||||
Series 2006-C4, Class M 1,4 | 5.15 | 09/15/39 | 758 | 2,655 | ||||||||||||
Series 2006-C4, Class N 1,4 | 5.15 | 09/15/39 | 1,223 | 3,058 | ||||||||||||
Series 2006-C4, Class O 1,4 | 5.15 | 09/15/39 | 1,206 | 1,810 | ||||||||||||
Series 2006-C4, Class P 1,4 | 5.15 | 09/15/39 | 1,817 | 1,817 | ||||||||||||
Series 2006-C4, Class Q 1,4 | 5.15 | 09/15/39 | 2,412 | 1,206 | ||||||||||||
Series 2006-C4, Class S 1,4 | 5.15 | 09/15/39 | 1,548 | 155 | ||||||||||||
Series 2006-C1, Class L 1,4 | 5.24 | 02/15/39 | 1,297 | 119,036 | ||||||||||||
Series 2006-C1, Class M 1,4 | 5.24 | 02/15/39 | 907 | 73,052 | ||||||||||||
Series 2006-C1, Class N 1,4 | 5.24 | 02/15/39 | 973 | 48,585 | ||||||||||||
Series 2006-C1, Class O 1,4 | 5.24 | 02/15/39 | 324 | 11,175 | ||||||||||||
Series 2006-C1, Class P 1,4 | 5.24 | 02/15/39 | 325 | 3,249 | ||||||||||||
Series 2006-C1, Class Q 1,4 | 5.24 | 02/15/39 | 648 | 3,241 | ||||||||||||
Series 2006-C1, Class S 1,4 | 5.24 | 02/15/39 | 1,747 | 175 | ||||||||||||
Series 2007-C2, Class A3 | 5.54 | 01/15/49 | 53 | 54,713 | ||||||||||||
Series 2006-C3, Class A3 2 | 5.83 | 06/15/38 | 1,300 | 1,420,517 | ||||||||||||
JP Morgan Commercial Mortgage Securities Corp. | ||||||||||||||||
Series 2003-C1, Class K 1,4,5 | 5.08 | 01/12/37 | 938 | 94 | ||||||||||||
Series 2005-LDP5, Class J 1,2,4 | 5.38 | 12/15/44 | 3,400 | 1,229,436 | ||||||||||||
Series 2007-LD11, Class K 1,2,4 | 5.82 | 06/15/49 | 4,154 | 20,771 | ||||||||||||
LB-UBS Commercial Mortgage Trust | ||||||||||||||||
Series 2002-C2, Class V 5 | 1.00 | 07/15/32 | — | — | ||||||||||||
Series 2005-C1, Class G 1,2,4 | 5.16 | 02/15/40 | 3,238 | 1,791,325 | ||||||||||||
Series 2002-C2, Class M 1,4 | 5.68 | 07/15/35 | 680 | 513,982 | ||||||||||||
Series 2002-C2, Class N 1,4 | 5.68 | 07/15/35 | 1,095 | 776,773 | ||||||||||||
Series 2001-C7, Class L 1,4 | 5.87 | 11/15/33 | 2,492 | 1,878,202 |
See Notes to Portfolio of Investments and Notes to Financial Statements.
2011 Semi-Annual Report
3
650 HIGH INCOME FUND, INC.
Portfolio of Investments (Unaudited)
January 31, 2011
Interest Rate | Maturity | Principal Amount (000s) | Value (Note 2) | |||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) |
| |||||||||||||||
LNR CDO Limited | 1.71 | % | 12/26/49 | $ | 2,833 | $ | — | |||||||||
Merrill Lynch Mortgage Trust | 5.70 | 07/12/34 | 1,733 | 988,664 | ||||||||||||
Morgan Stanley Cap I, Inc. | ||||||||||||||||
Series 2006-IQ11, Class J 1,4 | 5.53 | 10/15/42 | 613 | 12,250 | ||||||||||||
Series 2006-IQ11, Class K 1,4 | 5.53 | 10/15/42 | 443 | 3,321 | ||||||||||||
Series 2006-IQ11, Class L 1,4 | 5.53 | 10/15/42 | 499 | 1,247 | ||||||||||||
Wachovia Bank Commercial Mortgage Trust | ||||||||||||||||
Series 2005-C18, Class J 1,4 | 4.70 | 04/15/42 | 943 | 48,389 | ||||||||||||
Series 2005-C18, Class K 1,4 | 4.70 | 04/15/42 | 1,258 | 37,230 | ||||||||||||
Series 2005-C18, Class L 1,4 | 4.70 | 04/15/42 | 602 | 6,648 | ||||||||||||
Series 2005-C18, Class M 1,4 | 4.70 | 04/15/42 | 402 | 1,356 | ||||||||||||
Series 2005-C18, Class N 1,4 | 4.70 | 04/15/42 | 489 | 489 | ||||||||||||
Series 2002-C2, Class L 1,4 | 4.94 | 11/15/34 | 1,385 | 1,217,187 | ||||||||||||
Series 2002-C2, Class M 1,4 | 4.94 | 11/15/34 | 810 | 577,588 | ||||||||||||
Series 2002-C2, Class N 1,4 | 4.94 | 11/15/34 | 709 | 402,324 | ||||||||||||
Series 2002-C2, Class O 1,4 | 4.94 | 11/15/34 | 571 | 250,062 | ||||||||||||
Series 2002-C2, Class P 1,4 | 4.94 | 11/15/34 | 7,588 | 1,005,950 | ||||||||||||
Series 2006-C29, Class K 1,4 | 5.07 | 11/15/48 | 1,057 | 23,252 | ||||||||||||
Series 2006-C29, Class L 1,4 | 5.07 | 11/15/48 | 704 | 13,730 | ||||||||||||
Series 2006-C29, Class M 1,4 | 5.07 | 11/15/48 | 670 | 6,366 | ||||||||||||
Series 2006-C29, Class N 1,4 | 5.07 | 11/15/48 | 865 | 3,893 | ||||||||||||
Series 2006-C29, Class O 1,4 | 5.07 | 11/15/48 | 1,861 | 3,723 | ||||||||||||
Series 2006-C29, Class P 1,4 | 5.07 | 11/15/48 | 1,894 | 758 | ||||||||||||
Series 2006-C29, Class Q 1,4 | 5.07 | 11/15/48 | 8,525 | 852 | ||||||||||||
Series 2007-C31, Class L 1,4 | 5.13 | 04/15/47 | 2,553 | 25,535 | ||||||||||||
Series 2007-C31, Class M 1,4 | 5.13 | 04/15/47 | 551 | 4,131 | ||||||||||||
Series 2007-C31, Class N 1,4 | 5.13 | 04/15/47 | 2,146 | 10,728 | ||||||||||||
Series 2007-C31, Class O 1,4 | 5.13 | 04/15/47 | 1,243 | 3,107 | ||||||||||||
Series 2007-C31, Class P 1,4 | 5.13 | 04/15/47 | 1,250 | 1,874 | ||||||||||||
Series 2007-C31, Class Q 1,4 | 5.13 | 04/15/47 | 1,250 | 625 | ||||||||||||
Series 2007-C31, Class S 1,4 | 5.13 | 04/15/47 | 710 | 71 | ||||||||||||
Series 2007-C31, Class T 1,4 | 5.13 | 04/15/47 | 1,428 | 143 | ||||||||||||
Series 2007-C31, Class U 1,4 | 5.13 | 04/15/47 | 5,258 | 526 | ||||||||||||
Total Commercial Mortgage-Backed Securities | 22,016,656 | |||||||||||||||
Loans Receivable Investments – 4.1% | ||||||||||||||||
PNC Corp. Center B Note 1,4,5 | 8.85 | 03/11/17 | 2,350 | 1,443,135 | ||||||||||||
Total COMMERCIAL MORTGAGE-BACKED SECURITIES | 23,459,791 | |||||||||||||||
NON-AGENCY RESIDENTIAL MORTGAGE-BACKED SECURITIES – 6.6% |
| |||||||||||||||
Subordinated Collateralized Mortgage Obligations – 6.6% |
| |||||||||||||||
American Home Mortgage Assets | ||||||||||||||||
Series 2007-1, Class A2 2 | 1.07 | 02/25/47 | 4,066 | 942,496 |
See Notes to Portfolio of Investments and Notes to Financial Statements.
650 High Income Fund, Inc.
4
650 HIGH INCOME FUND, INC.
Portfolio of Investments (Unaudited)
January 31, 2011
Interest Rate | Maturity | Principal Amount (000s) | Value (Note 2) | |||||||||||||
NON-AGENCY RESIDENTIAL MORTGAGE-BACKED SECURITIES (continued) |
| |||||||||||||||
Citicorp Mortgage Securities, Inc. | ||||||||||||||||
Series 2003-5, Class B4 2 | 5.37 | % | 04/25/33 | $ | 215 | $ | 137,366 | |||||||||
Series 2003-5, Class B5 2 | 5.37 | 04/25/33 | 144 | 71,615 | ||||||||||||
Series 2003-5, Class B6 2 | 5.37 | 04/25/33 | 216 | 70,962 | ||||||||||||
Residential Funding Mortgage Sec I | ||||||||||||||||
Series 2003-S6, Class B1 | 5.00 | 04/25/18 | 68 | 49,616 | ||||||||||||
Series 2003-S6, Class B2 | 5.00 | 04/25/18 | 45 | 31,573 | ||||||||||||
Series 2003-S6, Class B3 5 | 5.00 | 04/25/18 | 68 | 12,354 | ||||||||||||
Resix Financial Limited | ||||||||||||||||
Series 2004-A, Class B8 1,2,4 | 5.26 | 02/10/36 | 452 | 229,353 | ||||||||||||
Series 2005-A, Class B9 1,2,4 | 6.01 | 03/10/37 | 873 | 173,365 | ||||||||||||
Series 2005-D, Class B9 1,2,4 | 8.26 | 12/15/37 | 1,509 | 21,277 | ||||||||||||
Series 2005-A, Class B10 1,2,4 | 8.76 | 03/10/37 | 681 | 117,595 | ||||||||||||
Series 2004-A, Class B11 1,2,4 | 14.76 | 02/10/36 | 517 | 211,234 | ||||||||||||
Washington Mutual Mortgage Securities Corp. | ||||||||||||||||
Series 2003-S3, Class CB5 2 | 5.42 | 06/25/33 | 508 | 168,820 | ||||||||||||
Series 2003-S3, Class CB6 2 | 5.42 | 06/25/33 | 506 | 62,172 | ||||||||||||
Total Subordinated Collateralized Mortgage Obligations | 2,299,798 | |||||||||||||||
Total NON-AGENCY RESIDENTIAL MORTGAGE-BACKED SECURITIES | 2,299,798 | |||||||||||||||
Shares | Value (Note 2) | |||||||||||||||
PREFERRED SECURITIES – 2.1% | ||||||||||||||||
Strategic Hotel Capital, Inc. | 28,154 | $ | 739,924 | |||||||||||||
Total Investments – 80.1% | 27,932,028 | |||||||||||||||
Other Assets in Excess of Liabilities – 19.9% | 6,935,157 | |||||||||||||||
NET ASSETS IN LIQUIDATION – 100.0% | $ | 34,867,185 | ||||||||||||||
See Notes to Portfolio of Investments and Notes to Financial Statements.
2011 Semi-Annual Report
5
650 HIGH INCOME FUND, INC.
Notes to Portfolio of Investments (Unaudited)
January 31, 2011
The following notes should be read in conjunction with the accompanying Portfolio of Investments.
1 | — | 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 January 31, 2011 the total value of all such investments was $23,493,458 or 67.38% of net assets. | ||||
2 | — | Variable Rate Security – Interest rate shown is the rate in effect as of January 31, 2011. | ||||
3 | — | Security is a “step up” bond where coupon increases or steps up at a predetermined date. Rates shown are current coupon and next coupon rate when security steps up. | ||||
4 | — | Private Placement. | ||||
5 | — | Security valued in good faith pursuant to fair value procedures adopted by the Board of Directors. As of January 31, 2011, the total value of all such securities was $1,455,585 or 4.17% of net assets. | ||||
6 | — | Investment in sub-prime security. As of January 31, 2011, the total value of all such investments was $73,765 or 0.21% of net assets. | ||||
7 | — | Issuer is currently in default on its regularly scheduled interest payment. | ||||
8 | — | Non-income producing security. | ||||
CDO | — | Collateralized Debt Obligation. | ||||
REIT | — | Real Estate Investment Trust. |
See Notes to Financial Statements.
650 High Income Fund, Inc.
6
650 HIGH INCOME FUND, INC.
Statement of Assets and Liabilities in Liquidation (Unaudited)
January 31, 2011
Assets: | ||||
Investments in securities, at value (Note 2) | $ | 26,488,893 | ||
Investments in loans receivable, at value | 1,443,135 | |||
Total investments | 27,932,028 | |||
Cash | 6,156,214 | |||
Interest receivable | 777,783 | |||
Principal paydown receivable | 28,972 | |||
Total assets | 34,894,997 | |||
Liabilities: | ||||
Investment advisory fee payable (Note 4) | 1,298 | |||
Administration fee payable (Note 4) | 15,501 | |||
Accrued expenses | 11,013 | |||
Total liabilities | 27,812 | |||
Net Assets in Liquidation | $ | 34,867,185 | ||
Composition of Net Assets: | ||||
Capital stock, at par value ($0.001 par value, 200,000,000 shares authorized) (Note 7) | $ | 52,174 | ||
Additional paid-in capital (Note 7) | 218,707,418 | |||
Undistributed net investment income | 864,704 | |||
Accumulated net realized loss on investment transactions, swap contracts and future transactions | (77,787,133 | ) | ||
Net unrealized depreciation on investments | (106,969,978 | ) | ||
Net assets in Liquidation applicable to capital stock outstanding | $ | 34,867,185 | ||
Investments in securities, at cost | $ | 132,517,877 | ||
Investments in loans receivable, at cost | 2,384,129 | |||
Total investments, at cost | $ | 134,902,006 | ||
Shares Outstanding and Net Asset Value Per Share: | ||||
Common shares outstanding | 52,174,462 | |||
Net asset value per share | $ | 0.67 |
See Notes to Financial Statements.
2011 Semi-Annual Report
7
650 HIGH INCOME FUND, INC.
Statement of Operations (Unaudited)
For the Six Months Ended January 31, 2011
Investment Income (Note 2): | ||||
Interest | $ | 4,165,004 | ||
Expenses: | ||||
Investment advisory fees (Note 4) | 78,285 | |||
Administration fees (Note 4) | 23,485 | |||
Custodian | 23,414 | |||
Legal fees | 20,950 | |||
Insurance | 9,836 | |||
Directors’ fees | 7,971 | |||
Report to stockholders | 5,942 | |||
Audit and tax services | 4,132 | |||
Miscellaneous | 15,887 | |||
Total expenses | 189,902 | |||
Less expenses waived and reimbursed by the investment advisor (Note 4) | (88,132 | ) | ||
Net expenses | 101,770 | |||
Net investment income | 4,063,234 | |||
Realized and Unrealized Gain (Loss) on Investments (Note 2): | ||||
Net realized loss on investments | (7,091,381 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | 11,152,805 | |||
Net realized and unrealized gain on investment transactions | 4,061,424 | |||
Net increase in net assets in Liquidation resulting from operations | $ | 8,124,658 | ||
See Notes to Financial Statements.
650 High Income Fund, Inc.
8
650 HIGH INCOME FUND, INC.
Statements of Changes in Net Assets in Liquidation
For the Six Months Ended January 31, 2011 (Unaudited) | For the Fiscal Year Ended July 31, 2010 | |||||||
Increase (Decrease) in Net Assets Resulting from Operations: | ||||||||
Net investment income | $ | 4,063,234 | $ | 10,822,456 | ||||
Net realized loss on investments | (7,091,381 | ) | (10,155,925 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments | 11,152,805 | 9,811,808 | ||||||
Net increase in net assets in liquidation resulting from operations | 8,124,658 | 10,478,339 | ||||||
Dividends to Stockholders (Note 2): | ||||||||
Net investment income | (3,228,444 | ) | (11,119,961 | ) | ||||
Capital Stock Transactions (Note 7): | ||||||||
Reinvestment of dividends | 3,228,515 | 11,119,961 | ||||||
Cost of shares tendered | (7,631,821 | ) | (12,460,680 | ) | ||||
Net decrease in net assets in liquidation from capital stock transactions | (4,403,306 | ) | (1,340,719 | ) | ||||
Total increase (decrease) in net assets in liquidation | 492,908 | (1,982,341 | ) | |||||
Net Assets: | ||||||||
Beginning of period | 34,374,277 | 36,356,618 | ||||||
End of period | $ | 34,867,185 | $ | 34,374,277 | ||||
(including undistributed net investment income of) | $ | 864,704 | $ | 29,914 | ||||
Share Transactions: | ||||||||
Reinvested shares | 4,966,947 | 19,172,350 | ||||||
Shares tendered | (11,924,721 | ) | (17,800,975 | ) | ||||
Net increase (decrease) in shares | (6,957,774 | ) | 1,371,375 | |||||
See Notes to Financial Statements.
2011 Semi-Annual Report
9
650 HIGH INCOME FUND, INC.
Statement of Cash Flows (Unaudited)
For the Six Months Ended January 31, 2011
Increase (Decrease) in Cash: | ||||
Cash flows provided by (used for) operating activities: | ||||
Net increase in net assets in Liquidation resulting from operations | $ | 8,124,658 | ||
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: | ||||
Proceeds from disposition of long-term portfolio investments and principal paydowns | 4,727,741 | |||
Purchases of long-term portfolio investments | (1,039,236 | ) | ||
Decrease in interest receivable | 83,393 | |||
Increase in principal paydown receivable | (28,972 | ) | ||
Decrease in prepaid expenses | 22,213 | |||
Decrease in receivable from advisor | 15,011 | |||
Increase in investment advisory fee payable | 1,298 | |||
Increase in administration fee payable | 2,920 | |||
Decrease in accrued expenses | (101,457 | ) | ||
Net amortization and paydown losses on investments | (1,818,709 | ) | ||
Unrealized appreciation on investments | (11,152,805 | ) | ||
Net realized loss on investment transactions | 7,091,381 | |||
Net cash provided by operating activities | 5,927,436 | |||
Cash flows used for financing activities: | ||||
Payment on shares tendered | (7,631,821 | ) | ||
Dividends paid to stockholders, net of reinvestments | 71 | |||
Net cash used for financing activities | (7,631,750 | ) | ||
Net change in cash | (1,704,314 | ) | ||
Cash at beginning of period | 7,860,528 | |||
Cash at end of period | $ | 6,156,214 | ||
Supplemental Disclosure of Cash Flow Information:
Non-cash financing activities included reinvestment of dividends of $3,228,515.
See Notes to Financial Statements.
650 High Income Fund, Inc.
10
650 HIGH INCOME FUND, INC.
For the Six Months Ended January 31, 2011 (Unaudited) | For the Fiscal Year Ended July 31, | |||||||||||||||||||||||
2010* | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 0.58 | $ | 0.63 | $ | 2.65 | $ | 5.82 | $ | 6.90 | $ | 6.96 | ||||||||||||
Net investment income | 0.09 | 0.24 | 0.54 | 0.60 | 0.73 | 0.60 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments, futures transactions and swap contracts | 0.07 | (0.04 | ) | (1.87 | ) | (3.17 | ) | (0.94 | ) | (0.02 | ) | |||||||||||||
Net increase (decrease) in net asset value resulting from operations | 0.16 | 0.20 | (1.33 | ) | (2.57 | ) | (0.21 | ) | 0.58 | |||||||||||||||
Dividends from net investment income | (0.07 | ) | (0.25 | ) | (0.55 | ) | (0.60 | ) | (0.72 | ) | (0.59 | ) | ||||||||||||
Distributions from net realized gains | — | — | — | — | (0.15 | ) | (0.05 | ) | ||||||||||||||||
Return of capital distributions | — | — | (0.14 | ) | — | — | — | |||||||||||||||||
Total dividends and distributions paid | (0.07 | ) | (0.25 | ) | (0.69 | ) | (0.60 | ) | (0.87 | ) | (0.64 | ) | ||||||||||||
Net asset value, end of period | $ | 0.67 | $ | 0.58 | $ | 0.63 | $ | 2.65 | $ | 5.82 | $ | 6.90 | ||||||||||||
Total Investment Return | 27.67 | %2 | 36.23 | % | (49.45 | )% | (45.55 | )% | (3.97 | )% | 8.47 | % | ||||||||||||
Ratios to Average Net Assets/Supplementary Data: | ||||||||||||||||||||||||
Net assets, end of period (000’s) | $ | 34,867 | $ | 34,374 | $ | 36,357 | $ | 140,938 | $ | 210,314 | $ | 270,144 | ||||||||||||
Operating expenses | 1.21 | %1 | 1.46 | % | 1.21 | % | 0.86 | % | 0.79 | % | 0.79 | % | ||||||||||||
Interest expense | 0.00 | %1 | 0.00 | % | 0.19 | % | 1.90 | % | 0.50 | % | 0.82 | % | ||||||||||||
Total expenses | 1.21 | %1 | 1.46 | % | 1.40 | % | 2.76 | % | 1.29 | % | 1.61 | % | ||||||||||||
Total expenses including fee waiver and excluding interest expense | 0.65 | %1 | 0.72 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||||||
Net investment income | 25.95 | %1 | 32.48 | % | 28.05 | % | 15.18 | % | 9.39 | % | 9.34 | % | ||||||||||||
Portfolio turnover rate | 4 | %2 | 0 | % | 21 | % | 9 | % | 18 | % | 46 | % |
* | As of May 1, 2010, Six50 Capital Management LLC became the investment advisor to the Fund. |
1 | Annualized. |
2 | Not Annualized. |
See Notes to Financial Statements.
2011 Semi-Annual Report
11
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
1. The Fund
650 High Income Fund, Inc. (the “Fund”) was incorporated under the laws of the State of Maryland on September 12, 1995 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company.
Six50 Capital Management LLC (the “Advisor”), a registered investment advisor under the Investment Advisers Act of 1940, as amended, is the investment advisor to the Fund.
Pursuant to action by stockholders holding more than two-thirds of the voting power of the Fund’s outstanding shares of Common Stock and subsequent Board approval of a Plan of Liquidation and Termination of the Fund with an effective date of January 25, 2011, the Fund is to liquidate and distribute its assets pro rata on or about February 28, 2011 to its stockholders of record. As a result of this action, the Fund changed its basis of accounting under accounting principles generally accepted in the United States of America (“GAAP”) from a going concern to a liquidation basis. The change to liquidation basis of accounting had no material affect on the financial statements of the Fund, as assets and liabilities were already stated at fair value.
The Fund’s investment objective is to provide a high total return by investing in securities backed by interests in real estate. 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 GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Valuation of Investments: Debt securities, including U.S. government securities, listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities, are generally valued at the latest price furnished by an independent pricing service or, if not valued by an independent pricing service, using prices obtained from at least two active and reliable market makers in any such security. A security may, however, be priced using a quote obtained from a single active market maker, as the case may be. Short-term debt securities with remaining maturities of sixty days or less are valued at cost with interest accrued or discount accreted to the date of maturity, unless such valuation, in the judgment of the Advisor’s Valuation Committee, does not represent fair value.
Investments in equity securities listed or traded on any securities exchange or traded in the over-the-counter market are valued at the last quoted price as of the close of business on the valuation date. Equity securities for which no sales were reported for that date are valued at “fair value” as determined in good faith by the Advisor’s Valuation Committee. Investments in open-end registered investment companies, if any, are valued at the net asset value (“NAV”) as reported by those investment companies.
When price quotations for certain securities are not readily available, or if the available quotations are not believed to be reflective of market value by the Advisor, those securities will be valued at “fair value” as determined in good faith by the Advisor’s Valuation Committee using procedures adopted by, and under the supervision of, the Fund’s Board of Directors. There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund’s NAV.
Fair valuation procedures may be used to value a substantial portion of the assets of the Fund. The Fund may use the fair value of a security to calculate its NAV when, for example, (1) a portfolio security is not traded in a public market or the principal market in which the security trades is closed, (2) trading in a portfolio security is suspended and not resumed prior to the normal market close, (3) a portfolio security is not traded in significant volume for a substantial period or (4) the Advisor determines that the quotation or price for a portfolio security provided by an independent pricing service, or other source(s) of information for securities valuations (including, but not limited to, broker-dealers, Bloomberg, or Reuters) is inaccurate.
650 High Income Fund, Inc.
12
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
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, among other things, the following factors, as appropriate: (1) evaluation of all relevant factors, including but not limited to, pricing history, current market level, supply and demand of the respective security; (2) comparison to the values and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to the security; (4) other factors relevant to the security which would include, but not be limited to, duration, yield, fundamental analytical data, the Treasury yield curve, and credit quality.
The values assigned to fair valued investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Changes in the fair valuation of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, by an independent pricing service, or based on market quotations. Imprecision in estimating fair value can also impact the amount of unrealized appreciation or depreciation recorded for a particular portfolio security and differences in the assumptions used could result in a different determination of fair value, and those differences could be material.
The Fund has established methods of fair value measurements in accordance with GAAP. Fair value denotes the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy has been established to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
��
• | Level 1 - | quoted prices in active markets for identical investments | ||
• | Level 2 - | quoted prices in markets that are not active or other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) | ||
• | Level 3 - | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of January 31, 2011 in valuing the Fund’s investments carried at fair value:
Assets | Asset- Backed Securities | Commercial Mortgage- Backed Securities | Non-Agency Residential Mortgage- Backed Securities | Preferred Securities | Total | |||||||||||||||
Description: | ||||||||||||||||||||
Level 1 — Quoted Prices | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Level 2 — Quoted Prices in Inactive Markets or Other Significant Observable Inputs | — | — | — | — | — | |||||||||||||||
Level 3 — Significant Unobservable Inputs | 1,432,515 | 23,459,791 | 2,299,798 | 739,924 | 27,932,028 | |||||||||||||||
Total | $ | 1,432,515 | $ | 23,459,791 | $ | 2,299,798 | $ | 739,924 | $ | 27,932,028 | ||||||||||
2011 Semi-Annual Report
13
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
The following is a reconciliation of assets of which significant unobservable inputs (Level 3) were used in determining fair value:
Investments in Securities | Asset- Backed Securities | Commercial Mortgage- Backed Securities | Non-Agency Residential Mortgage- Backed Securities | Preferred Securities | Total | |||||||||||||||
Balance as of July 31, 2010 | $ | 1,531,025 | $ | 22,325,235 | $ | 1,299,063 | $ | 585,077 | $ | 25,740,400 | ||||||||||
Accrued Discounts (Premiums) | (759 | ) | 1,183,838 | 41,385 | — | 1,224,464 | ||||||||||||||
Realized Gain (Loss) | 8,289 | 2,981,086 | (2,684,210 | ) | — | 305,165 | ||||||||||||||
Change in Unrealized Appreciation (Depreciation) | 201,278 | 7,445,914 | 3,350,767 | 154,847 | 11,152,806 | |||||||||||||||
Net Purchases (Sales) | (307,318 | ) | (10,476,282 | ) | 292,793 | — | (10,490,807 | ) | ||||||||||||
Balance as of January 31, 2011 | $ | 1,432,515 | $ | 23,459,791 | $ | 2,299,798 | $ | 739,924 | $ | 27,932,028 | ||||||||||
Change in unrealized gains or losses relating to assets still held at reporting date: | $ | (19,727 | ) | $ | 8,502,568 | $ | 1,053,460 | $ | 154,847 | $ | 9,691,148 | |||||||||
Valuation of and Basis of Accounting for Loans Receivable: Loans receivable are carried at fair value, which is considered equal to the present value of the expected future cash flows discounted at the loan’s effective interest rate, or collateral value, if the loan is collateral dependent. Interest income on loans receivable is accrued based upon the principal amount outstanding.
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.
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 return 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. As of January 31, 2011, 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 January 31, 2011, open taxable years consisted of the taxable years ended July 31, 2008 through July 31, 2010. No examination of the Fund’s tax filings is currently in progress.
Dividends and Distributions: Distributions from net investment income and net realized capital gains in excess of capital loss carryforwards (including net short term capital gains), if any, are declared and paid at least annually to stockholders. Distributions to stockholders 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 the 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.
650 High Income Fund, Inc.
14
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Dividends from net investment income and distributions from realized capital 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 a reclassification of distributions; however, net investment income, net realized gains and losses and net assets are not affected.
Swap Agreements: The Fund may enter into swap agreements to manage its exposure to various risks. An interest rate swap agreement involves the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A total rate of return swap agreement is a derivative contract in which one party (the receiver) receives the total return of a specific index on a notional amount of principal from a second party (the seller) in return for paying a funding cost, which is usually quoted in relation to the London Inter- Bank Offered Rate (“LIBOR”). During the life of the agreement, there are periodic exchanges of cash flows in which the index receiver pays the LIBOR-based interest on the notional principal amount and receives (or pays if the total return is negative or spreads widen) the index total return on the notional principal amount. A credit default swap is an agreement between a protection buyer and a protection seller whereby the buyer agrees to periodically pay the seller a premium, generally expressed in terms of interest on a notional principal amount, over a specified period in exchange for receiving compensation from the seller when an underlying reference debt obligation or index of reference debt obligations is subject to one or more specified adverse credit events (such as bankruptcy, failure to pay, acceleration of indebtedness, restructuring, or repudiation/moratorium). The Fund will become a protection seller to take on credit risk in order to earn a premium. The Fund will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Swaps are marked to market based upon quotations from market makers and the change, if any, along with an accrual for periodic payments due or owed is recorded as unrealized gain or loss in the Statement of Operations. Net payments on swap agreements are included as part of realized gain/loss in the Statement of Operations. Payments paid or received upon the opening of a swap agreement are included in Swap premiums paid or received in the Statement of Assets and Liabilities. These upfront payments are recorded as realized gain or loss in the Statement of Operations upon the termination or maturity of the swap. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks include the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, that there may be unfavorable changes in the fluctuation of interest rates or the occurrence of adverse credit events on reference debt obligations. The Fund had no open swap contracts for the six months ended January 31, 2011.
Financial Futures Contracts: A futures contract is an agreement between two parties to buy and sell a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking-to-market” on a daily basis to reflect the market value of the contract at the end of each day’s trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The Fund may invest in financial futures contracts to hedge against fluctuations in the value of portfolio securities caused by changes in prevailing market interest rates. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. The Fund is at risk that it may not be able to close out a transaction because of an illiquid market. The Fund had no futures contracts for the six months ended January 31, 2011.
2011 Semi-Annual Report
15
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Cash Flow Information: The Fund invests in securities and distributes dividends and distributions which are paid in cash or are reinvested at the discretion of stockholders. These activities are reported in the Statement of Changes in Net Assets. Additional information on cash receipts and cash payments is presented in the Statement of Cash Flows. Cash, as used in the Statement of Cash Flows, is the amount reported as “Cash” in the Statement of Assets and Liabilities, and does not include short-term investments.
Accounting practices that do not affect reporting activities on a cash basis include carrying investments at value and accreting discounts and amortizing premiums on debt obligations.
3. Risks of Investing in Asset-Backed Securities and Below-Investment Grade Securities
The value of asset-backed securities may be affected by, among other factors, changes in: interest rates, the market’s assessment of the quality of the underlying assets, the creditworthiness of the servicer for the underlying assets, information concerning the originator of the underlying assets, or the creditworthiness or rating of the entities that provide any supporting letters of credit, surety bonds, derivative instruments or other credit enhancement. The value of asset-backed securities also will be affected by the exhaustion, termination or expiration of any credit enhancement.
The Fund has investments in below-investment grade debt securities, including mortgage-backed and asset-backed 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 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 also is subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by distressed securities will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund’s participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of such securities, the Fund may be restricted from disposing of distressed securities.
4. Investment Advisory Agreements and Affiliated Transactions
The Fund entered into an Investment Advisory Agreement (the “Advisory Agreement”), effective August 1, 2010, with the Advisor under which the Advisor 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.
650 High Income Fund, Inc.
16
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
The Advisory Agreement provides, among other things, that the Advisor will bear all expenses of its employees and overhead incurred in connection with its duties under the Advisory Agreement. The Advisory Agreement provides that the Fund shall pay the Advisor a monthly fee for its services at an annual rate of 0.50% of the Fund’s average weekly net assets.
The Advisor has agreed to either waive its management fee or reimburse the ongoing expenses of the Fund to the extent that such expenses, excluding interest expense, exceed 0.65% of average daily net assets of the Fund per annum. During the six months ended January 31, 2011, the Advisor earned $78,285 in investment advisory fees, all of which the Advisor has waived and has reimbursed other expenses of $9,847.
Effective May 1, 2010, the Fund has entered into an Administration Agreement with the Advisor. The Advisor entered into a sub-administration agreement with State Street Bank and Trust Company (the “Sub-Administrator”). The Advisor and 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 Advisor a monthly fee at an annual rate of 0.15% of the Fund’s average weekly net assets. During the six months ended January 31, 2011, the Advisor earned $23,485 in administration fees. The Advisor is responsible for any fees due the Sub-Administrator, except for Form N-Q filing fees.
Certain officers and/or directors of the Fund are officers and/or directors of the Advisor.
5. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities, U.S. Government securities and short sales, for the period ended January 31, 2011, were $1,039,236 and $21,442,681, respectively. For the period ended January 31, 2011, there were no transactions in U.S. Government securities. For purposes of this footnote, U.S. Government securities may include securities issued by the U.S. Treasury, Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.
6. Borrowings
The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them at a mutually agreed upon date and price. Under the 1940 Act, reverse repurchase agreements will be regarded as a form of borrowing by the Fund unless, at the time it enters into a reverse repurchase agreement, it establishes and maintains a segregated account with its custodian containing securities from its portfolio having a value not less than the repurchase price (including accrued interest). The Fund has established and maintained such an account for any potential reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. During the six months ended January 31, 2011, the Fund had no reverse repurchase agreements outstanding.
7. Capital Stock
There are 200 million shares of $0.001 par value common stock authorized. Of the 52,174,462 shares outstanding at January 31, 2011, the Advisor owned no shares. On October 1, 2004 the Fund purchased 174,263 shares of its common stock to provide liquidity to the Fund’s stockholders since the Fund’s shares are not sold on a secondary market. The value of the purchased shares amounted to $1,245,982. Also, on June 14, 2007, the Fund purchased 7,268,150 shares of its common stock to provide liquidity to the Fund’s stockholders. The value
2011 Semi-Annual Report
17
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
of the purchased shares amounted to $49,423,420. On September 30, 2008 relating to an offer to purchase up to 26,981,132 shares of its common stock, the Fund purchased 13,043,780 shares. The aggregate value of the purchased shares was $30,000,694. On that same date, the Fund purchased or redeemed 13,014,572 shares. Of these shares, 5,840,096 were redeemed for cash of $13,459,669 and 7,174,476 shares were an in-kind redemption for securities valued at $16,535,015.
On November 20, 2009, relating to an offer to purchase shares of its common stock, the Fund purchased 17,800,975 shares. The aggregate value of the purchased shares was $12,460,680. Also, on September 30, 2010, relating to another offer to purchase shares of its common stock, the Fund purchased 11,924,721 shares. The aggregate value of the purchased shares was $7,631,821.
8. Financial Instruments
The Fund can trade in financial instruments with off-balance sheet risk in the normal course of its investing activities to assist in managing exposure to various market risks. These financial instruments include futures contracts and swap agreements and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered.
The Fund had no swaps or futures contracts outstanding for the period ended January 31, 2011.
9. Federal Income Tax Information
Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
The tax character of distributions paid for the following periods were as follows:
2010 | 2009 | |||||||
Ordinary Income | $ | 11,119,961 | $ | 17,027,677 | ||||
Return of capital | — | 4,910,180 | ||||||
$ | 11,119,961 | $ | 21,937,857 | |||||
The tax character of the distributions for the period ended January 31, 2011 is expected to be from ordinary income.
At July 31, 2010, the components of net assets (excluding paid-in-capital) on a tax basis were as follows:
Capital loss carryfowards | $ | (62,337,545 | ) | |
Post-October losses | (8,358,207 | ) | ||
Unrealized depreciation | (118,092,869 | ) | ||
$ | (188,788,621 | ) | ||
At July 31, 2010, the Fund had a capital loss carryforward of $ 62,337,545 for federal income tax purposes available to offset future capital gains through the following expiration dates:
2015 | $ | 2,201 | ||
2016 | 7,398,964 | |||
2017 | 44,559,287 | |||
2018 | 10,377,093 | |||
$ | 62,337,545 | |||
650 High Income Fund, Inc.
18
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
To the extent that future capital gains are offset by capital losses, such capital gains will not be distributed.
Capital losses incurred after October 31 (“post-October losses”) within the taxable year are deemed to arise on the first business day of the Fund’s next taxable year. The Fund incurred and elected to defer $8,358,207 of such capital losses.
Federal Income Tax Basis: The federal income tax basis of the Fund’s investments at January 31, 2011 was as follows:
Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Depreciation | |||
$134,902,006 | $423,586 | $(107,393,564) | $(106,969,978) |
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/losses for financial reporting purposes. Permanent book and tax differences, if any, relating to stockholder distributions will result in reclassifications to paid-in capital or to undistributed capital gains. Any undistributed net income and realized gain remaining at fiscal year-end will be distributed in the following year.
10. Indemnification
Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for indemnification. The Fund’s maximum exposure under these arrangements is unknown, since this would involve the resolution of certain claims, as well as future claims that may be made, against the Fund. Thus, an estimate of the financial impact, if any, of these arrangements cannot be made at this time. However, the Fund has not had prior claims or losses pursuant to the contracts and expects the risk of loss to be remote.
11. Designation of Restricted Illiquid Securities
From time to time, the Fund may invest in restricted securities, which are securities that may be offered for public sale without first being registered under the Securities Act of 1933 (the “1933 Act”). Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of January 31, 2011, the Fund held restricted securities as shown in the table below that the Advisor has deemed illiquid pursuant to procedures adopted by the Fund’s Boards of Directors. Although recent instability in the markets has resulted in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors. The Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures described in Note 2 and are not expressed as a discount to the carrying value of a comparable unrestricted security. There are no unrestricted securities with the same maturity dates and yields for these issuers.
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 6.29 | % | 06/11/35 | 10/20/04 | $ | 1,534,419 | $ | 1,387,098 | 4.0 | % | ||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.23 | 12/10/42 | 12/16/04 | 1,895,055 | 1,400,915 | 4.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 596,379 | 38,817 | 0.1 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 919,450 | 35,215 | 0.1 |
2011 Semi-Annual Report
19
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | % | 05/10/45 | 06/12/06 | $ | 950,815 | $ | 20,434 | 0.1 | % | ||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 592,498 | 5,500 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 1,098,792 | 3,143 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 1,007,069 | 1,537 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.48 | 05/10/45 | 06/12/06 | 2,355,681 | 541 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 0.04 | 05/10/45 | 07/09/10 | — | — | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.70 | 04/10/49 | 05/24/07 | 2,424,039 | 40,909 | 0.1 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 1,013,504 | 10,866 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 456,271 | 3,413 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 1,379,708 | 7,955 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 501,324 | 1,679 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 451,894 | 574 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 1,389,244 | 946 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 5.37 | 04/10/49 | 05/24/07 | 3,707,426 | 743 | 0.0 | ||||||||||||||||||
Banc of America Commercial Mortgage, Inc. | 0.04 | 04/10/49 | 07/09/10 | — | — | 0.0 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.64 | 02/14/31 | 11/16/01 | 253,458 | 115 | 0.0 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.48 | 07/11/42 | 10/06/04 | 2,649,881 | 1,890,525 | 5.4 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.44 | 11/11/41 | 12/08/04 | 1,712,708 | 1,066,054 | 3.1 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 4.66 | 09/11/42 | 09/14/05 | 3,113,567 | 171,899 | 0.5 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | | 09/13/06- 05/02/07 | | 2,158,752 | 45,718 | 0.1 | ||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | 09/13/06 | 264,629 | 5,126 | 0.0 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | | 09/13/06- 09/20/06 | | 1,509,049 | 28,165 | 0.1 | ||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | | 09/13/06- 09/20/06 | | 1,115,620 | 14,791 | 0.1 | ||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | 09/13/06 | 620,747 | 6,857 | 0.0 | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | 09/11/41 | 09/13/06 | 974,691 | 3,282 | 0.0 |
650 High Income Fund, Inc.
20
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Bear Stearns Commercial Mortgage Securities | 5.26 | % | 09/11/41 | 09/13/06 | $ | 2,298,534 | $ | 62 | 0.0 | % | ||||||||||||||
Bear Stearns Commercial Mortgage Securities | 0.14 | 09/11/41 | 07/09/10 | — | — | 0.0 | ||||||||||||||||||
CD 2006 CD2 Mortgage Trust | 5.09 | 01/15/46 | 09/21/06 | 1,117,150 | 9,248 | 0.0 | ||||||||||||||||||
CD 2006 CD2 Mortgage Trust | 5.09 | 01/15/46 | 09/21/06 | 793,530 | 2,202 | 0.0 | ||||||||||||||||||
CD 2006 CD2 Mortgage Trust | 5.09 | 01/15/46 | 09/21/06 | 1,197,421 | 3,740 | 0.0 | ||||||||||||||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | 5.22 | 07/15/44 | 11/03/05 | 3,635,656 | 1,657,199 | 4.8 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.06 | 12/10/46 | 12/13/06 | 1,539,093 | 1,667 | 0.0 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.06 | 12/10/46 | 12/13/06 | 1,523,154 | 167 | 0.0 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.06 | 12/10/46 | 12/13/06 | 342,632 | 42 | 0.0 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 2,616,466 | 409,525 | 1.2 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 998,828 | 120,337 | 0.4 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 967,436 | 108,593 | 0.3 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 774,043 | 64,121 | 0.2 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 1,238,614 | 77,953 | 0.2 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 483,853 | 32,329 | 0.1 | ||||||||||||||||||
Commercial Mortgage Pass-Through Certificates | 5.24 | 12/10/49 | 08/07/07 | 2,749,511 | 72,452 | 0.2 | ||||||||||||||||||
Credit Suisse First Boston Mortgage Securities Corp. | 4.23 | 05/15/38 | 06/17/03 | 843,987 | 654,282 | 1.9 | ||||||||||||||||||
Credit Suisse First Boston Mortgage Securities Corp. | 4.78 | 07/15/36 | 11/30/05 | 191,517 | 520 | 0.0 | ||||||||||||||||||
Credit Suisse First Boston Mortgage Securities Corp. | 0.01 | 02/15/39 | 07/09/10 | — | — | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 1,164,749 | 119,036 | 0.4 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 790,650 | 73,052 | 0.2 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 787,422 | 48,585 | 0.2 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 248,871 | 11,175 | 0.0 |
2011 Semi-Annual Report
21
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | % | 02/15/39 | 03/07/06 | $ | 228,972 | $ | 3,249 | 0.0 | % | ||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 437,218 | 3,241 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.24 | 02/15/39 | 03/07/06 | 704,695 | 175 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 432,458 | 2,354 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 690,866 | 2,655 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 995,835 | 3,058 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 907,266 | 1,810 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 1,292,329 | 1,817 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 1,462,361 | 1,206 | 0.0 | ||||||||||||||||||
Credit Suisse Mortgage Capital Certificates | 5.15 | 09/15/39 | 09/21/06 | 558,435 | 155 | 0.0 | ||||||||||||||||||
JP Morgan Commercial Mortgage Securities Corp. | 5.08 | 01/12/37 | 11/30/05 | 885,432 | 94 | 0.0 | ||||||||||||||||||
JP Morgan Commercial Mortgage Securities Corp. | 5.38 | 12/15/44 | 12/16/05 | 3,267,874 | 1,229,436 | 3.5 | ||||||||||||||||||
JP Morgan Commercial Mortgage Securities Corp. | 5.82 | 06/15/49 | 06/28/07 | 3,731,469 | 20,771 | 0.1 | ||||||||||||||||||
LB-UBS Commercial Mortgage Trust | 5.87 | 11/15/33 | 12/05/01 | 2,297,239 | 1,878,202 | 5.4 | ||||||||||||||||||
LB-UBS Commercial Mortgage Trust | 5.68 | 07/15/35 | 11/30/05 | 662,338 | 513,982 | 1.5 | ||||||||||||||||||
LB-UBS Commercial Mortgage Trust | 5.68 | 07/15/35 | 11/30/05 | 1,047,260 | 776,773 | 2.2 | ||||||||||||||||||
LB-UBS Commercial Mortgage Trust | 5.16 | 02/15/40 | 01/31/05 | 3,251,917 | 1,791,325 | 5.1 | ||||||||||||||||||
LNR CDO Limited | 1.71 | 12/26/49 | 02/27/07 | 2,833,000 | — | 0.0 | ||||||||||||||||||
Merrill Lynch Mortgage Trust | 5.70 | 07/12/34 | 11/30/05 | 1,690,194 | 988,664 | 2.9 | ||||||||||||||||||
Morgan Stanley Cap I, Inc. | 5.53 | 10/15/42 | 05/24/06 | 533,331 | 12,250 | 0.1 | ||||||||||||||||||
Morgan Stanley Cap I, Inc. | 5.53 | 10/15/42 | 05/24/06 | 378,754 | 3,321 | 0.0 | ||||||||||||||||||
Morgan Stanley Cap I, Inc. | 5.53 | 10/15/42 | 05/24/06 | 367,507 | 1,247 | 0.0 | ||||||||||||||||||
PNC Corp. Center B Note | 8.85 | 03/11/17 | 04/20/07 | 2,384,128 | 1,443,135 | 4.1 | ||||||||||||||||||
Resix Financial Limited | 5.26 | 02/10/36 | 03/24/04 | 452,374 | 229,353 | 0.7 | ||||||||||||||||||
Resix Financial Limited | 14.76 | 02/10/36 | 03/09/04 | 516,969 | 211,234 | 0.6 | ||||||||||||||||||
Resix Financial Limited | 8.76 | 03/10/37 | 03/10/05 | 680,919 | 117,595 | 0.3 |
650 High Income Fund, Inc.
22
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Resix Financial Limited | 6.01 | % | 03/10/37 | 03/10/05 | $ | 872,934 | $ | 173,365 | 0.5 | % | ||||||||||||||
Resix Financial Limited | 8.26 | 12/15/37 | 12/09/05 | 1,509,031 | 21,277 | 0.1 | ||||||||||||||||||
Sail Net Interest Margin Notes | 7.75 | 04/27/33 | 05/21/03 | 76,849 | — | 0.0 | ||||||||||||||||||
Sail Net Interest Margin Notes | 7.35 | 06/27/33 | 06/12/03 | 27,796 | 2 | 0.0 | ||||||||||||||||||
Sail Net Interest Margin Notes | 7.00 | 12/27/34 | 12/16/04 | 467,303 | 1 | 0.0 | ||||||||||||||||||
Strategic Hotel Capital, Inc. | 8.50 | — | 11/30/05 | 719,512 | 739,924 | 2.1 | ||||||||||||||||||
Structured Asset Investment Loan Trust | 6.00 | 04/25/34 | 03/23/04 | 124,970 | 16,146 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.94 | 11/15/34 | 11/30/05 | 1,335,399 | 1,217,187 | 3.5 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.94 | 11/15/34 | 09/16/05 | 785,913 | 577,588 | 1.7 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.94 | 11/15/34 | 09/16/05 | 679,274 | 402,324 | 1.2 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.94 | 11/15/34 | 09/16/05 | 525,401 | 250,062 | 0.7 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.94 | 11/15/34 | 03/10/05 | 4,170,898 | 1,005,950 | 2.9 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.70 | 04/15/42 | | 05/04/05- 11/30/05 | | 864,531 | 48,389 | 0.1 | ||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.70 | 04/15/42 | | 05/04/05- 11/30/05 | | 1,128,716 | 37,230 | 0.1 | ||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.70 | 04/15/42 | 05/04/05 | 517,454 | 6,648 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.70 | 04/15/42 | 05/04/05 | 328,146 | 1,356 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 4.70 | 04/15/42 | | 05/04/05- 09/16/05 | | 384,600 | 489 | 0.0 | ||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 945,675 | 23,252 | 0.1 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 618,511 | 13,730 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 530,815 | 6,366 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 659,199 | 3,893 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 1,364,341 | 3,723 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 1,322,814 | 758 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.07 | 11/15/48 | 12/13/06 | 3,867,250 | 852 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 2,254,409 | 25,535 | 0.1 |
2011 Semi-Annual Report
23
650 HIGH INCOME FUND, INC.
Notes to Financial Statements (Unaudited)
January 31, 2011
Restricted Securities | Interest Rate | Maturity | Acquisition Date | Cost | Value | Percentage of Net Assets | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | % | 04/15/47 | 05/11/07 | $ | 475,716 | $ | 4,131 | 0.0 | % | ||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 1,672,566 | 10,728 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 933,206 | 3,107 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 894,435 | 1,874 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 850,088 | 625 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 343,507 | 71 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 762,995 | 143 | 0.0 | ||||||||||||||||||
Wachovia Bank Commercial Mortgage Trust | 5.13 | 04/15/47 | 05/11/07 | 2,108,083 | 526 | 0.0 | ||||||||||||||||||
$ | 23,493,458 | 67.4 | % | |||||||||||||||||||||
12. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 clarifies existing disclosures and requires additional disclosures regarding fair value measurements. Effective for fiscal years beginning after December 15, 2010, and for interim periods within those years, entities will need to disclose information about purchases, sales, issuances and settlements of Level 3 securities on a gross basis, rather than as a net number as currently required. Management is currently evaluating the impact ASU No. 2010-06 will have on the Fund’s financial statement disclosures.
13. Subsequent Events
Pursuant to the Plan of Liquidation and Termination of the Fund mentioned in Note 1, the Fund liquidated and distributed substantially all of its net assets on February 28, 2011 and made the final liquidation distribution on March 22, 2011. Following its liquidation, the Fund intends to terminate its existence as a Maryland corporation and file with the Securities Exchange Commission to deregister as a closed-end registered investment company.
650 High Income Fund, Inc.
24
650 HIGH INCOME FUND, INC.
Information Concerning Directors and Officers (Unaudited)
The following tables provide the information concerning the directors and officers of 650 High Income Fund, Inc. (the “Fund”).
Directors of the Fund1
Name, Address and Age | Position(s) Held with Fund and Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years and Other Directorships Held by Director | Number of Portfolios in Fund Complex Overseen by Director | |||
Clifford E. Lai*
Age 56 | Director
Elected Since May 2010 | President and CEO of Six50 Capital Management LLC (July 2009-Present); Managing Partner of Brookfield Asset Management Inc. (2006-2009); Chairman (2005-2009), Chief Executive Officer (1998-2007), President (1998-2006) and Chief Investment Officer (1993-2002) of Hyperion Brookfield Asset Management, Inc. (now known as Brookfield Investment Management Inc.); President and Chief Executive Officer (2005-2008) and Director (2005-2009) of Crystal River Capital, Inc.; President and Director of several investment companies advised by Brookfield Investment Management Inc. (1995-2009); and Co-Chairman (2003-2006) and Board of Managers (1995-2006) of Hyperion GMAC Capital Advisors, LLC (formerly Lend Lease Hyperion Capital, LLC). | 1 | |||
Mary LoDico
Age 52 | Director, Member of the Audit Committee
Elected Since May 2010 | Managing Director of Wells Fargo Securities, LLC (1999-2009) | 1 | |||
Frank Raiter
Age 62 | Director, Chairman of the Audit Committee
Elected Since May 2010 | Director of Luminent Mortgage Capital, Inc. (2007-2009); Managing Director of Standard & Poor’s Ratings Group (S&P) (1995-2005). | 1 |
* | Interested person as defined in the 1940 Act, as amended (the “1940 Act”), because of affiliations with Six50 Capital Management LLC, the Fund’s Advisor. |
1 | Prior to their resignation effective May 1, 2010, Robert F. Birch served as Director since April 2002; Rodman L. Drake served as Director since May 2005; Harald R. Hansen served as Director since December 1999; Stuart A. McFarland served as Director since December 2006; and Louis P. Salvatore served as Director since December 2006. |
2011 Semi-Annual Report
25
650 HIGH INCOME FUND, INC.
Information Concerning Directors and Officers
Officers of the Fund2
Name, Address and Age | Position(s) Held with Fund | Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Clifford E. Lai*
Age 56 | President | Elected Annually Since May 2010 | Please see “Information Concerning Directors and Officers” | |||
Julie Madnick*
Age 42 | Vice President | Elected Annually Since May 2010 | Managing Director of Six50 Capital Management LLC (2009-Present); Managing Director & Portfolio Manager of Hyperion Brookfieid Asset Management, Inc. (now known as Brookfield Investment Management Inc.) (1993 -2009). | |||
Joseph McSherry*
Age 52 | Treasurer | Elected Annually Since May 2010 | CFO of Shellpoint Mortgage LLC (2010-Present); CFO of C-BASS Capital (2006-2009); Director of Financial Control of Credit Based Asset Servicing and Securitization (2006-2009); CFO of Optigenix Inc. (2004-2006) | |||
Josielyne K. Pacifico*
Age 36 | Secretary & Chief Compliance Officer (“CCO”) | Elected Annually Since May 2010 | Managing Director & CCO of Six50 Capital Management LLC (2009-Present); Director, CCO & Assistant General Counsel (2006-2009) and Compliance Officer (2005-2006) of Hyperion Brookfield Asset Management, Inc. (now known as Brookfield Investment Management Inc.); Secretary (2008-2009) and CCO (2006-2009) of several investment companies advised by Brookfield Investment Management Inc; Compliance Manager of Marsh & McLennan Companies (2004-2005) |
* | Interested person as defined in the 1940 Act, because of affiliations with Six50 Capital Management LLC, the Fund’s Advisor. |
2 | Prior to their resignation effective May 1, 2010, Kim G. Redding served as President since February 2010; Steven M. Pires served as Treasurer since April 2009; Jonathan C. Tyras served as Secretary since November 2006; Seth Gelman served as CCO since May 2009; Lily Tjioe served as Assistant Secretary since September 2009. John Feeney also served as the Fund’s President from June 2009 until February 2010. |
650 High Income Fund, Inc.
26
CORPORATE INFORMATION
Investment Advisor and Administrator
Six50 Capital Management LLC
650 Madison Avenue
19th Floor
New York, NY 10022
Please direct your inquiries to:
Investor Relations
Phone: 212-558-2000
Transfer Agent
Stockholder inquiries relating to distributions, address changes and stockholder account information should be directed to the Funds’ transfer agent:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
1-800-937-5449
Sub-Administrator
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Legal Counsel
Sullivan & Worcester LLP
1666 K Street, NW
Washington, DC 20006
Custodian and Fund Accounting Agent
State Street Bank and Trust Company
2 Avenue De Lafayette
Lafayette Corporate Center
Boston, Massachusetts 02116
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 Fillings are available on the SEC’s website at http://www.sec.gov. In addition, the Fund’s Form N-Q Filings 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 1-212-558-2000, or go to SEC’s website at www.sec.gov.
650 High Income Fund, Inc.
January 31, 2011
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Please see Item 1.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
There has been no change, as of the date of this filing, in the portfolio manager identified in response to paragraph (a)(1) of this Item in the Registrant’s most recently filed annual report on Form N-CSR.
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.
None.
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.
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.
650 HIGH INCOME FUND, INC. | ||
By: | /s/ Clifford E. Lai | |
Clifford E. Lai | ||
Principal Executive Officer | ||
Date: April 11, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Clifford E. Lai | |
Clifford E. Lai | ||
Principal Executive Officer | ||
Date: April 11, 2011 |
By: | /s/ Joseph W. McSherry | |
Joseph W. McSherry | ||
Treasurer and Principal Financial Officer | ||
Date: April 11, 2011 |