OMB APPROVAL |
OMB Number: 3235-0570 |
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21507
Evergreen Utilities and High Income Fund
_____________________________________________________________
(Exact name of registrant as specified in charter)
200 Berkeley Street
Boston, Massachusetts 02116
_____________________________________________________________
(Address of principal executive offices) (Zip code)
Michael H. Koonce, Esq.
200 Berkeley Street
Boston, Massachusetts 02116
____________________________________________________________
(Name and address of agent for service)
Registrant’s telephone number, including area code: (617) 210-3200
Date of fiscal year end: August 31
Date of reporting period: February 28, 2010
Item 1 - Reports to Stockholders.
Evergreen Utilities and High Income Fund
|
|
|
table of contents |
|
1 |
|
LETTER TO SHAREHOLDERS |
|
3 |
|
FINANCIAL HIGHLIGHTS |
|
4 |
|
SCHEDULE OF INVESTMENTS |
|
20 |
|
STATEMENT OF ASSETS AND LIABILITIES |
|
21 |
|
STATEMENT OF OPERATIONS |
|
22 |
|
STATEMENTS OF CHANGES IN NET ASSETS |
|
23 |
|
STATEMENT OF CASH FLOWS |
|
24 |
|
NOTES TO FINANCIAL STATEMENTS |
|
35 |
|
ADDITIONAL INFORMATION |
|
42 |
|
AUTOMATIC DIVIDEND REINVESTMENT PLAN |
|
44 |
|
TRUSTEES AND OFFICERS |
The fund will file 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 will be available on the SEC’s Web site at http://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 800.SEC.0330.
A description of the fund’s proxy voting policies and procedures, as well as information regarding how the fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available by visiting our Web site at EvergreenInvestments.com or by visiting the SEC’s Web site at http://www.sec.gov. The fund’s proxy voting policies and procedures are also available without charge, upon request, by calling 800.343.2898.
Mutual Funds:
| NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED |
Evergreen InvestmentsSM is a service mark of Evergreen Investment Management Company, LLC. Copyright 2010, Evergreen Investment Management Company, LLC.
Evergreen Investment Management Company, LLC, is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s broker/dealer subsidiaries. Evergreen mutual funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
LETTER TO SHAREHOLDERS
April 2010
W. Douglas Munn
President and Chief Executive Officer
Dear Shareholder:
We are pleased to provide the Semiannual Report for Evergreen Utilities and High Income Fund for the six-month period ended February 28, 2010 (the “period”).
The period brought welcome signs of economic improvement, supporting a strong rally in the financial markets after a streak of quarterly declines. Gross domestic product (“GDP”) growth was 5.7% for the fourth quarter of 2009, the strongest since 2003. The consensus among economists was that the recession that began in December 2007 had likely ended during the summer of 2009. However, with much of the growth attributable to government stimulus, questions remained over the sustainability of the recovery. By the end of the period, the National Bureau of Economic Research had not declared an official end to the recession.
The unemployment rate rose but appeared to plateau during the period. Unemployment climbed to 10.1% in October 2009—its highest level in more than 25 years—before edging down to close the period at 9.7%. The pace of job losses had slowed as the period came to a close. Other encouraging news included increases in temporary jobs, average hours worked, hourly earnings, and manufacturing employment. Still, since the start of the recession, more than 8 million jobs had been lost by the end of the period.
Other economic statistics also began to show signs of improvement. Industrial production, manufacturing, and consumer sentiment had all improved significantly as the period ended. Retail sales improved in the latter months of the period, helped in part by the “cash-for-clunkers” program that temporarily boosted auto sales. Home sales and prices also stabilized and began to show signs of improvement in many areas of the country, spurred in part by the government’s $8,000 tax credit for first-time home buyers.
Despite extensive quantitative easing measures by the Federal Reserve Board (the “Fed”), bank lending did not expand during the period. This indicates that the trillions of dollars of government stimulus that were added to the monetary system might not have an inflationary impact in the near term. During the period, however, debate began to escalate over the need for the Fed to outline an “exit strategy” from its stimulus programs. Despite that debate, the Federal Open Market Committee (“FOMC”) held
1
LETTER TO SHAREHOLDERS continued
the federal funds rate at the range of 0% to 0.25% that it first targeted in December 2008. The Fed concluded its purchases of longer-term Treasuries in October 2009 but continued to buy mortgage-backed securities, with that program slated to end in March 2010.
After a significant rally in the spring and early summer of 2009, stocks continued to advance throughout most of the period. The markets saw slight corrections during October 2009 and January 2010 as volatility returned due to questions about the sustainability of the economic improvement.
During the period, the management of Evergreen Utilities and High Income Fund maintained an emphasis on the pursuit of a high level of current income and moderate capital growth for investors. The management invested in both common stocks and convertible securities, while also keeping a substantial allocation to high yield corporate bonds. During the period, management began to slowly move away from defensive investments as the economy showed signs of stabilizing. While the near term outlook for power companies and regulated utility networks has its challenges, the longer term outlook currently appears favorable, in the opinion of the fund’s management, particularly for the regulated wires companies. Telecommunications companies may continue to experience challenges; if so, fund management would expect to limit exposure. At present, the broad equity market faces fundamental challenges due to economic constraints but remains buoyed by ample liquidity.
We believe that the significant recovery during the period, following an extended period of weakness, underscores the importance of maintaining a disciplined, long-term investment strategy. Although periods of volatility can be challenging for investors, staying focused on a long-term strategy based on individual goals and risk tolerance can help avoid missing potential periods of strong recovery.
Please visit us at EvergreenInvestments.com for more information about our funds and other investment products available to you. Thank you for your continued support of Evergreen Investments.
Sincerely,
W. Douglas Munn
President and Chief Executive Officer
Evergreen Funds
2
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
|
|
Six Months Ended |
|
Year Ended August 31, |
|
||||||||||||||
|
|
February 28, 2010 |
|
|
|||||||||||||||
|
|
(unaudited) |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
||||||
|
|||||||||||||||||||
Net asset value, beginning of period |
|
$ |
11.38 |
|
$ |
17.50 |
|
$ |
24.05 |
|
$ |
23.16 |
|
$ |
25.43 |
|
$ |
19.76 |
|
|
|||||||||||||||||||
Income from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
0.26 |
1 |
|
0.97 |
1 |
|
2.49 |
1 |
|
2.81 |
1 |
|
4.07 |
1 |
|
1.80 |
|
Net realized and unrealized gains or losses on investments |
|
|
0.34 |
|
|
(5.29 |
) |
|
(4.18 |
) |
|
2.37 |
|
|
(0.51 |
) |
|
5.64 |
|
Distributions to preferred shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
0 |
|
|
0 |
|
|
(0.33 |
)1 |
|
(0.30 |
)1 |
|
(0.39 |
)1 |
|
(0.15 |
)1 |
Net realized gains |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
(0.20 |
)1 |
|
(0.02 |
)1 |
|
(0.04 |
)1 |
|
|
|
|||||||||||||||||
Total from investment operations |
|
|
0.60 |
|
|
(4.32 |
) |
|
(2.02 |
) |
|
4.68 |
|
|
3.15 |
|
|
7.25 |
|
|
|||||||||||||||||||
Distributions to shareholders from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
(0.66 |
) |
|
(1.00 |
) |
|
(2.76 |
) |
|
(3.79 |
) |
|
(2.76 |
) |
|
(1.58 |
) |
Net realized gains |
|
|
0 |
|
|
0 |
|
|
(1.77 |
) |
|
0 |
|
|
(2.67 |
) |
|
0 |
|
Tax basis return of capital |
|
|
0 |
|
|
(0.80 |
)1 |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
|
|
|||||||||||||||||
Total distributions to shareholders |
|
|
(0.66 |
) |
|
(1.80 |
) |
|
(4.53 |
) |
|
(3.79 |
) |
|
(5.43 |
) |
|
(1.58 |
) |
|
|||||||||||||||||||
Offering costs charged to capital for preferred shares |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0.01 |
1,2 |
|
0 |
|
|
|||||||||||||||||||
Net asset value, end of period |
|
$ |
11.32 |
|
$ |
11.38 |
|
$ |
17.50 |
|
$ |
24.05 |
|
$ |
23.16 |
|
$ |
25.43 |
|
|
|||||||||||||||||||
Market value, end of period |
|
$ |
15.65 |
|
$ |
12.49 |
|
$ |
21.02 |
|
$ |
27.30 |
|
$ |
23.50 |
|
$ |
22.21 |
|
|
|||||||||||||||||||
Total return based on market value3 |
|
|
31.80 |
% |
|
(30.46 |
)% |
|
(7.86 |
)% |
|
34.05 |
% |
|
35.89 |
% |
|
31.00 |
% |
|
|||||||||||||||||||
Ratios and supplemental data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets of common shareholders, end of period (thousands) |
|
$ |
103,789 |
|
$ |
103,687 |
|
$ |
156,384 |
|
$ |
209,066 |
|
$ |
195,955 |
|
$ |
250,826 |
|
Liquidation value of preferred shares, end of period (thousands) |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
$ |
80,000 |
|
$ |
80,000 |
|
$ |
80,000 |
|
Asset coverage ratio, end of period |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
360 |
% |
|
341 |
% |
|
406 |
% |
Ratios to average net assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses including waivers/reimbursements and interest expense but excluding expense reductions |
|
|
1.40 |
%4 |
|
2.25 |
% |
|
1.89 |
% |
|
1.42 |
% |
|
1.70 |
% |
|
1.49 |
% |
Expenses including interest expense but excluding waivers/reimbursements and expense reductions |
|
|
2.51 |
%4 |
|
3.44 |
% |
|
1.92 |
% |
|
1.42 |
% |
|
1.70 |
% |
|
1.54 |
% |
Expenses including waivers/reimbursements but excluding expense reductions and interest expense |
|
|
1.34 |
%4 |
|
1.55 |
% |
|
1.37 |
% |
|
1.20 |
% |
|
1.39 |
% |
|
1.19 |
% |
Interest expense |
|
|
0.06 |
%4 |
|
0.70 |
% |
|
0.52 |
% |
|
0.22 |
% |
|
0.31 |
% |
|
0.30 |
% |
Net investment income5 |
|
|
4.44 |
%4 |
|
8.75 |
% |
|
10.33 |
% |
|
9.41 |
% |
|
16.00 |
% |
|
8.50 |
% |
Portfolio turnover rate |
|
|
34 |
% |
|
137 |
% |
|
153 |
% |
|
117 |
% |
|
122 |
% |
|
126 |
% |
|
|||||||||||||||||||
|
1 |
Per share amounts are based on average common shares outstanding during the period. |
|
2 |
Amount represents a refund of certain preferred share offering expenses. |
|
3 |
Total return is calculated assuming a purchase of common stock on the first day and a sale on the last day of the period reporting. Dividends and distributions are assumed for the purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan. Total return does not reflect brokerage commissions or sales charges. |
|
4 |
Annualized |
|
5 |
The net investment income ratio reflects distributions paid to preferred shareholders. |
See Notes to Financial Statements
3
SCHEDULE OF INVESTMENTS
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS 29.2% |
|
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 4.8% |
|
|
|
|
|
|
|
|
Auto Components 0.6% |
|
|
|
|
|
|
|
|
Cooper Tire & Rubber Co., 7.625%, 03/15/2027 |
|
$ |
235,000 |
|
$ |
209,737 |
|
|
Goodyear Tire & Rubber Co.: |
|
|
|
|
|
|
|
|
7.86%, 08/15/2011 |
|
|
140,000 |
|
|
144,900 |
|
|
8.625%, 12/01/2011 |
|
|
25,000 |
|
|
25,938 |
|
|
9.00%, 07/01/2015 |
|
|
25,000 |
|
|
25,781 |
|
|
10.50%, 05/15/2016 |
|
|
160,000 |
|
|
172,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578,756 |
|
|
|
|
|
|
|
|
|
|
|
Diversified Consumer Services 0.6% |
|
|
|
|
|
|
|
|
Carriage Services, Inc., 7.875%, 01/15/2015 |
|
|
140,000 |
|
|
134,750 |
|
|
Service Corporation International: |
|
|
|
|
|
|
|
|
7.50%, 04/01/2027 |
|
|
220,000 |
|
|
198,550 |
|
|
8.00%, 11/15/2021 |
|
|
40,000 |
|
|
39,900 |
|
|
StoneMor Partners, LP, 10.25%, 12/01/2017 144A |
|
|
220,000 |
|
|
231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,200 |
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 0.6% |
|
|
|
|
|
|
|
|
Boyd Gaming Corp.: |
|
|
|
|
|
|
|
|
7.125%, 02/01/2016 |
|
|
65,000 |
|
|
51,187 |
|
|
7.75%, 12/15/2012 |
|
|
15,000 |
|
|
14,963 |
|
|
Caesars Entertainment, Inc., 7.875%, 03/15/2010 |
|
|
95,000 |
|
|
94,525 |
|
|
Inn of the Mountain Gods Resort & Casino, 12.00%, 11/15/2010 + |
|
|
110,000 |
|
|
53,350 |
|
|
MGM MIRAGE, 11.125%, 11/15/2017 144A |
|
|
35,000 |
|
|
37,800 |
|
|
Pokagon Gaming Authority, 10.375%, 06/15/2014 144A |
|
|
7,000 |
|
|
7,280 |
|
|
Scientific Games Corp., 9.25%, 06/15/2019 144A |
|
|
60,000 |
|
|
63,450 |
|
|
Seneca Gaming Corp., 7.25%, 05/01/2012 |
|
|
15,000 |
|
|
14,625 |
|
|
Shingle Springs Tribal Gaming Authority, 9.375%, 06/15/2015 144A |
|
|
130,000 |
|
|
103,350 |
|
|
Speedway Motorsports, Inc., 8.75%, 06/01/2016 |
|
|
120,000 |
|
|
126,600 |
|
|
Wynn Resorts, Ltd., 7.875%, 11/01/2017 144A |
|
|
5,000 |
|
|
4,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572,074 |
|
|
|
|
|
|
|
|
|
|
|
Household Durables 0.3% |
|
|
|
|
|
|
|
|
D.R. Horton, Inc., 9.75%, 09/15/2010 |
|
|
290,000 |
|
|
298,700 |
|
|
Lennar Corp., 12.25%, 06/01/2017 |
|
|
5,000 |
|
|
5,988 |
|
|
Sealy Corp., 10.875%, 04/15/2016 144A |
|
|
9,000 |
|
|
9,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,520 |
|
|
|
|
|
|
|
|
|
|
|
Internet & Catalog Retail 0.0% |
|
|
|
|
|
|
|
|
Netflix, Inc., 8.50%, 11/15/2017 |
|
|
10,000 |
|
|
10,475 |
|
|
|
|
|
|
|
|
|
|
|
Media 2.1% |
|
|
|
|
|
|
|
|
Cablevision Systems Corp., 8.625%, 09/15/2017 144A |
|
|
15,000 |
|
|
15,450 |
|
|
CCH II, LLC, 13.50%, 11/30/2016 |
|
|
670,000 |
|
|
791,437 |
|
|
CCO Holdings, LLC, 8.75%, 11/15/2013 |
|
|
460,000 |
|
|
466,900 |
|
See Notes to Financial Statements
4
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY continued |
|
|
|
|
|
|
|
|
Media continued |
|
|
|
|
|
|
|
|
Charter Communications, Inc., Step Bond: |
|
|
|
|
|
|
|
|
10.00%, 04/30/2012 144A †† |
|
$ |
90,000 |
|
$ |
93,150 |
|
|
10.875%, 09/15/2014 144A †† |
|
|
560,000 |
|
|
623,700 |
|
|
Clear Channel Communications, Inc., 9.25%, 12/15/2017 144A |
|
|
35,000 |
|
|
35,925 |
|
|
DirectTV Holdings, LLC, 7.625%, 05/15/2016 |
|
|
10,000 |
|
|
10,963 |
|
|
DISH DBS, Corp., 7.875%, 09/01/2019 |
|
|
55,000 |
|
|
56,650 |
|
|
Lamar Media Corp.: |
|
|
|
|
|
|
|
|
6.625%, 08/15/2015 |
|
|
10,000 |
|
|
9,550 |
|
|
7.25%, 01/01/2013 |
|
|
35,000 |
|
|
35,000 |
|
|
9.75%, 04/01/2014 |
|
|
5,000 |
|
|
5,425 |
|
|
Salem Communications Corp., 9.625%, 12/15/2016 144A |
|
|
25,000 |
|
|
25,875 |
|
|
WMG Acquisition Corp., 9.50%, 06/15/2016 144A |
|
|
5,000 |
|
|
5,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,175,275 |
|
|
|
|
|
|
|
|
|
|
|
Multiline Retail 0.0% |
|
|
|
|
|
|
|
|
Macy’s, Inc.: |
|
|
|
|
|
|
|
|
5.90%, 12/01/2016 |
|
|
5,000 |
|
|
4,850 |
|
|
8.875%, 07/15/2015 |
|
|
20,000 |
|
|
21,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,800 |
|
|
|
|
|
|
|
|
|
|
|
Specialty Retail 0.3% |
|
|
|
|
|
|
|
|
American Achievement Corp., 8.25%, 04/01/2012 144A |
|
|
335,000 |
|
|
329,975 |
|
|
|
|
|
|
|
|
|
|
|
Textiles, Apparel & Luxury Goods 0.3% |
|
|
|
|
|
|
|
|
Oxford Industries, Inc., 11.375%, 07/15/2015 |
|
|
180,000 |
|
|
199,800 |
|
|
Visant Corp., 7.625%, 10/01/2012 |
|
|
135,000 |
|
|
135,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,475 |
|
|
|
|
|
|
|
|
|
|
|
CONSUMER STAPLES 0.5% |
|
|
|
|
|
|
|
|
Food Products 0.5% |
|
|
|
|
|
|
|
|
Del Monte Foods Co.: |
|
|
|
|
|
|
|
|
6.75%, 02/15/2015 |
|
|
5,000 |
|
|
5,100 |
|
|
7.50%, 10/15/2019 144A |
|
|
175,000 |
|
|
177,625 |
|
|
Dole Food Company, Inc.: |
|
|
|
|
|
|
|
|
8.00%, 10/01/2016 144A |
|
|
55,000 |
|
|
55,962 |
|
|
13.875%, 03/15/2014 144A |
|
|
166,000 |
|
|
197,955 |
|
|
Smithfield Foods, Inc., 7.00%, 08/01/2011 |
|
|
115,000 |
|
|
115,000 |
|
|
Tyson Foods, Inc.: |
|
|
|
|
|
|
|
|
7.85%, 04/01/2016 |
|
|
5,000 |
|
|
5,288 |
|
|
10.50%, 03/01/2014 |
|
|
5,000 |
|
|
5,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562,743 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
5
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
ENERGY 4.9% |
|
|
|
|
|
|
|
|
Energy Equipment & Services 1.3% |
|
|
|
|
|
|
|
|
Bristow Group, Inc.: |
|
|
|
|
|
|
|
|
6.125%, 06/15/2013 |
|
$ |
10,000 |
|
$ |
9,800 |
|
|
7.50%, 09/15/2017 |
|
|
240,000 |
|
|
235,800 |
|
|
Forbes Energy Services, Ltd., 11.00%, 02/15/2015 |
|
|
190,000 |
|
|
180,500 |
|
|
GulfMark Offshore, Inc., 7.75%, 07/15/2014 |
|
|
225,000 |
|
|
222,750 |
|
|
Hercules Offshore, Inc., 10.50%, 10/15/2017 144A |
|
|
55,000 |
|
|
55,000 |
|
|
Hornbeck Offshore Services, Inc., Ser. B: |
|
|
|
|
|
|
|
|
6.125%, 12/01/2014 |
|
|
250,000 |
|
|
232,500 |
|
|
8.00%, 09/01/2017 |
|
|
130,000 |
|
|
127,400 |
|
|
Parker Drilling Co., 9.625%, 10/01/2013 |
|
|
104,000 |
|
|
106,600 |
|
|
PHI, Inc., 7.125%, 04/15/2013 |
|
|
235,000 |
|
|
226,775 |
|
|
Pride International, Inc., 8.50%, 06/15/2019 |
|
|
10,000 |
|
|
11,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,408,300 |
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 3.6% |
|
|
|
|
|
|
|
|
Alon Refining Krotz Springs, Inc., 13.50%, 10/15/2014 |
|
|
50,000 |
|
|
45,750 |
|
|
Arch Coal, Inc., 8.75%, 08/01/2016 144A |
|
|
5,000 |
|
|
5,175 |
|
|
Chesapeake Energy Corp.: |
|
|
|
|
|
|
|
|
6.875%, 01/15/2016 |
|
|
534,000 |
|
|
525,322 |
|
|
9.50%, 02/15/2015 |
|
|
170,000 |
|
|
184,875 |
|
|
El Paso Corp.: |
|
|
|
|
|
|
|
|
7.42%, 02/15/2037 |
|
|
240,000 |
|
|
219,050 |
|
|
12.00%, 12/12/2013 |
|
|
45,000 |
|
|
52,313 |
|
|
Exco Resources, Inc., 7.25%, 01/15/2011 |
|
|
315,000 |
|
|
315,394 |
|
|
Ferrellgas Partners, LP: |
|
|
|
|
|
|
|
|
8.75%, 06/15/2012 |
|
|
50,000 |
|
|
50,063 |
|
|
9.125%, 10/01/2017 144A |
|
|
40,000 |
|
|
41,800 |
|
|
Forest Oil Corp.: |
|
|
|
|
|
|
|
|
7.25%, 06/15/2019 |
|
|
95,000 |
|
|
93,100 |
|
|
8.50%, 02/15/2014 |
|
|
65,000 |
|
|
67,112 |
|
|
Frontier Oil Corp., 6.625%, 10/01/2011 |
|
|
10,000 |
|
|
9,975 |
|
|
Holly Corp., 9.875%, 06/15/2017 144A |
|
|
200,000 |
|
|
205,000 |
|
|
Newfield Exploration Co.: |
|
|
|
|
|
|
|
|
6.625%, 04/15/2016 |
|
|
15,000 |
|
|
14,888 |
|
|
6.875%, 02/01/2020 |
|
|
55,000 |
|
|
54,175 |
|
|
Peabody Energy Corp., 7.875%, 11/01/2026 |
|
|
370,000 |
|
|
377,400 |
|
|
Penn Virginia Corp., 10.375%, 06/15/2016 |
|
|
10,000 |
|
|
10,800 |
|
|
Petrohawk Energy Corp.: |
|
|
|
|
|
|
|
|
7.875%, 06/01/2015 |
|
|
95,000 |
|
|
95,000 |
|
|
10.50%, 08/01/2014 |
|
|
60,000 |
|
|
65,100 |
|
|
Pioneer Natural Resources Co., 7.50%, 01/15/2020 |
|
|
145,000 |
|
|
144,637 |
|
|
Plains Exploration & Production Co., 8.625%, 10/15/2019 |
|
|
335,000 |
|
|
347,562 |
|
|
Range Resources Corp., 8.00%, 05/15/2019 |
|
|
5,000 |
|
|
5,238 |
|
See Notes to Financial Statements
6
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
ENERGY continued |
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels continued |
|
|
|
|
|
|
|
|
Sabine Pass LNG, LP: |
|
|
|
|
|
|
|
|
7.25%, 11/30/2013 |
|
$ |
185,000 |
|
$ |
172,744 |
|
|
7.50%, 11/30/2016 |
|
|
110,000 |
|
|
96,525 |
|
|
SandRidge Energy, Inc.: |
|
|
|
|
|
|
|
|
8.00%, 06/01/2018 144A |
|
|
5,000 |
|
|
4,788 |
|
|
8.75%, 01/15/2020 144A |
|
|
200,000 |
|
|
195,500 |
|
|
Southwestern Energy Co., 7.50%, 02/01/2018 |
|
|
60,000 |
|
|
63,300 |
|
|
Stallion Oilfield Holdings, Inc., 10.50%, 02/15/2015 144A |
|
|
55,000 |
|
|
53,625 |
|
|
Tesoro Corp.: |
|
|
|
|
|
|
|
|
7.50%, 07/17/2012 |
|
|
125,000 |
|
|
123,047 |
|
|
9.75%, 06/01/2019 |
|
|
95,000 |
|
|
97,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,736,870 |
|
|
|
|
|
|
|
|
|
|
|
FINANCIALS 5.4% |
|
|
|
|
|
|
|
|
Capital Markets 0.1% |
|
|
|
|
|
|
|
|
E*TRADE Financial Corp., 12.50%, 11/30/2017 |
|
|
68,000 |
|
|
78,710 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Banks 0.2% |
|
|
|
|
|
|
|
|
CapitalSource, Inc., 12.75%, 07/15/2014 144A |
|
|
170,000 |
|
|
191,250 |
|
|
Discover Bank, 8.70%, 11/18/2019 |
|
|
55,000 |
|
|
59,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,590 |
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance 3.6% |
|
|
|
|
|
|
|
|
Calpine Construction Finance Corp., 8.00%, 06/01/2016 144A |
|
|
5,000 |
|
|
5,063 |
|
|
Clearwire Communications Finance Corp., 12.00%, 12/01/2015 144A |
|
|
130,000 |
|
|
127,400 |
|
|
Discover Financial Services, 10.25%, 07/15/2019 |
|
|
105,000 |
|
|
124,249 |
|
|
Ford Motor Credit Co., LLC: |
|
|
|
|
|
|
|
|
9.75%, 09/15/2010 |
|
|
155,000 |
|
|
158,876 |
|
|
9.875%, 08/10/2011 |
|
|
235,000 |
|
|
246,519 |
|
|
GMAC, LLC: |
|
|
|
|
|
|
|
|
6.75%, 12/01/2014 |
|
|
36,000 |
|
|
34,380 |
|
|
6.875%, 09/15/2011 |
|
|
76,000 |
|
|
76,000 |
|
|
6.875%, 08/28/2012 |
|
|
351,000 |
|
|
347,490 |
|
|
8.00%, 12/31/2018 |
|
|
101,000 |
|
|
93,425 |
|
|
8.00%, 11/01/2031 |
|
|
275,000 |
|
|
253,688 |
|
|
8.30%, 02/12/2015 144A |
|
|
780,000 |
|
|
786,825 |
|
|
Homer City Funding, LLC, 8.73%, 10/01/2026 |
|
|
124,046 |
|
|
119,084 |
|
|
International Lease Finance Corp.: |
|
|
|
|
|
|
|
|
4.75%, 01/13/2012 |
|
|
70,000 |
|
|
64,300 |
|
|
5.125%, 11/01/2010 |
|
|
60,000 |
|
|
59,023 |
|
|
5.30%, 05/01/2012 |
|
|
80,000 |
|
|
73,221 |
|
|
5.75%, 06/15/2011 |
|
|
50,000 |
|
|
47,990 |
|
|
JBS USA Finance, Inc., 11.625%, 05/01/2014 144A |
|
|
380,000 |
|
|
429,400 |
|
See Notes to Financial Statements
7
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
FINANCIALS continued |
|
|
|
|
|
|
|
|
Consumer Finance continued |
|
|
|
|
|
|
|
|
Sprint Capital Corp.: |
|
|
|
|
|
|
|
|
6.875%, 11/15/2028 |
|
$ |
655,000 |
|
$ |
496,162 |
|
|
8.375%, 03/15/2012 |
|
|
205,000 |
|
|
209,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,752,451 |
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services 0.3% |
|
|
|
|
|
|
|
|
Leucadia National Corp., 8.125%, 09/15/2015 |
|
|
313,000 |
|
|
317,695 |
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts (REITs) 1.1% |
|
|
|
|
|
|
|
|
Dupont Fabros Technology, Inc., 8.50%, 12/15/2017 144A |
|
|
495,000 |
|
|
505,186 |
|
|
Host Marriott Corp.: |
|
|
|
|
|
|
|
|
7.125%, 11/01/2013 |
|
|
65,000 |
|
|
65,731 |
|
|
9.00%, 05/15/2017 144A |
|
|
30,000 |
|
|
32,100 |
|
|
Omega Healthcare Investors, Inc., 7.00%, 04/01/2014 |
|
|
180,000 |
|
|
178,200 |
|
|
Ventas, Inc.: |
|
|
|
|
|
|
|
|
6.75%, 04/01/2017 |
|
|
67,000 |
|
|
67,000 |
|
|
7.125%, 06/01/2015 |
|
|
196,000 |
|
|
201,880 |
|
|
9.00%, 05/01/2012 |
|
|
85,000 |
|
|
89,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,139,772 |
|
|
|
|
|
|
|
|
|
|
|
Thrifts & Mortgage Finance 0.1% |
|
|
|
|
|
|
|
|
Residential Capital, LLC, 8.50%, 05/15/2010 |
|
|
90,000 |
|
|
88,763 |
|
|
|
|
|
|
|
|
|
|
|
HEALTH CARE 0.9% |
|
|
|
|
|
|
|
|
Biotechnology 0.1% |
|
|
|
|
|
|
|
|
Talecris Biotherapeutics Holdings Corp., 7.75%, 11/15/2016 144A |
|
|
55,000 |
|
|
55,550 |
|
|
|
|
|
|
|
|
|
|
|
Health Care Equipment & Supplies 0.0% |
|
|
|
|
|
|
|
|
Biomet, Inc., 10.375%, 10/15/2017 |
|
|
30,000 |
|
|
32,850 |
|
|
Universal Hospital Services, Inc., 8.50%, 06/01/2015 |
|
|
12,000 |
|
|
11,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,490 |
|
|
|
|
|
|
|
|
|
|
|
Health Care Providers & Services 0.7% |
|
|
|
|
|
|
|
|
Apria Healthcare Group: |
|
|
|
|
|
|
|
|
11.25%, 11/01/2014 144A |
|
|
100,000 |
|
|
107,750 |
|
|
12.375%, 11/01/2014 144A |
|
|
15,000 |
|
|
16,163 |
|
|
HCA, Inc.: |
|
|
|
|
|
|
|
|
9.25%, 11/15/2016 |
|
|
400,000 |
|
|
424,500 |
|
|
9.625%, 11/15/2016 |
|
|
129,000 |
|
|
138,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
686,443 |
|
|
|
|
|
|
|
|
|
|
|
Life Sciences Tools & Services 0.1% |
|
|
|
|
|
|
|
|
Bio-Rad Laboratories, Inc., 8.00%, 09/15/2016 |
|
|
145,000 |
|
|
151,525 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
8
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
INDUSTRIALS 2.9% |
|
|
|
|
|
|
|
|
Aerospace & Defense 1.5% |
|
|
|
|
|
|
|
|
Alliant Techsystems, Inc., 6.75%, 04/01/2016 |
|
$ |
215,000 |
|
$ |
211,775 |
|
|
GeoEye, Inc., 9.625%, 10/01/2015 144A |
|
|
50,000 |
|
|
50,750 |
|
|
Hexcel Corp., 6.75%, 02/01/2015 |
|
|
190,000 |
|
|
183,350 |
|
|
L-3 Communications Holdings, Inc.: |
|
|
|
|
|
|
|
|
5.20%, 10/15/2019 144A |
|
|
5,000 |
|
|
5,078 |
|
|
5.875%, 01/15/2015 |
|
|
796,000 |
|
|
798,985 |
|
|
6.375%, 10/15/2015 |
|
|
315,000 |
|
|
320,119 |
|
|
Spirit AeroSystems Holdings, Inc., 7.50%, 10/01/2017 144A |
|
|
35,000 |
|
|
34,650 |
|
|
TransDigm Group, Inc., 7.75%, 07/15/2014 144A |
|
|
35,000 |
|
|
34,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,639,532 |
|
|
|
|
|
|
|
|
|
|
|
Airlines 0.1% |
|
|
|
|
|
|
|
|
United Airlines, Inc., 10.40%, 05/01/2018 |
|
|
65,000 |
|
|
68,737 |
|
|
|
|
|
|
|
|
|
|
|
Commercial Services & Supplies 0.8% |
|
|
|
|
|
|
|
|
Browning-Ferris Industries, Inc., 9.25%, 05/01/2021 |
|
|
130,000 |
|
|
158,126 |
|
|
Casella Waste Systems, Inc., 11.00%, 07/15/2014 144A |
|
|
95,000 |
|
|
102,125 |
|
|
Cornell Companies, Inc., 10.75%, 07/01/2012 |
|
|
15,000 |
|
|
15,263 |
|
|
Corrections Corporation of America: |
|
|
|
|
|
|
|
|
6.25%, 03/15/2013 |
|
|
60,000 |
|
|
60,375 |
|
|
7.75%, 06/01/2017 |
|
|
225,000 |
|
|
230,625 |
|
|
DigitalGlobe, Inc., 10.50%, 05/01/2014 144A |
|
|
35,000 |
|
|
37,625 |
|
|
Geo Group, Inc., 7.75%, 10/15/2017 144A |
|
|
90,000 |
|
|
91,125 |
|
|
Interface, Inc., Class A, 11.375%, 11/01/2013 |
|
|
5,000 |
|
|
5,625 |
|
|
SGS International, Inc., 12.00%, 12/15/2013 |
|
|
125,000 |
|
|
128,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
829,795 |
|
|
|
|
|
|
|
|
|
|
|
Machinery 0.4% |
|
|
|
|
|
|
|
|
Commercial Vehicle Group, Inc., 13.00%, 02/15/2013 144A |
|
|
363,450 |
|
|
323,470 |
|
|
CPM Holdings, Inc., 10.625%, 09/01/2014 144A |
|
|
105,000 |
|
|
111,300 |
|
|
Navistar International Corp., 8.25%, 11/01/2021 |
|
|
15,000 |
|
|
15,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,995 |
|
|
|
|
|
|
|
|
|
|
|
Transportation Infrastructure 0.1% |
|
|
|
|
|
|
|
|
United Maritime Group, 11.75%, 06/15/2015 144A |
|
|
55,000 |
|
|
55,413 |
|
|
|
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY 1.8% |
|
|
|
|
|
|
|
|
Communications Equipment 0.3% |
|
|
|
|
|
|
|
|
Brocade Communications Systems, Inc., 6.625%, 01/15/2018 144A |
|
|
85,000 |
|
|
85,850 |
|
|
EchoStar Corp., 7.75%, 05/31/2015 |
|
|
40,000 |
|
|
41,500 |
|
|
Lucent Technologies, Inc., 6.45%, 03/15/2029 |
|
|
281,000 |
|
|
199,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,860 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
9
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY continued |
|
|
|
|
|
|
|
|
Electronic Equipment, Instruments & Components 1.3% |
|
|
|
|
|
|
|
|
Anixter International, Inc., 10.00%, 03/15/2014 |
|
$ |
130,000 |
|
$ |
143,650 |
|
|
Da-Lite Screen Co., Inc., 9.50%, 05/15/2011 |
|
|
215,000 |
|
|
213,925 |
|
|
Intcomex, Inc., 13.25%, 12/15/2014 144A |
|
|
95,000 |
|
|
93,694 |
|
|
Jabil Circuit, Inc., 8.25%, 03/15/2018 |
|
|
620,000 |
|
|
661,850 |
|
|
Sanmina-SCI Corp., 8.125%, 03/01/2016 |
|
|
50,000 |
|
|
49,250 |
|
|
Viasystem Group, Inc., 12.00%, 01/15/2015 144A |
|
|
115,000 |
|
|
123,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,285,419 |
|
|
|
|
|
|
|
|
|
|
|
Internet Software & Services 0.2% |
|
|
|
|
|
|
|
|
Equinix, Inc., 8.125%, 03/01/2018 |
|
|
95,000 |
|
|
95,000 |
|
|
Terremark Worldwide, Inc., 12.00%, 06/15/2017 144A |
|
|
115,000 |
|
|
126,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,212 |
|
|
|
|
|
|
|
|
|
|
|
MATERIALS 1.2% |
|
|
|
|
|
|
|
|
Chemicals 0.1% |
|
|
|
|
|
|
|
|
Huntsman International, LLC, 5.50%, 06/30/2016 144A |
|
|
75,000 |
|
|
66,000 |
|
|
Koppers Holdings, Inc., 7.875%, 12/01/2019 144A |
|
|
10,000 |
|
|
10,175 |
|
|
Nalco Holding Co., 8.25%, 05/15/2017 144A |
|
|
5,000 |
|
|
5,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,513 |
|
|
|
|
|
|
|
|
|
|
|
Construction Materials 0.3% |
|
|
|
|
|
|
|
|
CPG International, Inc.: |
|
|
|
|
|
|
|
|
10.50%, 07/01/2013 |
|
|
140,000 |
|
|
137,200 |
|
|
FRN, 7.87%, 07/01/2012 |
|
|
40,000 |
|
|
38,000 |
|
|
Headwaters, Inc., 11.375%, 11/01/2014 144A |
|
|
110,000 |
|
|
111,100 |
|
|
Texas Industries, Inc., 7.25%, 07/15/2013 |
|
|
65,000 |
|
|
63,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349,512 |
|
|
|
|
|
|
|
|
|
|
|
Containers & Packaging 0.2% |
|
|
|
|
|
|
|
|
Ball Corp., 7.125%, 09/01/2016 |
|
|
15,000 |
|
|
15,563 |
|
|
Exopack Holding Corp., 11.25%, 02/01/2014 |
|
|
215,000 |
|
|
222,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,819 |
|
|
|
|
|
|
|
|
|
|
|
Metals & Mining 0.4% |
|
|
|
|
|
|
|
|
AK Steel Corp., 7.75%, 06/15/2012 |
|
|
45,000 |
|
|
45,056 |
|
|
Freeport-McMoRan Copper & Gold, Inc.: |
|
|
|
|
|
|
|
|
8.25%, 04/01/2015 |
|
|
5,000 |
|
|
5,419 |
|
|
8.375%, 04/01/2017 |
|
|
295,000 |
|
|
320,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370,550 |
|
|
|
|
|
|
|
|
|
|
|
Paper & Forest Products 0.2% |
|
|
|
|
|
|
|
|
Clearwater Paper Corp., 10.625%, 06/15/2016 144A |
|
|
70,000 |
|
|
77,700 |
|
|
Georgia Pacific Corp.: |
|
|
|
|
|
|
|
|
8.125%, 05/15/2011 |
|
|
60,000 |
|
|
63,000 |
|
See Notes to Financial Statements
10
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
Principal |
|
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
MATERIALS continued |
|
|
|
|
|
|
|
|
Paper & Forest Products continued |
|
|
|
|
|
|
|
|
Georgia Pacific Corp.: |
|
|
|
|
|
|
|
|
8.25%, 05/01/2016 144A |
|
$ |
5,000 |
|
$ |
5,275 |
|
|
8.875%, 05/15/2031 |
|
|
25,000 |
|
|
26,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,787 |
|
|
|
|
|
|
|
|
|
|
|
TELECOMMUNICATION SERVICES 3.0% |
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 1.9% |
|
|
|
|
|
|
|
|
Cincinnati Bell, Inc., 8.25%, 10/15/2017 |
|
|
120,000 |
|
|
120,000 |
|
|
Citizens Communications Co., 7.875%, 01/15/2027 |
|
|
220,000 |
|
|
201,300 |
|
|
FairPoint Communications, Inc., 13.125%, 04/01/2018 |
|
|
55,000 |
|
|
7,150 |
|
|
Frontier Communications Corp.: |
|
|
|
|
|
|
|
|
8.125%, 10/01/2018 |
|
|
145,000 |
|
|
144,275 |
|
|
8.25%, 05/01/2014 |
|
|
140,000 |
|
|
143,850 |
|
|
Global Crossing, Ltd., 12.00%, 09/15/2015 144A |
|
|
5,000 |
|
|
5,437 |
|
|
Qwest Corp.: |
|
|
|
|
|
|
|
|
6.875%, 07/15/2028 |
|
|
25,000 |
|
|
21,000 |
|
|
7.125%, 04/01/2018 144A |
|
|
55,000 |
|
|
55,000 |
|
|
7.125%, 11/15/2043 |
|
|
120,000 |
|
|
103,500 |
|
|
7.25%, 09/15/2025 |
|
|
125,000 |
|
|
119,375 |
|
|
7.50%, 06/15/2023 |
|
|
180,000 |
|
|
173,700 |
|
|
7.625%, 08/03/2021 |
|
|
20,000 |
|
|
18,300 |
|
|
8.875%, 03/15/2012 |
|
|
585,000 |
|
|
633,994 |
|
|
Windstream Corp., 7.875%, 11/01/2017 |
|
|
245,000 |
|
|
239,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986,368 |
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication Services 1.1% |
|
|
|
|
|
|
|
|
CC Holdings GS V, LLC, 7.75%, 05/01/2017 144A |
|
|
5,000 |
|
|
5,413 |
|
|
Cricket Communications, Inc.: |
|
|
|
|
|
|
|
|
7.75%, 05/15/2016 |
|
|
105,000 |
|
|
106,706 |
|
|
9.375%, 11/01/2014 |
|
|
70,000 |
|
|
69,650 |
|
|
Crown Castle International Corp., 7.125%, 11/01/2019 |
|
|
10,000 |
|
|
10,000 |
|
|
MetroPCS Communications, Inc., 9.25%, 11/01/2014 |
|
|
190,000 |
|
|
189,525 |
|
|
Sprint Nextel Corp.: |
|
|
|
|
|
|
|
|
6.90%, 05/01/2019 |
|
|
80,000 |
|
|
70,200 |
|
|
Ser. D, 7.375%, 08/01/2015 |
|
|
455,000 |
|
|
419,737 |
|
|
Ser. F, 5.95%, 03/15/2014 |
|
|
275,000 |
|
|
249,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,120,794 |
|
|
|
|
|
|
|
|
|
|
|
UTILITIES 3.8% |
|
|
|
|
|
|
|
Electric Utilities 2.7% |
|
|
|
|
|
|
|
|
Aquila, Inc., Step Bond, 11.875%, 07/01/2012 †† |
|
|
804,000 |
|
|
939,068 |
|
|
CMS Energy Corp., 8.50%, 04/15/2011 |
|
|
65,000 |
|
|
68,250 |
|
|
Edison Mission Energy, 7.20%, 05/15/2019 |
|
|
60,000 |
|
|
42,150 |
|
|
Energy Future Holdings Corp., FRN, 12.00%, 11/01/2017 |
|
|
215,710 |
|
|
150,997 |
|
|
Mirant Mid-Atlantic, LLC, Ser. C, 10.06%, 12/30/2028 |
|
|
438,432 |
|
|
471,315 |
|
See Notes to Financial Statements
11
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
Principal |
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS continued |
|
|
|
|
|
|
|
|
UTILITIES continued |
|
|
|
|
|
|
|
|
Electric Utilities continued |
|
|
|
|
|
|
|
|
Mirant North America, LLC, 7.375%, 12/31/2013 |
|
$ |
185,000 |
|
$ |
184,306 |
|
|
NRG Energy, Inc.: |
|
|
|
|
|
|
|
|
7.375%, 02/01/2016 |
|
|
110,000 |
|
|
108,488 |
|
|
8.50%, 06/15/2019 |
|
|
155,000 |
|
|
154,806 |
|
|
Orion Power Holdings, Inc., 12.00%, 05/01/2010 |
|
|
402,000 |
|
|
404,512 |
|
|
Otter Tail Corp., 9.00%, 12/15/2016 |
|
|
220,000 |
|
|
227,150 |
|
|
Public Service Company of New Mexico, 7.95%, 04/01/2015 |
|
|
15,000 |
|
|
15,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,766,829 |
|
|
|
|
|
|
|
|
|
|
|
Independent Power Producers & Energy Traders 1.1% |
|
|
|
|
|
|
|
|
AES Corp.: |
|
|
|
|
|
|
|
|
8.00%, 06/01/2020 |
|
|
5,000 |
|
|
4,906 |
|
|
8.875%, 02/15/2011 |
|
|
95,000 |
|
|
98,325 |
|
|
Dynegy Holdings, Inc.: |
|
|
|
|
|
|
|
|
6.875%, 04/01/2011 |
|
|
120,000 |
|
|
123,000 |
|
|
7.625%, 10/15/2026 |
|
|
275,000 |
|
|
189,750 |
|
|
Reliant Energy, Inc.: |
|
|
|
|
|
|
|
|
6.75%, 12/15/2014 |
|
|
426,000 |
|
|
425,468 |
|
|
7.625%, 06/15/2014 |
|
|
145,000 |
|
|
138,475 |
|
|
7.875%, 06/15/2017 |
|
|
30,000 |
|
|
28,050 |
|
|
9.24%, 07/02/2017 |
|
|
115,679 |
|
|
123,776 |
|
|
9.68%, 07/02/2026 |
|
|
10,000 |
|
|
10,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,142,388 |
|
|
|
|
|
|
|
|
|
|
|
Total Corporate Bonds (cost $28,862,126) |
|
|
|
|
|
30,326,975 |
|
|
|
|
|
|
|
|
|
|
|
YANKEE OBLIGATIONS – CORPORATE 2.3% |
|
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 0.1% |
|
|
|
|
|
|
|
|
Household Durables 0.1% |
|
|
|
|
|
|
|
|
Desarrolladora Homex SAB de CV, 9.50%, 12/11/2019 144A |
|
|
50,000 |
|
|
51,158 |
|
|
|
|
|
|
|
|
|
|
|
Media 0.0% |
|
|
|
|
|
|
|
|
Videotron, Ltd.: |
|
|
|
|
|
|
|
|
9.125%, 04/15/2018 144A |
|
|
5,000 |
|
|
5,413 |
|
|
9.125%, 04/15/2018 |
|
|
15,000 |
|
|
16,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,725 |
|
|
|
|
|
|
|
|
|
|
|
ENERGY 0.3% |
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 0.3% |
|
|
|
|
|
|
|
|
Connacher Oil & Gas, Ltd.: |
|
|
|
|
|
|
|
|
10.25%, 12/15/2015 144A |
|
|
55,000 |
|
|
53,006 |
|
|
11.75%, 07/15/2014 144A |
|
|
20,000 |
|
|
22,000 |
|
|
Griffin Coal Mining Co., Ltd., 9.50%, 12/01/2016 144A |
|
|
261,000 |
|
|
148,770 |
|
|
OPTI Canada, Inc., 7.875%, 12/15/2014 |
|
|
100,000 |
|
|
88,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,776 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
12
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
Principal |
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
YANKEE OBLIGATIONS – CORPORATE continued |
|
|
|
|
|
|
|
|
FINANCIALS 0.4% |
|
|
|
|
|
|
|
|
Consumer Finance 0.1% |
|
|
|
|
|
|
|
|
Petroplus Finance, Ltd., 6.75%, 05/01/2014 144A |
|
$ |
5,000 |
|
$ |
4,225 |
|
|
Wind Acquisition Finance SA, 11.75%, 07/15/2017 144A |
|
|
110,000 |
|
|
117,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,925 |
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services 0.3% |
|
|
|
|
|
|
|
|
FMG Finance Property, Ltd.: |
|
|
|
|
|
|
|
|
10.625%, 09/01/2016 144A |
|
|
175,000 |
|
|
195,125 |
|
|
FRN, 4.26%, 09/01/2011 144A |
|
|
15,000 |
|
|
14,775 |
|
|
Ship Finance International, Ltd., 8.50%, 12/15/2013 |
|
|
80,000 |
|
|
77,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287,600 |
|
|
|
|
|
|
|
|
|
|
|
INDUSTRIALS 0.8% |
|
|
|
|
|
|
|
|
Road & Rail 0.8% |
|
|
|
|
|
|
|
|
Kansas City Southern de Mexico: |
|
|
|
|
|
|
|
|
7.375%, 06/01/2014 |
|
|
685,000 |
|
|
681,575 |
|
|
12.50%, 04/01/2016 |
|
|
100,000 |
|
|
114,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,825 |
|
|
|
|
|
|
|
|
|
|
|
Transportation Infrastructure 0.0% |
|
|
|
|
|
|
|
|
Navios Maritime Holdings, Inc., 8.875%, 11/01/2017 144A |
|
|
5,000 |
|
|
5,088 |
|
|
|
|
|
|
|
|
|
|
|
MATERIALS 0.3% |
|
|
|
|
|
|
|
|
Chemicals 0.0% |
|
|
|
|
|
|
|
|
NOVA Chemicals Corp.: |
|
|
|
|
|
|
|
|
8.375%, 11/01/2016 144A |
|
|
15,000 |
|
|
14,775 |
|
|
8.625%, 11/01/2019 144A |
|
|
15,000 |
|
|
14,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,700 |
|
|
|
|
|
|
|
|
|
|
|
Metals & Mining 0.2% |
|
|
|
|
|
|
|
|
Evraz Group SA, 8.875%, 04/24/2013 |
|
|
100,000 |
|
|
103,300 |
|
|
Teck Resources, Ltd., 10.75%, 05/15/2019 |
|
|
55,000 |
|
|
67,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,950 |
|
|
|
|
|
|
|
|
|
|
|
Paper & Forest Products 0.1% |
|
|
|
|
|
|
|
|
Sappi, Ltd.: |
|
|
|
|
|
|
|
|
6.75%, 06/15/2012 144A |
|
|
50,000 |
|
|
47,750 |
|
|
7.50%, 06/15/2032 144A |
|
|
100,000 |
|
|
69,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,250 |
|
|
|
|
|
|
|
|
|
|
|
TELECOMMUNICATION SERVICES 0.4% |
|
|
|
|
|
|
|
|
Wireless Telecommunication Services 0.4% |
|
|
|
|
|
|
|
|
Digicel Group, Ltd.: |
|
|
|
|
|
|
|
|
8.25%, 09/01/2017 144A |
|
|
35,000 |
|
|
33,644 |
|
|
12.00%, 04/01/2014 144A |
|
|
20,000 |
|
|
22,300 |
|
See Notes to Financial Statements
13
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
Principal |
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
YANKEE OBLIGATIONS – CORPORATE continued |
|
|
|
|
|
|
|
|
TELECOMMUNICATION SERVICES continued |
|
|
|
|
|
|
|
|
Wireless Telecommunication Services continued |
|
|
|
|
|
|
|
|
Intelsat, Ltd.: |
|
|
|
|
|
|
|
|
8.50%, 01/15/2013 |
|
$ |
375,000 |
|
$ |
378,750 |
|
|
8.875%, 01/15/2015 144A |
|
|
10,000 |
|
|
10,150 |
|
|
Vimpel Communications, 8.375%, 04/30/2013 144A |
|
|
5,000 |
|
|
5,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,194 |
|
|
|
|
|
|
|
|
|
|
|
UTILITIES 0.0% |
|
|
|
|
|
|
|
|
Electric Utilities 0.0% |
|
|
|
|
|
|
|
|
InterGen NV, 9.00%, 06/30/2017 144A |
|
|
30,000 |
|
|
30,600 |
|
|
|
|
|
|
|
|
|
|
|
Total Yankee Obligations – Corporate (cost $2,208,042) |
|
|
|
|
|
2,393,791 |
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE DEBENTURES 0.1% |
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY 0.1% |
|
|
|
|
|
|
|
|
Communications Equipment 0.1% |
|
|
|
|
|
|
|
|
Lucent Technologies, Inc., 2.875%, 06/15/2025 (cost $33,832) |
|
|
70,000 |
|
|
58,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value |
| ||
|
|
|
|
|
|
| ||
|
CONVERTIBLE PREFERRED STOCKS 2.9% |
|
|
|
|
|
|
|
|
UTILITIES 2.9% |
|
|
|
|
|
|
|
|
Electric Utilities 2.9% |
|
|
|
|
|
|
|
|
Great Plains Energy, Inc., 12.00%, 06/12/2012 (cost $3,297,500) |
|
|
50,000 |
|
|
3,043,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| ||
|
|
|
Amount |
|
Value |
| ||
|
|
|
|
|
|
| ||
|
U.S. TREASURY OBLIGATIONS 0.0% |
|
|
|
|
|
|
|
|
U.S. Treasury Note, 4.375%, 11/15/2039 (cost $33,078) |
|
$ |
35,000 |
|
|
34,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value |
| ||
|
|
|
|
|
|
| ||
|
COMMON STOCKS 61.7% |
|
|
|
|
|
|
|
|
ENERGY 4.6% |
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 4.6% |
|
|
|
|
|
|
|
|
El Paso Corp. |
|
|
25,000 |
|
|
261,750 |
|
|
Southwestern Energy Co. * |
|
|
30,000 |
|
|
1,276,500 |
|
|
Spectra Energy Corp. |
|
|
100,000 |
|
|
2,180,000 |
|
|
Williams Cos. |
|
|
50,000 |
|
|
1,077,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,795,250 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
14
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCKS continued |
|
|
|
|
|
|
|
|
TELECOMMUNICATION SERVICES 6.1% |
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 5.5% |
|
|
|
|
|
|
|
|
BCE, Inc. |
|
|
16,000 |
|
$ |
444,160 |
|
|
Cbeyond, Inc. * |
|
|
17,400 |
|
|
215,760 |
|
|
France Telecom |
|
|
50,000 |
|
|
1,172,721 |
|
|
Qwest Communications International, Inc. |
|
|
75,000 |
|
|
342,000 |
|
|
Shenandoah Telecommunications Co. + |
|
|
54,951 |
|
|
990,767 |
|
|
Tele2 AB, Ser. B |
|
|
100,034 |
|
|
1,487,223 |
|
|
Windstream Corp. |
|
|
100,000 |
|
|
1,013,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,665,631 |
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication Services 0.6% |
|
|
|
|
|
|
|
|
U.S. Cellular Corp. * |
|
|
7,500 |
|
|
274,725 |
|
|
Vivo Participacoes SA, ADR |
|
|
13,500 |
|
|
365,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640,035 |
|
|
|
|
|
|
|
|
|
|
|
UTILITIES 51.0% |
|
|
|
|
|
|
|
|
Electric Utilities 34.0% |
|
|
|
|
|
|
|
|
China Hydroelectric Corp., ADS * |
|
|
10,000 |
|
|
93,000 |
|
|
DPL, Inc. |
|
|
125,000 |
|
|
3,317,500 |
|
|
Enel SpA |
|
|
450,000 |
|
|
2,440,247 |
|
|
Exelon Corp. |
|
|
70,000 |
|
|
3,031,000 |
|
|
FirstEnergy Corp. |
|
|
25,000 |
|
|
966,250 |
|
|
Fortum Oyj |
|
|
75,000 |
|
|
1,910,736 |
|
|
FPL Group, Inc. |
|
|
20,000 |
|
|
927,400 |
|
|
Great Plains Energy, Inc. |
|
|
350,000 |
|
|
6,233,500 |
|
|
Hera SpA |
|
|
475,000 |
|
|
1,075,602 |
|
|
ITC Holdings Corp. |
|
|
36,000 |
|
|
1,921,680 |
|
|
Maine & Maritimes Corp. |
|
|
1,135 |
|
|
37,080 |
|
|
Northeast Utilities |
|
|
200,000 |
|
|
5,120,000 |
|
|
Portland General Electric Co. |
|
|
75,000 |
|
|
1,349,250 |
|
|
Red Electrica Corp. SA |
|
|
20,000 |
|
|
1,006,532 |
|
|
Scottish & Southern Energy plc |
|
|
190,000 |
|
|
3,247,670 |
|
|
Southern Co. |
|
|
60,000 |
|
|
1,906,200 |
|
|
TERNA SpA |
|
|
175,000 |
|
|
719,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,302,683 |
|
|
|
|
|
|
|
|
|
|
|
Gas Utilities 2.9% |
|
|
|
|
|
|
|
|
Oneok Partners LP |
|
|
48,500 |
|
|
2,941,525 |
|
|
|
|
|
|
|
|
|
|
|
Independent Power Producers & Energy Traders 3.4% |
|
|
|
|
|
|
|
|
Constellation Energy Group, Inc. |
|
|
100,000 |
|
|
3,507,000 |
|
|
|
|
|
|
|
|
|
|
|
Multi-Utilities 4.5% |
|
|
|
|
|
|
|
|
National Grid plc |
|
|
250,000 |
|
|
2,485,423 |
|
|
Public Service Enterprise Group, Inc. |
|
|
50,000 |
|
|
1,486,000 |
|
See Notes to Financial Statements
15
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCKS continued |
|
|
|
|
|
|
|
|
UTILITIES continued |
|
|
|
|
|
|
|
|
Multi-Utilities continued |
|
|
|
|
|
|
|
|
Suez Environnement SA * |
|
|
30,000 |
|
$ |
660,741 |
|
|
Wisconsin Energy Corp. |
|
|
1,500 |
|
|
72,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,704,809 |
|
|
|
|
|
|
|
|
|
|
|
Water Utilities 6.2% |
|
|
|
|
|
|
|
|
American Water Works Co. |
|
|
50,000 |
|
|
1,113,000 |
|
|
Pennichuck Corp. + |
|
|
140,000 |
|
|
2,935,800 |
|
|
Pennon Group plc |
|
|
300,000 |
|
|
2,399,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,448,072 |
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks (cost $59,476,996) |
|
|
|
|
|
64,005,005 |
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCKS 8.5% |
|
|
|
|
|
|
|
|
UTILITIES 8.5% |
|
|
|
|
|
|
|
|
Electric Utilities 6.0% |
|
|
|
|
|
|
|
|
Carolina Power & Light Co., 4.20% |
|
|
25,329 |
|
|
1,691,504 |
|
|
Scana Corp., Ser. A, 7.70% |
|
|
165,000 |
|
|
4,461,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,153,104 |
|
|
|
|
|
|
|
|
|
|
|
Independent Power Producers & Energy Traders 2.5% |
|
|
|
|
|
|
|
|
Constellation Energy Group, Inc., Ser. A, 8.625% |
|
|
100,000 |
|
|
2,610,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Stocks (cost $8,571,193) |
|
|
|
|
|
8,763,104 |
|
|
|
|
|
|
|
|
|
|
|
ESCROW SHARES 0.0% |
|
|
|
|
|
|
|
|
Mirant Corp. Escrow * + o (cost $0) |
|
|
5,000,000 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
WARRANTS 0.0% |
|
|
|
|
|
|
|
|
UTILITIES 0.0% |
|
|
|
|
|
|
|
|
Electric Utilities 0.0% |
|
|
|
|
|
|
|
|
China Hydroelectric Corp., ADS, Expiring 01/25/2014 * (cost $12,000) |
|
|
10,000 |
|
|
11,400 |
|
|
|
|
|
|
|
|
|
|
|
CLOSED END MUTUAL FUND SHARES 0.2% |
|
|
|
|
|
|
|
|
Dreyfus High Yield Strategies Fund, Inc. |
|
|
20,689 |
|
|
80,480 |
|
|
Eaton Vance Limited Duration Income Trust |
|
|
1,739 |
|
|
26,555 |
|
|
LMP Corporate Loan Fund, Inc. |
|
|
1,677 |
|
|
18,648 |
|
|
New America High Income Fund, Inc. |
|
|
7,858 |
|
|
71,193 |
|
|
|
|
|
|
|
|
|
|
|
Total Closed End Mutual Fund Shares (cost $110,741) |
|
|
|
|
|
196,876 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
16
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
Principal |
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
LOANS 2.3% |
|
|
|
|
|
|
|
|
CONSUMER DISCRETIONARY 0.6% |
|
|
|
|
|
|
|
|
Newsday, LLC, 10.50%, 07/15/2013 |
|
$ |
365,000 |
|
$ |
390,944 |
|
|
Sugarhouse HSP Gaming Properties, LP, FRN, 11.25%, 09/11/2014 |
|
|
95,000 |
|
|
94,225 |
|
|
Universal City Development, Ltd., 7.75%, 10/29/2014 |
|
|
150,000 |
|
|
151,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636,823 |
|
|
|
|
|
|
|
|
|
|
|
CONSUMER STAPLES 0.3% |
|
|
|
|
|
|
|
|
Merisant Co., FRN, 7.50%, 01/08/2014 |
|
|
269,469 |
|
|
259,725 |
|
|
|
|
|
|
|
|
|
|
|
ENERGY 0.4% |
|
|
|
|
|
|
|
|
Saint Acquisition Corp., FRN, 8.25%, 06/05/2014 < |
|
|
204,560 |
|
|
190,267 |
|
|
Semgroup Energy Partners, FRN, 9.50%, 07/20/2012 |
|
|
155,000 |
|
|
155,104 |
|
|
Spansion, Inc., N/A, 01/08/2015 < |
|
|
55,000 |
|
|
55,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,672 |
|
|
|
|
|
|
|
|
|
|
|
FINANCIALS 0.1% |
|
|
|
|
|
|
|
|
Realogy Corp., FRN: |
|
|
|
|
|
|
|
|
3.23%, 09/01/2014 |
|
|
36,559 |
|
|
32,386 |
|
|
3.25%, 09/01/2014 |
|
|
135,790 |
|
|
120,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,675 |
|
|
|
|
|
|
|
|
|
|
|
HEALTH CARE 0.1% |
|
|
|
|
|
|
|
|
HCA, Inc., FRN, 1.75%, 11/18/2012 |
|
|
105,765 |
|
|
99,883 |
|
|
|
|
|
|
|
|
|
|
|
INDUSTRIALS 0.2% |
|
|
|
|
|
|
|
|
Commercial Vehicle Group, Inc., 15.00%, 02/15/2013 |
|
|
182,112 |
|
|
177,364 |
|
|
Neff Corp., FRN, 3.75%, 11/30/2014 |
|
|
150,000 |
|
|
23,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,616 |
|
|
|
|
|
|
|
|
|
|
|
MATERIALS 0.5% |
|
|
|
|
|
|
|
|
LyondellBasell, FRN: |
|
|
|
|
|
|
|
|
1.50%-13.00%, 12/20/2013 |
|
|
15,067 |
|
|
10,477 |
|
|
3.73%, 12/20/2013 |
|
|
2,738 |
|
|
1,903 |
|
|
3.73%, 12/22/2014 |
|
|
3,472 |
|
|
2,415 |
|
|
3.98%, 12/22/2014 |
|
|
3,472 |
|
|
2,415 |
|
|
5.79%-6.56%, 04/06/2010 |
|
|
240,491 |
|
|
252,816 |
|
|
7.00%, 04/06/2010 |
|
|
240,966 |
|
|
250,604 |
|
|
7.00%, 12/22/2014 |
|
|
19,602 |
|
|
13,630 |
|
|
7.00%, 12/22/2014 |
|
|
3,472 |
|
|
2,414 |
|
|
7.00%, 12/22/2014 |
|
|
24,917 |
|
|
17,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553,999 |
|
|
|
|
|
|
|
|
|
|
|
UTILITIES 0.1% |
|
|
|
|
|
|
|
|
Scorpion Holding Co., Ltd., FRN, 7.75%, 05/08/2014 |
|
|
55,000 |
|
|
50,881 |
|
|
|
|
|
|
|
|
|
|
|
Total Loans (cost $2,305,577) |
|
|
|
|
|
2,355,274 |
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
17
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS 10.7% |
|
|
|
|
|
|
|
|
MUTUAL FUND SHARES 10.7% |
|
|
|
|
|
|
|
|
Evergreen Institutional Money Market Fund, Class I, 0.01% q ø ## |
|
|
|
|
|
|
|
|
(cost $11,133,144) |
|
|
11,133,144 |
|
$ |
11,133,144 |
|
|
|
|
|
|
|
|
|
|
|
Total Investments (cost $116,044,229) 117.9% |
|
|
|
|
|
122,322,158 |
|
|
Other Assets and Liabilities (17.9%) |
|
|
|
|
|
(18,533,600 |
) |
|
|
|
|
|
|
|
|
|
|
Net Assets 100.0% |
|
|
|
|
$ |
103,788,558 |
|
|
|
|
|
|
|
|
|
|
|
144A |
Security that may be sold to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees, unless otherwise noted. |
|
†† |
The rate shown is the stated rate at the current period end. |
|
* |
Non-income producing security |
|
+ |
Security is deemed illiquid. |
|
o |
Security is valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees. |
|
< |
All or a portion of the position represents an unfunded loan commitment. |
|
q |
Rate shown is the 7-day annualized yield at period end. |
|
ø |
Evergreen Investment Management Company, LLC is the investment advisor to both the Fund and the money market fund. |
|
## |
All or a portion of this security has been segregated for when-issued, delayed delivery securities and/or unfunded loans. |
|
Summary of Abbreviations | |
|
ADR |
American Depository Receipt |
|
ADS |
American Depository Shares |
|
FRN |
Floating Rate Note |
The following table shows the percent of total long-term investments by geographic location as of February 28, 2010:
|
United States |
|
80.5 |
% |
|
United Kingdom |
|
7.3 |
% |
|
Italy |
|
3.8 |
% |
|
Finland |
|
1.7 |
% |
|
France |
|
1.7 |
% |
|
Sweden |
|
1.3 |
% |
|
Spain |
|
0.9 |
% |
|
Mexico |
|
0.8 |
% |
|
Canada |
|
0.6 |
% |
|
Bermuda |
|
0.5 |
% |
|
Brazil |
|
0.3 |
% |
|
Australia |
|
0.2 |
% |
|
Luxembourg |
|
0.2 |
% |
|
Austria |
|
0.1 |
% |
|
Cayman Islands |
|
0.1 |
% |
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
|
See Notes to Financial Statements
18
SCHEDULE OF INVESTMENTS continued
February 28, 2010 (unaudited)
The following table shows the percent of total bonds by credit quality based on Moody’s and Standard & Poor’s ratings as of February 28, 2010:
|
BBB |
|
18.1 |
% |
|
BB |
|
42.8 |
% |
|
B |
|
33.8 |
% |
|
CCC |
|
1.3 |
% |
|
CC |
|
0.2 |
% |
|
NR |
|
3.8 |
% |
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
|
The following table shows the percent of total bonds based on effective maturity as of February 28, 2010:
|
Less than 1 year |
|
14.9 |
% |
|
1 to 3 year(s) |
|
14.2 |
% |
|
3 to 5 years |
|
28.6 |
% |
|
5 to 10 years |
|
32.8 |
% |
|
10 to 20 years |
|
7.8 |
% |
|
20 to 30 years |
|
1.7 |
% |
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
|
|
|
See Notes to Financial Statements
19
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2010 (unaudited)
|
Assets |
|
|
|
|
|
Investments in unaffiliated issuers, at value (cost $104,911,085) |
|
$ |
111,189,014 |
|
|
Investments in affiliated issuers, at value (cost $11,133,144) |
|
|
11,133,144 |
|
|
|
|
|
|
|
|
Total investments |
|
|
122,322,158 |
|
|
Foreign currency, at value (cost $3,344,604) |
|
|
3,372,831 |
|
|
Receivable for securities sold |
|
|
310,327 |
|
|
Dividends and interest receivable |
|
|
1,672,820 |
|
|
Receivable from investment advisor |
|
|
3,547 |
|
|
Prepaid structuring fee (see Note 4) |
|
|
324,386 |
|
|
|
|
|
|
|
|
Total assets |
|
|
128,006,069 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Dividends payable |
|
|
1,007,074 |
|
|
Payable for securities purchased |
|
|
564,591 |
|
|
Secured borrowing payable |
|
|
22,001,376 |
|
|
Payable to investment advisor (see Note 4) |
|
|
333,333 |
|
|
Due to other related parties |
|
|
516 |
|
|
Accrued expenses and other liabilities |
|
|
310,621 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
24,217,511 |
|
|
|
|
|
|
|
|
Net assets |
|
$ |
103,788,558 |
|
|
|
|
|
|
|
|
Net assets represented by |
|
|
|
|
|
Paid-in capital |
|
$ |
156,314,445 |
|
|
Overdistributed net investment income |
|
|
(5,528,684 |
) |
|
Accumulated net realized losses on investments |
|
|
(53,310,649 |
) |
|
Net unrealized gains on investments |
|
|
6,313,446 |
|
|
|
|
|
|
|
|
Net assets |
|
$ |
103,788,558 |
|
|
|
|
|
|
|
|
Net asset value per share |
|
|
|
|
|
Based on $103,788,558 divided by 9,169,480 common shares issued and outstanding (unlimited number of common shares authorized) |
|
$ |
11.32 |
|
|
|
|
|
|
|
See Notes to Financial Statements
20
STATEMENT OF OPERATIONS
Six Months Ended February 28, 2010 (unaudited)
|
Investment income |
|
|
|
|
|
Interest |
|
$ |
1,713,247 |
|
|
Dividends (net of foreign withholding taxes of $16,007) |
|
|
1,332,886 |
|
|
Income from affiliated issuers |
|
|
2,135 |
|
|
|
|
|
|
|
|
Total investment income |
|
|
3,048,268 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
Advisory fee |
|
|
381,684 |
|
|
Administrative services fee |
|
|
31,807 |
|
|
Transfer agent fees |
|
|
15,963 |
|
|
Trustees’ fees and expenses |
|
|
2,377 |
|
|
Printing and postage expenses |
|
|
33,300 |
|
|
Custodian and accounting fees |
|
|
26,474 |
|
|
Professional fees |
|
|
50,801 |
|
|
Secured borrowing fees |
|
|
746,130 |
|
|
Interest expense |
|
|
30,484 |
|
|
Other |
|
|
4,718 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,323,738 |
|
|
Less: Expense reductions |
|
|
(15 |
) |
|
Fee waivers and expense reimbursements |
|
|
(585,930 |
) |
|
|
|
|
|
|
|
Net expenses |
|
|
737,793 |
|
|
|
|
|
|
|
|
Net investment income |
|
|
2,310,475 |
|
|
|
|
|
|
|
|
Net realized and unrealized gains or losses on investments |
|
|
|
|
|
Net realized gains or losses on: |
|
|
|
|
|
Securities in unaffiliated issuers |
|
|
(1,207,916 |
) |
|
Foreign currency related transactions |
|
|
201,457 |
|
|
Credit default swap transactions |
|
|
(31,268 |
) |
|
|
|
|
|
|
|
Net realized losses on investments |
|
|
(1,037,727 |
) |
|
|
|
|
|
|
|
Net change in unrealized gains or losses on: |
|
|
|
|
|
Securities in unaffiliated issuers |
|
|
4,107,158 |
|
|
Foreign currency related transactions |
|
|
(24,824 |
) |
|
Credit default swap transactions |
|
|
32,234 |
|
|
|
|
|
|
|
|
Net change in unrealized gains or losses on investments |
|
|
4,114,568 |
|
|
|
|
|
|
|
|
Net realized and unrealized gains or losses on investments |
|
|
3,076,841 |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
5,387,316 |
|
|
|
|
|
|
|
See Notes to Financial Statements
21
STATEMENTS OF CHANGES IN NET ASSETS
|
Operations |
|
|
Six Months Ended |
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
2,310,475 |
|
$ |
8,780,431 |
|
|
Net realized losses on investments |
|
|
(1,037,727 |
) |
|
(46,472,788 |
) |
|
Net change in unrealized gains or losses on investments |
|
|
4,114,568 |
|
|
(901,764 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations |
|
|
5,387,316 |
|
|
(38,594,121 |
) |
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders from |
|
|
|
|
|
|
|
|
Net investment income |
|
|
(6,035,112 |
) |
|
(8,968,630 |
) |
|
Tax basis return of capital |
|
|
0 |
|
|
(7,286,854 |
) |
|
|
|
|
|
|
|
|
|
|
Total distributions to shareholders |
|
|
(6,035,112 |
) |
|
(16,255,484 |
) |
|
|
|
|
|
|
|
|
|
|
Capital share transactions |
|
|
|
|
|
|
|
|
Net asset value of shares issued under the Automatic Dividend Reinvestment Plan |
|
|
749,656 |
|
|
2,152,562 |
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets applicable to shareholders |
|
|
101,860 |
|
|
(52,697,043 |
) |
|
Net assets |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
103,686,698 |
|
|
156,383,741 |
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
103,788,558 |
|
$ |
103,686,698 |
|
|
|
|
|
|
|
|
|
|
|
Overdistributed net investment income |
|
$ |
(5,528,684 |
) |
$ |
(1,656,707 |
) |
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
22
STATEMENT OF CASH FLOWS
February 28, 2010 (unaudited)
|
Cash flows from operating activities: |
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
5,387,316 |
|
|
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: |
|
|
|
|
|
Purchase of investment securities |
|
|
(41,428,512 |
) |
|
Proceeds from sales of securities |
|
|
48,636,262 |
|
|
Paydowns |
|
|
125,935 |
|
|
Amortization |
|
|
(198,907 |
) |
|
Swap payments made |
|
|
(31,268 |
) |
|
Purchase of short-term investment securities, net |
|
|
(5,543,959 |
) |
|
Decrease in dividends and interest receivable |
|
|
953,021 |
|
|
Decrease in receivable for securities sold |
|
|
1,434,811 |
|
|
Decrease in premiums paid on credit default swap transactions |
|
|
15,939 |
|
|
Amortization of prepaid structuring fee |
|
|
132,237 |
|
|
Increase in receivable from advisor |
|
|
(2,347 |
) |
|
Decrease in payable for securities purchased |
|
|
(3,245,756 |
) |
|
Decrease in premiums received on credit default swap transactions |
|
|
(4,699 |
) |
|
Increase in due to other related parties payable |
|
|
343 |
|
|
Decrease in accrued expenses and other liabilities |
|
|
(14,741 |
) |
|
Unrealized appreciation on unaffiliated securities |
|
|
(4,107,158 |
) |
|
Unrealized appreciation on credit default swaps transactions |
|
|
(32,234 |
) |
|
Unrealized depreciation on foreign currency related transactions |
|
|
24,824 |
|
|
Net realized loss on credit default swap transactions |
|
|
31,268 |
|
|
Net realized loss on unaffiliated securities |
|
|
1,207,916 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,340,291 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Cash distributions paid on common shares |
|
|
(5,280,397 |
) |
|
Decrease in payable to investment advisor for structuring fee |
|
|
(111,111 |
) |
|
Decrease in secured borrowing |
|
|
(3,593 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(5,395,101 |
) |
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(2,054,810 |
) |
|
|
|
|
|
|
|
Cash (including foreign currency): |
|
|
|
|
|
Beginning of period |
|
$ |
5,427,641 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
3,372,831 |
|
|
|
|
|
|
|
|
Supplemental cash disclosure: |
|
|
|
|
|
Cash paid for interest |
|
$ |
30,484 |
|
|
|
|
|
|
|
See Notes to Financial Statements
23
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION
Evergreen Utilities and High Income Fund (the “Fund”) was organized as a statutory trust under the laws of the state of Delaware on February 4, 2004 and is registered as a non-diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The primary investment objective of the Fund is to seek a high level of current income and moderate capital growth, with an emphasis on providing tax-advantaged dividend income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect amounts reported herein. Actual results could differ from these estimates. Management has considered the circumstances under which the Fund should recognize or make disclosures regarding events or transactions occurring subsequent to the balance sheet date through the date the financial statements are issued. Adjustments or additional disclosures, if any, have been included in these financial statements.
a. Valuation of investments
Listed equity securities are usually valued at the last sales price or official closing price on the national securities exchange where the securities are principally traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Non-listed preferred securities are valued using evaluated prices determined by an independent pricing service which takes into consideration such factors as similar security prices, spreads, liquidity, benchmark quotes and market conditions. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers who use prices provided by market makers or estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Foreign securities traded on an established exchange are valued at the last sales price on the exchange where the security is primarily traded. If there has been no sale, the securities are valued at the mean between bid and asked prices. Foreign securities may be valued at fair value according to procedures approved by the Board of Trustees if the closing price is not reflective of current market values due to trading or events occurring in the foreign markets between the close of the established exchange and the valuation time of the Fund. In addition, substantial changes in values in the U.S. markets subsequent to the close of a foreign market may also affect the values of securities traded in the foreign market. The value of foreign securities may be adjusted if such movements in the U.S. market exceed a specified threshold.
Portfolio debt securities acquired with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into
24
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
consideration such factors as similar security prices, yields, maturities, liquidity and ratings. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers which use prices provided by market makers or estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
In January 2010, the Fund changed its pricing for all evaluated prices for taxable fixed income securities and non-listed preferred stocks from mean to bid prices. The change was the result of the investment advisor’s analysis of which price estimate (mean or bid) provided the better estimate of value. The estimated impact on the Fund’s net asset value (NAV) per share on the day of the change was a decrease of $0.02.
Short-term securities of sufficient credit quality with remaining maturities of 60 days or less at the time of purchase are valued at amortized cost, which approximates fair value.
Investments in open-end mutual funds are valued at net asset value. Securities for which market quotations are not readily available or not reflective of current fair value are valued at fair value as determined by the investment advisor in good faith, according to procedures approved by the Board of Trustees.
The valuation techniques used by the Fund to measure fair value are consistent with the market approach, income approach and/or cost approach, where applicable, for each security type.
b. Reverse repurchase agreements
To obtain short-term financing, the Fund may enter into reverse repurchase agreements with banks and other financial institutions, which are deemed by the investment advisor to be creditworthy. At the time the Fund enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing qualified assets having a value not less than the repurchase price, including accrued interest. If the counterparty to the transaction is rendered insolvent, the Fund may be delayed or limited in the repurchase of the collateral securities.
c. Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for that portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments.
25
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
d. When-issued and delayed delivery transactions
The Fund records when-issued or delayed delivery securities as of trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
e. Loans
The Fund may purchase loans through an agent, by assignment from another holder of the loan or as a participation interest in another holder’s portion of the loan. Loans are purchased on a when-issued or delayed delivery basis. Interest income is accrued based on the terms of the securities. Fees earned on loan purchasing activities are recorded as income when earned. Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
f. Securities lending
The Fund may lend its securities to certain qualified brokers in order to earn additional income. The Fund receives compensation in the form of fees or interest earned on the investment of any cash collateral received. The Fund also continues to receive interest and dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a market value at least equal to the market value of the securities on loan. In the event of default or bankruptcy by the borrower, the Fund could experience delays and costs in recovering the loaned securities or in gaining access to the collateral. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
g. Options
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may write covered put or call options. When a Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options, which expire unexercised, are recognized as realized gains from investments on the expiration date. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
26
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
The Fund may also purchase call or put options. The premium is included in the Statement of Assets and Liabilities as an investment which is subsequently adjusted to the current market value of the option. Premiums paid for purchased options which expire are recognized as realized losses from investments on the expiration date. Premiums paid for purchased options which are exercised or closed are added to the amount paid or offset against the proceeds on the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.
Options traded on an exchange are regulated and terms of the options are standardized. Options traded over the counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.
h. Credit default swaps
The Fund is subject to credit risk in the normal course of pursuing its investment objectives. The Fund may enter into credit default swap contracts for hedging or speculative purposes to provide or receive a measure of protection against default on a referenced entity, obligation or index. Credit default swaps involve an exchange of a stream of payments for protection against the loss in value of an underlying security or index. Under the terms of the swap, one party acts as a guarantor (referred to as the seller of protection) and receives a periodic stream of payments, provided that there is no credit event, from another party (referred to as the buyer of protection) that is a fixed percentage applied to a notional principal amount over the term of the swap. An index credit default swap references all the names in the index, and if a credit event is triggered, the credit event is settled based on that name’s weight in the index. A credit event includes bankruptcy, failure to pay, obligation default, obligation acceleration, repudiation/moratorium, and restructuring. The Fund may enter into credit default swaps as either the seller of protection or the buyer of protection. As the seller of protection, the Fund is subject to investment exposure on the notional amount of the swap and has assumed the risk of default of the underlying security or index. As the buyer of protection, the Fund could be exposed to risks if the seller of the protection defaults on its obligation to perform, or if there are unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index. The maximum potential amount of future payments (undiscounted) that the Fund as the seller of protection could be required to make under the credit default swap contract would be an amount equal to the notional amount of the swap contract. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.
If the Fund is the seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will pay to the buyer of protection the
27
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index. If the Fund is the buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will receive from the seller of protection the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index.
Any premiums paid or received on the transactions are recorded as an asset or liability on the Statement of Assets and Liabilities and amortized. The value of the swap contract is marked-to-market daily based on quotations from an independent pricing service or market makers and any change in value is recorded as an unrealized gain or loss. Periodic payments made or received are recorded as realized gains or losses. In addition, payments received or made as a result of a credit event or termination of the contract are recognized as realized gains or losses.
Certain credit default swap contracts entered into by the Fund provide for conditions that result in events of default or termination that enable the counterparty to the agreement to cause an early termination of the transactions under those agreements. Any election by the counterparty to terminate early may impact the amounts reported on the financial statements.
i. Security transactions and investment income
Security transactions are recorded on trade date. Realized gains and losses are computed using the specific cost of the security sold. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectibility of interest is reasonably assured, the debt obligation is removed from non-accrual status. Dividend income is recorded on the ex-dividend date or in the case of some foreign securities, on the date when the Fund is made aware of the dividend. Foreign income and capital gains realized on some securities may be subject to foreign taxes, which are accrued as applicable.
j. Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income, including any net capital gains (which have already been offset by available capital loss carryovers). Accordingly, no provision for federal taxes is required. The Fund’s income and excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal, Massachusetts and Delaware revenue authorities.
k. Distributions
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in
28
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
conformity with income tax regulations, which may differ from generally accepted accounting principles.
3. ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Evergreen Investment Management Company, LLC (“EIMC”), a subsidiary of Wells Fargo & Company (“Wells Fargo”), is the investment advisor to the Fund and is paid an annual fee of 0.60% of the Fund’s average daily total assets. Total assets consist of the net assets of the Fund plus borrowings or other leverage for investment purposes. For the six months ended February 28, 2010, the advisory fee was equivalent to an annual rate of 0.72% of the Fund’s average daily net assets.
Tattersall Advisory Group, Inc., an affiliate of EIMC and an indirect, wholly-owned subsidiary of Wells Fargo, is an investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund.
Crow Point Partners, LLC is also an investment sub-advisor to the Fund and is paid by EIMC for its services to the Fund.
From time to time, EIMC may voluntarily or contractually waive its fee and/or reimburse expenses in order to limit operating expenses. During the six months ended February 28, 2010, EIMC contractually waived its advisory fee in the amount of $381,684 and contractually reimbursed other expenses in the amount of $204,246.
The Fund may invest in money market funds which are advised by EIMC. Income earned on these investments is included in income from affiliated issuers on the Statement of Operations.
EIMC also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. EIMC is paid an annual administrative fee of 0.05% of the Fund’s average daily total assets. For the six months ended February 28, 2010, the administrative fee was equivalent to an annual rate of 0.06% of the Fund’s average daily net assets.
Wachovia Bank NA, a subsidiary of Wells Fargo and an affiliate of EIMC, through its securities lending division, Wachovia Global Securities Lending, acts as the securities lending agent for the Fund.
The Fund has placed a portion of its portfolio transactions with brokerage firms that are affiliates of Wells Fargo. During the six months ended February 28, 2010, the Fund paid brokerage commissions of $111 to broker-dealers affiliated with Wells Fargo.
4. CAPITAL SHARE TRANSACTIONS
The Fund has authorized an unlimited number of common shares with no par value. For the six months ended February 28, 2010 and the year ended August 31, 2009, the Fund issued 60,249 and 170,961 common shares, respectively.
29
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
All of the Fund’s outstanding Preferred Shares had been redeemed on May 20, 2008 through secured debt financing from a multi-seller commercial paper conduit administered by a major financial institution (the “Facility”). The Facility is available to the Fund until April 30, 2011. The Fund’s borrowings under the Facility are generally charged interest at a rate based on the rates of the commercial paper notes issued by the Facility to fund the Fund’s borrowings or at the London Interbank Offered Rate (LIBOR) plus 9.5%. An effective interest rate of 0.28% was incurred on the borrowings, which was based on the rates of the commercial paper notes issued by the Facility. Interest expense of $30,484, representing 0.06% of the Fund’s average daily net assets, was incurred during the six months ended February 28, 2010. The Fund has pledged its assets to secure borrowings under the Facility. The Fund currently pays, on a monthly basis, a liquidity fee at an annual rate of 2.75% of the total commitment amount and a program fee at an annual rate of 2.75% on the daily average outstanding principal amount of borrowings. A structuring fee of $800,000 was paid by EIMC on behalf of the Fund, which represents 1.00% of the financing available to the Fund under the Facility. This fee is being amortized over three years. During the six months ended February 28, 2010, the Fund recognized amortization expense of $132,237. The Fund will reimburse EIMC over the three year period.
5. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were $38,127,069 and $44,360,582, respectively, for the six months ended February 28, 2010.
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. These inputs are summarized into three broad levels as follows:
Level 1 – quoted prices in active markets for identical securities Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
30
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
As of February 28, 2010, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:
|
Investments in Securities |
|
Quoted Prices |
|
Significant |
|
Significant |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
$ |
64,005,005 |
|
$ |
0 |
|
$ |
0 |
|
$ |
64,005,005 |
|
|
Preferred stocks |
|
|
10,115,100 |
|
|
1,691,504 |
|
|
0 |
|
|
11,806,604 |
|
|
Warrants |
|
|
11,400 |
|
|
0 |
|
|
0 |
|
|
11,400 |
|
|
Closed end mutual fund shares |
|
|
196,876 |
|
|
0 |
|
|
0 |
|
|
196,876 |
|
|
Corporate debt securities |
|
|
0 |
|
|
32,779,741 |
|
|
0 |
|
|
32,779,741 |
|
|
Loans |
|
|
0 |
|
|
1,626,162 |
|
|
729,112 |
|
|
2,355,274 |
|
|
Debt securities issued by U.S. Treasury and U.S. government agencies |
|
|
34,114 |
|
|
0 |
|
|
0 |
|
|
34,114 |
|
|
Short-term investments |
|
|
11,133,144 |
|
|
0 |
|
|
0 |
|
|
11,133,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
85,495,639 |
|
$ |
36,097,407 |
|
$ |
729,112 |
|
$ |
122,322,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Further details on the major security types listed above can be found in the Schedule of Investments.
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
|
Warrants |
|
Loans |
|
Total |
| |||
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 1, 2009 |
|
$ |
45,615 |
|
$ |
0 |
|
$ |
45,615 |
|
|
Realized gains or losses |
|
|
(6,520 |
) |
|
0 |
|
|
(6,520 |
) |
|
Change in unrealized gains or losses |
|
|
21,520 |
|
|
0 |
|
|
21,520 |
|
|
Net purchases (sales) |
|
|
(60,615 |
) |
|
0 |
|
|
(60,615 |
) |
|
Transfers in and/or out of Level 3 |
|
|
0 |
|
|
729,112 |
|
|
729,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of February 28, 2010 |
|
$ |
0 |
|
$ |
729,112 |
|
$ |
729,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses included in earnings relating to securities still held at February 28, 2010 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010, the Fund had unfunded loan commitments of $213,906.
On February 28, 2010, the aggregate cost of securities for federal income tax purposes was $117,220,188. The gross unrealized appreciation and depreciation on securities based on tax cost was $8,446,274 and $3,344,304, respectively, with a net unrealized appreciation of $5,101,970.
As of August 31, 2009, the Fund had $23,532,301 in capital loss carryovers for federal income tax purposes with $701,198 expiring in 2016 and $22,831,103 expiring in 2017.
For income tax purposes, capital losses incurred after October 31 within the Fund’s fiscal year are deemed to arise on the first business day of the following fiscal year. As of August
31
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
31, 2009, the Fund incurred and elected to defer post-October capital losses and currency losses of $27,042,088 and $609,133, respectively.
6. DERIVATIVE TRANSACTIONS
The Fund enters into credit default swap contracts as a substitute for taking a position in the underlying security or basket of securities or to potentially enhance the Fund’s total return. During the six months ended February 28, 2010, the Fund entered into credit default swap contracts for speculative purposes.
As of February 28, 2010, the Fund did not have any open credit default swaps but had an average notional balance of $170,000 during the six months ended February 28, 2010.
Certain of the Fund’s derivative transactions may contain provisions for early termination in the event the net assets of the Fund declines below specific levels identified by the counterparty. If these levels are triggered, the counterparty may terminate the transaction and seek payment or request full collaterization of the derivative transaction in net liability positions.
The fair value, realized gains or losses and change in unrealized gains or losses on derivative instruments are reflected in the appropriate financial statements.
7. EXPENSE REDUCTIONS
Through expense offset arrangements with the Fund’s custodian, a portion of fund expenses has been reduced.
8. DEFERRED TRUSTEES‘ FEES
Each Trustee of the Fund may defer any or all compensation related to performance of his or her duties as a Trustee. The Trustees’ deferred balances are allocated to deferral accounts, which are included in the accrued expenses for the Fund. The investment performance of the deferral accounts is based on the investment performance of certain Evergreen funds. Any gains earned or losses incurred in the deferral accounts are reported in the Fund’s Trustees’ fees and expenses. At the election of the Trustees, the deferral account will be paid either in one lump sum or in quarterly installments for up to ten years.
9. CONCENTRATION OF RISK
The Fund may invest a substantial portion of its assets in an industry and, therefore, may be more affected by changes in that industry than would be a comparable mutual fund that is not heavily weighted in any industry.
32
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
10. REGULATORY MATTERS AND LEGAL PROCEEDINGS
The Evergreen funds, EIMC and certain of EIMC’s affiliates are involved in various legal actions, including private litigation and class action lawsuits, and are and may in the future be subject to regulatory inquiries and investigations.
EIMC and EIS have reached final settlements with the Securities and Exchange Commission (“SEC”) and the Securities Division of the Secretary of the Commonwealth of Massachusetts (“Commonwealth”) primarily relating to the liquidation of Evergreen Ultra Short Opportunities Fund (“Ultra Short Fund”). The claims settled include the following: first, that during the period February 2007 through Ultra Short Fund’s liquidation on June 18, 2008, Ultra Short Fund’s former portfolio management team failed to properly take into account readily-available information in valuing certain non-agency residential mortgage-backed securities held by the Ultra Short Fund, resulting in the Ultra Short Fund’s net asset value (“NAV”) being overstated during the period; second, that EIMC and EIS acted inappropriately when, in an effort to explain the decline in Ultra Short Fund’s NAV, certain information regarding the decline was communicated to some, but not all, shareholders and financial intermediaries; third, that the Ultra Short Fund portfolio management team did not adhere to regulatory requirements for affiliated cross trades in executing trades with other Evergreen funds; and finally, that from at least September 2007 to August 2008, EIS did not preserve certain text and instant messages transmitted via personal digital assistant devices. In settling these matters, EIMC and EIS have agreed to payments totaling $41,125,000, up to $40,125,000 of which will be distributed to eligible shareholders of Ultra Short Fund pursuant to a methodology and plan approved by the regulators. EIMC and EIS neither admitted nor denied the regulators’ conclusions.
Three purported class actions have also been filed in the U.S. District Court for the District of Massachusetts relating to the same events; defendants include various Evergreen entities, including EIMC and EIS, and Evergreen Fixed Income Trust and its Trustees. The cases generally allege that investors in the Ultra Short Fund suffered losses as a result of (i) misleading statements in Ultra Short Fund’s registration statement and prospectus, (ii) the failure to accurately price securities in the Ultra Short Fund at different points in time and (iii) the failure of the Ultra Short Fund’s risk disclosures and description of its investment strategy to inform investors adequately of the actual risks of the fund.
EIMC does not expect that any of the legal actions, inquiries or settlement of regulatory matters will have a material adverse impact on the financial position or operations of the Fund to which these financial statements relate. Any publicity surrounding or resulting from any legal actions or regulatory inquiries involving EIMC or its affiliates or any of the Evergreen Funds could result in reduced sales or increased redemptions of Evergreen fund shares, which could increase Evergreen fund transaction costs or operating expenses or have other adverse consequences on the Evergreen funds, including the Fund.
33
NOTES TO FINANCIAL STATEMENTS (unaudited) continued
11. NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update on “Improving Disclosures about Fair Value Measurements” which will require reporting entities to make new disclosures about the amount and reasons for significant transfers into and out of Level 1 and Level 2 fair value measurements, the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. Except for the detailed Level 3 roll forward disclosures, the disclosures are effective for annual and interim reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements are effective for interim and annual reporting periods beginning after December 15, 2010. Management of the Fund is currently evaluating the implications of this Accounting Standards Update and any impacts on the financial statements.
12. SUBSEQUENT DISTRIBUTIONS
The Fund declared the following distributions to common shareholders:
|
Declaration |
Record |
Payable |
Net Investment |
|
Date |
Date |
Date |
Income |
|
|
|
|
|
|
February 19, 2010 |
March 15, 2010 |
April 1, 2010 |
$0.110 |
|
March 19, 2010 |
April 15, 2010 |
May 3, 2010 |
$0.075 |
|
April 16, 2010 |
May 14, 2010 |
June 1, 2010 |
$0.075 |
|
|
|
|
|
These distributions are not reflected in the accompanying financial statements.
34
ADDITIONAL INFORMATION (unaudited)
On December 12, 2009, the Annual Meeting of shareholders of the Fund was held to consider a number of proposals. The results of the proposals are indicated below.
Proposal 1 — Election of Trustees:
|
|
Net Assets Voted |
Net Assets Voted |
|
|
“For” |
“Withheld” |
|
|
|
|
|
William W. Pettit |
$98,032,330 |
$2,777,746 |
|
David M. Richardson |
98,032,039 |
2,778,037 |
|
Dr. Russell A. Salton, III |
97,891,707 |
2,918,369 |
|
Richard K. Wagoner |
97,892,848 |
2,917,228 |
|
|
|
|
35
ADDITIONAL INFORMATION (unaudited) continued
INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT
Each year, as required by law, the Fund’s Board of Trustees determines whether to approve the continuation of the Fund’s investment advisory agreements. At an in person meeting on September 23-24, 2009, the Trustees, including a majority of the Trustees who are not “interested persons” (as that term is defined in the 1940 Act) of the Fund, Tattersall Advisory Group, Inc. (“TAG”), Crow Point Partners, LLC (“Crow Point”, and, together with TAG, the “Sub-Advisors”), or EIMC (the “independent Trustees”), approved the continuation of the Fund’s investment advisory agreements. (References below to the “Fund” are to Evergreen Utilities and High Income Fund; references to the “funds” are to the Evergreen funds generally.)
At the same time, the Trustees considered the continuation of the investment advisory agreements for all of the Evergreen funds. The description below refers in many cases to the Trustees’ process for considering, and conclusions regarding, all of the funds’ agreements. In all of their deliberations, the Board of Trustees and the independent Trustees were advised by independent counsel to the independent Trustees and counsel to the funds.
The review process. In connection with its review of the funds’ investment advisory agreements, the Board of Trustees requests and evaluates, and EIMC and any sub-advisors are required to furnish, such information as the Trustees consider to be reasonably necessary in the circumstances. Over the course of the year preceding their September 2009 meeting, the Trustees regularly reviewed information regarding the investment performance of all of the funds. As part of their ongoing review of investment performance, the Trustees monitored for changes in performance and for the results of any changes in a fund’s investment process or investment team. The Trustees paid particular attention to funds whose performance since September 2008 (when the Trustees completed their 2008 review of the funds’ investment advisory agreements) indicated short-term or longer-term performance issues and to funds that they had identified during their 2008 review process as having short- or longer-term performance issues.
In spring 2009, a committee of the Board of Trustees (the “Committee”), working with EIMC management, determined generally the types of information the Trustees would review as part of the 2009 review process and set a timeline detailing the information required and the dates for its delivery to the Trustees. The Board engaged the independent data provider Keil Fiduciary Strategies LLC (“Keil”) to provide fund-specific and industry-wide data containing information of a nature and in a format generally prescribed by the Committee, and the Committee worked with Keil and EIMC to develop appropriate groups of peer funds for each fund. The Committee also identified a number of expense, performance, and other areas of review and requested specific information as to those areas of review.
36
ADDITIONAL INFORMATION (unaudited) continued
The Trustees formed small groups to review individual funds in greater detail. They reviewed, with the assistance of an independent industry consultant that they retained, the information that EIMC, the Sub-Advisors, and Keil provided. In addition, the Trustees considered information regarding, among other things, the funds’ brokerage practices, the funds’ use of derivatives, analyst and research support available to the portfolio management teams, risk management practices, and certain fall-out benefits received directly and indirectly by EIMC and its affiliates from the funds. The Trustees requested and received additional information following that review.
In December 2008 Wells Fargo & Company (“Wells Fargo”) acquired Wachovia Corporation (“Wachovia”), EIMC’s parent company. Wells Fargo and EIMC have taken steps to combine the operations of Wells Fargo’s investment management affiliates and EIMC during the past year and have proposed to the Trustees the combination of the mutual fund families managed by them. During the course of the year, and during their review, the Trustees requested and received information about Wells Fargo and its advisory and broker-dealer operations, the status of efforts to combine the Wells Fargo and Evergreen investment management operations, and the effects on the funds and on the services provided by EIMC and its affiliates to the funds. In their deliberations, the Trustees were mindful that it was possible that the proposed combination of the two fund families might be effected during the coming 12-month period.
The Committee met several times by telephone during the 2009 review process to consider the information provided to it. The Committee then met with representatives of EIMC and its affiliates, including Wells Fargo. In addition, during the course of their review, the Trustees discussed the continuation of the funds’ advisory agreements with representatives of EIMC, and in meetings with independent legal counsel in multiple private sessions at which no personnel of EIMC were present. At a meeting of the full Board of Trustees held on September 23-24, 2009, the Committee reported the results of its discussions with EIMC. The full Board met with representatives of EIMC and its affiliates and engaged in further review of the materials provided to it, after which the independent Trustees and the full Board approved the continuation of each of the advisory and sub-advisory agreements.
The Trustees’ determination to approve the continuation of the advisory and sub-advisory agreements was based on a comprehensive evaluation of all of the information provided to them. In considering the continuation of the agreements, the Trustees did not identify any particular information or consideration that was all-important or controlling, and each Trustee attributed different weights to various factors. The Trustees evaluated information provided to them both in terms of the funds generally and with respect to each fund, including the Fund, specifically as they considered appropriate. Although the Trustees considered the continuation of the agreements for each of the funds as part of the larger process of considering the continuation of the advisory contracts for all of the funds,
37
ADDITIONAL INFORMATION (unaudited) continued
their determination to continue the advisory agreements for each of the funds was ultimately made on a fund-by-fund basis.
This summary describes a number of the most important, but not necessarily all, of the factors considered by the Board and the independent Trustees.
Information reviewed. The Board of Trustees and committees of the Board of Trustees met periodically during the course of the year. EIMC presented a wide variety of information at those meetings regarding the services it provides for the funds, the investment performance of the funds, and other aspects of the business and operations of the funds. At those meetings, and in the process of considering the continuation of the agreements, the Trustees considered information regarding, for example, the funds’ investment results; the portfolio management teams for the funds and the experience of the members of the teams, and any recent changes in the membership of the teams; portfolio trading practices; compliance by the funds, EIMC, and the Sub-Advisors with applicable laws and regulations and with the funds’ and EIMC’s compliance policies and procedures; risk evaluation and oversight procedures at EIMC; services provided by affiliates of EIMC to the funds and shareholders of the funds; and other information relating to the nature, extent, and quality of services provided by EIMC and the Sub-Advisors. The Trustees considered a number of changes in portfolio management personnel at EIMC and its advisory affiliates in the year since September 2008. The Trustees also considered changes in personnel at the funds and EIMC, including the appointment of a new President of the funds, who also serves as President and Chief Operating Officer of EIMC, and a new Chief Investment Officer of EIMC in August of 2008.
The Trustees considered the rates at which the funds pay investment advisory fees, and the efforts generally by EIMC and its affiliates as sponsors of the funds. The data provided by Keil showed the management fees paid by each fund in comparison to the management fees of other peer mutual funds, in addition to data regarding the investment performance of the funds in comparison to other peer mutual funds. The Trustees were assisted by an independent industry consultant in reviewing the information presented to them.
The Trustees noted that, in certain cases, EIMC and/or its affiliates provide advisory services to other clients that are comparable to the advisory services they provide to certain funds. The Trustees considered the information EIMC provided regarding the rates at which those other clients pay advisory fees to EIMC. Fees charged to those other clients were generally lower than those charged to the respective funds. In respect of these other accounts, EIMC noted that the compliance, reporting, and other legal burdens of providing investment advice to mutual funds generally exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans.
The Trustees considered the transfer agency fees paid by the funds to an affiliate of EIMC. They reviewed information presented to them showing that the transfer agency fees charged to the funds were generally consistent with industry norms.
38
ADDITIONAL INFORMATION (unaudited) continued
The Trustees also considered that EIMC serves as administrator to the funds and receives a fee for its services as administrator. In their comparison of fees paid by the funds with those paid by other mutual funds, the Trustees considered administrative fees paid by the funds and those other mutual funds. They considered that EIS, an affiliate of EIMC, would serve as distributor to the funds until January 3, 2010, and that Wells Fargo Funds Distributor, LLC, also an affiliate of EIMC, would serve as distributor to the funds beginning on January 4, 2010, and noted that the distributor receives fees from the funds for those services. The Trustees also considered other so-called “fall-out” benefits to EIMC and its affiliates due to their other relationships with the funds, including, for example, soft-dollar services received by EIMC attributable to transactions entered into by EIMC on behalf of the funds and brokerage commissions received by Wells Fargo Advisors, LLC (“Wells Fargo Advisors”) (formerly Wachovia Securities, LLC), an affiliate of EIMC, from transactions effected by it for the funds. The Trustees noted that the funds (other than the closed-end funds) pay sub-transfer agency fees to various financial institutions that hold fund shares in omnibus accounts, that Wells Fargo Advisors and its affiliates receive such payments from the funds in respect of client accounts they hold in omnibus arrangements, and that an affiliate of EIMC receives fees for administering the sub-transfer agency payment program. In reviewing the services provided by an affiliate of EIMC, the Trustees noted that the affiliate of EIMC that provides transfer agency services to the funds had won recognition from Dalbar customer service each year since 1998, and also won recognition from National Quality Review for customer service and for accuracy in processing transactions in 2008. They also considered that Wells Fargo Advisors and its affiliates receive distribution-related fees and shareholder servicing payments (including amounts derived from payments under the funds’ Rule 12b-1 plans) in respect of shares sold or held through them and that an affiliate of EIMC receives compensation for serving as a securities lending agent for a number of the funds.
The Trustees considered regulatory actions taken against EIMC or its affiliates in the past year, and on-going reviews of the operations of EIMC and its affiliates as they might affect the funds. They considered the findings of the regulators, the cooperation of EIMC and its affiliates with those regulators and with the Trustees in respect of those actions and reviews, and the remedial steps EIMC and its affiliates have taken in response. They also considered the scope and nature of on-going reviews being conducted by EIMC and its affiliates, and communications to the Trustees relating to those reviews.
Nature and quality of the services provided. The Trustees considered that EIMC and its affiliates generally provide a comprehensive investment management service to the funds. They noted that EIMC and the Sub-Advisors formulate and implement an investment program for the Fund. They noted that EIMC makes its personnel available to serve as officers of the funds, and concluded that the reporting and management functions provided by EIMC with respect to the funds were generally satisfactory. The Trustees considered the investment philosophy of the Fund’s portfolio management team and the
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ADDITIONAL INFORMATION (unaudited) continued
in-house research capabilities of EIMC and its affiliates, as well as other resources available to EIMC, including research services available to it from third parties.
The Trustees considered the managerial and financial resources available to EIMC and its affiliates and the commitment that the Evergreen/Wells Fargo organization has made to the funds generally. They considered assurances from representatives of Wells Fargo that the merger of Wells Fargo and Wachovia and the integration of those firms’ advisory and broker-dealer operations was not expected to result in any adverse effect on the funds, on the quality and level of services that EIMC provides to the funds, or on the resources available to the funds and to EIMC, and that Wells Fargo is committed to continue providing the funds with high-quality services.
The Trustees noted the resources EIMC and its affiliates have committed to the regulatory, compliance, accounting, tax and oversight of tax reporting, and shareholder servicing functions, and the number and quality of staff committed to those functions, which they concluded were appropriate and generally in line with EIMC’s responsibilities to the Fund and to the funds generally. The Board and the independent Trustees concluded, within the context of their overall conclusions regarding the funds’ advisory agreements, that they were generally satisfied with the nature, extent, and quality of the services provided by the Sub-Advisors and EIMC, including services provided by EIMC under its administrative services agreements with the funds. They determined that the nature and scope of the services provided by EIMC and the Sub-Advisors were consistent with EIMC’s and the Sub-Advisors’ respective duties under the investment advisory agreements and appropriate and consistent with the investment programs and best interests of the funds.
Investment performance. The Trustees considered the investment performance of each fund, both by comparison to other comparable mutual funds and to broad market indices. The Trustees noted that one of the Fund’s portfolio managers, Mr. Timothy O’ Brien, who left EIMC to form Crow Point in 2006, formerly acted as the Fund’s portfolio manager in his capacity as an employee of EIMC. The Trustees considered the Fund’s performance since the appointment of Crow Point as sub-advisor to the Fund and for the period when Mr. O’Brien managed the Fund in his capacity as an employee of EIMC. The Trustees noted that, for the one- and three-year periods ended December 31, 2008, the total return performance of the Fund (measured at net asset value) was below that of the broad-based securities index against which the Trustees compared the Fund’s performance, and in the third quintile of the non-Evergreen funds against which the Trustees compared the Fund’s performance.
The Trustees discussed each fund’s performance with representatives of EIMC. In each instance where a fund experienced a substantial period of underperformance relative to its benchmark index and/or the non-Evergreen fund peers against which the Trustees compared the fund’s performance, the Trustees considered EIMC’s explanation of the reasons for the relative underperformance and the steps being taken to address the relative
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ADDITIONAL INFORMATION (unaudited) continued
underperformance. The Trustees emphasized that the continuation of the investment advisory agreement for a fund should not be taken as any indication that the Trustees did not believe investment performance for any specific fund might not be improved, and they noted that they would continue to monitor closely the investment performance of the funds going forward.
Advisory and administrative fees. The Trustees recognized that EIMC does not seek to provide the lowest cost investment advisory service, but to provide a high quality, full-service investment management product at a reasonable price. They also noted that EIMC has in many cases sought to set its investment advisory fees at levels consistent with industry norms. The Trustees noted that, in certain cases, a fund’s management fees were higher than many or most other mutual funds in the same Keil peer group. However, in each case, the Trustees determined on the basis of the information presented that the level of management fees was not excessive. The Trustees also noted that the management fee paid by the Fund was lower than the management fees paid by the non-Evergreen funds against which the Trustees compared the Fund’s management fee, and that the level of profitability realized by EIMC in respect of the fee did not appear excessive.
Economies of scale. The Trustees considered that, in light of the fact that the Fund was not making a continuous offering of its shares, the likelihood of economies of scale following the Fund’s initial offering was relatively low, although they determined to continue to monitor the Fund’s expense ratio and the profitability of the investment advisory agreements to EIMC in light of future growth of the Fund.
Profitability. The Trustees considered information provided to them regarding the profitability to the EIMC organization of the investment advisory, administration, and transfer agency (with respect to the open-end funds only) fees paid to EIMC and its affiliates by each of the funds. They considered that the information provided to them was necessarily estimated, and that the profitability information provided to them, especially on a fund-by-fund basis, did not necessarily provide a definitive tool for evaluating the appropriateness of each fund’s advisory fee. They noted that the levels of profitability of the funds to EIMC varied widely, depending on, among other things, the size and type of fund. They considered the profitability of the funds in light of such factors as, for example, the information they had received regarding the relation of the fees paid by the funds to those paid by other mutual funds, the investment performance of the funds, and the amount of revenues involved. In light of these factors, the Trustees concluded that the profitability to EIMC of the services provided to any of the funds, individually or in the aggregate, should not prevent the Trustees from approving the continuation of the agreements.
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AUTOMATIC DIVIDEND REINVESTMENT PLAN (unaudited)
All common shareholders are eligible to participate in the Automatic Dividend Reinvestment Plan (“the Plan”). Pursuant to the Plan, unless a common shareholder is ineligible or elects otherwise, all cash dividends and capital gains distributions are automatically reinvested by Computershare Trust Company, N.A., as agent for shareholders in administering the Plan (“Plan Agent”), in additional common shares of the Fund. Whenever the Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as “dividends”) payable either in shares or in cash, nonparticipating the Plan will receive cash, and participants in the Plan will receive the equivalent in shares of common shares. The shares are acquired by the Plan Agent for the participant’s account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund (“newly issued common shares”) or (ii) by purchase of outstanding common shares on the open market (open-market purchases) on the NYSE Amex or elsewhere. If, on the payment date for any dividend or distribution, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (“market premium”), the Plan Agent will invest the amount of such dividend or distribution in newly issued shares on behalf of the participant. The number of newly issued common shares to be credited to the participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value or market premium (“market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. 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. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 43010, Providence, Rhode Island 02940-3010 or by calling 1-800-730-6001.
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TRUSTEES AND OFFICERS
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TRUSTEES1 |
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K. Dun Gifford |
Chairman and President, Oldways Preservation and Exchange Trust (education); Trustee, Member of the Executive Committee, Former Chairman of the Finance Committee, and Former Treasurer, Cambridge College |
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Dr. Leroy Keith, Jr. |
Chairman, Bloc Global Services (development and construction); Former Managing Director, Almanac Capital Management (commodities firm); Trustee, Phoenix Fund Complex; Director, Diversapack Co. (packaging company); Former Partner, Stonington Partners, Inc. (private equity fund); Former Director, Obagi Medical Products Co. |
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Carol A. Kosel |
Former Consultant to the Evergreen Boards of Trustees; Former Vice President and Senior Vice President, Evergreen Investments, Inc.; Former Treasurer, Evergreen Funds; Former Treasurer, Vestaur Securities Fund |
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Gerald M. McDonnell |
Consultant, Rock Hill Metals Consultants LLC (Metals Consultant to steel industry); Former Manager of Commercial Operations, CMC Steel (steel producer) |
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Patricia B. Norris |
President and Director of Buckleys of Kezar Lake, Inc. (real estate company); Former President and Director of Phillips Pond Homes Association (home community); Former Partner, PricewaterhouseCoopers, LLP (independent registered public accounting firm) |
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William Walt Pettit2 |
Director, Rogers, Townsend & Thomas, PC (law firm); Director, Superior Packaging Corp. (packaging company); Member, Superior Land, LLC (real estate holding company), Member, K&P Development, LLC (real estate development); Former Vice President, Kellam & Pettit, P.A. (law firm); Former Director, National Kidney Foundation of North Carolina, Inc. (non-profit organization) |
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David M. Richardson |
President, Richardson, Runden LLC (executive recruitment advisory services); Director, J&M Cumming Paper Co. (paper merchandising); Former Trustee, NDI Technologies, LLP (communications); Former Consultant, AESC (The Association of Executive Search Consultants) |
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Russell A. Salton III, MD |
President/CEO, AccessOne MedCard, Inc. |
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Michael S. Scofield |
Retired Attorney, Law Offices of Michael S. Scofield; Former Director and Chairman, Branded Media Corporation (multi-media branding company) |
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Richard J. Shima |
Independent Consultant; Director, Hartford Hospital; Trustee, Greater Hartford YMCA; Former Director,Trust Company of CT; Former Trustee, Saint Joseph College (CT) |
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Richard K. Wagoner, CFA3 |
Member and Former President, North Carolina Securities Traders Association; Member, Financial Analysts Society |
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OFFICERS |
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W. Douglas Munn4 |
Principal occupations: President and Chief Executive Officer, Evergreen Investment Company, Inc.; Chief Operating Officer, Wells Fargo Funds Management, LLC; Former Chief Operating Officer, Evergreen Investment Company, Inc. |
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Kasey Phillips4 |
Principal occupations: Senior Vice President, Evergreen Investment Management Company, LLC; Treasurer, Wells Fargo Advantage Funds; Former Vice President, Evergreen Investment Services, Inc. |
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Michael H. Koonce4 |
Principal occupations: Managing Counsel, Wells Fargo & Company; Secretary and Senior Vice President, Alternative Strategies Brokerage Services, Inc.; Evergreen Investment Services, Inc.; Secretary and Senior Vice President, Evergreen Investment Management Company, LLC and Evergreen Service Company, LLC |
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Robert Guerin4 |
Principal occupations: Chief Compliance Officer, Evergreen Funds and Senior Vice President of Evergreen Investment Company, Inc.; Compliance Manager, Wells Fargo Funds Management Group; Former Managing Director and Senior Compliance Officer, Babson Capital Management LLC; Former Principal and Director, Compliance and Risk Management, State Street Global Advisors; Former Vice President and Manager, Sales Practice Compliance, Deutsche Asset Management |
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1 |
The Board of Trustees is classified into three classes of which one class is elected annually. Each Trustee serves a three-year term concurrent with the class from which the Trustee is elected. Each Trustee oversaw 74 Evergreen funds as of December 31, 2009. Correspondence for each Trustee may be sent to Evergreen Board of Trustees, P.O. Box 20083, Charlotte, NC 28202. |
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2 |
It is possible that Mr. Pettit may be viewed as an “interested person” of the Evergreen funds, as defined in the 1940 Act, because of his law firm’s previous representation of affiliates of Wells Fargo & Company (“Wells Fargo”), the parent to the Evergreen funds’ investment advisor, EIMC. The Trustees are treating Mr. Pettit as an interested trustee for the time being. |
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3 |
Mr. Wagoner is an “interested person” of the Evergreen funds because of his ownership of shares in Wells Fargo & Company, the parent to the Evergreen funds’ investment advisor. |
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4 |
The address of the Officer is 200 Berkeley Street, Boston, MA 02116. |
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121284 579711 rv6 04/2010
Item 2 - Code of Ethics
Not required for this filing.
Item 3 - Audit Committee Financial Expert
Not applicable at this time.
Items 4 – Principal Accountant Fees and Services
Not required for this filing.
Items 5 – Audit Committee of Listed Registrants
Not required for this filing.
Item 6 – Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not required for this filing.
Item 8 – Portfolio Managers of Closed-End Management Investment Companies.
Not required for this filing.
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
If applicable/not applicable at this time.
Item 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees that have been implemented since the Registrant last provided disclosure in response to the requirements of this Item.
Item 11 - Controls and Procedures
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(a) |
The Registrant’s principal executive officer and principal financial officer have evaluated the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) within 90 days of this filing and have concluded that the Registrant’s disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. |
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(b) |
There has been no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to affect, the Registrant’s internal control over financial reporting. |
Item 12 - Exhibits
File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated.
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(a) |
Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. |
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Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX99.CERT. |
(b)(2) |
Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 1350 of Title 18 of United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached as EX99.906CERT. The certifications furnished pursuant to this paragraph are not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference. |
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.
Evergreen Utilities and High Income Fund
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By: |
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W. Douglas Munn |
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Principal Executive Officer |
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Date: April 27, 2010 |
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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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W. Douglas Munn |
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Principal Executive Officer |
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Date: April 27, 2010 |
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By: |
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Kasey Phillips |
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Principal Financial Officer |
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Date: April 27, 2010 |
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