The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Distribution of investments by country of domicile (excluding short-term
investments) as a percentage of total investments in securities, is as follows:
The accompanying notes are an integral part of these financial statements.
Principal amounts are denominated in U.S. dollars ("USD")
unless otherwise noted.
Purchases and sales of securities (excluding short-term investments)
for the year ended March 31, 2022, aggregated $150,050,369 and $152,699,624, respectively.
The Fund is permitted to engage in purchase and sale transactions
(“cross trades”) with certain funds and accounts for which Amundi Asset Management US, Inc. (the “Adviser”) serves
as the Fund’s investment adviser, as set forth in Rule 17a-7 under the Investment Company Act of 1940, pursuant to procedures adopted
by the Board of Directors. Under these procedures, cross trades are effected at current market prices. During the year ended March 31,
2022, the Fund did not engage in any cross trade activity.
At March 31, 2022, the net unrealized appreciation on investments
based on cost for federal tax purposes of $371,250,460 was as follows:
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels below.
The accompanying notes are an integral part of these financial statements.
The following is a summary of the inputs used as of March 31, 2022,
in valuing the Fund's investments:
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities
of Pioneer High Income Fund, Inc. (the “Fund”) (formerly known as Pioneer High Income Trust), including the schedule of investments,
as of March 31, 2022, and the related statements of operations and cash flows for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of Pioneer High Income Fund, Inc. at March 31, 2022, the results of its operations
and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its
financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s
management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an
audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s
internal control over financial reporting. Accordingly, we express no such opinion.
Pioneer High Income Fund, Inc. | Annual
Report | 3/31/22 65
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of March 31, 2022, by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more investment companies
in the Pioneer family of funds since 2017.
Boston, Massachusetts
May 26, 2022
66 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
Additional Information (unaudited)
Notice is hereby given in accordance with Section 23(c) of the
Investment Company Act of 1940 that the Fund may purchase, from time to time, its shares in the open market.
The percentages of the Fund’s ordinary income distributions
that are exempt from nonresident alien (NRA) tax withholding resulting from qualified interest income was 70.10%.
Pioneer High Income Fund, Inc. | Annual
Report | 3/31/22 67
Updated Disclosures for the Fund
(unaudited)
The following includes information that is incorporated by reference
in the Fund’s Registration Statement and is also a summary of certain changes during the most recent fiscal year ended March 31,
2022. This information may not reflect all of the changes that have occurred since you purchased shares of the Fund.
Summary of Fund Expenses
The purpose of the following table and example is to help you understand
all fees and expenses holders of Common Shares would bear directly or indirectly. The table below is based on the capital structure of
the Fund as of March 31, 2022 (except as noted below).
| |
|
| Shareholder Transaction Expenses |
|
| Sales Load (percentage of offering price) |
None(1) |
| Offering Expenses Borne by the Fund (percentage of offering price) |
—(2) |
| Dividend Reinvestment Plan Per Transaction Fee to Sell Shares Obtained |
|
| Pursuant to the Plan |
None(3) |
| Total Transaction Expenses (as a percentage of offering price)(4) |
|
| |
Percentage |
| |
of Net |
| |
Assets |
| |
Attributable |
| |
to Common |
| |
Shares |
| |
(Assumes |
| |
Leverage |
| |
is Used) |
| Annual Fund Operating Expenses |
|
| Management Fee(5) |
0.87% |
| Interest Payment on Borrowed Funds(6) |
0.43% |
| Other Expenses(7) |
0.31% |
| Total Annual Fund Operating Expenses |
1.61% |
| (1) | | The sales load will apply only if the securities are sold to or through underwriters. In
such case, a corresponding Prospectus Supplement will disclose the applicable sales load. |
| (2) | | The related Prospectus Supplement will disclose the estimated amount of offering expenses,
the offering price and the offering expenses borne by the Fund as a percentage of the offering price. |
| (3) | | Common Shareholders will pay brokerage charges if they direct the Plan Agent (defined in
the Prospectus) to sell Common Shares held in a dividend reinvestment account. See Note K - Automatic Dividend Reinvestment Plan. There
are no fees charged to shareholders for participating in the Fund’s dividend reinvestment plan. |
| (4) | | The related Prospectus Supplement will disclose the offering price and the total shareholder
transaction expenses as a percentage of the offering price. |
| (5) | | The Adviser receives an annual fee, payable monthly, in an amount equal to 0.60% of the Fund’s
average daily Managed Assets. “Managed Assets” means net assets plus the amount of any Borrowings and assets attributable
to any Preferred Shares that may be outstanding. For the purposes of this table, we have assumed that the Fund has utilized leverage
in an aggregate amount of 30.8% of its Managed Assets (the actual average amount of Borrowings during the fiscal year ended March 31,
2022). If the Fund were to use leverage in excess of 30.8% of its Managed Assets, the management fees shown would be higher. |
| (6) | | For the purposes of this table, we have assumed that the Fund has utilized Borrowings in
an aggregate amount of 30.8% of its Managed Assets (which equals the average level of leverage for the Fund’s fiscal year ended
March 31, 2022). The expenses and rates associated with leverage may vary as and when Borrowings or issuances of Preferred Shares are
made. |
| (7) | | Estimated based on amounts incurred in the fiscal year ended March 31, 2022. |
68 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
Example1
The following example illustrates the hypothetical expenses that
you would pay on a $1,000 investment in Common Shares, assuming (i) “Total Annual Fund Operating Expenses” of 1.61% of net
assets attributable to Common Shares (which assumes the Fund’s use of leverage in an aggregate amount equal to 30.8% of the Fund’s
Managed Assets) and (ii) a 5% annual return:
| |
|
|
|
| 1 Year |
3 Years |
5 Years |
10 Years |
| $16 |
$51 |
$88 |
$191 |
1 The example above should not be considered a representation
of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that all dividends and distributions
are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of
return may be greater or less than the hypothetical 5% return shown in the example.
Market and Net Asset Value (NAV) Information
The Fund’s Common Shares are listed on the NYSE under the
symbol “PHT.” The Fund’s Common Shares commenced trading on the NYSE on April 26, 2002.
The Fund’s Common Shares have traded both at a premium and
at a discount in relation to the Fund’s net asset value per share. Although the Fund’s Common Shares have traded at a premium
to net asset value, it has recently been the case that the Fund’s Common Shares have traded at a discount to net asset value. The
Fund cannot predict whether its Common Shares will trade in the future at a premium or discount to net asset value, or the level of any
premium or discount. See “Market price of Common Shares risk” on page 75.
Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
69
The following table sets forth, for each of the periods indicated,
the range of high and low closing sale price of the Fund’s Common Shares and the quarter-end sale price, each as reported on the
NYSE, the net asset value per share of Common Shares and the premium or discount to net asset value per share at which the Fund’s
shares were trading. Net asset value is generally determined on each business day that the NYSE is open for business.
| |
|
|
|
|
|
| |
Quarterly Closing |
|
|
|
| |
Sale Price |
|
Quarter-End Closing |
| |
|
|
|
|
Premium/ |
| |
|
|
|
|
(Discount) |
| |
|
|
|
|
of Quarter- |
| |
|
|
|
Net Asset |
End Sale |
| |
|
|
|
Value Per |
Price to |
| |
|
|
Sale |
Common |
Net Asset |
| Fiscal Quarter Ended |
High |
Low |
Price |
Share(1) |
Value(2) |
| June 30, 2019 |
$10.09 |
$9.81 |
$9.00 |
$10.05 |
(10.45)% |
| September 30, 2019 |
10.07 |
9.82 |
9.22 |
9.98 |
(7.71)% |
| December 31, 2019 |
10.20 |
9.91 |
9.54 |
10.15 |
(6.01)% |
| March 31, 2020 |
10.35 |
7.04 |
6.42 |
7.28 |
(11.81)% |
| June 30, 2020 |
8.73 |
7.00 |
7.44 |
8.36 |
(11.00)% |
| September 30, 2020 |
8.92 |
8.39 |
7.96 |
8.71 |
(8.61)% |
| December 31, 2020 |
9.40 |
8.64 |
8.92 |
9.40 |
(5.11)% |
| March 31, 2021 |
9.64 |
9.39 |
9.37 |
9.57 |
(2.09)% |
| June 30, 2021 |
10.10 |
9.32 |
9.71 |
9.76 |
(0.51)% |
| September 30, 2021 |
11.15 |
9.65 |
9.76 |
9.64 |
1.24% |
| December 31, 2021 |
10.44 |
9.05 |
9.70 |
9.52 |
1.89% |
| March 31, 2022 |
9.70 |
7.12 |
8.12 |
8.93 |
(9.07)% |
Source of market prices: Bloomberg.
| (1) | | Net asset value per share is determined as of close of business on the last day of the relevant
quarter and therefore may not reflect the net asset value per share on the date of the high and low closing sales prices, which may or
may not fall on the last day of the quarter. |
| (2) | | Calculated as of the quarter-end closing sales price divided by the quarter-end net asset
value. |
The NAV per Common Share on May 12, 2022 was $8.18 and the market
price of the Fund’s Common Shares on the NYSE at the close of business on May 12, 2022 was $7.15, representing a discount of
12.59% to such net asset value. As of May 12, 2022, the Fund has 29,341,635 outstanding Common Shares.
70 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
Senior Securities
The table below sets forth the senior securities outstanding as
of the end of the Fund’s five (5) fiscal years indicated below. Please refer to the Fund's Financial Highlights for the most recent
five years of senior securities outstanding.
| |
|
|
|
|
|
| |
|
Total |
|
Liquidation |
Average |
| |
|
Amount |
Asset |
Preference |
Market |
| |
|
Outstanding |
Coverage |
Per |
Value |
| |
|
(in |
Per $1,000 |
Preferred |
Per |
| Fiscal Year Ended |
Type of Senior Security |
thousands) |
indebtedness |
Share(4) |
Unit(2) |
| March 31, 2013 |
AMPS(1) |
$151,000(2) |
$91,971 |
$25,000 |
$25,000 |
| March 31, 2014 |
Revolving Credit Facility |
$151,000(3) |
$3,419 |
N/A |
N/A |
| March 31, 2015 |
Revolving Credit Facility |
$151,000(3) |
$3,280 |
N/A |
N/A |
| March 31, 2016 |
Revolving Credit Facility |
$125,000(3) |
$3,175 |
N/A |
N/A |
| March 31, 2017 |
Revolving Credit Facility |
$125,000(3) |
$3,502 |
N/A |
N/A |
| (1) | | Prior to March 18, 2014, the Fund issued auction market preferred shares (“AMPS”).
The AMPS were not listed on any exchange or automated quotation system. The AMPS were considered debt of the issuer; and the liquidation
preference of the AMPS approximated fair value. |
| (2) | | Calculated by subtracting the Fund’s total liabilities (not including AMPS) from the
Fund’s total assets and dividing this by the number of AMPS outstanding, and by multiplying the result by the number of AMPS outstanding. |
| (3) | | Calculated by subtracting the Fund’s total liabilities (not including borrowing outstanding
under the revolving credit facility) from the Fund’s total assets and dividing this by the borrowing outstanding under the revolving
credit facility, and by multiplying the result by 1,000. |
| (4) | | “Liquidating Preference per Preferred Share” means the amount to which a holder
of preferred shares would be entitled upon the liquidation of the Fund in preference to common shareholders, expressed as a dollar amount
per preferred share. |
Unresolved Securities and Exchange Commission Staff Comments
The Fund believes that there are no material unresolved written
comments, received 180 days or more before March 31, 2022 from the Staff of the Securities and Exchange Commission regarding any of the
Fund’s periodic or current reports under the Securities Exchange Act of 1934 or the Investment Company Act of 1940, or the Fund’s
registration statement.
Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
71
Financial Highlights for the fiscal years ended March 31, 2013
–March 31, 2017
For a common share of capital stock outstanding throughout each
year ended March 31:
72 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
Financial Highlights (unaudited)
| |
Year |
Year |
Year |
Year |
Year |
| |
Ended |
Ended |
Ended |
Ended |
Ended |
| |
3/31/17 |
3/31/16 |
3/31/15 |
3/31/14 |
3/31/13 |
| Per Share Operating Performance |
|
|
|
|
|
| Net asset value, beginning of period |
$ 9.34 |
$ 11.89 |
$ 14.19 |
$ 14.23 |
$ 13.45 |
| Increase (decrease) from investment operations: (a) |
|
|
|
|
|
| Net investment income |
$ 0.95 |
$ 1.19 |
$ 1.36 |
$ 1.50 |
$ 1.74 |
| Net realized and unrealized gain (loss) on investments, swap contracts, and foreign |
|
|
|
|
|
| currency transactions |
1.38 |
(2.40) |
(2.05) |
0.12 |
0.70 |
| Distributions to preferred shareowners from: |
|
|
|
|
|
| Net investment income |
— |
— |
— |
(0.01) |
(0.01) |
| Net increase (decrease) from investment operations |
$ 2.33 |
$ (1.21) |
$ (0.69) |
$ 1.61 |
$ 2.43 |
| Distributions to common shareowners from: |
|
|
|
|
|
| Net investment income and previously undistributed net investment income |
$ (0.97)* |
$ (1.34)* |
$ (1.61)* |
$ (1.65)* |
$ (1.65) |
| Net increase (decrease) in net asset value |
$ 1.36 |
$ (2.55) |
$ (2.30) |
$ (0.04) |
$ 0.78 |
| Net asset value, end of period (b) |
$ 10.70 |
$ 9.34 |
$ 11.89 |
$ 14.19 |
$ 14.23 |
| Market value, end of period (b) |
$ 9.87 |
$ 10.04 |
$ 12.87 |
$ 17.83 |
$ 16.97 |
| Total return at net asset value |
26.13% |
(10.54)% |
(7.38)% |
10.32% |
17.00% |
| Total return at market value (c) |
8.23% |
(11.37)% |
(20.28)% |
16.24% |
12.65% |
| Ratios to average net assets of common shareowners: |
|
|
|
|
|
| Total expenses plus interest expense (d)(e) |
2.10% |
1.67% |
1.33% |
1.04% |
1.08% |
| Net investment income before preferred share distributions |
9.36% |
11.23% |
10.30% |
10.70% |
13.03% |
| Preferred share distributions |
— |
— |
— |
0.04% |
0.06% |
| Net investment income available to common shareowners |
9.36% |
11.23% |
10.30% |
10.66% |
12.97% |
| Portfolio turnover |
48% |
24% |
37% |
30% |
27% |
| Net assets of common shareowners, end of period (in thousands) |
$312,757 |
$271,900 |
$344,349 |
$406,884 |
$404,498 |
Pioneer High Income Fund, Inc. | Annual Report | 3/31/22 73
Financial Highlights (unaudited)
(continued)
| |
Year |
Year |
Year |
Year |
Year |
| |
Ended |
Ended |
Ended |
Ended |
Ended |
| |
3/31/17 |
3/31/16 |
3/31/15 |
3/31/14 |
3/31/13 |
| Preferred shares outstanding (in thousands) |
— |
— |
— |
—(f) |
$151,000 |
| Asset coverage per preferred share, end of period |
— |
— |
— |
—(f) |
$ 91,971 |
| Average market value per preferred share (g) |
— |
— |
— |
—(f) |
$ 25,000 |
| Liquidation value, including dividends payable, per preferred share |
— |
— |
— |
—(f) |
$ 25,001 |
| Total amount of debt outstanding (in thousands) |
$125,000 |
$125,000 |
$151,000 |
$151,000 |
|
| Asset coverage per indebtedness (in thousands) |
$ 3,502 |
$ 3,175 |
$ 3,280 |
$ 3,419 |
|
| * | | The amount of distributions made to shareowners during the period were in excess of the net
investment income earned by the Fund during the period. The Fund has accumulated undistributed net investment income which is part of
the Fund’s NAV. A portion of the accumulated net investment income was distributed to shareowners during the period. A decrease
in distributions may have a negative effect on the market value of the Fund’s shares. |
| (a) | | The per common share data presented above is based upon the average common shares outstanding
for the periods presented. |
| (b) | | Net asset value and market value are published in Barron’s on Saturday, The Wall Street
Journal on Monday and The New York Times on Monday and Saturday. |
| (c) | | Total investment return is calculated assuming a purchase of common shares at the current
market value on the first day and a sale at the current market value on the last day of the periods reported. |
Dividends and distributions, if any, are assumed for purposes of
this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not
reflect brokerage commissions. Past performance is not a guarantee of future results.
| (d) | | Expense ratios do not reflect the effect of distribution payments to preferred shareowners. |
| (e) | | Includes interest expense of 1.11%, 0.63%, 0.38%, 0.02%, and 0.0%, respectively. |
| (f) | | Preferred shares were redeemed during the period. |
| (g) | | Market value is redemption value without an active market. |
74 Pioneer High Income Fund, Inc. | Annual Report |
3/31/22
INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS (unaudited)
CHANGES OCCURRING DURING MOST RECENT FISCAL YEAR
The following information in this annual report is a summary of
certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you purchased
shares of the Fund. The following principal risk disclosure has been added with respect to the Fund:
Market price of Common Shares risk. The Fund’s Common
Shares have traded both at a premium and at a discount to its net asset value. The last reported sale price, as of May 12, 2022 was $7.15
per share. The Fund’s net asset value per share and percentage discount to net asset value per share of its Common Shares as of
May 12, 2022 were $8.18 and -12.59%, respectively. There is no assurance the Fund’s Common Shares will not continue to trade at
a discount.
Common Shares of closed-end funds frequently trade at a price lower
than their net asset value. This is commonly referred to as “trading at a discount.” This characteristic of shares of closed-end
funds is a risk separate and distinct from the risk that the Fund’s net asset value may decrease. Both long and short-term investors,
including investors who sell their shares within a relatively shares within a relatively short period after purchase, will be exposed
to this risk. The Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes.
Whether investors will realize a gain or loss upon the sale of
the Fund’s Common Shares will depend upon whether the market value of the shares at the time of sale is above or below the price
the investor paid, taking into account transaction costs, for the shares and is not directly dependent upon the Fund’s net asset
value. Because the market value of the Fund’s shares will be determined by factors such as the relative demand for and supply of
the shares in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether
its Common Shares will trade at, below or above net asset value, or below or above the offering price for the shares.
Market risk. The market prices of securities or other assets
held by the Fund may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse
economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the
bond markets, the spread of infectious illness
Pioneer High Income Fund, Inc. | Annual
Report | 3/31/22 75
or other public health issues, armed conflict, market disruptions
caused by tariffs, trade disputes, sanctions or other government actions, or other factors or adverse investor sentiment. Changes in market
conditions may not have the same impact on all types of securities. The value of securities may also fall due to specific conditions that
affect a particular sector of the securities market or a particular issuer. If the market prices of the Fund’s securities and assets
fall, the value of your investment will go down. A change in financial condition or other event affecting a single issuer or market may
adversely impact securities markets as a whole. Rates of inflation have recently risen. The value of assets or income from an investment
may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s
assets can decline as can the value of the Fund’s distributions.
In the past decade, financial markets throughout the world have
experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. Governmental and non-governmental
issuers have defaulted on, or been forced to restructure, their debts. These conditions may continue, recur, worsen or spread. Events
that have contributed to these market conditions include, but are not limited to, major cybersecurity events; geopolitical events (including
wars, terror attacks and economic sanctions); measures to address budget deficits; downgrading of sovereign debt; changes in oil and commodity
prices; changes in currency exchange rates; global pandemics; and public sentiment. The global pandemic of the novel coronavirus respiratory
disease designated COVID-19 has resulted in major disruption to economies and markets around the world, including the United States. Global
financial markets have experienced extreme volatility and severe losses, and trading in many instruments has been disrupted. Liquidity
for many instruments has been greatly reduced for periods of time. Some sectors of the economy and individual issuers have experienced
particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely the value
and liquidity of the Fund’s investments. Following Russia’s recent invasion of Ukraine, Russian securities have lost all,
or nearly all, their market value. Other securities or markets could be similarly affected by past or future geopolitical or other events
or conditions.
Governments and central banks, including the U.S. Federal Reserve,
have taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have
resulted in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact
on the economy and securities markets, may not be known for some time. Interest rates are very
76 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
low, which means there is more risk that they may go up. In some
cases yields are negative. U.S. Federal Reserve or other U.S. or non-U.S. governmental or central bank actions, including increases or
decreases in interest rates, or contrary actions by different governments, could negatively affect financial markets generally, increase
market volatility and reduce the value and liquidity of securities in which the Fund invests. Policy and legislative changes in the U.S.
and in other countries are affecting many aspects of financial regulation, and these and other events affecting global markets, such as
the United Kingdom’s exit from the European Union (or Brexit), potential trade imbalances with China or other countries, or sanctions
or other government actions against Russia, other nations or individuals or companies (or their countermeasures), may contribute to decreased
liquidity and increased volatility in the financial markets. The impact of these changes on the markets, and the implications for market
participants, may not be fully known for some time.
Economies and financial markets throughout the world are increasingly
interconnected. Economic, financial or political events, trading and tariff arrangements, armed conflict including Russia’s military
invasion of Ukraine, terrorism, natural disasters, infectious illness or public health issues, cybersecurity events, supply chain disruptions,
sanctions against Russia, other nations or individuals or companies and possible countermeasures, and other circumstances in one country
or region could have profound impacts on other countries or regions and on global economies or markets. As a result, whether or not the
Fund invests in securities of issuers located in or with significant exposure to the countries or regions directly affected, the value
and liquidity of the Fund’s investments may be negatively affected. The Fund may experience a substantial or complete loss on any
security or derivative position.
Anti-takeover provisions. The Fund’s charter and Bylaws
include provisions that are designed to limit the ability of other entities or persons to acquire control of the Fund for short-term objectives,
including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Fund's ability
to achieve its primary investment objective of seeking a high level of current income. The Fund’s Bylaws also contain a provision
providing that the Board of Directors has adopted a resolution to opt in the Fund to the provisions of the Maryland Control Share Acquisition
Act (“MCSAA”). Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the Fund. There can be no assurance, however, that such provisions
will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests
of long-term shareholders.
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Dilution risk. The voting power of current Common Shareholders
of the Fund will be diluted to the extent that such current Common Shareholders do not purchase Common Shares in any future offerings
of Common Shares or do not purchase sufficient Common Shares to maintain their percentage interest. If the Fund is unable to invest the
proceeds of such offerings as intended, the Fund’s per share distributions may decrease and the Fund may not participate in market
advances to the same extent as if such proceeds were fully invested as planned.
INVESTMENT OBJECTIVES
The Fund’s investment objective is a high level of current
income. The Fund may, as a secondary objective, also seek capital appreciation to the extent consistent with its investment objective.
The Fund’s investment objective is a fundamental policy and may not be changed without the approval of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund. The Fund makes no assurance that it will realize its objective.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests at least 80% of
its assets (net assets plus borrowing for investment purposes) in below investment grade (“high yield”) debt securities, loans
and preferred stocks. This is a non-fundamental policy and may be changed by the Board of Directors of the Fund provided that shareholders
are provided with at least 60 days prior written notice of any change as required by the rules under the 1940 Act.
The Fund may invest in insurance-linked securities.
The Fund may invest in securities and other obligations of any
credit quality, including those that are rated below investment grade, or are unrated but are determined by the Adviser to be of equivalent
credit quality.
The Fund may invest in securities of issuers that are in default
or that are in bankruptcy.
The Adviser considers both broad economic and issuer specific factors
in selecting a portfolio designed to achieve the Fund’s investment objective. In assessing the appropriate maturity, rating, sector
and country weightings of the Fund’s portfolio, the Adviser considers a variety of factors that are expected to influence economic
activity and interest rates. These factors include fundamental economic indicators, such as the rates of economic growth and inflation,
Federal Reserve monetary policy and the relative value of the U.S. dollar compared to other currencies. Once the Adviser determines the
preferable portfolio characteristics, the Adviser selects
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individual securities based upon the terms of the securities (such
as yields compared to U.S. Treasuries or comparable issues), liquidity and rating, sector and issuer diversification. The Adviser also
employs due diligence and fundamental research to assess an issuer’s credit quality, taking into account financial condition and
profitability, future capital needs, potential for change in rating, industry outlook, the competitive environment and management ability.
The Adviser’s analysis of issuers may include, among other
things, historic and current financial conditions, current and anticipated cash flow and borrowing requirements, value of assets in relation
to historical costs, strength of management, responsiveness to business conditions, credit standing, and current and anticipated results
of operations. While the Adviser considers as one factor in its credit analysis the ratings assigned by the rating services, the Adviser
performs its own independent credit analysis of issuers and, consequently, the Fund may invest, without limit, in unrated securities.
As a result, the Fund’s ability to achieve its investment objective may depend to a greater extent on the Adviser’s own credit
analysis than investment companies which invest in higher rated securities.
In making these portfolio decisions, the Adviser relies on the
knowledge, experience and judgment of its staff who have access to a wide variety of research. The Fund may continue to hold securities
that are downgraded after the Fund purchases them and will sell such securities only if, in the adviser’s judgment, it is advantageous
to sell such securities.
High Yield Securities. The high yield securities in which
the Fund invests are rated Ba or lower by Moody’s or BB or lower by Standard & Poor’s or are unrated but determined by
the Adviser to be of comparable quality. Debt securities rated below investment grade are commonly referred to as “junk bonds”
and are considered speculative with respect to the issuer’s capacity to pay interest and repay principal. Below investment grade
debt securities involve greater risk of loss, are subject to greater price volatility and are less liquid, especially during periods of
economic uncertainty or change, than higher rated debt securities. An investment in the Fund may be speculative in that it involves a
high degree of risk and should not constitute a complete investment program. For purposes of the Fund’s credit quality policies,
if a security receives different ratings from nationally recognized securities rating organizations, the Fund will use the rating chosen
by the portfolio manager as most representative of the security’s credit quality. The Fund’s high yield securities may have
fixed or variable principal payments and all types of interest rate and dividend payment and reset terms, including fixed
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rate, adjustable rate, zero coupon, contingent, deferred, payment
in kind and auction rate features. The Fund invests in high yield securities with a broad range of maturities.
Convertible Securities. The Fund’s investment in fixed
income securities may include bonds and preferred stocks that are convertible into the equity securities of the issuer or a related company.
The Fund will not invest more that 50% of its total in convertible securities. Depending upon the relationship of the conversion price
to the market value of the underlying securities, convertible securities may trade more like equity securities than debt instruments.
Consistent with its objective and other investment policies, the Fund may also invest a portion of its assets in equity securities, including
common stocks, depositary receipts, warrants, rights and other equity interests.
Loans. The Fund may invest a portion of its assets in loan
participations and other direct claims against a borrower. The Fund considers corporate loans to be high yield debt instruments if the
issuer has outstanding debt securities rated below investment grade or has no rated securities, and includes corporate loans in determining
whether at least 80% of its assets are invested in high yield debt instruments. The corporate loans in which the Fund invests primarily
consist of direct obligations of a borrower and may include debtor in possession financings pursuant to Chapter 11 of the U.S. Bankruptcy
Code, obligations of a borrower issued in connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy Code, leveraged
buy-out loans, leveraged recapitalization loans, receivables purchase facilities, and privately placed notes. The Fund may invest in a
corporate loan at origination as a co-lender or by acquiring in the secondary market participations in, assignments of or novations of
a corporate loan. By purchasing a participation, the Fund acquires some or all of the interest of a bank or other lending institution
in a loan to a corporate or government borrower. The participations typically will result in the Fund having a contractual relationship
only with the lender, not the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which
it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. Many
such loans are secured, although some may be unsecured. Such loans may be in default at the time of purchase. Loans that are fully secured
offer the Fund more protection than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is
no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s obligation, or that the
collateral can be liquidated. Direct debt instruments may involve a risk of loss in case of default or insolvency of the borrower and
may offer less legal protection to the Fund in the event of
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fraud or misrepresentation. In addition, loan participations involve
a risk of insolvency of the lending bank or other financial intermediary. The markets in loans are not regulated by federal securities
laws or the Securities and Exchange Commission (SEC).
As in the case of other high yield investments, such corporate
loans may be rated in the lower rating categories of the established rating services (Ba or lower by Moody’s or BB or lower by Standard
& Poor’s), or may be unrated investments considered by the Adviser to be of comparable quality. As in the case of other high
yield investments, such corporate loans can be expected to provide higher yields than lower yielding, higher rated fixed income securities,
but may be subject to greater risk of loss of principal and income. There are, however, some significant differences between corporate
loans and high yield bonds. Corporate loan obligations are frequently secured by pledges of liens and security interests in the assets
of the borrower, and the holders of corporate loans are frequently the beneficiaries of debt service subordination provisions imposed
on the borrower’s bondholders. These arrangements are designed to give corporate loan investors preferential treatment over high
yield investors in the event of a deterioration in the credit quality of the issuer. Even when these arrangements exist, however, there
can be no assurance that the borrowers of the corporate loans will repay principal and/or pay interest in full. Corporate loans generally
bear interest at rates set at a margin above a generally recognized base lending rate that may fluctuate on a day-to-day basis, in the
case of the prime rate of a U.S. bank, or which may be adjusted on set dates, typically 30 days but generally not more than one year,
in the case of the London Interbank Offered Rate (LIBOR). Consequently, the value of corporate loans held by the Fund may be expected
to fluctuate significantly less than the value of other fixed rate high yield instruments as a result of changes in the interest rate
environment. On the other hand, the secondary dealer market for certain corporate loans may not be as well developed as the secondary
dealer market for high yield bonds and, therefore, presents increased market risk relating to liquidity and pricing concerns.
Distressed Securities. The Fund may invest up to 10% of
its total assets in distressed securities, including corporate loans, which are the subject of bankruptcy proceedings or otherwise in
default as to the repayment of principal and/or payment of interest at the time of acquisition by the Fund or are rated in the lower rating
categories (Ca or lower by Moody’s or CC or lower by Standard & Poor’s) or which are unrated investments considered by
the Adviser to be of comparable quality. Investment in distressed securities is speculative and involves significant risk. Distressed
securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses
in order to protect
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and recover its investment. Therefore, to the extent the Fund seeks
capital appreciation through investment in distressed securities, the Fund’s ability to achieve current income for its shareholders
may be diminished. The Fund also will be subject to significant uncertainty as to when and in what manner and for what value the obligations
evidenced by the distressed securities will eventually be satisfied (e.g., through a liquidation of the obligor’s assets, an exchange
offer or plan of reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation). In
addition, even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Fund,
there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization
will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities
received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the
Fund’s participation in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed
securities, the Fund may be restricted from disposing of such securities.
Preferred Shares. The Fund may invest in preferred shares.
Preferred shares are equity securities, but they have many characteristics of fixed income securities, such as a fixed dividend payment
rate and/or a liquidity preference over the issuer’s common shares. However, because preferred shares are equity securities, they
may be more susceptible to risks traditionally associated with equity investments than the Fund’s fixed income securities.
Non-U.S. Investments. While the Fund primarily invests in
securities of U.S. issuers, the Fund may invest up to 25% of its total assets in securities of corporate and governmental issuers located
outside the United States, including debt and equity securities of corporate issuers and debt securities of government issuers in developed
and emerging markets. Non-U.S. securities may be issued by non-U.S. governments, banks or corporations, or private issuers, and certain
supranational organizations, such as the World Bank and the European Union. The Fund considers emerging market issuers to include issuers
organized under the laws of an emerging market country, issuers with a principal office in an emerging market country, issuers that derive
at least 50% of their gross revenues or profits from goods or services produced in emerging market countries or sales made in emerging
market countries, or issuers that have at least 50% of their assets in emerging market countries and emerging market governmental issuers.
Emerging markets generally will include, but not be limited to, countries included in the Morgan Stanley Capital International (MSCI)
Emerging + Frontier Markets Index.
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Illiquid Securities. The Fund may invest in bonds, corporate
loans, convertible securities, preferred stocks and other securities that lack a secondary trading market or are otherwise considered
illiquid. Liquidity of a security relates to the ability to easily dispose of the security and the price to be obtained upon disposition
of the security, which may be less than would be obtained for a comparable more liquid security. The Fund may invest up to 50% of its
total assets in investments that are not readily marketable, and it may also invest in securities that are subject to contractual restrictions
on resale. Such investments may affect the Fund’s ability to realize the net asset value in the event of a voluntary or involuntary
liquidation of its assets.
Structured Securities. The Fund may invest in structured
securities. The value of the principal and/or interest on such securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators (Reference) or the relative change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in
the Reference. The terms of the structured securities may provide in certain circumstances that no principal is due at maturity and, therefore,
may result in a loss of the Fund’s investment. Changes in the interest rate or principal payable at maturity may be a multiple of
the changes in the value of the Reference. Consequently, structured securities may entail a greater degree of market risk than other types
of fixed income securities.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
and asset-backed securities. Mortgage-backed securities may be issued by private issuers, by government-sponsored entities such as the
Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”) or by agencies
to the U.S. government such as the Government National Mortgage Corporation (“GNMA”). Mortgage-backed securities represent
direct or indirect participation in, or are collateralized by and payable from, mortgage loans secured by real property. The Fund’s
investments in mortgage-related securities may include mortgage derivatives and structured securities.
The Fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, and mortgage derivative securities such as real estate mortgage investment conduits (REMIC) pass-through certificates,
collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities (SMBS), interest only mortgage-backed securities and
principal only mortgage-backed securities and other types of mortgage-backed securities that may be available in the future. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of mortgages or
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a direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments
at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or residential properties. Mortgage-backed securities often have stated maturities
of up to thirty years when they are issued, depending upon the length of the mortgages underlying the securities. In practice, however,
unscheduled or early payments of principal and interest on the underlying mortgages may make the securities’ effective maturity
shorter than this, and the prevailing interest rates may be higher or lower than the current yield of the Fund’s portfolio at the
time the Fund receives the payments for reinvestment. Mortgage-backed securities may have less potential for capital appreciation than
comparable fixed income securities, due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund
buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors (which may be made at any
time without penalty) may result in some loss of the Fund’s principal investment to the extent of the premium paid. The value of
mortgage-backed securities may also change due to shifts in the market’s perception of issuers. In addition, regulatory or tax changes
may adversely affect the mortgage securities markets as a whole. Non-governmental mortgage-backed securities may offer higher yields than
those issued by government entities but also may be subject to greater price changes than governmental issues.
Asset-Backed Securities. The Fund may invest in asset-backed
securities. Asset-backed securities represent participations in, or are secured by and payable from, assets such as installment sales
or loan contracts, leases, credit card receivables and other categories of receivables. The Fund’s investments in asset-backed securities
may include derivative and structured securities. The Fund may invest in asset-backed securities issued by special entities, such as Fund,
that are backed by a pool of financial assets. The Fund may invest in collateralized debt obligations (CDOs), which include collateralized
bond obligations (CBOs), collateralized loan obligations (CLOs) and other similarly structured securities. A CDO is a fund backed by a
pool of fixed income securities. The Fund typically is split into two or more portions, called tranches, which vary in credit quality,
yield, credit support and right to repayment of principal and interest. Lower tranches pay higher interest rates but represent lower degrees
of credit quality and are more sensitive to the rate of defaults in the pool of obligations. Certain CDOs may use derivatives, such as
credit default swaps, to create synthetic exposure to assets rather than holding such assets directly.
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REITs. REITs primarily invest in income producing real estate
or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the
Internal Revenue Code). The Fund will in some cases indirectly bear its proportionate share of any management and other expenses paid
by REITs in which it invests in addition to the expenses paid by the Fund. Debt securities issued by REITs are, for the most part, general
and unsecured obligations and are subject to risks associated with REITs.
U.S. Government Securities. U.S. government securities in
which the Fund invests include debt obligations of varying maturities issued by the U.S. Treasury or issued or guaranteed by an agency
or instrumentality of the U.S. government, including the Federal Housing Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association (GNMA), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
(FHLMC), Federal National Mortgage Association (FNMA), Maritime Administration, Tennessee Valley Authority, District of Columbia Armory
Board, Student Loan Marketing Association, Resolution Fund Corporation and various institutions that previously were or currently are
part of the Farm Credit System (which has been undergoing reorganization since 1987). Some U.S. government securities, such as U.S. Treasury
bills, Treasury notes and Treasury bonds, which differ only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others are supported by: (i) the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S. government to purchase the agency’s
obligations, such as securities of the FNMA; or (iii) only the credit of the issuer. No assurance can be given that the U.S. government
will provide financial support in the future to U.S. government agencies, authorities or instrumentalities that are not supported by the
full faith and credit of the United States. Securities guaranteed as to principal and interest by the U.S. government, its agencies, authorities
or instrumentalities include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit
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issued by the U.S. government or any of its agencies, authorities
or instrumentalities; and (ii) participations in loans made to non-U.S. governments or other entities that are so guaranteed. The secondary
market for certain of these participations is limited and, therefore, may be regarded as illiquid.
Zero Coupon Securities. The Fund may invest in zero coupon
securities. Zero coupon securities are debt instruments that do not pay interest during the life of the security but are issued at a discount
from the amount the investor will receive when the issuer repays the amount borrowed (the face value). The discount approximates the total
amount of interest that would be paid at an assumed interest rate.
Investments in Equity Securities. Consistent with its objective,
the Fund may invest in equity securities. Equity securities, such as common stock, generally represent an ownership interest in a company.
While equity securities have historically generated higher average returns than fixed income securities, equity securities have also experienced
significantly more volatility in those returns. An adverse event, such as an unfavorable earnings report, may depress the value of a particular
equity security held by the Fund. Also, the price of equity securities, particularly common stocks, are sensitive to general movements
in the stock market. A drop in the stock market may depress the price of equity securities held by the Fund.
Other Investment Companies. The Fund may invest in the securities
of other investment companies to the extent that such investments are consistent with the Fund’s investment objectives and principal
investment strategies and permissible under the 1940 Act. Subject to the limitations on investment in other investment companies, the
Fund may invest in “ETFs.”
Other Investments. Normally, the Fund will invest substantially
all of its assets to meet its investment objectives. The Fund may invest the remainder of its assets in securities with remaining maturities
of less than one year or cash equivalents, or it may hold cash. For temporary defensive purposes, the Fund may depart from its principal
investment strategies and invest part or all of its assets in securities with remaining maturities of less than one year or cash equivalents,
or it may hold cash. During such periods, the Fund may not be able to achieve its investment objectives.
Derivatives. The Fund may, but is not required to, use futures
and options on securities, indices and currencies, forward foreign currency exchange contracts, swaps, credit-linked notes and other derivatives.
The Fund also may enter into credit default swaps, which can be used to acquire or to transfer the credit risk of a security or index
of securities without buying or selling the security or securities comprising the relevant index. A derivative is a security or instrument
whose value is determined by reference to the
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value or the change in value of one or more securities, currencies,
indices or other financial instruments. The Fund may use derivatives for a variety of purposes, including:
| • | | In an attempt to hedge against adverse changes in the market prices of securities, interest
rates or currency exchange rates |
| • | | As a substitute for purchasing or selling securities |
| • | | To attempt to increase the Fund’s return as a non-hedging strategy that may be considered
speculative |
| • | | To manage portfolio characteristics (for example, the duration or credit quality of the Fund’s
portfolio) |
| • | | As a cash flow management technique |
The Fund may choose not to make use of derivatives for a variety
of reasons, and any use may be limited by applicable law and regulations.
Mortgage Dollar Rolls. The Fund may enter into mortgage
dollar roll transactions to earn additional income. In these transactions, the Fund sells a U.S. agency mortgage-backed security and simultaneously
agrees to repurchase at a future date another U.S. agency mortgage-backed security with the same interest rate and maturity date, but
generally backed by a different pool of mortgages. The Fund loses the right to receive interest and principal payments on the security
it sold. However, the Fund benefits from the interest earned on investing the proceeds of the sale and may receive a fee or a lower repurchase
price. The benefits from these transactions depend upon the Adviser’s ability to forecast mortgage prepayment patterns on different
mortgage pools. The Fund may lose money if, during the period between the time it agrees to the forward purchase of the mortgage securities
and the settlement date, these securities decline in value due to market conditions or prepayments on the underlying mortgages.
Insurance-Linked Securities. The Fund may invest in insurance-linked
securities (ILS). The Fund could lose a portion or all of the principal it has invested in an ILS, and the right to additional interest
or dividend payments with respect to the security, upon the occurrence of one or more trigger events, as defined within the terms of an
insurance-linked security. Trigger events, generally, are hurricanes, earthquakes, or other natural events of a specific size or magnitude
that occur in a designated geographic region during a specified time period, and/or that involve losses or other metrics that exceed a
specific amount. There is no way to accurately predict whether a trigger event will occur, and accordingly, ILS carry significant risk.
The Fund is entitled to receive principal and interest and/or dividend payments so long as no trigger event occurs of the description
and magnitude specified by the instrument. In addition to the specified trigger
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87
events, ILS may expose the Fund to other risks, including but not
limited to issuer (credit) default, adverse regulatory or jurisdictional interpretations and adverse tax consequences.
The Fund’s investments in ILS may include event-linked bonds.
ILS also may include securities issued by special purpose vehicles (“SPVs”) or similar instruments structured to comprise
a portion of a reinsurer’s catastrophe-oriented business, known as quota share instruments (sometimes referred to as reinsurance
sidecars), or to provide reinsurance relating to specific risks to insurance or reinsurance companies through a collateralized instrument,
known as collateralized reinsurance. Structured reinsurance investments also may include industry loss warranties (“ILWs”).
A traditional ILW takes the form of a bilateral reinsurance contract, but there are also products that take the form of derivatives, collateralized
structures, or exchange-traded instruments. The Fund may invest in interests in pooled entities that invest primarily in ILS.
Where the ILS are based on the performance of underlying reinsurance
contracts, the Fund has limited transparency into the individual underlying contracts, and therefore must rely upon the risk assessment
and sound underwriting practices of the issuer. Accordingly, it may be more difficult for the Adviser to fully evaluate the underlying
risk profile of the Fund’s structured reinsurance investments, and therefore the Fund’s assets are placed at greater risk
of loss than if the Adviser had more complete information. Structured reinsurance instruments generally will be considered illiquid securities
by the Fund.
Other Debt Securities. The Fund may invest in other debt
securities. Other debt securities in which the Fund may invest include: securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities and custodial receipts therefor; securities issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities or by international or supranational entities; corporate debt securities, including
notes, bonds and debentures; certificates of deposit and bankers’ acceptances issued or guaranteed by, or time deposits maintained
at, banks (including U.S. or foreign branches of U.S. banks or U.S. or foreign branches of foreign banks) having total assets of more
than $1 billion; commercial paper; and mortgage related securities. These securities may be of any maturity. The value of debt securities
can be expected to vary inversely with interest rates.
Money Market Instruments. Money market instruments include
short-term U.S. government securities, U.S. dollar-denominated, high quality commercial paper (unsecured promissory notes issued by corporations
to finance their short-term credit needs), certificates of deposit, bankers’
88 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
acceptances and repurchase agreements relating to any of the
foregoing. U.S. government securities include Treasury notes, bonds and bills, which are direct obligations of the U.S. government
backed by the full faith and credit of the United States and securities issued by agencies and instrumentalities of the U.S.
government, which may be guaranteed by the U.S. Treasury, may be supported by the issuer’s right to borrow from the U.S.
Treasury or may be backed only by the credit of the federal agency or instrumentality itself.
Repurchase Agreements. In a repurchase agreement, the Fund
purchases securities from a broker/dealer or a bank, called the counterparty, upon the agreement of the counterparty to repurchase the
securities from the Fund at a later date, and at a specified price, which is typically higher than the purchase price paid by the Fund.
The securities purchased serve as the Fund’s collateral for the obligation of the counterparty to repurchase the securities. If
the counterparty does not repurchase the securities, the Fund is entitled to sell the securities, but the Fund may not be able to sell
them for the price at which they were purchased, thus causing a loss. Additionally, if the counterparty becomes insolvent, there is some
risk that the Fund will not have a right to the securities, or the immediate right to sell the securities.
PRINCIPAL RISKS
General. The Fund is a closed-end management investment
company designed primarily as a long-term investment and not as a trading tool. The Fund is not a complete investment program and should
be considered only as an addition to an investor’s existing portfolio of investments. Because the Fund may invest substantially
in high yield debt securities, an investment in the Fund’s shares is speculative in that it involves a high degree of risk. Due
to uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. Instruments
in which the Fund invests may only have limited liquidity, or may be illiquid.
Market price of Common Shares risk. The Fund’s Common
Shares have traded both at a premium and at a discount to its net asset value. The last reported sale price, as of May 12, 2022 was $7.15
per share. The Fund’s net asset value per share and percentage discount to net asset value per share of its Common Shares as of
May 12, 2022 were $8.18 and -12.59%, respectively. There is no assurance the Fund’s Common Shares will not continue to trade at
a discount.
Common Shares of closed-end funds frequently trade at a price lower
than their net asset value. This is commonly referred to as “trading at a discount.” This characteristic of shares of closed-end
funds is a risk
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89
separate and distinct from the risk that the Fund’s net asset
value may decrease. Both long and short-term investors, including investors who sell their shares within a relatively short period after
purchase, will be exposed to this risk. The Fund is designed primarily for long-term investors and should not be considered a vehicle
for trading purposes.
Whether investors will realize a gain or loss upon the sale of
the Fund’s Common Shares will depend upon whether the market value of the shares at the time of sale is above or below the price
the investor paid, taking into account transaction costs, for the shares and is not directly dependent upon the Fund’s net asset
value. Because the market value of the Fund’s shares will be determined by factors such as the relative demand for and supply of
the shares in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether
its Common Shares will trade at, below or above net asset value, or below or above the offering price for the shares.
Market risk. The market prices of securities or other assets
held by the Fund may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse
economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the
bond markets, the spread of infectious illness or other public health issues, armed conflict, market disruptions caused by tariffs, trade
disputes, sanctions or other government actions, or other factors or adverse investor sentiment. Changes in market conditions may not
have the same impact on all types of securities. The value of securities may also fall due to specific conditions that affect a particular
sector of the securities market or a particular issuer. If the market prices of the Fund’s securities and assets fall, the value
of your investment will go down. A change in financial condition or other event affecting a single issuer or market may adversely impact
securities markets as a whole. Rates of inflation have recently risen. The value of assets or income from an investment may be worth less
in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s assets can decline
as can the value of the Fund's distributions.
In the past decade, financial markets throughout the world have
experienced increased volatility, depressed valuations, decreased liquidity and heightened uncertainty. Governmental and non-governmental
issuers have defaulted on, or been forced to restructure, their debts. These conditions may continue, recur, worsen or spread. Events
that have contributed to these market conditions include, but are not limited to, major cybersecurity events; geopolitical events (including
wars, terror attacks and economic sanctions); measures to address budget deficits; downgrading of sovereign debt; changes in oil and commodity
prices; changes in currency
90 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
exchange rates; global pandemics; and public sentiment. The global
pandemic of the novel coronavirus respiratory disease designated COVID-19 has resulted in major disruption to economies and markets around
the world, including the United States. Global financial markets have experienced extreme volatility and severe losses, and trading in
many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some sectors of the
economy and individual issuers have experienced particularly large losses. These circumstances may continue for an extended period of
time, and may continue to affect adversely the value and liquidity of the Fund’s investments. Following Russia’s recent invasion
of Ukraine, Russian securities have lost all, or nearly all, their market value. Other securities or markets could be similarly affected
by past or future geopolitical or other events or conditions. Governments and central banks, including the U.S. Federal Reserve, have
taken extraordinary and unprecedented actions to support local and global economies and the financial markets. These actions have resulted
in significant expansion of public debt, including in the U.S. The consequences of high public debt, including its future impact on the
economy and securities markets, may not be known for some time. Interest rates are very low, which means there is more risk that they
may go up. In some cases yields are negative. U.S. Federal Reserve or other U.S. or non-U.S. governmental or central bank actions, including
increases or decreases in interest rates, or contrary actions by different governments, could negatively affect financial markets generally,
increase market volatility and reduce the value and liquidity of securities in which the Fund invests. Policy and legislative changes
in the U.S. and in other countries are affecting many aspects of financial regulation, and these and other events affecting global markets,
such as the United Kingdom’s exit from the European Union (or Brexit), potential trade imbalances with China or other countries,
or sanctions or other government actions against Russia, other nations or individuals or companies (or their countermeasures), may contribute
to decreased liquidity and increased volatility in the financial markets. The impact of these changes on the markets, and the implications
for market participants, may not be fully known for some time.
Economies and financial markets throughout the world are increasingly
interconnected. Economic, financial or political events, trading and tariff arrangements, armed conflict including Russia's military invasion
of Ukraine terrorism, natural disasters, infectious illness or public health issues, and other circumstances in one country or region
could have profound impacts on global economies or markets. As a result, whether or not the Fund invests in securities of issuers located
in or with significant exposure to the
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countries or regions directly affected, the value and liquidity
of the Fund’s investments may be negatively affected. The Fund may experience a substantial or complete loss on any security or
derivative position.
LIBOR risk. LIBOR (London Interbank Offered Rate) is used
extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial
contracts, including corporate and municipal bonds, bank loans, asset-backed and mortgage-related securities, and interest rate swaps
and other derivatives. CE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR settings on a representative
basis at the end of 2021 and is expected to cease publication of a majority of U.S. dollar LIBOR settings on a representative basis after
June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered
into after 2021. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies.
Markets are developing in response to these new rates, but questions around liquidity in these rates and how to appropriately adjust these
rates to eliminate any economic value transfer at the time of transition remain a significant concern. The effect of any changes to –
or discontinuation of – LIBOR on the Fund will vary depending on, among other things, existing fallback provisions in individual
contracts and whether, how, and when industry participants develop and widely adopt new reference rates and fallbacks for both legacy
and new products and instruments. The transition process may involve, among other things, increased volatility or illiquidity in markets
for instruments that rely on LIBOR. The transition may also result in a reduction in the value of certain LIBOR-based investments held
by the Fund or reduce the effectiveness of related transactions such as hedges. Any such effects of the transition away from LIBOR, as
well as other unforeseen effects, could result in losses for the Fund. Because the usefulness of LIBOR as a benchmark may deteriorate
during the transition period, these effects could occur at any time.
High yield or “junk” bond risk. Debt securities
that are below investment grade, called “junk bonds,” are speculative, have a higher risk of default or are already in default,
tend to be less liquid and are more difficult to value than higher grade securities. Junk bonds tend to be volatile and more susceptible
to adverse events and negative sentiments. These risks are more pronounced for securities that are already in default.
Interest rate risk. The market prices of the Fund’s
fixed income securities may fluctuate significantly when interest rates change. The value of your investment will generally go down when
interest rates rise. A rise in rates tends to have a greater impact on the prices of longer term or duration securities. For example,
if interest rates increase by 1%, the value of a
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Fund’s portfolio with a portfolio duration of ten years would
be expected to decrease by 10%, all other things being equal. In recent years interest rates and credit spreads in the U.S. have been
at historical lows, which means there is more risk that they may go up. The U.S. Federal Reserve has recently started to raise certain
interest rates. A general rise in interest rates could adversely affect the price and liquidity of fixed income securities and could also
result in increased redemptions from the Fund. The maturity of a security may be significantly longer than its effective duration. A security’s
maturity and other features may be more relevant than its effective duration in determining the security’s sensitivity to other
factors affecting the issuer or markets generally, such as changes in credit quality or in the yield premium that the market may establish
for certain types of securities (sometimes called “credit spread”). In general, the longer its maturity the more a security
may be susceptible to these factors. When the credit spread for a fixed income security goes up, or “widens,” the value of
the security will generally go down.
Rising interest rates can lead to increased default rates, as issuers
of floating rate securities find themselves faced with higher payments. Unlike fixed rate securities, floating rate securities generally
will not increase in value if interest rates decline. Changes in interest rates also will affect the amount of interest income the Fund
earns on its floating rate investments
Credit risk. If an issuer or guarantor of a security held
by the Fund or a counterparty to a financial contract with the Fund defaults on its obligation to pay principal and/or interest, has its
credit rating downgraded or is perceived to be less creditworthy, or the credit quality or value of any underlying assets declines, the
value of your investment will typically decline. Changes in actual or perceived creditworthiness may occur quickly. The Fund could be
delayed or hindered in its enforcement of rights against an issuer, guarantor or counterparty.
Prepayment or call risk. Many issuers have a right to prepay
their securities. If interest rates fall, an issuer may exercise this right. If this happens, the Fund will not benefit from the rise
in market price that normally accompanies a decline in interest rates, and will be forced to reinvest prepayment proceeds at a time when
yields on securities available in the market are lower than the yield on the prepaid security. The Fund also may lose any premium it paid
on the security.
Extension risk. During periods of rising interest rates,
the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a
below market interest rate, increase the security’s duration and reduce the value of the security.
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Risk of illiquid investments. Certain securities and derivatives
held by the Fund may be impossible or difficult to purchase, sell or unwind. Illiquid securities and derivatives also may be difficult
to value. Liquidity risk may be magnified an environment of rising interest rates or widening credit spreads. During times of market turmoil,
there have been, and may be, no buyers or sellers for securities in entire asset classe. If the Fund is forced to sell an illiquid asset
or unwind a derivatives position, the Fund may suffer a substantial loss or may not be able to sell at all.
Portfolio selection risk. The Adviser’s judgment about
the quality, relative yield, relative value or market trends affecting a particular sector or region, market segment, security or about
interest rates generally may prove to be incorrect, or there may be imperfections, errors or limitations in the models, tools and information
used by the Adviser.
Reinvestment risk. Income from the Fund’s portfolio
will decline if the Fund invests the proceeds, repayment or sale of loans or other obligations into lower yielding instruments with a
lower spread over the base lending rate. A decline in income could affect the common shares’ distribution rate and their overall
return.
Risks of investing in floating rate loans. Floating rate
loans and similar investments may be illiquid or less liquid than other investments and difficult to value. Market quotations for these
securities may be volatile and/or subject to large spreads between bid and ask prices. No active trading market may exist for many floating
rate loans, and many loans are subject to restrictions on resale. Any secondary market may be subject to irregular trading activity and
extended trade settlement periods. An economic downturn generally leads to a higher non-payment rate, and a loan may lose significant
value before a default occurs.
When the Fund invests in a loan participation, the Fund does not
have a direct claim against the borrower and must rely upon an intermediate participant to enforce any rights against the borrower. As
a result, the Fund is subject to the risk that an intermediate participant between the Fund and the borrower will fail to meet its obligations
to the Fund, in addition to the risk that the issuer of the loan will default on its obligations. Also the Fund may be regarded as the
creditor of the agent lender (rather than the borrower), subjecting the Fund to the creditworthiness of the lender as well as the borrower.
There is less readily available, reliable information about most
senior loans than is the case for many other types of securities. Although the features of senior loans, including being secured by collateral
and having priority over other obligations of the issuer, reduce some of the risks of investment in below investment grade securities,
the loans are subject to significant risks.
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the Adviser believes, based on its experience, that senior floating
rate loans generally have more favorable loss recovery rates than most other types of below investment grade obligations. However, there
can be no assurance that the Fund’s actual loss recovery experience will be consistent with the Adviser’s prior experience
or that the senior loans in which the Fund invests will achieve any specific loss recovery rate.
Some of the loans in which the Fund may invest may be “covenant
lite.” Covenant lite loans contain fewer maintenance covenants, or no maintenance covenants at all, than traditional loans and may
not include terms that allow the lender to monitor the financial performance of the borrower and declare a default if certain criteria
are breached. This may expose the Fund to greater credit risk associated with the borrower and reduce the Fund’s ability to restructure
a problematic loan and mitigate potential loss. As a result the Fund’s exposure to losses on such investments may be increased,
especially during a downturn in the credit cycle.
Second lien loans generally are subject to similar risks as those
associated with senior loans. Because second lien loans are subordinated or unsecured and thus lower in priority on payment to senior
loans, they are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may
be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This risk is generally
higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Second lien loans
generally have greater price volatility than senior loans and may be less liquid.
Certain floating rate loans and other corporate debt securities
involve refinancings, recapitalizations, mergers and acquisitions, and other financings for general corporate purposes. Other loans are
incurred in restructuring or “work-out” scenarios, including debtor-in-possession facilities in bankruptcy. Loans in restructuring
or similar scenarios may be especially vulnerable to the inherent uncertainties in restructuring processes. In addition, the highly leveraged
capital structure of the borrowers in any of these transactions, whether acquisition financing or restructuring, may make the loans especially
vulnerable to adverse economic or market conditions and the risk of default. Loans to entities located outside of the U.S. may have substantially
different lender protections and covenants as compared to loans to U.S. entities and may involve greater risks. The Fund may have difficulties
and incur expense enforcing its rights with respect to non-U.S. loans and such loans could be subject to bankruptcy laws that are materially
different than in the U.S.
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Because affiliates of the Adviser may participate in the primary
and secondary market for senior loans, limitations under applicable law may restrict the Fund’s ability to participate in a restructuring
of a senior loan or to acquire some senior loans, or affect the timing or price of such acquisition. Loans may not be considered “securities,”
and purchasers, such as the Fund, therefore may not be entitled to rely on the anti-fraud protections afforded by federal securities laws.
Collateral risk. The value of collateral, if any, securing
a floating rate loan can decline, and may be insufficient to meet the issuer’s obligations or may be difficult to liquidate. In
addition, the Fund’s access to collateral may be limited by bankruptcy or other insolvency laws. These laws may be less developed
and more cumbersome with respect to the Fund’s non-U.S. floating rate investments. Floating rate loans may not be fully collateralized
or may be uncollateralized. Uncollateralized loans involve a greater risk of loss. In the event of a default, the Fund may have difficulty
collecting on any collateral and would not have the ability to collect on any collateral for an uncollateralized loan. In addition, the
lender’s security interest or their enforcement of their security interest under the loan agreement may be found by a court to be
invalid or the collateral may be used to pay other outstanding obligations of the borrower. Further, the Fund’s access to collateral,
if any, may be limited by bankruptcy law. To the extent that a loan is collateralized by stock of the borrower or its affiliates, this
stock may lose all or substantially all of its value in the event of bankruptcy of the borrower. Loans that are obligations of a holding
company are subject to the risk that, in a bankruptcy of a subsidiary operating company, creditors of the subsidiary may recover from
the subsidiary’s assets before the lenders to the holding company would receive any amount on account of the holding company’s
interest in the subsidiary.
Risk of disadvantaged access to confidential information. The
issuer of a floating rate loan may offer to provide material, non-public information about the issuer to investors, such as the Fund.
Normally, the Adviser will seek to avoid receiving this type of information about the issuer of a loan either held by, or considered for
investment by, the Fund. the Adviser’s decision not to receive the information may place it at a disadvantage, relative to other
loan investors, in assessing a loan or the loan’s issuer. For example, in instances where holders of floating rate loans are asked
to grant amendments, waivers or consents, the Adviser’s inability to assess the impact of these actions may adversely affect the
value of the portfolio. For this and other reasons, it is possible that the Adviser’s decision not to receive material, non-public
information under normal circumstances could adversely affect the Fund’s investment performance.
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Risks of subordinated securities. A holder of securities
that are subordinated or “junior” to more senior securities of an issuer is entitled to payment after holders of more senior
securities of the issuer. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same
issuer, any loss incurred by the subordinated securities is likely to be proportionately greater, and any recovery of interest or principal
may take more time. As a result, even a perceived decline in creditworthiness of the issuer is likely to have a greater impact on subordinated
securities than more senior securities.
Issuer risk. The value of corporate income-producing securities
may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage and reduced
demand for the issuer’s goods and services.
U.S. Treasury obligations risk. The market value of
direct obligations of the U.S. Treasury may vary due to changes in interest rates. In addition, changes to the financial condition
or credit rating of the U.S. government may cause the value of the Fund’s investments in obligations issued by the U.S.
Treasury to decline.
U.S. government agency obligations risk. The Fund
invests in obligations issued by agencies and instrumentalities of the U.S. government. Government-sponsored entities such as the
Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Banks
(FHLBs), although chartered or sponsored by Congress, are not funded by congressional appropriations and the debt and
mortgage-backed securities issued by them are neither guaranteed nor issued by the U.S. government. The maximum potential liability
of the issuers of some U.S. government obligations may greatly exceed their current resources, including any legal right to support
from the U.S. government. Such debt and mortgage-backed securities are subject to the risk of default on the payment of interest
and/or principal, similar to debt of private issuers. Although the U.S. government has provided financial support to FNMA and FHLMC
in the past, there can be no assurance that it will support these or other government-sponsored entities in the future.
Mortgage-related and asset-backed securities risk. The value
of mortgage-related securities, including commercial mortgage-backed securities, collateralized mortgage-backed securities, credit risk
transfer securities, and asset-backed securities, will be influenced by factors affecting the assets underlying such securities. As a
result, during periods of declining asset value, difficult or frozen credit markets, swings in interest rates, or deteriorating economic
conditions, mortgage-related and asset-backed securities may decline in value, face valuation difficulties, become more
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97
volatile and/or become illiquid. Mortgage-backed securities tend
to be more sensitive to changes in interest rate than other types of debt securities. These securities are also subject to prepayment
and extension risks. Some of these securities may receive little or no collateral protection from the underlying assets and are thus subject
to the risk of default. The risk of such defaults is generally higher in the case of mortgage-backed investments offered by non-governmental
issuers and those that include so-called “sub-prime” mortgages. The structure of some of these securities may be complex and
there may be less available information than for other types of debt securities. Upon the occurrence of certain triggering events or defaults,
the Fund may become the holder of underlying assets at a time when those assets may be difficult to sell or may be sold only at a loss.
Risks of investing in collateralized debt obligations. Investment
in a collateralized debt obligation (CDO) is subject to the credit, subordination, interest rate, valuation, prepayment, extension and
other risks of the obligations underlying the CDO and the tranche of the CDO in which the Fund invests. CDOs are subject to liquidity
risk. Synthetic CDOs are also subject to the risks of investing in derivatives, such as credit default swaps, and leverage risk.
Risks of instruments that allow for balloon payments or negative
amortization payments. Certain debt instruments allow for balloon payments or negative amortization payments. Such instruments permit
the borrower to avoid paying currently a portion of the interest accruing on the instrument. While these features make the debt instrument
more affordable to the borrower in the near term, they increase the risk that the borrower will be unable to make the resulting higher
payment or payments that become due at the maturity of the loan.
Risks of investing in insurance-linked securities. The Fund
could lose a portion or all of the principal it has invested in an insurance-linked security, and the right to additional interest and/or
dividend payments with respect to the security, upon the occurrence of one or more trigger events, as defined within the terms of an insurance-linked
security. Trigger events may include natural or other perils of a specific size or magnitude that occur in a designated geographic region
during a specified time period, and/or that involve losses or other metrics that exceed a specific amount. Natural perils include disasters
such as hurricanes, earthquakes, windstorms, fires, floods and other weather-related occurrences, as well as mortality or longevity events.
Non-natural perils include disasters resulting from human-related activity such as commercial and industrial accidents or business interruptions.
The Fund may also invest in insurance-linked securities that are subject to “indemnity triggers.” An indemnity trigger is
a trigger based on the actual losses of the ceding sponsor (i.e., the party seeking
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reinsurance). Insurance-linked securities subject to indemnity
triggers are often regarded as being subject to potential moral hazard, since such insurance-linked securities are triggered by actual
losses of the ceding sponsor and the ceding sponsor may have an incentive to take actions and/or risks that would have an adverse effect
on the Fund. There is no way to accurately predict whether a trigger event will occur and, accordingly, insurance-linked securities carry
significant risk. In addition to the specified trigger events, insurance-linked securities may expose the Fund to other risks, including
but not limited to issuer (credit) default, adverse regulatory or jurisdictional interpretations and adverse tax consequences. Certain
insurance-linked securities may have limited liquidity, or may be illiquid. The Fund has limited transparency into the individual contracts
underlying certain insurance-linked securities, which may make the risk assessment of such securities more difficult. Certain insurance-linked
securities may be difficult to value.
Risks of investments in real estate related securities. Investments
in real estate securities are affected by economic conditions, interest rates, governmental actions and other factors. In addition, investing
in REITs involves unique risks. They are significantly affected by the market for real estate and are dependent upon management skills
and cash flow. REITs may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities
markets. Mortgage REITs are particularly subject to interest rate and credit risks. In addition to its own expenses, the Fund will indirectly
bear its proportionate share of any management and other expenses paid by REITs in which it invests. Many real estate companies, including
REITs, utilize leverage.
Risks of zero coupon bonds, payment in kind, deferred and contingent
payment securities. These securities may be more speculative and may fluctuate more in value than securities which pay income periodically
and in cash. In addition, although the Fund receives no periodic cash payments on such securities, the Fund is deemed for tax purposes
to receive income from such securities, which applicable tax rules require the Fund to distribute to shareholders. Such distributions
may be taxable when distributed to shareholders
Risks of non-U.S. investments. Investing in non-U.S. issuers,
or in U.S. issuers that have significant exposure to foreign markets, may involve unique risks compared to investing in securities of
U.S. issuers. These risks are more pronounced for issuers in emerging markets or to the extent that the Fund invests significantly in
one region or country. These risks may include different financial reporting practices and regulatory standards, less liquid trading markets,
extreme price volatility, currency risks, changes in economic, political, regulatory and social conditions, military conflicts and
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sanctions, terrorism, sustained economic downturns, financial instability,
reduction of government or central bank support, inadequate accounting standards, tariffs, tax disputes or other tax burdens, nationalization
or expropriation of assets, arbitrary application of laws and regulations or lack of rule of law, and investment and repatriation restrictions.
Lack of information and less market regulation also may affect the value of these securities. Withholding and other non-U.S. taxes may
decrease the Fund’s return. Non-U.S. issuers may be located in parts of the world that have historically been prone to natural disasters.
Emerging market economies tend to be less diversified than those of more developed countries. They typically have fewer medical and economic
resources than more developed countries and thus they may be less able to control or mitigate the effects of a pandemic. Investing in
depositary receipts is subject to many of the same risks as investing directly in non-U.S. issuers. Depositary receipts may involve higher
expenses and may trade at a discount (or premium) to the underlying security. A number of countries in the European Union (EU) have experienced,
and may continue to experience, severe economic and financial difficulties. In addition, the United Kingdom has withdrawn from the EU
(commonly known as “Brexit”). Other countries may seek to withdraw from the EU and/or abandon the euro, the common currency
of the EU. The range and potential implications of possible political, regulatory, economic, and market outcomes of Brexit cannot be fully
known but could be significant, potentially resulting in increased volatility, illiquidity and potentially lower economic growth in the
affected markets, which will adversely affect the Fund’s investments.
If one or more stockholders of a supranational entity such as the
World Bank fail to make necessary additional capital contributions, the entity may be unable to pay interest or repay principal on its
debt securities.
Sanctions or other government actions against certain countries
could negatively impact the Fund’s investments in securities that have exposure to that country. Circumstances that impact one country
could have profound impacts on other countries and on global economies or markets. China and other developing market countries may be
subject to considerable degrees of economic, political and social instability. In addition, the U.S. government has imposed restrictions
on U.S. investor participation in certain Chinese investments. These matters could adversely affect China’s economy.
Russia launched a large-scale invasion of Ukraine on February 24,
2022. In response to the military action by Russia, various countries, including the U.S., the United Kingdom, and European Union issued
broad-ranging economic sanctions against Russia and Belarus and certain companies and
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individuals. Since then, Russian securities have lost all, or nearly
all, their market value, and many other issuers, securities and markets have been adversely affected. The United States and other countries
may impose sanctions on other countries, companies and individuals in light of Russia’s military invasion. The extent and duration
of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions
and volatility, and the result of any diplomatic negotiations cannot be predicted. These and any related events could have a significant
impact on the value and liquidity of certain Fund investments, on Fund performance and the value of an investment in the Fund, particularly
with respect to securities and commodities, such as oil and natural gas, as well as other sectors with exposure to Russian issuers or
issuers in other countries affected by the invasion, and are likely to have collateral impacts on market sectors globally.
Currency risk. The Fund could experience losses based on
changes in the exchange rate between non-U.S. currencies and the U.S. dollar or as a result of currency conversion costs. Currency exchange
rates can be volatile, and are affected by factors such as general economic conditions, the actions of the U.S. and foreign governments
or central banks, the imposition of currency controls and speculation.
Risks of convertible securities. The market values of convertible
securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. A downturn in equity markets
may cause the price of convertible securities to decrease relative to other fixed income securities.
Preferred stocks risk. Preferred stocks may pay fixed or
adjustable rates of return. Preferred stocks are subject to issuer-specific and market risks applicable generally to equity securities.
In addition, a company’s preferred stocks generally pay dividends only after the company makes required payments to holders of its
bonds and other debt. Thus, the value of preferred stocks will usually react more strongly than bonds and other debt to actual or perceived
changes in the company’s financial condition or prospects. The market value of preferred stocks generally decreases when interest
rates rise. Preferred stocks of smaller companies may be more vulnerable to adverse developments than preferred stocks of larger companies.
Risks of investment in other funds. Investing in other investment
companies, including exchange-traded funds (ETFs) and closed-end funds, subjects the Fund to the risks of investing in the underlying
securities or assets held by those funds. When investing in another fund, the Fund will bear a pro rata portion of the underlying fund’s
expenses, including
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management fees, in addition to its own expenses. ETFs and closed-end
funds are bought and sold based on market prices and can trade at a premium or a discount to the ETF’s or closed-end fund’s
net asset value.
Derivatives risk. Using swaps, forward foreign currency
exchange contracts, bond and interest rate futures and other derivatives can increase Fund losses and reduce opportunities for gains when
market prices, interest rates or the derivative instruments themselves behave in a way not anticipated by the Fund. Using derivatives
may increase the volatility of the Fund’s net asset value and may not provide the result intended. Derivatives may have a leveraging
effect on the Fund. Some derivatives have the potential for unlimited loss, regardless of the size of the Fund’s initial investment.
Derivatives are generally subject to the risks applicable to the assets, rates, indices or other indicators underlying the derivative.
Changes in a derivative’s value may not correlate well with the referenced asset or metric. The Fund also may have to sell assets
at inopportune times to satisfy its obligations. Derivatives may be difficult to sell, unwind or value, and the counterparty may default
on its obligations to the Fund. Use of derivatives may have different tax consequences for the Fund than an investment in the underlying
security, and such differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government
and foreign governments are in the process of adopting and implementing regulations governing derivatives markets, including mandatory
clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional
regulation of derivatives may make them more costly, limit their availability or utility, otherwise adversely affect their performance
or disrupt markets.
Credit default swap risk. Credit default swap contracts,
a type of derivative instrument, involve special risks and may result in losses to the Fund. Credit default swaps may in some cases be
illiquid, and they increase credit risk since the Fund has exposure to the issuer of the referenced obligation and either the counterparty
to the credit default swap or, if it is a cleared transaction, the brokerage firm through which the trade was cleared and the clearing
organization that is the counterparty to that trade.
Structured securities risk. Structured securities may behave
in ways not anticipated by the Fund, or they may not receive the tax, accounting or regulatory treatment anticipated by the Fund.
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Forward foreign currency transactions risk. The Fund may
not fully benefit from or may lose money on forward foreign currency transactions if changes in currency rates do not occur as anticipated
or do not correspond accurately to changes in the value of the Fund’s holdings, or if the counterparty defaults. Such transactions
may also prevent the Fund from realizing profits on favorable movements in exchange rates. Risk of counterparty default is greater for
counterparties located in emerging markets.
Leveraging risk. The value of your investment may be more
volatile and other risks tend to be compounded if the Fund borrows or uses derivatives or other investments, such as ETFs, that have embedded
leverage. Leverage generally magnifies the effect of any increase or decrease in the value of the Fund’s underlying assets and creates
a risk of loss of value on a larger pool of assets than the Fund would otherwise have, potentially resulting in the loss of all assets.
Engaging in such transactions may cause the Fund to liquidate positions when it may not be advantageous to do so to satisfy its obligations
or meet segregation requirements.
The Fund may use financial leverage on an ongoing basis for investment
purposes by borrowing from banks through a revolving credit facility. The fees and expenses attributed to leverage, including any increase
in the management fees, will be borne by holders of common shares. Since the Adviser’s fee is based on a percentage of the Fund’s
managed assets, its fee will be higher if the Fund is leveraged, and the Adviser will thus have an incentive to leverage the Fund.
Repurchase agreement risk. In the event that the other party
to a repurchase agreement defaults on its obligations, the Fund may encounter delay and incur costs before being able to sell the security.
Such a delay may involve loss of interest or a decline in price of the security. In addition, if the Fund is characterized by a court
as an unsecured creditor, it would be at risk of losing some or all of the principal and interest involved in the transaction.
Market segment risk. To the extent the Fund emphasizes,
from time to time, investments in a market segment, the Fund will be subject to a greater degree to the risks particular to that segment,
and may experience greater market fluctuation than a fund without the same focus.
Industries in the financial segment, such as banks, insurance companies
and broker-dealers, may be sensitive to changes in interest rates and general economic activity and are generally subject to extensive
government regulation.
Valuation risk. The sales price the Fund could receive for
any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for illiquid securities
and securities that trade in
Pioneer High Income Fund, Inc. | Annual
Report | 3/31/22 103
thin or volatile markets or that are valued using a fair value
methodology. These differences may increase significantly and affect Fund investments more broadly during periods of market volatility.
The Fund’s ability to value its investments may also be impacted by technological issues and/or errors by pricing services or other
third party service providers.
Cybersecurity risk. Cybersecurity failures by and breaches
of the Fund’s adviser, transfer agent, custodian, Fund accounting agent or other service providers may disrupt Fund operations,
interfere with the Fund’s ability to calculate its NAV, prevent Fund shareholders from purchasing or selling shares or receiving
distributions, cause loss of or unauthorized access to private shareholder information, and result in financial losses to the Fund and
its shareholders, regulatory fines, penalties, reputational damage, or additional compliance costs.
Cash management risk. The value of the investments held
by the Fund for cash management or temporary defensive purposes may be affected by market risks, changing interest rates and by changes
in credit ratings of the investments. To the extent that the Fund has any uninvested cash, the Fund would be subject to credit risk with
respect to the depository institution holding the cash. If the Fund holds cash uninvested, the Fund will not earn income on the cash and
the Fund’s yield will go down. During such periods, it may be more difficult for the Fund to achieve its investment objective.
Anti-takeover provisions. The Fund’s Charter and Bylaws
include provisions that are designed to limit the ability of other entities or persons to acquire control of the Fund for short-term objectives,
including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Fund’s
ability to achieve its primary investment objective of seeking a high level of current income. The Fund’s Bylaws also contain a
provision providing that the Board of Directors has adopted a resolution to opt in the Fund to the provisions of the Maryland Control
Share Acquisition Act (“MCSAA”). Such a provisions may limit the ability of shareholders to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. There can be no assurance, however,
that such a provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned
with the interests of long-term shareholders.
Please note that there are many other factors that could adversely
affect your investment and that could prevent the Fund from achieving its goals. An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
104 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
INVESTMENT RESTRICTIONS
The following are the Fund’s fundamental investment restrictions.
These restrictions, along with the Fund’s investment objectives, may not be changed without the approval of the holders of a majority
of the Fund’s outstanding voting securities (which for this purpose and under the 1940 Act means the lesser of (i) 67% of the common
shares represented at a meeting at which more than 50% of the outstanding common shares are represented or (ii) more than 50% of the outstanding
common shares).
The Fund may not:
| (1) | | Issue senior securities, other than as permitted by the 1940 Act and the rules and interpretive
positions of the SEC thereunder. |
| (2) | | Borrow money, other than as permitted by the 1940 Act and the rules and interpretive positions
of the SEC thereunder. |
| (3) | | Invest in real estate, except that the Fund may invest in securities of issuers that invest
in real estate or interests therein, securities that are secured by real estate or interests therein, securities of real estate investment
trusts and mortgage-backed securities. |
| (4) | | Make loans, except by the purchase of debt obligations, loans or direct claim against a borrower,
by entering into repurchase agreements or through the lending of portfolio securities. |
| (5) | | Invest in commodities or commodity contracts, except that the Fund may invest in currency
instruments and contracts and financial instruments and contracts that might be deemed to be commodities and commodity contracts. |
| (6) | | Act as an underwriter, except as it may be deemed to be an underwriter in a sale of restricted
securities held in its portfolio. |
| (7) | | With respect to 75% of its total assets, purchase securities of an issuer (other than the
U.S. government, its agencies or instrumentalities), if (a) such purchase would cause more than 5% of the Fund’s total assets,
taken at market value, to be invested in the securities of such issuer, or (b) such purchase would at the time result in more than 10%
of the outstanding voting securities of such issuer being held by the Fund. |
| (8) | | Concentrate its investments in securities of companies in any particular industry. |
All other investment policies of the Fund are considered non-fundamental
and may be changed by the Board of Directors without prior approval of the Fund’s outstanding voting shares.
Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
105
More Information
For more detailed descriptions of the Fund’s investment policies,
strategies and risks, see the Fund’s registration statement on Form N-2 that was declared effective by the Securities and Exchange
Commission on November 19, 2021.
106 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
Effects of Leverage
The following table is furnished in response to requirements of
the Securities and Exchange Commission. It is designed to illustrate the effects of leverage on common share total return, assuming investment
portfolio total returns (consisting of income and changes in the value of investments held in the Fund’s portfolio) of -10%, -5%,
0%, 5% and 10%. The table below reflects the Fund’s borrowings under a credit agreement as a percentage of the Fund’s total
assets (which includes the amounts of leverage obtained through such borrowings), the annual rate of interest on the borrowings as of
March 31, 2022, and the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover such costs.
The information below does not reflect the Fund’s use of certain other forms of economic leverage achieved through the use of other
instruments or transactions not considered to be senior securities under the 1940 Act, such as covered credit default swaps or other derivative
instruments.
The assumed investment portfolio returns in the table below are
hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced
by the Fund. Your actual returns may be greater or less than those appearing below. In addition, actual borrowing expenses associated
with borrowings by the Fund may vary frequently and may be significantly higher or lower than the rate used for the example below.
| Borrowings under Credit Agreement as a percentage of total managed assets |
|
| (including assets attributable to borrowings) |
30.79% |
| Annual effective interest rate payable by Fund on borrowings |
1.01% |
| Annual return Fund portfolio must experience (net of expenses) to cover interest |
|
| rate on borrowings |
0.31% |
| Common share total return for (10.00)% assumed portfolio total return |
-14.90% |
| Common share total return for (5.00)% assumed portfolio total return |
-7.67% |
| Common share total return for 0.00% assumed portfolio total return |
-0.45% |
| Common share total return for 5.00% assumed portfolio total return |
6.77% |
| Common share total return for 10.00% assumed portfolio total return |
14.00% |
Common share total return is composed of two elements - investment
income net of the Fund’s expenses, including any interest/dividends on assets resulting from leverage, and gains or losses on the
value of the securities the Fund owns. As required by Securities and Exchange Commission rules, the table assumes that the Fund is more
likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume
that the income it receives on its investments is entirely offset by losses in the value of those investments. This table reflects hypothetical
performance of the Fund’s portfolio and not the performance of the Fund’s common shares, the value of which will be determined
by market forces and other factors.
Pioneer High Income Fund, Inc. | Annual Report | 3/31/22
107
Should the Fund elect to add additional leverage to its portfolio,
the potential benefits of leveraging the Fund’s shares cannot be fully achieved until the proceeds resulting from the use of leverage
have been received by the Fund and invested in accordance with the Fund’s investment objective and principal investment strategies.
The Fund’s willingness to use additional leverage, and the extent to which leverage is used at any time, will depend on many factors,
including, among other things, the Adviser’s assessment of the yield curve environment, interest rate trends, market conditions
and other factors.
108 Pioneer High Income Fund, Inc. | Annual Report | 3/31/22