Form N-CSRS - Certified Shareholder Report, Semi-Annual

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number 811-22553

 

Miller/Howard High Income Equity Fund
(Exact name of registrant as specified in charter)

 

45 Pine Grove Ave, Suite 301
Kingston, NY 12401
(Address of principal executive offices) (Zip code)

 

Catherine Johnston
Miller/Howard Investments, Inc.

45 Pine Grove Ave, Suite 301
Kingston, NY 12401
(Name and address of agent for service)

 

[phone]

Registrant's telephone number, including area code

 

Date of fiscal year end: October 31, 2024

 

Date of reporting period: April 30, 2024

 

 

Item 1. Reports to Stockholders.

 

(a)

  

 

 

 

Table of Contents

 

1	Letter from President of the Fund
6	Allocation of Portfolio Investments
7	Schedule of Investments
10	Statement of Assets and Liabilities
11	Statement of Operations
12	Statements of Changes in Net Assets
13	Statement of Cash Flows
14	Financial Highlights
16	Notes to Financial Statements
27	Additional Information
30	Privacy Policy

 

April 30, 2024 | Semi-Annual Report

 

 

 

 

Dear Shareholders,

 

Thank you for investing in the Miller/Howard High Income Equity Fund (the “Fund”). Our goal for this Fund is to provide our Shareholders with a high level of income coupled with the potential for capital appreciation. We apply rigorous fundamental financial analysis to stock selection, looking for candidates that we believe exhibit strong dividend prospects and have the potential to raise those dividends in the future.

 

Market Summary¹

During the Fund’s fiscal semi-annual period—November 1, 2023 through April 30, 2024—the broad equity market experienced strong gains. The S&P 500 Index gained 21.0% and the Russell 1000 Index gained 21.2%. The dispersion between growth and value stocks was notable, with the Russell 3000 Growth Index gaining 23.4%, while the Russell 3000 Value Index performed slightly worse than the broad market and growth stocks, returning 18.4%.

 

Performance of dividend stocks was lower than the broad market, but still strong in absolute terms. The NASDAQ US Broad Dividend Achievers Index, composed of stocks with long-term historic dividend growth, underperformed the broad market indices—the S&P 500 Index and Russell 1000 Index—with a gain of 15.2%. The Dow Jones US Select Dividend Index, composed of stocks with high dividend yields, underperformed the broad market indices with a total return of 16.4%.

 

Financial television shows love to analyze wiggles in interest rates from one week to the next, with the goal of explaining stock price action. In our view, what is much more important is the impact of changes in long-term interest rates over the decades. After spiking up in the 1970s, the interest rate on 10-year Treasury bonds fell from nearly 14% in 1981 to under 1% in 2020. Using swaps to back out inflation expectations, the Federal Reserve of Cleveland estimates that real interest rates fell from roughly 7% in 1982 to 0%, first in 2012 and then in 2020 and again in 2021.

 

In recent years, we have seen surging long-term earnings forecasts driven largely by rosy views of profits from technological innovation. Interest rates have been low for the past decade, encouraging very large market capitalizations for the perceived long-term winners. The top 10 constituents in the S&P 500 accounted for 33% of the index’s market capitalization at year end—a record for the past 30 years. This spike in market concentration has driven a wedge between the market cap-weighted index and high-yield dividend stocks, resulting in recent underperformance of the Fund’s investible universe.

 

 

¹ Returns illustrated reflect the total return with dividends reinvested sourced from Bloomberg.

 

1	Semi-Annual Report | April 30, 2024

 

 

Portfolio Performance

During the Fund’s fiscal semi-annual period from November 1, 2023 through April 30, 2024, the net asset value (NAV) per share experienced an increase of 12.5%, compared with the S&P 500’s 21.0% gain, on a total return basis. The market price of the Fund can sell at a premium or discount to NAV. The Fund’s market price (NYSE) return was 14.1%, and the Fund’s market total return (NYSE with dividends reinvested) was 17.4% for the semi-annual period. On the last day of the period, the Fund was trading at a -3.7% discount to NAV.

 

High-yielding stocks² underperformed in the period. Looking at the stocks in the investable universe, sorted by dividend yield, the highest yielding 30% of dividend stocks returned +16.6%, underperforming the 21.0% return for S&P 500 Index.

 

A main driver of the difference in returns between high-yield dividend stocks and non-dividend payers has been the concentration in today’s large-cap companies. At the end of 2023, only five of the top 10 stocks in the S&P 500 (by market cap) paid a dividend, and of those five, none of the yields exceeded 1.0%. In contrast, ten years earlier, the average dividend yield of the top 10 stocks in the S&P 500 was 2.1%. Additionally, in 2023, the cap-weighted S&P 500 returned 26.3%, but looking at the equal-weighted S&P 500, the total return was only 13.9%, highlighting the significant concentration in the largest-cap segment of the market.

 

Looking at the performance drivers during the semi-annual period, by individual holdings, the top stock contributors were in the energy, utilities, and real estate (REIT) sectors. Midstream company Energy Transfer (ET) boosted returns, and this master limited partnership (MLP) has an attractive yield, generates a double-digit free cash flow yield, and has declining leverage. Outdoor advertising REIT Lamar Advertising (LAMR) stated that the company expects to hit or exceed its guidance range based on increased organic revenue alongside decreasing expenses. Lamar also increased its dividend in February 2024. Utility company Dominion Energy (D) announced an agreement to sell a 50% noncontrolling interest in the Coastal Virginia Offshore project.

 

Top detractors were in the consumer discretionary and healthcare sectors. In consumer discretionary, Vail Resorts Inc (MTN) lowered 2024 guidance after the company reported EPS and revenue misses, and mild winter weather was a headwind for total skier visits. Restaurant company Cracker Barrel Old Country (CBRL) reported weak earnings on its November call, gave 2024 guidance that was below consensus, and its retail store sales continue to struggle. In healthcare, Gilead Sciences (GILD) EPS and revenues were in line. Gilead’s HIV sales were modestly below census (although HIV sales can be lumpy because of large government purchases), but COVID drug Veklury was above expectations; GILD also announced two disappointing drug trials.

 

Dividend growth is important to this portfolio because the prices of higher-yielding stocks are based, in large part, on the income they provide. As income rises, an investor may expect the asset price to increase commensurately (though other factors may enter into this equation in the short

 

 

2

High-yielding stocks are defined as those companies that are in dividend deciles eight, nine and ten. Dividend deciles are calculated by separating the dividend-paying stocks into ten equal groups (lowest yielding being decile one and highest yielding decile ten) based on each security’s yield at the beginning of the stated time period. Dividend decile calculations and returns data are sourced from Bloomberg.

 

April 30, 2024| Semi-Annual Report

2

 

 

term). We seek companies that not only pay high dividends or distributions now but that also are likely, in our view, to increase dividends in the future. During the reporting period, 19 of our stocks declared dividend increases, with individual increases averaging 7.12% growth year-over-year, excluding special dividends on an unweighted basis. Some stocks declared dividend increases multiple times in the period. The Fund also had five special dividends that were paid during the semi-annual period.

 

We are enhancing the income in the portfolio through the sale of options. For the fiscal semi-annual period ended April 30, 2024, we sold calls on 8 positions, of which 6 expired worthless after we collected the premium, and we had 2 exercised. Zero positions remained open as of April 30, 2024. Our option positions’ notional value represented 0% of total assets as of the end of the period, below the 30% limitation.

 

As the prospectus indicates, the portfolio managers have the ability to employ modest leverage. As of April 30, 2024, we borrowed an average amount equal to 0% of the managed assets of the Fund during the semi-annual period.

 

Distributions to Shareholders

The distribution to Shareholders for the six months of the semi-annual period was $0.051 per share.

 

The Fund’s current indicated distribution rate based on its closing price on the New York Stock Exchange on April 30, 2024 ($10.94) was 5.59%. The current indicated distribution rate based on the Fund’s NAV per share ($11.36) was 5.39%. The Fund currently intends to continue to pay monthly distributions to its shareholders. We should note that, since inception, this distribution has been supported by income earned by the Fund. “Income” here means regular and special dividends (some of which are distributions from MLPs and REITs, which might be considered return of capital for tax and GAAP purposes) and option premiums. The Fund has earned five special dividends during the semi-annual period. With any special dividends, premiums from selling options, regular dividends and distributions from the portfolio, and our use of leverage, we expect to continue to generate sufficient income to cover these declared distributions.

 

Looking Ahead

In our view, the day will come when stock market performance will no longer be concentrated in just the largest-cap companies. Much of the recent mega-cap dominance has been driven by price/earnings multiple expansion. Profits in the 2030s and 2040s will be what they will be, but at some point, stock prices have to fully reflect long-term profit prospects. As returns broaden, we expect high-yield dividend stocks to resume their historical outperformance and in the meantime continue generating solid investments returns and a high level of income.

 

As always, we continue to monitor both our holdings and the universe of high-yield equities, looking to ensure that the Fund continues to produce a high level of income from companies that have a high current yield, growth of dividends and financial strength.

 

We thank our Shareholders for their participation and continued support.

 

3	Semi-Annual Report | April 30, 2024

 

 

IMPORTANT DISCLOSURES AND RISKS

The views expressed in this report reflect those as of the date this is written and may not reflect the author’s views on the date this report is first published or anytime thereafter. These views are subject to change at any time, based on market and other conditions and should not be construed as a recommendation or advice of any kind. These views are intended to assist shareholders in understanding the Fund’s investment methodology and do not constitute investment advice. This report may contain discussions about investments that may or may not be held by the Fund as of the date of this report. All current and future holdings are subject to risk and to change. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

 

There can be no assurance that the Fund will achieve its investment objective. The net asset value of the Fund will fluctuate with the value of the underlying securities. Performance data quoted represents past results. Past performance is no guarantee of future results. The Fund is not able to predict whether its shares will trade above, below, or at net asset value in the future. This information does not represent an offer, or the solicitation of an offer, to buy or sell securities of the Fund.

 

An investment in the Miller/Howard High Income Equity Fund is subject to risk, including the possible loss of principal. Fund risks include, but are not limited to, the following: Non-US markets may be smaller, less liquid and more volatile than the major markets in the United States and, as a result, Fund share values may be more volatile. Trading in non-US markets typically involves higher expense than trading in the United States. The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. These additional risks may be heightened for securities of companies located in, or with significant operations in emerging market countries.

 

Companies that issue dividend yielding equity securities are not required to continue to pay dividends on such stock. The Fund may be exposed to liquidity risk that effect the Fund’s ability to sell particular securities or close call option positions at an advantageous price or in a timely manner. The Fund invests in small and medium size companies, which carry greater risk than with larger, more established companies.

 

MLP entities are typically focused in the energy, natural resources and real estate sectors of the economy. A downturn in the energy, natural resources or real estate sectors of the economy could have an adverse impact on the Fund. Changes to current tax law and regulations could affect the treatment of distributions, including (but not limited to) ordinary income, capital gains or return of capital.

 

Dow Jones US Select Dividend Index aims to represent the leading stocks in the United States by dividend yield. Constituent weightings are assigned annually based on indicated annual dividend yield.

 

NASDAQ US Broad Dividend Achievers Index is a market cap index composed of stocks that have been selected annually based on stocks of companies that have historically increased and paid dividends annually and are listed on AMEX, NYSE, or NASDAQ.

 

Russell 1000 Index measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 93% of the total market capitalization of that index.

 

April 30, 2024| Semi-Annual Report

4

 

 

Russell 3000 Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth.

 

Russell 3000 Value Index measures the performance of the broad value segment of the U.S. equity universe. It includes those Russell 3000 companies with lower price-to-book ratios and lower expected growth values.

 

The Standard & Poor’s 500 Index (“S&P 500 Index”) is a capitalization-weighted index of 500 widely held common stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

 

One cannot invest directly in an index.

 

 

5	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

 

Allocation of Portfolio Investments

(Expressed as a Percentage of Long-Term Investments)

April 30, 2024

(Unaudited)

 

 

See accompanying Notes to Financial Statements | April 30, 2024| Semi-Annual Report

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Miller/Howard High Income Equity Fund

Schedule of Investments

April 30, 2024

(Unaudited)

 

		Shares				Value
Common Stocks — 62.9%
Basic Chemical Manufacturing — 2.7%
Huntsman Corp.			240,000			$	5,726,400
Biological Products, except Diagnostic Substances — 3.1%
Gilead Sciences, Inc. (c)			100,000				6,520,000
Crude Petroleum Extraction — 2.2%
Petroleo Brasileiro SA - ADR			275,000				4,666,750
Electric Power Generation, Transmission and Distribution — 5.3%
Exelon Corp.			130,000				4,885,400
Portland General Electric Co.(a)			150,000				6,484,501
							11,369,901
Electric Services — 6.0%
Dominion Energy, Inc.			150,000				7,647,000
OGE Energy Corp.			150,000				5,197,500
							12,844,500
Iron Ore Mining — 2.6%
Vale SA - ADR			455,000				5,537,350
Nondepository Credit Intermediation — 3.0%
OneMain Holdings, Inc.			121,259				6,318,806
Natural Gas Transmission — 3.3%
The Williams Cos., Inc.			180,000				6,904,800
Oil and Gas Extraction — 4.3%
Canadian Natural Resources Ltd.			120,000				9,098,400
Other Electric Power Generation — 2.6%
CMS Energy Corp.			90,000				5,454,900
Petroleum Refining — 2.2%
Suncor Energy, Inc.			125,000				4,773,750
Pharmaceutical Preparations — 2.1%
AbbVie, Inc.(c)			27,500				4,472,600
Pipeline Transportation of Natural Gas — 5.8%
Antero Midstream Corp.			325,000				4,498,000
TC Energy Corp. (c)			220,000				7,887,000
							12,385,000
Semiconductors & Related Devices — 3.4%
Texas Instruments, Inc. (d)			40,500				7,145,010
Support Activities for Mining — 3.1%
BHP Group Ltd. - ADR(a)			120,000				6,619,200

 

 

7	Semi-Annual Report | April 30, 2024| See accompanying Notes to Financial Statements

 

 

 

 

Miller/Howard High Income Equity Fund

Schedule of Investments (continued)

April 30, 2024

(Unaudited)

 

		Shares				Value
Surety Insurance — 3.4%
Old Republic International Corp.(d)			240,000			$	7,166,400
Tobacco Manufacturing — 5.6%
Altria Group, Inc.			180,000				7,885,800
British American Tobacco Plc - ADR			135,000				3,971,700
							11,857,500
Traveler Accommodation — 2.2%
Vail Resorts, Inc.(a)			25,000				4,734,250
Total Common Stocks (Cost $132,257,699)							133,595,517
Master Limited Partnerships — 17.2%
Investment Advice — 3.2%
AllianceBernstein Holding LP			204,000				6,831,960
Natural Gas Transmission — 14.0%
Energy Transfer L.P.			750,500				11,805,365
Enterprise Products Partners L.P. (c)			300,000				8,424,000
MPLX LP(c)			224,000				9,363,200
							29,592,565
Total Master Limited Partnerships (Cost $21,872,050)							36,424,525
Real Estate Investment Trusts — 13.0%
Apple Hospitality REIT, Inc.			380,000				5,608,800
Lamar Advertising Co. - Class A(c)			50,000				5,792,500
Mid-America Apartment Communities, Inc.(a)			60,000				7,800,000
Realty Income Corp.(a)			99,060				5,303,672
Sabra Health Care REIT, Inc.			225,000				3,132,000
Total Real Estate Investment Trusts (Cost $27,451,410)							27,636,972
Business Development Corps — 5.3%
Business Credit Institutions — 3.9%
Ares Capital Corp.(a)			150,000				3,091,500
Hercules Capital, Inc.(a)			270,000				5,162,400
							8,253,900
Investing — 1.4%
Main Street Capital Corp.(a)			62,000				3,075,200
Total Business Development Corps (Cost $8,774,756)							11,329,100

 

 

See accompanying Notes to Financial Statements | April 30, 2024| Semi-Annual Report

8

 

 

 

 

Miller/Howard High Income Equity Fund

Schedule of Investments (continued)

April 30, 2024

(Unaudited)

 

		Shares				Value
Short-Term Investments — 13.8%
Investments Purchased with Proceeds from Securities Lending — 12.5%
Mount Vernon Liquid Assets Portfolio, LLC, 5.43%(b)			26,518,528			$	26,518,528
Money Market Funds — 1.3%
Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Class Institutional, 5.15%(b)			2,745,042				2,745,042
Total Short-Term Investments (Cost $29,263,570)							29,263,570
Total Investments — 112.2% (Cost $219,619,485)							238,249,684
Liabilities in Excess of Other Assets — (12.2)%							(25,988,982	)
Total Net Assets — 100.0%						$	212,260,702

 

Percentages are stated as a percent of net assets.

 

ADR - American Depository Receipt

 

PLC - Public Limited Company

 

SA - Sociedad Anónima

 

(a)	All or a portion of this security is on loan as of April 30, 2024. The total market value of these securities was $25,572,658 which represented 12.0% of net assets.

 

(b)	The rate shown represents the 7-day effective yield as of April 30, 2024.

 

(c)	All or a portion of the security is segregated as collateral at the broker on April 30, 2024. The value of the securities segregated as collateral is $35,408,530, which is 16.7% of total net assets.

 

(d)	All or a portion of this security has been pledged as collateral in connection with the Fund’s Special Custody Account Agreement. As of April 30, 2024, the total value of securities pledged as collateral for the Special Custody Account Agreement was $14,311,410.

 

9	Semi-Annual Report | April 30, 2024| See accompanying Notes to Financial Statements

 

 

Miller/Howard High Income Equity Fund

Statement of Assets and Liabilities

April 30, 2024

(Unaudited)

 

Assets:
Investments in unaffiliated securities, at value (Identified cost - $219,619,485) (1)		$	238,249,684
Dividends and interest receivable			871,757
Cash at broker			30,414
Other assets			14,000
Total Assets			239,165,855
LIABILITIES:
Payable for collateral on securities loaned			26,518,528
Payable to Adviser			156,746
Accrued administration expense			31,356
Accrued audit expense			45,450
Accrued custody expense			4,291
Accrued legal expense			75,849
Accrued directors expense			7,520
Other liabilities			65,413
Total Liabilities			26,905,153
NET ASSETS		$	212,260,702
NET ASSETS consist of:
Paid-in capital		$	233,417,164
Accumulated losses			(21,156,462	)
Total Net Assets		$	212,260,702
Shares at April 30, 2024			18,690,675
NET ASSET VALUE PER COMMON SHARE OUTSTANDING		$	11.36

 

(1)	Including securities on loan at a value of $25,572,658.

 

See accompanying Notes to Financial Statements | April 30, 2024| Semi-Annual Report

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Miller/Howard High Income Equity Fund

Statement of Operations

For the Six Months Ended April 30, 2024

(Unaudited)

 

Investment Income:
Dividend income (net of $95,078 foreign withholding tax)		$	4,652,169
Interest income			147,774
Securities lending income			96,590
Total Investment Income			4,896,533
Expenses:
Advisory fees			930,491
Professional fees			309,499
Administration fees			94,575
Trustees’ fees and expenses			69,020
Miscellaneous			66,130
Compliance fees			34,811
Transfer agent fees and expenses			17,189
Shareholder reporting expenses			16,656
Registration and filing fees			15,244
Custodian fees and expenses			13,187
Interest expense			11,116
Total Expenses			1,577,918
Net Investment Income			3,318,615
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Investments in unaffiliated securities			1,170,131
Options			391,318
Net realized gain (loss)			1,561,449
Net change in unrealized appreciation (depreciation) on:
Investments in unaffiliated securities			19,080,940
Options			5,200
Net change in unrealized appreciation (depreciation)			19,086,140
Net realized and unrealized gain (loss)			20,647,589
Net Increase (Decrease) in Net Assets resulting from Operations		$	23,966,204

 

 

11	Semi-Annual Report | April 30, 2024| See accompanying Notes to Financial Statements

 

 

 

 

Miller/Howard High Income Equity Fund

Statements of Changes in Net Assets

 

		For the period ended April 30, 2024 (Unaudited)				For the year ended October 31, 2023
Change in Net Assets:
From Operations:
Net investment income		$	3,318,615			$	5,113,068
Net realized gain (loss)			1,561,449				(4,382,946	)
Net change in unrealized appreciation (depreciation)			19,086,140				1,261,434
Net increase (decrease) in net assets resulting from operations			23,966,204				1,991,556
Dividends and Distributions to Shareholders from:
Net investment income			(5,719,346	)			(5,745,170	)
Return of capital			—				(5,693,523	)
Total dividends and distributions to shareholders			(5,719,346	)			(11,438,693	)
Total increase (decrease) in net assets			18,246,858				(9,447,137	)
Net Assets:
Beginning of year/period			194,013,844				203,460,981
End of year/period		$	212,260,702			$	194,013,844

 

 

See accompanying Notes to Financial Statements | April 30, 2024| Semi-Annual Report

12

 

 

 

 

Miller/Howard High Income Equity Fund

Statement of Cash Flows

For the Six Months Ended April 30, 2024

(Unaudited)

 

Cash Flows from Operating Activities:
Net increase in net assets resulting from operations		$	23,966,204
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchases of long-term investments			(46,141,352	)
Net purchases and sales of short-term investments			4,317,971
Proceeds from sales of long-term investments			41,932,113
Proceeds from option transactions			534,751
Return of capital on distributions received			1,357,137
Increase in collateral for securities loaned			(4,421,684	)
Increase in payable upon return of securities loaned			4,421,684
Net increase in dividends and interest receivable and other assets			(44,332	)
Net increase in accrued expenses and other liabilities			75,368
Net change in unrealized (appreciation) depreciation of investment securities			(19,086,140	)
Net realized gain on investment securities			(1,437,398	)
Cash provided by operating activities			5,474,322
Cash Flows from Financing Activities:
Decrease in line of credit			—
Dividends paid			(5,719,346	)
Cash used in financing activities			(5,719,346	)
Decrease in cash			(245,024	)
Cash and Cash at Broker at beginning of period			275,438
Cash and Cash at Broker at end of period		$	30,414
Supplemental Disclosure of Cash Flow and Non-cash Information:
Interest paid		$	11,116

 

 

13	Semi-Annual Report | April 30, 2024| See accompanying Notes to Financial Statements

 

 

 

 

Miller/Howard High Income Equity Fund

Financial Highlights

 

		For the period/year ended
		April 30, 2024 (Unaudited)				October 31, 2023				October 31, 2022				October 31, 2021				October 31, 2020				October 31, 2019
Per Common Share Data (1)
Net asset value, beginning of year/period		$	10.38			$	10.89			$	10.99			$	6.94			$	10.55				11.03
Income from Investment Operations
Net investment income (loss)			0.18				0.27				0.37				0.29				0.28				0.44
Net realized and unrealized gains (losses)			1.11				(0.17	)			0.11				4.32				(3.05	)			0.42
Total from investment operations			1.29				0.10				0.48				4.61				(2.77	)			0.86
Distributions to Common Stockholders
Net investment income			(0.31	)			(0.31	)			(0.41	)			(0.53	)			(0.17	)			(0.29	)
Return of capital			—				(0.30	)			(0.17	)			(0.03	)			(0.69	)			(1.10	)
Total distributions to common stockholders			(0.31	)			(0.61	)			(0.58	)			(0.56	)			(0.86	)			(1.39	)
Organizational and Offering costs on issuance of common stock			—				—				—				—				—				—
Premiums less commissions and offering costs on issuance of common stock			—				—				—				—				0.02	(2)			0.05	(2)
Total capital stock transactions			—				—				—				—				0.02				0.05
Net asset value, end of year/period		$	11.36			$	10.38			$	10.89			$	10.99			$	6.94			$	10.55
Per common share market value, end of year/period		$	10.94			$	9.59			$	10.13			$	10.30			$	5.98			$	11.79
Total investment return based on market value (3)			17.36	%			0.46	%			4.04	%			82.84	%			(43.27	)%			20.99	%
Total investment return based on net asset value (4)			12.49	%			0.79	%			4.36	%			67.61	%			(26.93	)%			8.70	%

 

 

 

See accompanying Notes to Financial Statements | April 30, 2024| Semi-Annual Report

14

 

 

 

 

Miller/Howard High Income Equity Fund

Financial Highlights (continued)

 

		For the period/year ended
		April 30, 2024 (Unaudited)				October 31, 2023				October 31, 2022				October 31, 2021				October 31, 2020				October 31, 2019
Supplemental Data and Ratios
Net assets applicable to common stockholders, end of year/period (000’s)		$	212,261			$	194,014			$	203,461			$	205,439			$	129,777				186,905
Ratio of expenses to average net assets			1.53	%(7)			2.27	%			2.34	%			2.19	%			2.39	%			2.51	%
Ratio of net investment income to average net assets			3.21	%(7)			2.48	%			3.26	%			2.85	%			3.39	%			4.05	%
Ratio of interest expense to average net assets			0.01	%(7)			0.69	%			0.42	%			0.21	%			0.30	%			0.64	%
Borrowings outstanding (000’s)		$	—			$	—			$	44,500			$	50,500			$	32,300			$	37,500
Asset coverage per $1,000 of indebtedness (5)		$	—			$	—			$	5,572			$	5,068			$	5,018				5,984
Portfolio turnover rate			21	%(6)			89	%			116	%			155	%			277	%			166	%

 

(1)	Information presented relates to a share of common stock outstanding for the entire period. Calculated using average shares outstanding method.

(2)	Represents the premium on the at the market offering of $0.028 and $0.076 per share, respectively, less underwriting and offering costs of $0.009 and $0.028, respectively, per share for the years ended October 31, 2020 and October 31, 2019.

(3)

Total investment return is calculated assuming a purchase of common stock at the beginning of the period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to the Fund’s dividend reinvestment plan.

(4)

Total investment return is calculated assuming a purchase of common stock at the net asset value at the beginning of the period (or initial public offering price) and a sale at the net asset value on the last day of the year reported. The calculation also assumes reinvestment of distributions at actual prices pursuant to the Fund’s dividend reinvestment plan.

(5)

Asset coverage per $1,000 indebtedness is calculated by subtracting the Fund’s liabilities and indebtedness not represented by senior securities from the Fund’s total assets, dividing the result by the aggregate amount of the Fund’s senior securities representing indebtedness then outstanding, and multiplying the result by 1,000.

(6)	Not Annualized.

(7)	Annualized.

 

 

 

15	Semi-Annual Report | April 30, 2024| See accompanying Notes to Financial Statements

 

 

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements

April 30, 2024

(Unaudited)

 

1. Organization

Miller/Howard High Income Equity Fund (the “Fund”) was formed as a Delaware statutory trust on April 21, 2011, and is registered under the Investment Company Act of 1940 (the “1940 Act”) as a closed-end, diversified management investment company. The Fund is managed by Miller/ Howard Investments, Inc. (“Adviser”). The Fund commenced operations on November 24, 2014. The Fund’s stock is listed on the New York Stock Exchange under the symbol “HIE.”

 

The Fund will terminate on November 24, 2024, absent shareholder approval to extend such term. If the Fund’s Board of Trustees (“Board”) believes that under the current market conditions it is in the best interest of the Fund’s shareholders to do so, the Board may extend the termination date for one year, to November 24, 2025, without a shareholder vote upon the affirmative vote of three-quarters of the Board’s trustees then in office.

 

The Fund’s primary investment objective is to seek a high level of current income. As a secondary objective the Fund seeks capital appreciation when consistent with its primary investment objective. There can be no assurance that the Fund will achieve its investment objectives. The Fund will attempt to achieve its investment objectives by investing, under normal market conditions, at least 80% of its total assets in dividend or distribution paying equity securities of U.S. companies and non-U.S. companies traded on U.S. exchanges.

 

2. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Investment Companies.

 

A. Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

 

B. Security Valuation

Portfolio securities are valued at their current fair market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board.

 

April 30, 2024| Semi-Annual Report

16

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean price. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options).

 

Other securities may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security.

 

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, and analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities.

 

C. Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three- tier hierarchy is utilized to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For example, market participants would consider the risk inherent in a particular valuation technique used to measure fair value, such as a pricing model, and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants

 

17	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

 

Level 1 – quoted prices in active markets for identical securities

 

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

 

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

As of April 30, 2024, the Fund’s assets and liabilities carried at market value were classified as follows:

 

Investments in Securities(a)		Total				Level 1				Level 2				Level 3
Assets
Common Stock		$	133,595,517			$	133,595,517			$	—			$	—
Master Limited Partnerships			36,424,525				36,424,525				—				—
Real Estate Investment Trusts			27,636,972				27,636,972				—				—
Business Development Corps			11,329,100				11,329,100				—				—
Short-Term Investment(b)			2,745,042				2,745,042				—				—
Investments Purchased with Proceeds from Securities Lending(c)			26,518,528				—				—				—
Total Investment in Securities		$	238,249,684			$	211,731,156			$	—			$	—

 

(a)	All industry classifications are identified in the Schedule of Investments.

 

(b)	Short-term investment is a sweep investment for cash balances in the Fund at April 30, 2024.

 

April 30, 2024| Semi-Annual Report

18

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

(c)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been categorized in the fair value hierarchy in accordance with ASC 820. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities.

 

The Fund did not hold any Level 3 Securities during the period ended April 30, 2024.

 

D. Security Transactions and Investment Income

Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on a specific identified cost basis. Interest income is recognized on the accrual basis. Dividend income and distributions are recognized on the ex-dividend date and withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

 

The Fund may hold the securities of real estate investments trusts (“REITs”). Distributions from such investments may include income, capital gains and return of capital. The Fund may also hold the securities of master limited partnerships (“MLPs”). Distributions from such investments may include income and return of capital. The actual character of amounts received during the year is not known until after the REIT and MLP fiscal year ends. The Fund records the character of distributions received from REITs and MLPs during the year based on estimates available. The characterization of distributions received by the Fund may be subsequently revised based on the information received from the REITs and MLPs after their tax reporting periods conclude.

 

E. Foreign Currency Translation

The books and records of the Fund are maintained in U.S. dollars. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income, and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities. However, for Federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gain or loss from the sale of investment securities, and payables and receivables arising from trade-date and settlement-date differences.

 

F. Dividends and Distributions to Shareholders

The Fund intends to make regular monthly cash distributions of all or a portion of its investment company taxable income (which includes ordinary income and short-term capital gains) to common shareholders. The Fund also intends to make annual distributions of its “net capital gain” (which is the excess of net long-term capital gains over net short-term capital losses). The Fund will pay common shareholders annually at least 90% of its investment company taxable income. Various factors will affect the level of the Fund’s investment company taxable income,

 

19	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

such as its asset mix. To permit the Fund to maintain more stable monthly distributions, the Fund may from time to time distribute less than the entire amount of income earned in a particular period, which would be available to supplement future distributions. As a result, the distributions paid by the Fund for any particular monthly period may be more or less than the amount of income actually earned by the Fund during that period.

 

Dividends from net investment income and distributions from realized gains from investment transactions have been determined in accordance with Federal income tax regulations and may differ from net investment income and realized gains recorded by the Fund for financial reporting purposes. These differences, which could be temporary or permanent in nature may result in reclassification of distributions; however, net investment income, net realized gains and losses, and net assets are not affected.

 

G. Federal Income Taxation

The Fund has elected to be treated as, and to qualify each year for special tax treatment afforded to, a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (“IRC”). In order to qualify as a RIC, the Fund must, among other things, satisfy income, asset diversification and distribution requirements. As long as it so qualifies, the Fund will not be subject to U.S. federal income tax to the extent that it distributes annually its investment company taxable income and its net capital gain. The Fund intends to distribute at least annually all or substantially all of such income and gain. If the Fund retains any investment company taxable income or net capital gain, it will be subject to U.S. federal income tax on the retained amount at regular corporate tax rates.

 

H. Derivative Financial Instruments

The Fund provides disclosure regarding derivatives and hedging activity to allow investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund’s results of operations and financial position.

 

The Fund occasionally sells (“writes”) put options on securities already held in its portfolio or securities that are candidates for inclusion in the portfolio. The strategy is designed to provide the Fund with the ability to acquire securities that the Adviser is interested in at attractive valuations while generating realized gains from premiums as a means to enhance distributions.

 

The Fund may occasionally purchase put options. A purchaser of a put option has the right, but not the obligation, to sell the underlying instrument at an agreed upon price (“strike price”) to the option seller.

 

The Fund occasionally sells (“writes”) call options on securities already held in its portfolio. The strategy is designed to generate realized gains from premiums as a means to enhance distributions.

 

April 30, 2024| Semi-Annual Report

20

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

The Fund may occasionally purchase call options. A purchaser of a call option has the right, but not the obligation, to purchase the underlying instrument at the strike price from the option seller.

 

Written Options – Premiums received by the Fund for written options are included in the Statement of Assets and Liabilities. The amount of the liability is adjusted daily to reflect the fair value of the written option and any change in fair value is recorded as unrealized appreciation (depreciation). Premiums received from written options that expire are treated as realized gains. The Fund records a realized gain (loss) on written options based on whether the cost of the closing transaction exceeds the premium received. If a call option is exercised by the option buyer, the premium received by the Fund is added to the proceeds from the sale of the underlying security to the option buyer and compared to the cost of the closing transaction to determine whether there has been a realized gain or loss. If a put option is exercised by an option buyer, the premium received by the option seller reduces the cost basis of the purchased security.

 

Written uncovered call options subject the Fund to unlimited risk of loss. Written covered call options limit the upside potential of a security above the strike price. Put options written subject the Fund to risk of loss if the value of the security declines below the exercise price.

 

Purchased Options – Premiums paid by the Fund for purchased options are included in the Statement of Assets and Liabilities as an investment. The option is adjusted daily to reflect the fair value of the option and any change in fair value is recorded as unrealized appreciation or depreciation of investments. If the option is allowed to expire, the Fund will lose the entire premium paid and record a realized loss for the premium amount. Premiums paid for purchased options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain/loss or cost basis of the security.

 

The Fund has adopted the disclosure provision of FASB ASC 815, Derivatives and Hedging. ASC 815 requires enhanced disclosures about the Fund’s use of and accounting for derivative instruments and the effect of derivative instruments on the Fund’s results of operations and financial position. Tabular disclosure regarding derivative fair value and gain/loss by contract type (e.g., interest rate contracts, foreign exchange contracts, credit contracts, etc.) is required and derivatives accounted for as hedging instruments under ASC 815 must be disclosed separately from those that do not qualify for hedge accounting. Even though the Fund may use derivatives in an attempt to achieve an economic hedge, the Fund’s derivatives are not accounted for as hedging instruments under ASC 815.

 

21	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

The following table presents the effect of derivatives on the Statement of Operations for the period ended April 30, 2024:

 

Derivatives not accounted for as hedging instruments under ASC 815		Location of Gains (Losses) on Derivatives				Net Realized Gain (Loss) on Derivatives				Net Change in Unrealized Appreciation (Depreciation) on Derivatives
Written equity options			Options			$	391,318			$	5,200

 

The average monthly notional value of written options for the Fund for the period ended April 30, 2024 was $3,764,298.

 

3. Concentration of Risk

The Fund’s investment objective is to seek a high level of current income. Under normal conditions, the Fund will have at least 80% of its total assets (including any assets obtained through leverage) invested in dividend or distribution paying equity securities of U.S. companies and non-U.S. companies traded on U.S. exchanges. Equity securities the Fund may invest in include common stocks, preferred stocks, convertible securities, warrants, depository receipts and equity interests in trust and other entities. The Fund may also invest up to 25% of its total assets in securities of MLPs.

 

4. Agreements and Related Party Transactions

The Fund has entered into an Investment Advisory Agreement (the “Agreement”) with the Adviser. Under the terms of the Agreement, the Fund in the period ended April 30, 2024 paid the Adviser a fee equal to an annual rate of 0.90% of the Fund’s average weekly Managed Assets (defined as the average weekly total assets minus all accrued expenses incurred in the normal course of operations other than liabilities or obligations attributable to investment leverage, including, without limitation, investment leverage obtained though (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities and/or (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s investment objectives and policies). The Adviser earned $930,491 in advisory fees for the period ended April 30, 2024.

 

U.S. Bank Global Fund Services serves as the Fund’s administrator and fund accountant.

 

Equiniti Trust Company, LLC serves as the Fund’s transfer agent, registrar and dividend disbursing agent and agent for the automatic dividend reinvestment plan.

 

U.S. Bank, N.A. serves as the Fund’s custodian.

 

April 30, 2024| Semi-Annual Report

22

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

One of the Fund’s Trustees is an employee of the Adviser.

 

5. Income Taxes

The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute all or substantially all of its taxable income. Accordingly, no provision for federal income taxes is included in the financial statements.

 

The tax character of dividends paid to shareholders during the years ended October 31, 2022 and 2023, were as follows:

 

		Ordinary Income				Net Long Term Capital Gains				Return of Capital				Total Distributions Paid
2022		$	7,714,433			$	—			$	3,107,468			$	10,821,901
2023		$	5,745,170			$	—			$	5,693,523			$	11,438,693

 

The amount and character of income and capital gain distribution to be paid, if any, are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These differences could be temporary or permanent in nature. To the extent these differences are permanent in nature, such differences are reclassified at the end of the fiscal year among accumulated losses and paid-in capital. Accordingly, on October 31, 2023, accumulated losses were decreased by $105,276 and paid-in capital was decreased by $105,276. This reclassification has no effect on the net assets of the Fund.

 

The following information is provided on a tax basis as of October 31, 2023:

 

Cost of investments		$	215,930,127
Unrealized appreciation		$	17,374,465
Unrealized depreciation		$	(17,999,510	)
Net unrealized appreciation (depreciation)		$	(625,045	)
Undistributed ordinary income			—
Undistributed long term gains			—
Distributable earnings			—
Other accumulated gain/(loss)		$	(38,778,275	)
Total accumulated gain/(loss)		$	(39,403,320	)

 

23	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

At October 31, 2023 the Fund had capital loss carry forwards for federal income tax purposes available to offset future capital gains as follows:

 

		Non-Expiring
Short-Term		$	4,448,775
Long-Term		$	34,329,500
Total		$	38,778,275

 

The Fund utilized $0 of capital loss carry forwards during the fiscal year.

 

The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken on U.S. tax returns and state tax returns of the Fund. The tax years 2020 through 2023 are open to examination by the tax authorities in the United States. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. It is the Fund’s policy to record interest and penalties related to uncertain tax benefits as a component of income taxes, as appropriate.

 

6. Investment Transactions

For the period ended April 30, 2024, the Fund purchased (at cost) and sold securities (proceeds received) in the amount of $46,141,352 and $41,932,113 (excluding short-term securities), respectively.

 

7. Common Stock

The Fund has unlimited shares of capital stock authorized and 18,690,675 shares outstanding at April 30, 2024. There were no transactions in common stock for the period ended April 30, 2023.

 

8. Special Custody Account Agreement

On September 19, 2017, the Fund entered into a $50,000,000 Special Custody Account Agreement (“Agreement”) with Interactive Brokers LLC (“Interactive Brokers”). The following shows the key terms of this agreement:

 

Loan Amount	Interest Rate
$0-$100,000	Federal Funds Rate + 1.50%
$100,000.01-$1,000,000	Federal Funds Rate + 1.00%
$1,000,000.01-$50,000,000	Federal Funds Rate + 0.75%
$50,000,000.01+	Federal Funds Rate + 0.50%

 

April 30, 2024| Semi-Annual Report

24

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

On March 16, 2021, the Agreement was amended to increase the borrowing limit to $65,000,000. The Fund did not make any borrowings during the period ended April 30, 2024. At April 30, 2024, the principal balance outstanding was $0. The Fund may borrow up to an additional $65,000,000 under the Agreement.

 

Under the terms of the Agreement, the outstanding principal balance must be collateralized with securities of the Fund in an amount as specified in the Agreement. In addition, the Fund must maintain asset coverage required under the 1940 Act. If the Fund fails to maintain the required asset coverage, it may be required to repay a portion of an outstanding balance until the coverage requirement has been met. At April 30, 2024, the Fund was in compliance with the terms of the Agreement.

 

9. Securities Lending

The Fund may lend up to 33 1/3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program administered by U.S. Bank N.A. (“the Custodian”). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The fund receives income from securities lending from fees paid to the Fund by the borrowers and/or from the reinvestment of the cash collateral. Funds typically compensate their lending agents with a share of the revenue generated by the lending program, and may pay lending agents an additional fee for managing the cash collateral reinvestment. The amount of security lending income depends on a number of factors including the type of security and length of the loan. The Fund continues to receive dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the cost associated with lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from these risks by contract with the Custodian.

 

As of April 30, 2024, the value of securities on loan and payable for collateral due to broker were $25,572,658 and $26,518,528, respectively.

 

The cash collateral received was invested in the Mount Vernon Liquid Assets Portfolio, LLC (“Portfolio”) as shown on the Schedule of Investments. The Portfolio is a private fund that invests in high-quality, short term investments, similar to a money market fund. However, the Portfolio is

 

25	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Notes to Financial Statements (continued)

April 30, 2024

(Unaudited)

 

not registered with the Securities and Exchange Commission (“SEC”) and is not required to meet the regulatory requirements of a money market fund registered with the SEC. The Portfolio is only offered to participants in the Custodian’s security lending program.

 

10. Indemnifications

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts that provide general indemnification to other parties. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred, and may not occur.

 

11. Subsequent Events

In preparing these financial statements, the Fund has evaluated events and transactions through the date of issuance for potential recognition or disclosure resulting from subsequent events. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments to the financial statements.

 

April 30, 2024| Semi-Annual Report

26

 

 

Miller/Howard High Income Equity Fund

Additional Information

April 30, 2024

(Unaudited)

 

Trustees and Officer Compensation

The Fund does not compensate any of its trustees who are “interested persons,” as defined in Section 2(a)(19) of the 1940 Act. For the period ended April 30, 2024, the aggregate compensation paid by the Fund to the independent trustees was $61,500. The Fund did not pay any special compensation to any of its trustees or officers. Further Mr. Paul Kazarian has agreed to serve as an Independent Trustee of the Fund without compensation from the Fund.

 

Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect the Fund’s actual results are the performance of the portfolio of investments held by it, the conditions in the U.S. and international financial markets, the price at which shares of the Fund will trade in the public markets and other factors discussed in filings with the SEC.

 

Proxy Voting Policies

The Board of Trustees of the Fund has delegated the voting of proxies for Fund securities to the Adviser pursuant to the Adviser’s proxy voting policies and procedures. Under these policies and procedures, the Adviser will vote proxies related to Fund securities in the best interests of the Fund and its shareholders.

 

A description of the policies and procedures the Fund used to determine how to vote proxies relating to portfolio securities owned by the Fund is available without charge upon request by calling the Fund at [phone]. Information regarding how the Fund voted the proxies related to the portfolio of securities during the period ended June 30 is available without charge by accessing this information on the SEC’s web site at www.sec.gov.

 

Availably of Quarterly Portfolio Holdings Schedule

The Fund files a complete schedules of portfolio holdings with the SEC for its first and third fiscal quarters as an exhibit to their reports on Form N-PORT. The Fund’s filings on Form N-PORT are available without charge, upon request on the SEC’s website (http://www.sec.gov) and by calling [phone].

 

Prospectus and Statement of Additional Information (“SAI”)

The SAI includes additional information about the Fund and is available upon request without charge by calling the Fund at [phone] or by visiting the SEC’s web site at www.sec.gov. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. For this and other important information regarding the Fund, please visit the Fund’s web site at www.hiefund.com. Read the prospectus carefully.

 

27	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Additional Information (continued)

April 30, 2024

(Unaudited)

 

Repurchase of Securities

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may from time to time purchase its shares of common stock in the open market when Fund shares are trading at a discount from their net asset value.

 

Certifications

The Fund’s President submitted to the New York Stock Exchange (“NYSE”) the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Fund Manual.

 

Net Asset Value

The Net Asset Value per share appears in the Publicly Traded Funds column, under the heading “World Equity Funds,” in Monday’s The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the heading “World Equity Funds.”

 

The Nasdaq symbol for the Net Asset Value per share is “XHIEX.” The Net Asset Value per share may be obtained each day by calling the Fund at [phone].

 

Automatic Dividend Reinvestment Plan (the “Fund’s Plan”)

Many of you have questions about the Fund’s Automatic Dividend Reinvestment Plan. We urge shareholders who want to take advantage of the Fund’s Plan and whose shares are held in “Street Name,” to consult your financial advisor about participating in the Fund’s Plan.

 

Under the Fund’s Automatic Dividend Reinvestment Plan, a shareholder whose common shares are registered in his or her own name will have all distributions reinvested automatically by Equiniti Trust Company, LLC, the Fund’s Transfer Agent, unless the shareholder elects to receive cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in “street name”) will be reinvested by the broker or nominee in additional shares under the Fund’s Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive dividends and distributions in cash. Investors who own common shares registered in street name should consult their broker-dealers for details regarding reinvestment. A participant in the Fund’s Plan may elect to receive all dividends in cash by contacting Equiniti Trust Company, LLC (the “Plan agent”) in writing at the address specified on the back cover or by calling the Plan agent at 1(800) 278-4353. Under the Fund’s Plan, whenever the market price of the common shares, including brokerage commissions, is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash distribution, participants in the Fund’s Plan will receive newly issued common shares. The number of shares to be issued will be computed at a per share rate equal to the greater of (i) the net asset value as most recently determined or (ii) 95% of the then-current market price of the common shares. The valuation date is the distribution payment date or, if that date is not a trading day on the NYSE, the next trading day. If the net asset value of the common shares at the time of valuation exceeds the market price of the common shares,

 

April 30, 2024| Semi-Annual Report

28

 

 

Miller/Howard High Income Equity Fund

Additional Information (continued)

April 30, 2024

(Unaudited)

 

participants will receive shares purchased by the Fund’s Plan agent in the open market. If the Fund should declare a distribution payable only in cash, the Plan agent will buy the common shares for the Fund’s Plan in the open market, on the NYSE or elsewhere, for the participants’ accounts, except that the Plan agent will terminate purchases in the open market and instead the Fund will distribute newly issued shares at a per share rate equal to the greater of net asset value or 95% of market value if, following the commencement of such purchases, the market value of the common shares plus estimated brokerage commissions exceeds net asset value. The automatic reinvestment of dividends and other distributions will not relieve participants of any U.S. federal, state or local income tax that may be payable (or required to be withheld) on such dividends or other distributions.

 

29	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Privacy Policy

(Unaudited)

 

Privacy Policy

In order to conduct its business, Miller/Howard High Income Equity Fund, through its transfer agent, Equiniti Trust Company, LLC, collects and maintains certain nonpublic personal information about its shareholders of record with respect to transactions in shares of the Fund’s securities. This information includes the shareholder’s name and address, taxpayer identification number, share ownership and/or history, and dividend elections. The Fund does not collect or maintain personal information about its shareholders whose shares are held in “street name” by a financial institution such as a bank or broker.

 

The Fund does not disclose any nonpublic personal information about the Fund’s shareholders or former shareholders to third parties unless necessary to process a transaction, service an account or as otherwise permitted by law.

 

To protect your personal information, the Fund restricts access to nonpublic personal information about the Fund’s shareholders to those employees who need to know that information to provide services to the Fund’s shareholders. The Fund also maintains physical, electronic and procedural safeguards to protect your nonpublic personal information.

 

April 30, 2024| Semi-Annual Report

30

 

 

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31	Semi-Annual Report | April 30, 2024

 

 

Miller/Howard High Income Equity Fund

Trustees and Officers James E. Hillman, Chairman of the Board Roger Conrad, Independent Trustee Charles I. Leone, Independent Trustee Mayra Martinez-Sacco, Independent Trustee Paul Kazarian, Independent Trustee Catherine Johnston, President and Trustee Charles Atkins, Chief Compliance Officer Brian Helhoski, Chief Financial Officer Gregory Powell, Vice President Eva Horowitz, Secretary

Investment Advisor Miller/Howard Investments, Inc. P.O. Box 1598 Kingston, NY 12402   Legal Counsel Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022   Custodian U.S. Bank, N.A. 1555 N. Rivercenter Drive, Suite 302 Milwaukee, WI 53202   Transfer Agent Equiniti Trust Company, LLC (“EQ”) 48 Wall Street, Floor 23 New York, NY 10005   Fund Administrator U.S. Bank Global Fund Services 777 E. Wisconsin Avenue Milwaukee, WI 53202   Independent Registered Public Accounting Firm Deloitte & Touche LLP 555 E. Wells Street Suite 1400 Milwaukee, WI 53202

 

 

 

 

 

 

 

(b)

Not applicable.

 

Item 2. Code of Ethics.

 

Not applicable for semi-annual reports.

 

Item 3. Audit Committee Financial Expert.

 

Not applicable for semi-annual reports.

 

Item 4. Principal Accountant Fees and Services.

 

Not applicable for semi-annual reports.

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable for semi-annual reports.

 

Item 6. Investments.

 

(a)

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

 

(b)

Not Applicable.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable for semi-annual reports.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

 

Not applicable for semi-annual reports.

1

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 11/01/23-11/30/23	0	0	0	0
Month #2 12/01/23-12/31/23	0	0	0	0
Month #3 01/01/24-01/31/24	0	0	0	0
Month #4 02/01/24-2/29/24	0	0	0	0
Month #5 03/01/24-03/31/24	0	0	0	0
Month #6 04/01/24-04/30/24	0	0	0	0
Total	0	0	0	0

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.

 

Item 11. Controls and Procedures.

 

(a)

The Registrant’s President and Chief Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider.

 

(b)

There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

 

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

 

Not applicable for semi-annual reports.

 

Item 13. Exhibits.

 

(a)

(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not Applicable.

 

(2) A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

2

 

(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.

 

(4) Change in the registrant’s independent public accountant. There was no change in the registrant’s independent public accountant for the period covered by this report.

 

(b)

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

3

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)	Miller/Howard High Income Equity Fund
By (Signature and Title)	/s/ Catherine Johnston
	Catherine Johnston, Principal Executive Officer
Date	7/8/2024

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*	/s/ Catherine Johnston
	Catherine Johnston, Principal Executive Officer
Date	7/8/2024
By (Signature and Title)	/s/ Brian Helhoski
	Brian Helhoski, Principal Financial Officer
Date	7/8/2024

 

4

 

 

EX.99.CERT

 

CERTIFICATIONS

 

I, Catherine Johnston, certify that:

 

1.

I have reviewed this report on Form N-CSR of Miller/Howard High Income Equity Fund;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:	7/8/2024		/s/ Catherine Johnston
			Catherine Johnston
			Principal Executive Officer

EX.99.CERT

 

CERTIFICATIONS

 

I, Brian Helhoski, certify that:

 

1.

I have reviewed this report on Form N-CSR of Miller/Howard High Income Equity Fund;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:	7/8/2024		/s/ Brian Helhoski
			Brian Helhoski
			Principal Financial Officer

 

 

EX.99.906CERT

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the Miller/Howard High Income Equity Fund, does hereby certify, to such officer’s knowledge, that the report on Form N-CSR of the Miller/Howard High Income Equity Fund for the period ended April 30, 2024 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Miller/Howard High Income Equity Fund for the stated period.

 

/s/ Catherine Johnston		/s/ Brian Helhoski
Catherine Johnston Principal Executive Officer, Miller/Howard High Income Equity Fund		Brian Helhoski Principal Financial Officer, Miller/Howard High Income Equity Fund

 

Dated:

7/8/2024

 

This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by Miller/Howard High Income Equity Fund for purposes of Section 18 of the Securities Exchange Act of 1934.

 

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