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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 811-5399
---------------------------------------------
The New America High Income Fund Inc.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
33 Broad Street Boston MA 02109
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(Address of principal executive offices) (Zip code)
Richard E. Floor, Secretary, 53 State Street, Boston MA 02109
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(Name and address of agent for service)
Registrant's telephone number, including area code: 617-263-6400
----------------------------
Date of fiscal year end: 12/31
--------------------------
Date of reporting period: 1/1/04 - 6/30/04
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
Item 1 Report to Shareholders
THE NEW AMERICA HIGH INCOME FUND, INC.
[NEW AMERICA HIGH INCOME FUND LOGO]
SEMI-ANNUAL REPORT JUNE 30, 2004
August 20, 2004
DEAR FELLOW SHAREHOLDER,
Sometimes no news is good news. Neither the Fund's dividend nor its net asset
value ("NAV") has moved significantly during the first 6 months of the year,
despite the turmoil in the fixed income market and reductions in dividends at
other income funds. The year opened with the Fund's NAV at $2.19 and at the half
way mark it was $2.14. Based on current earnings, the Fund continues to target
the current dividend of $.0175 per month (subject to future market conditions
and portfolio performance) despite the rising cost of the Fund's leverage. The
annualized dividend calculated using the June 30th market price of $1.94 and the
current monthly dividend was 10.8%. One significant change during the period was
an increase in the market price discount from NAV of 1.4% on December 31st to
9.4% as of June 30th. We cannot say for certain why there is discount on our
Fund's shares and on those of some other income funds, however discount and
premium levels do tend to fluctuate. Over the longer term, the key issue is not
the short term swings in the discount or premium, but the quality and earning
power of the underlying portfolio.
As always we remind you, leverage is a two-edged sword. Usually when the market
declines our NAV will decline more rapidly than the market and the reverse is
generally true in a bull market. In addition, rising interest rates increase the
cost of the Fund's leverage, reducing the income spread benefit to the dividend.
Despite the reduced spread between the cost of the leverage and the earnings on
the portfolio assets, the leverage is still an important contributor to the
Fund's dividend. The increase in the cost of the leverage due to rising interest
rates is partially offset by the Fund's current interest rate swap position. As
rates rise, we expect new high yield bonds with higher coupons to be issued
which should also help mitigate the increasing cost of the leverage.
The mutual fund industry has been rocked with scandals involving a number of
companies who were believed to be above such shenanigans. In this environment,
it bears remembering that as a closed end fund, our shares trade on a stock
exchange, so the Fund does not have the problems of trading after a 4 p.m.
pricing deadline. Shareholders who attempt to profit by market timing are
trading with other shareholders, so have no direct impact on the portfolio
management. The Fund's Board and staff do not have any financial interest in the
Fund's investment adviser, which does not have any representation on the Board.
The Board is free to change investment advisers and has done so in the recent
past. In addition, all of the Fund's officers and directors are shareholders.
Below you will find our investment adviser, T. Rowe Price's, market outlook and
their strategy for the investment management of the Fund.
HIGH YIELD MARKET UPDATE
The high yield market got off to a strong start in the first three months of the
year only to cool quickly in the second quarter and forfeit some of its early
gains following a swift rise in interest rates. U.S. Treasury bonds set the
tempo for fixed income markets in general over the first six months of 2004. The
ten year government bond began the year at a yield of 4.24% and closed out the
first six months yielding 4.58%. Despite what was just a 34 basis point (0.34%)
increase in yield from the beginning of the year to the half-way point, action
in Treasuries over the first six months was quite dramatic. The rate on the
benchmark ten year government bond fell as low as 3.68% by mid-March and ended
the first quarter at a yield of 3.83%. By the second quarter, Treasury rates
began to reflect concerns that an expanding U.S. economy was bringing with it
the specter of inflation, and the yield on the ten year bond spiked as high has
4.87% by mid-June. On the last day of the second quarter, the Federal Open
Market Committee hiked the Fed Funds rate a quarter point to 1.25%, its first
rate increase in four years.
Despite the heady action in Treasuries throughout the first six months, the
damage to high yield bonds from the trend to higher interest rates was limited
by two factors; a tendency for lower quality bonds to exhibit less interest rate
sensitivity, and a positive credit environment for most companies. As measured
by the CS First Boston High Yield Index, the market delivered a 2.66% gain in
the first quarter, but lost .19% in the next three months. May was particularly
challenging, with the market down 1.58%. By the same measure, the high yield
market has delivered a 2.47% return over the first six months of 2004, but
stands up an impressive 11.75% over the trailing 12 month period ended June
30th.
The downside of the high yield market's strong relative showing in the first
half of the year has been a continued decrease in the difference or spread
between the yields on high yield debt and those on Treasury instruments. Spreads
narrowed about 50 basis points for the June quarter, to about 450 basis points
over comparable government bonds. Valuations for the lowest rated high yield
bonds seem particularly rich, with spreads for CCC-rated issues more than 200
basis points below long term historical averages. For the June quarter, CCC's
sharply outperformed higher quality sectors of the market, with interest rate
sensitive BB-rated bonds generating the biggest negative returns. For the
balance of the year, we anticipate that continued evidence of economic strength
will lead to more tightening from the Fed and higher interest rates across the
Treasury curve.
STRATEGY REVIEW
We have had two overriding goals over the last six months; preserving the
portfolio's ability to maintain its current dividend in a low coupon
environment, and protecting the Fund's principal from the negative effects of
higher interest rates. It has been a challenge in a market that for several
months allowed many high yield borrowers to successfully price new deals with
coupons below 7%, as bonds at these rates bring us short of our dividend goal
and are likely to depreciate sharply in a rising rate environment. Our approach
to this problem has been to overweight single-B rated issues relative to the
high yield debt market as a whole and to favor high coupon bonds trading at a
premium to their par values. These premium bonds still offer generous income and
should afford some protection from the negative effects of rising rates. As with
any strategy there are drawbacks. While these bonds should satisfy the current
dividend stream, they will under-perform lower coupon issues should interest
rates move lower rather than, as we expect, higher. With an economy growing
around 4% and the first of what are anticipated to be several rate increases
from the Federal Reserve, we think it's appropriate to sacrifice some capital
appreciation potential to focus on income and capital preservation.
Fortunately, the upward trend in Treasury rates since the beginning of the year
has brought with it at least one benefit - more attractive coupons on new high
yield issues. Throughout the second quarter we enthusiastically bought a number
of new credits with coupons of 9% and higher. And though scarcer than we'd
prefer, we continue to find previously issued bonds that carry yields high
enough to satisfy the Fund's dividend, and should the current economic climate
continue, possibly deliver some capital appreciation.
We anticipate remaining overweight in single-B rated debt into the second half
of the year. We believe that at this stage of the credit cycle, medium quality
high yield companies have more potential for credit improvement than companies
in the lower quality (CCC-rated) tiers. Bond prices tend to move inversely with
changes in interest rates, and generally, the lower the coupon, the greater the
sensitivity to changes in rates a bond will exhibit. We think single-B rated
issues offer greater insulation against the effects of rising rates versus
higher quality (BB-rated) issues, though we are intrigued by some of the lower
coupon BB-rated bonds that have traded down eight to ten percent due to rising
rates. We still think it is too early to move to a neutral weighting in BB's,
but if the move to higher rates that we forecast takes shape, we expect this
sector will eventually represent a
2
compelling relative value. Overall, the second half of 2004 does not look to be
much better than the first six months of the year, but the period of transition
could eventually set the stage for potentially attractive high yield returns in
2005.
Thank you for your continued interest in the Fund.
Sincerely,
/s/ Robert F. Birch /s/ Mark Vaselkiv
Robert F. Birch Mark Vaselkiv
President Vice President
The New America High Income Fund, Inc. T. Rowe Price Associates, Inc.
THE VIEWS EXPRESSED IN THIS UPDATE ARE AS OF THE DATE OF THIS LETTER. THESE
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET OR OTHER CONDITIONS. THE
FUND AND THE ADVISER DISCLAIM ANY DUTY TO UPDATE THESE VIEWS, WHICH MAY NOT BE
RELIED UPON AS INVESTMENT ADVICE. IN ADDITION, REFERENCES TO SPECIFIC COMPANY
SECURITIES SHOULD NOT BE REGARDED AS INVESTMENT RECOMMENDATIONS.
3
The New America High Income Fund, Inc.
SCHEDULE OF INVESTMENTS -- JUNE 30, 2004 (UNAUDITED)
(Dollar Amounts in Thousands)
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- 157.51% (d)
AEROSPACE AND DEFENSE -- 4.23%
$ 850 Aviall, Inc., Senior Notes,
7.625%, 07/01/11 B1 $ 884
250 BE Aerospace, Inc., Senior
Subordinated Notes,
8%, 03/1/08 Caa3 232
450 BE Aerospace, Inc., Senior
Subordinated Notes,
9.50%, 11/01/08 Caa3 438
550 BE Aerospace, Inc., Senior
Subordinated Notes,
8.875%, 05/01/11 Caa3 514
2,500 GenCorp, Inc., Senior
Subordinated Notes,
9.50%, 08/15/13 B2 2,600
600 Sequa Corporation, Senior Notes,
9%, 08/01/09 B1 639
650 Transdigm, Inc., Senior
Subordinated Notes,
8.375%, 07/15/11 B3 669
2,650 Vought Aircraft Industries, Inc.,
Senior Notes, 8%, 07/15/11 (g) B2 2,517
------------
8,493
------------
AUTOMOBILE -- 5.44%
175 Adesa, Inc., Senior
Subordinated Notes,
7.625%, 06/15/12 B1 176
700 Asbury Automotive Group, Inc.,
Senior Subordinated Notes,
8%, 03/15/14 B3 668
675 Autocam Corporation, Senior
Subordinated Notes,
10.875%, 06/15/14 (g) B3 655
75 Collins & Aikman Products, Co.,
Senior Unsecured Notes,
10.75%, 12/31/11 B2 75
590 Cummins, Inc., Senior Notes,
9.50%, 12/01/10 Ba2 668
900 Dana Corporation, Senior Notes,
9%, 08/15/11 Ba3 1,053
300 Delco Remy International, Inc.,
Senior Subordinated Notes,
9.375%, 04/15/12 (g) B3 291
300 Dura Operating Corporation,
Senior Subordinated Notes,
9%, 05/01/09 B2 295
$ 1,150 HLI Operating Company Inc.,
Senior Notes, 10.50%, 06/15/10 B1 $ 1,294
500 J.B. Poindexter & Co., Inc.,
Senior Notes,
8.75%, 03/15/14 (g) B1 506
450 MSX International, Inc., Senior
Subordinated Notes,
11.375%, 01/15/08 Caa1 351
375 Navistar International Corp.,
Senior Notes, 7.50%, 06/15/11 Ba3 381
375 RJ Tower Corporation, Senior
Unsecured Notes,
12%, 06/1/13 B3 357
1,457 TRW Automotive Inc.,
Senior Notes, 9.375%, 02/15/13 B1 1,646
1,291 TRW Automotive Inc.,
Senior Subordinated Notes,
11%, 02/15/13 B2 1,530
1,000 Visteon Corporation, Senior
Unsecured Notes,
7%, 03/10/14 Ba1 967
------------
10,913
------------
BEVERAGE, FOOD AND TOBACCO -- 3.64%
281 Agrilink Foods, Inc. ,
Senior Subordinated Notes,
11.875%, 11/01/08 B3 299
1,200 B&G Foods, Inc.,
Senior Subordinated Notes,
9.625%, 08/01/07 B3 1,221
400 Dole Food Company, Inc.,
Senior Notes, 8.625%, 05/01/09 B2 421
700 Dole Food Company, Inc.,
Senior Notes, 8.875%, 03/15/11 B2 740
1,175 Le-Nature's, Inc.,
Senior Subordinated Notes,
10.00%, 06/15/13 (g) Caa1 1,213
400 Merisant Co.,
Senior Subordinated Notes,
9.50%, 07/15/13 (g) B3 426
400 Pierre Foods, Inc.,
Senior Subordinated Notes,
9.875%, 07/15/12 (g) B3 406
2,200 Pinnacle Foods Holding Corporation,
Senior Subordinated Notes,
8.25%, 12/01/13 (g) B3 2,128
450 Wornick Co., Senior Secured Notes,
10.875%, 07/15/11 (g) B2 459
------------
7,313
------------
The accompanying notes are an integral
part of these financial statements.
4
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
BROADCASTING AND ENTERTAINMENT -- 6.96%
$ 800 CCO Holdings, LLC, Senior
Notes, 8.75%, 11/15/13 (g) B3 $ 776
1,675 Charter Communications
Holdings II, LLC, Senior
Notes, 10.25%, 09/15/10 (g) Caa1 1,696
800 Charter Communications
Operating, LLC, Senior Notes,
8%, 04/30/12 (g) B2 776
100 Charter Communications
Operating, LLC, Senior Notes,
8.375%, 04/30/14 (g) B2 98
600 Cinemark, Inc.,
Senior Discount Notes, 9.75%,
03/15/14 (g)(h) Caa1 391
75 Cinemark USA, Inc.,
Senior Subordinated Notes,
9%, 02/01/13 B3 82
1,650 CSC Holdings, Inc., Senior Notes,
7.625%, 04/01/11 B1 1,662
644 Echostar DBS Corporation,
Senior Notes, 9.125%,
01/15/09 Ba3 707
375 Echostar DBS Corporation,
Senior Notes, 10.375%,
10/01/07 Ba3 401
375 Insight Midwest, L.P.,
Senior Notes, 9.75%, 10/01/09 B2 395
625 Insight Midwest, L.P.,
Senior Notes, 10.50%, 11/01/10 B2 680
600 Mediacom Broadband LLC,
Senior Notes, 11%, 07/15/13 B2 636
2,475 Quebecor Media Inc., Senior Notes,
11.125%, 07/15/11 B2 2,821
500 Spanish Broadcasting System, Inc.,
Senior Subordinated Notes,
9.625%, 11/01/09 Caa1 526
1,625 Warner Music Group, Senior
Subordinated Notes,
7.375%, 04/15/14 (g) B3 1,564
656 XM Satellite Radio Inc.,
Senior Secured Notes,
12%, 06/15/10 Caa1 751
------------
13,962
------------
BUILDING AND REAL ESTATE -- 7.39%
$ 1,550 Associated Materials, Inc.,
Senior Subordinated Notes,
9.75%, 04/15/12 B3 $ 1,720
625 B.F. Saul Real Estate Investment
Trust, Senior Secured Notes,
7.50%, 03/1/14 B3 619
75 Building Materials Corporation
of America, Senior Notes,
7.75%, 07/15/05 B2 75
150 Building Materials Corporation
of America, Senior Notes,
8%, 10/15/07 B2 150
75 Building Materials Corporation
of America, Senior Notes,
8%, 12/1/08 B2 75
50 Building Materials Corporation
of America, Senior Notes,
8.625%, 12/15/06 B2 50
1,050 Collins & Aikman Floorcoverings,
Inc., Senior Subordinated Notes,
9.75%, 02/15/10 B2 1,066
400 GEO Group, Inc., Senior Notes,
8.25%, 07/15/13 B1 396
825 Hovnanian Enterprises, Inc.,
Senior Subordinated
Notes, 7.75%, 05/15/13 Ba3 823
750 LNR Property Corporation,
Senior Subordinated Notes,
7.25%, 10/15/13 Ba3 735
100 LNR Property Corporation,
Senior Subordinated Notes,
7.625%, 07/15/13 Ba3 100
775 Mobile Mini, Inc., Senior Notes,
9.50%, 07/01/13 B2 837
1,050 Norcroft Companies, L.P.,
Senior Subordinated Notes,
9%, 11/01/11 (g) B3 1,108
325 Omega Healthcare Investors, Inc.,
Senior Notes,
7%, 04/1/14 (g) B1 307
850 Riverside Forest Products Ltd.,
Senior Notes,
7.875%, 03/1/14 (g) B2 871
1,025 Shaw Group, Inc., Senior Notes,
10.75%, 03/15/10 Ba2 999
The accompanying notes are an integral
part of these financial statements.
5
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
-----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 750 Texas Industries, Inc., Senior Notes,
10.25%, 06/15/11 B1 $ 838
550 U.S. Concrete, Inc., Senior
Subordinated Notes,
8.375%, 04/1/14 (g) B3 550
700 WII Components, Inc., Senior
Notes, 10%, 02/15/12 (g) B2 700
675 WCI Communities, Inc., Senior
Subordinated Notes,
9.125%, 05/01/12 Ba3 724
975 WCI Communities, Inc., Senior
Subordinated Notes,
10.625%, 02/15/11 Ba3 1,070
300 Williams Scotsman, Inc.,
Senior Notes,
9.875%, 06/01/07 B3 297
650 Williams Scotsman, Inc., Senior
Secured Notes,
10%, 08/15/08 B2 705
------------
14,815
------------
CHEMICALS, PLASTICS AND RUBBER -- 8.05%
525 ARCO Chemical Company,
Debentures, 10.25%, 11/01/10 B1 538
825 BCP Caylux Holdings
Luxembourg S.C.A., Senior
Subordinated Notes,
9.625%, 06/15/14 (g) B3 858
1,650 Compass Minerals Group, Inc.,
Senior Subordinated Notes,
10%, 08/15/11 B3 1,836
475 Ethyl Corporation, Senior Notes,
8.875%, 05/01/10 B2 501
425 Freeport McMoran Resources,
Senior Notes, 7%, 02/15/08 Caa1 436
600 Huntsman International LLC,
Senior Notes,
9.875%, 03/01/09 B3 646
1,475 Huntsman LLC, Senior
Secured Notes,
11.625%, 10/15/10 B2 1,626
850 Invista, Senior Notes, Units,
9.25%, 05/01/12 (g) B1 854
2,000 Koppers Inc., Senior Secured Notes,
9.875%, 10/15/13 B2 2,190
$ 400 Lyondell Chemical Company,
Senior Notes, 9.50%, 12/15/08 B1 $ 418
725 Omnova Solutions, Inc.,
Senior Secured Notes,
11.25%, 06/1/10 B2 805
525 PolyOne Corporation, Senior
Notes, 10.625%, 05/15/10 B3 554
825 Resolution Performance Products,
LLC, Senior Notes,
9.50%, 04/15/10 B3 854
975 Rhodia S.A., Senior Notes,
10.25%, 06/01/10 (g) B3 985
1,500 Rhodia S.A., Senior
Subordinated Notes,
8.875%, 06/01/11 (g) Caa1 1,264
775 Rockwood Specialities Group, Inc.,
Senior Subordinated Notes,
10.625%, 05/15/11 B3 829
200 VWR International, Inc.,
Senior Notes,
6.875%, 04/15/12 (g) B2 201
725 VWR International, Inc., Senior
Subordinated Notes,
8%, 04/15/14 (g) B3 740
------------
16,135
------------
CONTAINERS, PACKAGING AND GLASS -- 12.75%
700 AEP Industries, Inc., Senior
Subordinated Notes,
9.875%, 11/15/07 B3 719
800 Ball Corporation, Senior Notes,
6.875%, 12/15/12 Ba3 811
1,675 Boise Cascade Corporation,
Senior Notes,
7%, 11/01/13 Ba2 1,708
775 Bway Corporation, Senior
Subordinated Notes,
10%, 10/15/10 B3 808
575 Constar International, Inc. Senior
Subordinated Notes,
11%, 12/01/12 Caa1 538
1,300 Crown European Holdings, S.A.,
Senior Secured Notes,
9.50%, 03/01/11 B1 1,427
1,725 Crown European Holdings, S.A.,
Senior Secured Notes,
10.875%, 03/01/13 B2 1,975
The accompanying notes are an integral
part of these financial statements.
6
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 500 Georgia-Pacific Corporation,
Senior Notes,
8.875%, 02/01/10 Ba2 $ 568
2,375 Georgia-Pacific Corporation,
Senior Notes,
9.375%, 02/01/13 Ba2 2,702
450 Graphic Packaging International, Inc.,
Senior Notes, 8.50%, 08/15/11 B2 481
175 Graphic Packaging International, Inc.,
Senior Subordinated, Notes,
9.50%, 08/15/13 B3 190
350 Greif Brothers Corporation, Senior
Subordinated Notes,
8.875%, 08/1/12 B2 376
750 Jefferson Smurfit Corporation,
Senior Notes, 7.50%, 06/01/13 B2 741
1,425 Longview Fibre Company,
Senior Subordinated Notes,
10%, 01/15/09 B2 1,539
1,735 MDP Acquisitions PLC, Senior
Notes, 9.625%, 10/01/12 B3 1,926
378 MDP Acquisitions PLC,
Subordinated Notes,
15.50%, 10/01/13 (b) Caa1 440
550 Owens-Brockway Glass
Container, Inc.,
Senior Notes, 8.25%, 05/15/13 B3 567
450 Owens-Brockway Glass
Container, Inc., Senior Secured
Notes, 7.75%, 05/15/11 B2 466
175 Owens-Brockway Glass
Container, Inc., Senior Secured
Notes, 8.75%, 11/15/12 B2 191
1,225 Owens-Brockway Glass
Container, Inc.,
Senior Secured Notes,
8.875%, 02/15/09 B2 1,323
1,550 Plastipak Holdings, Inc.,
Senior Notes,
10.75%, 09/01/11 B3 1,658
1,600 Potlatch Corporation,
Senior Subordinated Notes,
10%, 07/15/11 Ba1 1,776
375 Silgan Holdings, Inc.,
Senior Subordinated Notes,
6.75%, 11/15/13 B1 364
$ 975 Solo Cup Company, Senior
Subordinated Notes,
8.50%, 02/15/14 (g) B3 $ 916
100 Stone Container Corporation,
Senior Notes, 9.75%, 02/01/11 B2 110
350 Stone Container Finance
Company of Canada, Senior Notes,
11.50%, 08/15/06 (g) B2 353
950 Tekni-Plex, Inc., Senior Notes,
8.75%, 11/15/13 (g) B2 907
------------
25,580
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 4.43%
750 Aearo Company, Senior
Subordinated Notes,
8.25%, 04/15/12 (g) B3 765
275 AGCO Corporation, Senior Notes,
9.50%, 05/01/08 Ba3 298
850 Case New Holland Inc., Senior
Notes, 9.25%, 08/01/11 (g) Ba3 897
500 Columbus McKinnon Corporation,
Senior Subordinated Notes,
8.50%, 04/01/08 Caa1 455
450 General Cable Corporation,
Senior Notes, 9.50%, 11/15/10 B2 481
550 Manitowoc, Incorporated,
Senior Notes, 7.125%, 11/01/13 B1 550
1,150 National Waterworks, Inc.,
Senior Subordinated Notes,
10.50%, 12/01/12 B3 1,294
1,575 Rexnord Corp., Senior
Subordinated Notes,
10.125%, 12/15/12 B3 1,732
1,625 Trimas Corp. Senior Subordinated
Notes, 9.875%, 06/15/12 B3 1,731
700 Valmont Industries, Inc., Senior
Subordinated Notes,
6.875%, 05/01/14 (g) Ba3 686
------------
8,889
------------
DIVERSIFIED/CONGLOMERATE SERVICE -- 2.96%
1,425 Brand Services, Inc., Senior
Subordinated Notes,
12%, 10/15/12 B3 1,653
1,225 Brickman Group LTD, Senior
Subordinated Notes,
11.75%, 12/15/09 B2 1,409
The accompanying notes are an integral
part of these financial statements.
7
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 1,200 Coinmach Corporation, Senior
Notes, 9%, 02/01/10 B2 $ 1,206
1,600 Synagro Technologies, Inc.,
Senior Subordinated
Notes, 9.50%, 04/01/09 B3 1,672
------------
5,940
------------
ECOLOGICAL -- 1.87%
975 Allied Waste North America, Inc.,
Senior Secured Notes,
7.875%, 04/15/13 Ba3 1,019
1,625 Casella Waste Systems, Inc.,
Senior Subordinated Notes,
9.75%, 02/01/13 B3 1,755
900 IESI Corporation, Senior
Subordinated Notes,
10.25%, 06/15/12 B3 972
------------
3,746
------------
ELECTRONICS -- 7.28%
325 AMI Semiconductor, Inc., Senior
Subordinated Notes,
10.75%, 02/01/13 B3 379
325 Amkor Technology, Inc.,
Senior Notes,
7.125%, 03/15/11(g) B1 306
825 Amkor Technology, Inc.,
Senior Notes,
7.75%, 05/15/13 B1 780
275 Amkor Technology, Inc.,
Senior Notes,
10.50%, 05/01/09 B3 288
461 Avaya Inc., Senior Secured Notes,
11.125%, 04/01/09 B1 541
750 Chippac International Ltd., Senior
Subordinated Notes, Series B,
12.75%, 08/01/09 B3 801
875 Fairchild Semiconductor
Corporation, Senior
10.50%, 02/01/09 B2 952
1,025 Invensys PLC, Senior Notes,
9.875%, 03/15/11 (g) B3 1,022
375 Lucent Technologies, Inc.,
Senior Notes, 5.50%, 11/15/08 Caa1 355
1,150 New Asat Finance LLC,
Senior Notes
9.25%, 02/01/11 (g) B3 1,144
$ 1,075 Nortel Networks, Ltd., Senior
Secured Notes,
6.125%, 02/15/06 B3 $ 1,078
1,089 ON Semiconductor Corporation,
Senior Secured Notes,
12%, 03/15/10 B3 1,280
163 ON Semiconductor Corporation,
Senior Secured Notes,
13%, 05/15/08 Caa1 187
975 Sanmina Scientific Corporation,
Senior Secured Notes,
10.375%, 01/15/10 Ba2 1,121
450 Solectron Corporation,
Senior Notes,
9.625%, 02/15/09 B1 492
1,200 Stratus Technologies, Inc.,
Senior Notes,
10.375%, 12/01/08 (g) B3 1,230
775 Superior Essex Communications
LLC, Senior Notes,
9%, 04/15/12 (g) B3 748
800 Telex Communications, Inc.,
Senior Notes,
11.50%, 10/15/08 B3 858
975 UGS Corporation, Senior
Subordinated Notes,
10%, 06/01/12 (g) B3 1,036
------------
14,598
------------
FINANCE -- 1.00%
1,100 Global Cash Access LLC, Senior
Subordinated Notes,
8.75%, 03/15/12 (g) Caa1 1,148
850 LaBranche & Co., Inc., Senior
Notes, 9.50%, 05/15/09 (g) Ba1 850
------------
1,998
------------
FURNISHINGS, HOUSEWARES, DURABLE CONSUMER
PRODUCTS -- .90%
675 Fedders North America, Inc.,
Senior Notes,
9.875%, 03/01/14 (g) Caa1 618
475 Maax Corporation, Senior
Subordinated Notes,
9.75%, 06/15/12 (g) B3 491
700 Sealy Mattress Company, Senior
Subordinated Notes,
8.25%, 06/15/14 (g) Caa1 703
------------
1,812
------------
The accompanying notes are an integral
part of these financial statements.
8
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
FARMING AND AGRICULTURE -- .22%
$ 150 IMC Global Inc., Senior Notes,
10.875%, 06/01/08 B1 $ 175
125 IMC Global Inc., Senior Notes,
10.875%, 08/01/13 B1 151
100 IMC Global Inc., Senior Notes,
11.25%, 06/01/11 B1 116
------------
442
------------
HEALTHCARE, EDUCATION AND CHILDCARE -- 6.66%
850 Alliance Imaging, Inc., Senior
Subordinated Notes,
10.375%, 04/15/11 B3 897
825 Alpharma, Inc., Senior Notes,
8.625%, 05/01/11 (g) B3 853
900 Ameripath, Inc. Senior
Subordinated Notes,
10.50%, 04/01/13 Caa1 909
300 AmerisourceBergen Corporation,
Senior Notes,
8.125%, 09/01/08 Ba3 325
700 Biovail Corporation, Senior
Subordinated Notes,
7.875%, 04/01/10 B2 693
1,425 Concentra Operating Corporation,
Senior Subordinated Notes,
9.50%, 08/15/10 B3 1,518
441 Fisher Scientific International Inc.,
Senior Subordinated Notes,
8.125%, 05/01/12 B2 472
575 Fresenius Medical Care
Capital Trust IV,
7.875%, 06/15/11 Ba2 608
1,075 Genesis Healthcare Corporation,
Senior Subordinated Notes,
8%, 10/15/13 (g) B3 1,105
425 InSight Health Services Corp.,
Senior Subordinated Notes,
9.875%, 11/01/11 B3 458
250 Inverness Medical Innovations, Inc.,
Senior Subordinated Notes,
8.75%, 02/15/12 (g) Caa1 256
1,000 Omnicare, Inc., Senior
Subordinated Notes,
8.125%, 03/15/11 Ba2 1,070
$ 1,125 Quintiles Transnational Corp.,
Senior Subordinated Notes,
10%, 10/01/13 B3 $ 1,114
450 Tenet Healthcare Corporation,
Senior Notes, 6.50%, 06/01/12 B3 391
300 Tenet Healthcare Corporation,
Senior Notes,
7.375%, 02/01/13 B3 272
400 Tenet Healthcare Corporation,
Senior Notes,
9.875%, 07/01/14 (g) B3 406
750 Triad Hospitals, Inc., Senior
Subordinated Notes,
7%, 11/15/13 B3 719
1,175 Vicar Operating, Inc., Senior
Subordinated Notes,
9.875%, 12/01/09 B2 1,295
------------
13,361
------------
HOTELS, MOTELS, INNS AND GAMING -- 12.22%
625 American Casino & Entertainment
Properties LLC, Senior
Secured Notes,
7.85%, 02/01/12 (g) B2 634
1,000 Ameristar Casinos, Inc., Senior
Subordinated Notes,
10.75%, 02/15/09 B2 1,137
450 Argosy Gaming Company, Senior
Subordinated Notes,
7%, 01/15/14 (g) B3 438
75 Argosy Gaming Company, Senior
Subordinated Notes,
9%, 09/01/11 B2 83
1,000 Boyd Gaming Corporation, Senior
Subordinated Notes,
6.75%, 04/15/14 (g) B1 943
1,675 Courtyard Marriott II Ltd., Senior
Secured Notes,
10.75%, 02/01/08 B2 1,679
550 Horseshoe Gaming Holding Corp.,
Senior Subordinated Notes,
8.625%, 05/15/09 B2 574
740 Host Marriott LP, Senior Notes,
Series I, 9.50%, 01/15/07 Ba3 812
1,075 Isle of Capri Casinos, Inc., Senior
Subordinated Notes,
7%, 03/01/14 (g) B2 997
The accompanying notes are an integral
part of these financial statements.
9
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 1,475 John Q. Hammons Hotels, LP,
First Mortgage Notes,
8.875%, 05/15/12 B2 $ 1,613
3,275 La Quinta Properties, Inc.,
Senior Notes,
8.875%, 03/15/11 Ba3 3,533
300 Majestic Star Casino, LLC,
Senior Notes, 9.50%, 10/15/10 B2 302
1,500 MGM Grand, Inc., Senior Notes,
6.875%, 02/06/08 Ba1 1,596
1,100 Mohegan Tribal Gaming Authority,
Senior Subordinated Notes,
8%, 04/01/12 Ba3 1,173
1,625 Penn National Gaming, Inc.,
Senior Subordinated Notes,
11.125%, 03/01/08 B2 1,792
425 Premier Entertainment Biloxi LLC,
Senior Notes,
10.75%, 02/01/12 (g) B3 447
825 Prime Hospitality Corporation,
Senior Subordinated Notes,
8.375%, 05/01/12 B2 855
75 Resorts International Hotel and
Casino, Inc., Senior Notes,
11.50%, 03/15/09 B2 85
525 Station Casinos, Inc., Senior Notes,
6%, 04/01/12 Ba3 507
425 Station Casinos, Inc., Senior
Subordinated Notes,
6.875%, 03/01/16 B1 408
3,275 Venetian Casino Resort, LLC,
2nd Mortgage Notes,
11%, 06/15/10 B3 3,770
954 Wynn Las Vegas, LLC, Senior
Secured Notes, 12%, 11/01/10 B3 1,140
------------
24,518
------------
LEISURE, AMUSEMENT AND ENTERTAINMENT -- 3.59%
700 AMF Bowling Worldwide, Inc. Senior
Subordinated Notes,
10%, 03/01/10 (g) B3 719
575 Equinox Holdings, Inc.,
Senior Notes, 9%, 12/15/09 (g) B3 572
$ 1,075 The Hockey Company, Senior
Secured Notes, Units,
11.25%, 04/15/09 Ba3 $ 1,279
775 K2 Inc., Senior Notes,
7.375%, 07/01/14 (g) Ba3 792
225 Six Flags Inc., Senior Notes,
9.50%, 02/01/09 B3 232
600 Six Flags Inc., Senior Notes,
9.75%, 04/15/13 B3 604
800 Town Sports International, Inc.,
Senior Notes,
9.625%, 04/15/11 B2 770
1,925 Universal City Development
Partners, Ltd., Senior Notes,
11.75%, 04/01/10 B2 2,228
------------
7,196
------------
MACHINERY -- .28%
550 JLG Industries, Inc., Senior
Subordinated Notes,
8.375%, 06/15/12 B3 560
------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS -- 10.00%
75 Algoma Steel Inc., Secured Notes,
11%, 12/31/09 (e) 89
700 Allegheny Technologies Inc.,
Senior Notes, 8.375%, 12/15/11 B3 709
825 Alpha Natural Resrouces, LLC,
Senior Notes, 10%, 06/01/12 (g) B3 862
2,230 Century Aluminum Company,
Senior Notes, 11.75%, 04/15/08 B1 2,486
1,375 CSN Islands VIII Corporation,
Senior Notes,
9.75%, 12/16/13 (g) B1 1,227
2,675 Earle M. Jorgensen Company,
Senior Secured Notes,
9.75%, 06/01/12 B2 2,929
700 Euramax Internanational, Inc.,
Senior Subordinated Notes,
8.50%, 08/15/11 B2 732
1,800 Gerdau Ameristeel Corporation,
Senior Notes,
10.375%, 07/15/11 B2 2,011
1,175 IPSCO Inc., Senior Notes,
8.75%, 06/01/13 Ba3 1,310
650 Ispat Inland ULC, Senior
Secured Notes,
9.75%, 04/01/14 (g) Caa1 673
The accompanying notes are an integral
part of these financial statements.
10
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 150 Joy Global Inc., Senior
Subordinated Notes,
8.75%, 03/15/12 B1 $ 166
725 Luscar Coal Ltd., Senior Notes,
9.75%, 10/15/11 Ba3 816
675 Massey Energy Company, Senior
Notes, 6.625%, 11/15/10 Ba3 673
500 Neenah Foundry Company,
Senior Notes, 11%, 09/30/10 (g) B2 530
2,000 Peabody Energy Corporation,
Senior Notes,
6.875%, 03/15/13 Ba3 2,030
1,155 Steel Dynamics, Inc.,
Senior Notes, 9.50%, 03/15/09 B1 1,276
375 Steel Dynamics, Inc.,
Senior Notes, 9.50%, 03/15/09 (g) 415
1,009 United States Steel Corporation,
Senior Notes, 9.75%, 05/15/10 B1 1,112
------------
20,046
------------
OIL AND GAS -- 11.11%
2,300 AmeriGas Partners, L.P.,
Senior Notes, 8.875%, 05/20/11 B2 2,450
275 ANR Pipeline Company,
Senior Notes, 8.875%, 03/15/10 B1 300
300 Chesapeake Energy Corporation,
Senior Notes, 8.125%, 04/01/11 Ba3 324
875 Chesapeake Energy Corporation,
Senior Notes, 9%, 08/15/12 Ba3 983
1,050 Compagnie Generale de
Geophysique (CGG), Senior
Notes, 10.625%, 11/15/07 Ba3 1,117
600 Comstock Resources, Inc.,
Senior Notes, 6.875%, 03/01/12 B2 572
425 Denbury Resources, Inc., Senior
Subordinated Notes,
7.50%, 04/01/13 B2 427
925 Dresser, Inc., Senior Notes,
9.375%, 04/15/11 B2 990
725 El Paso Production Holding
Company, Senior Notes,
7.75%, 06/01/13 B3 669
150 Encore Acquisition Company,
Senior Subordinated Notes,
8.375%, 06/15/12 B2 159
$ 1,725 Ferrellgas Partners LP,
Senior Notes, 8.75%, 06/15/12 B2 $ 1,841
1,000 Magnum Hunter Resources, Inc.,
Senior Notes, 9.60%, 03/15/12 B2 1,100
1,025 North American Energy Partners,
Senior Notes,
8.75%, 12/01/11 (g) B2 1,020
200 Northwest Pipeline Corporation,
Senior Notes, 8.125%, 03/01/10 B1 217
950 Petroleum Helicopters, Inc.,
Senior Notes, 9.375%, 05/01/09 B1 998
775 Plains Exploration and
Production Co., L.P., Senior
Subordinated Notes,
8.75%, 07/01/12 Ba3 839
600 Pride International, Inc.,
Senior Notes,
7.375%, 07/15/14 (g) Ba2 606
300 Range Resources Corporation,
Senior Subordinated Notes,
7.375%, 07/15/13 (g) B3 299
375 Southern Natural Gas Company,
Senior Notes, 8.875%, 03/15/10 B1 409
1,100 Stone Energy Corporation,
Senior Subordinated Notes,
8.25%, 12/15/11 B2 1,151
850 Suburban Propane Partners, L.P.,
Senior Notes, 6.875%, 12/15/13 B1 827
400 Swift Energy Company,
Senior Notes, 7.625%, 07/15/11 B1 403
350 Swift Energy Company, Senior
Subordinated Notes,
10.25%, 08/01/09 B2 373
925 Universal Compression, Inc., Senior
Notes, 7.25%, 05/15/10 B1 953
275 Westport Resources Corporation,
Senior Subordinated Notes,
8.25%, 11/01/11 Ba3 311
175 Williams Companies, Inc.,
Senior Notes,
7.625%, 07/15/19 B3 169
1,725 Williams Companies, Inc.,
Senior Notes,
8.125%, 03/15/12 B3 1,837
The accompanying notes are an integral
part of these financial statements.
11
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 850 Williams Companies, Inc.,
Senior Notes,
8.625%, 06/01/10 B3 $ 933
------------
22,277
------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES -- 1.96%
525 Affinity Group, Inc., Senior
Subordinated Notes,
9%, 02/15/12 (g) B3 541
350 Armkel LLC, Senior
Subordinated Notes,
9.50%, 08/15/09 B1 382
625 Friendly Ice Cream Corporation,
Senior Notes,
8.375%, 06/15/12 (g) B2 609
425 FTD, Inc., Senior
Subordinated Notes,
7.75%, 02/15/14 B3 402
850 O'Charleys, Inc., Senior
Subordinated Notes,
9%, 11/01/13 Ba3 884
250 Perkins Family Restaurants, L.P.,
Senior Notes,
10.125%, 12/15/07 B1 256
825 Worldspan, L.P., Senior Notes,
9.625%, 06/15/11 B2 868
------------
3,942
------------
PERSONAL NON-DURABLE CONSUMER PRODUCTS -- 3.42%
1,050 American Achievement Corporation,
Senior Notes,
8.25%, 04/01/12 (g) B3 1,066
150 Buhrmann US, Inc., Senior
Subordinated Notes,
8.25%, 07/01/14 (g) B2 149
525 Chattem, Inc., Senior
Subordinated Notes,
7%, 03/01/14 B2 501
3,000 Jostens, Inc., Senior
Subordinated Notes,
12.75%, 05/01/10 B3 3,390
1,675 Rayovac Corporation, Senior
Subordinated Notes,
8.50%, 10/01/13 B3 1,759
------------
6,865
------------
PERSONAL TRANSPORTATION -- 2.07%
$ 800 CHC Helicopter Corporation,
Senior Subordinated Notes,
7.375%, 05/01/14 (g) B2 $ 786
1,525 Laidlaw International, Incorporated,
Senior Notes,
10.75%, 06/15/11 B2 1,666
1,475 TravelCenters of America, Inc.,
Senior Subordinated Notes,
12.75%, 05/01/09 B3 1,711
------------
4,163
------------
PRINTING AND PUBLISHING -- 11.64%
325 Advanstar Communications, Inc.,
Senior Notes,
10.75%, 08/15/10 B3 359
325 Advanstar Communications, Inc.,
Senior Subordinated Notes,
12%, 02/15/11 Caa2 346
500 American Media Operations, Inc.,
Senior Subordinated Notes,
10.25%, 05/01/09 B2 515
950 CanWest Media, Inc., Senior
Subordinated Notes,
10.625%, 05/15/11 B2 1,066
150 CBD Media LLC, Senior
Subordinated Notes,
8.625%, 06/01/11 B3 159
1,750 Dex Media East, LLC, Senior
Subordinated Notes,
12.125%, 11/15/12 Caa1 2,043
700 Dex Media, Inc., Senior Notes,
8%, 11/15/13 (g) Caa2 672
825 Dex Media West LLC, Senior Notes,
8.50%,08/15/10 (g) B3 907
1,725 Dex Media West LLC, Senior Notes,
9.875%, 08/15/13 Caa1 1,898
2,245 R.H. Donnelley Inc., Senior
Subordinated Notes,
10.875%, 12/15/12 B2 2,610
800 Hollinger International Publishing,
Inc., Senior Notes,
9%, 12/15/10 B2 924
1,333 Hollinger Participation Trust,
Senior Notes,
12.125%, 11/15/10 (b)(g) B3 1,553
The accompanying notes are an integral
part of these financial statements.
12
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 1,100 Houghton Mifflin Company,
Senior Subordinated Notes,
9.875%, 02/01/13 B3 $ 1,104
925 Liberty Group Operating, Inc.,
Senior Subordinated Notes,
9.375%, 02/01/08 Caa1 920
2,160 Mail-Well I Corp., Senior Notes,
9.625%, 03/15/12 B1 2,333
625 Primedia, Inc., Senior Notes,
7.625%, 04/01/08 B3 620
675 Reader's Digest Association, Inc.,
Senior Notes,
6.50%, 03/01/11 Ba3 660
1,675 Vertis, Inc., Senior Secured Notes,
9.75%, 04/01/09 B2 1,809
650 Vertis, Inc., Senior Secured Notes,
13.50%, 12/07/09 (g) Caa1 652
2,150 Von Hoffman Corp., Senior Notes,
10.25%, 03/15/09 B2 2,209
------------
23,359
------------
RETAIL STORES -- 1.81%
1,200 Barneys, Incorporated,
Senior Notes, 9%, 04/01/08 B3 1,248
550 Dollar Financial Group, Inc., Senior
Notes, 9.75%, 11/15/11 B3 575
100 J.Crew Intermediate, LLC,
Senior Discount Notes,
16%, 05/15/08 (h) (e) 86
875 J. Crew Operating Corporation,
Senior Subordinated Notes,
10.375%, 10/15/07 Caa3 888
850 Nebraska Book Company, Inc.,
Senior Subordinated Notes,
8.625%, 03/15/12 Caa1 835
------------
3,632
------------
TELECOMMUNICATIONS -- 14.71%
1,822 Alamosa (Delaware) Inc.,
Senior Notes, 11%, 07/31/10 Caa1 1,995
550 Alaska Communications System
Holdings, Inc., Senior Notes,
9.875%, 08/15/11 B2 572
750 Call-Net Enterprises, Inc.,
Senior Secured Notes
10.625%, 12/31/08 Caa3 750
$ 475 Centennial Cellular Operating
Company, L.L.C., Senior Notes,
8.125%, 02/01/14 (g) Caa1 $ 439
350 Centennial Cellular Operating
Company, L.L.C., Senior Notes,
10.125%, 06/15/13 Caa1 360
500 Citizens Communications Co.,
Senior Notes, 9.25%, 05/15/11 Baa3 524
1,025 Crown Castle International Corp.,
Senior Notes, 10.75%, 08/1/11 B3 1,151
1,675 Eircom Funding, plc, Senior
Subordinated Notes,
8.25%, 08/15/13 B1 1,754
75 Fairpoint Comunications, Inc.,
Senior Notes,
11.875%, 03/01/10 B3 86
400 Fairpoint Comunications, Inc.,
Senior Subordinated Notes,
12.50%, 05/01/10 Caa1 426
275 Inmarsat Finance, PLC,
Senior Notes,
7.625%, 06/30/12 (g) B2 268
900 IPC Acquisition Corporation,
Senior Subordinated Notes,
11.50%, 12/15/09 B3 972
900 LCI International, Inc., Senior Notes,
7.25%, 06/15/07 Caa1 828
1,225 MCI, Inc., Notes,
5.908%, 05/1/07 (e) 1,185
1,625 NEXTEL Communications, Inc.,
Senior Serial Notes,
6.875%, 10/31/13 B2 1,605
1,600 NEXTEL Communications, Inc.,
Senior Serial Notes,
7.375%, 08/01/15 B2 1,612
825 Primus Telecommunications
Holding, Inc., Senior Notes,
8%, 01/15/14 (g) B3 726
975 Qwest Corporation, Senior Notes,
9.125%, 03/15/12 (g) Ba3 1,065
3,997 Qwest Services Corp., Senior
Subordinated Secured Notes,
14%, 12/15/10 (g) Caa1 4,647
450 Rogers Wireless Inc., Senior
Secured Notes,
6.375%, 03/01/14 (g) Ba3 415
The accompanying notes are an integral
part of these financial statements.
13
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- CONTINUED
$ 1,000 Rogers Wireless Inc., Senior
Secured Notes,
9.625%, 05/01/11 Ba3 $ 1,123
400 Rural Cellular Corporation, Senior
Secured Notes,
8.25%, 03/15/12 (g) B2 411
1,075 Time Warner Telecom, Inc.,
Senior Notes, 9.75%, 07/15/08 B3 1,027
725 Triton PCS, Inc., Senior Notes,
8.50%, 6/01/13 B2 691
1,025 TSI Telecommunications Services,
Inc., Senior Subordinated Notes,
12.75%, 02/01/09 B3 1,112
675 UbiquiTel Operating Company,
Senior Notes,
9.875%, 03/01/11 (g) Caa1 678
900 US Unwired, Inc., Senior
Secured Notes,
10%, 06/15/12 (g) Caa1 911
390 US West Capital Funding Inc.,
Senior Notes, 6.375%, 07/15/08 Caa2 351
1,775 Western Wireless Corporation,
Senior Notes, 9.25%, 07/15/13 Caa1 1,824
------------
29,508
------------
TEXTILES AND LEATHER -- .48%
375 Anvil Knitwear, Incorporated,
Senior Notes,
10.875%, 03/15/07 (e) 293
1,075 Avondale Mills, Inc.,
Senior Subordinated Notes,
10.25%, 07/01/13 B3 661
------------
954
------------
UTILITIES -- 10.44%
350 The AES Corporation, Senior
Notes, 7.75%, 03/01/14 B2 337
725 The AES Corporation, Senior
Notes, 9.375%, 09/15/10 B2 772
1,550 The AES Corporation, Senior
Secured Notes,
9%, 05/15/15 (g) B1 1,659
1,200 Allegeny Energy Supply
Company, LLC, Senior Notes,
8.25%, 04/15/12 (g) B3 1,179
$ 1,500 CE Electric UK Funding Company,
Senior Notes,
6.995%, 12/30/07 (g) Baa3 $ 1,583
1,500 CenterPoint Energy, Inc., Senior
Notes, 7.25%, 09/01/10 Ba2 1,590
775 Dynegy Holdings, Inc., Senior
Notes, 10.125%, 07/15/13 (g) B3 840
950 Edison Mission Energy, Senior
Notes, 9.875%, 04/15/11 B2 986
125 Edison Mission Energy, Senior
Notes, 10%, 08/15/08 B2 132
1,225 Illinois Power Company, Senior
Secured 1st Mortgage Bonds,
11.50%, 12/15/10 B1 1,446
450 Midwest Generation, LLC,
Senior Secured Notes,
8.75%, 05/01/34 (g) B1 455
200 NGC Corporation, Senior Notes,
7.125%, 05/15/18 Caa2 154
1,650 NRG Energy, Inc., Senior Notes,
8%, 12/15/13 (g) B2 1,671
1,650 Orion Power Holdings, Inc.,
Senior Notes, 12%, 05/01/10 B2 2,013
1,075 PSEG Energy Holdings, L.L.C.,
Senior Notes, 8.50%, 06/15/11 Ba3 1,150
175 PSEG Energy Holdings, L.L.C.,
Senior Notes, 10%, 10/01/09 Ba3 199
1,725 Sierra Pacific Resources, Senior
Notes, 8.625%, 03/15/14 (g) B2 1,693
1,500 Teco Energy, Inc., Senior Notes,
7%, 05/01/12 Ba2 1,440
1,575 TNP Enterprises, Inc.,
Senior Subordinated Notes,
10.25%, 04/01/10 B2 1,638
------------
20,937
------------
TOTAL CORPORATE DEBT SECURITIES
(Total cost of $312,330) 315,954
------------
The accompanying notes are an integral
part of these financial statements.
14
MOODY'S
RATING VALUE
SHARES (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
PREFERRED STOCK -- .85% (d)
BANKING -- 0.00%
57,935 WestFed Holdings, Inc.,
Cumulative, Series A, Preferred
Stock, 15.50% (a)(c)(f) (e) $ --
------------
CHEMICALS, PLASTICS AND RUBBER -- .43%
1,275 Hercules Trust II, Preferred Stock
Unit, 6.50% Ba3 865
------------
MINING, STEEL, IRON, NON-PRECIOUS METALS -- 0.00%
18,000 Weirton Steel Corp., Series C
Preferred Stock (a)(f) (e) 3
------------
UTILIITES -- .42%
750 TNP Enterprises, Inc.,
Preferred Stock, 14.50% B3 840
------------
TOTAL PREFERRED STOCK
(Total cost of $6,994) 1,708
------------
COMMON STOCK and WARRANTS -- 0.00% (d)
950 Barneys, Inc., warrants
exp. 2/1/08 (f)(g) --
27,474 WestFed Holdings, Inc.,
Common Stock (a)(c)(f) --
10,052 WKI Holdings Common Stock
Common Stock (c)(f) --
------------
TOTAL COMMON STOCK AND WARRANTS
(Total cost of $2,295) --
------------
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
----------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.98% (d)
$ 5,000 Citibank Credit Card Issuance Trust,
Citiseries, Commercial Paper,
Due 07/14/04 Discount of 1.221% P-1 $ 4,998
5,000 New Center Asset Trust,
Commercial Paper, Due 07/07/04
Discount of 1.11% P-1 4,999
------------
TOTAL SHORT-TERM INVESTMENTS
(Total cost of $9,997) 9,997
------------
TOTAL INVESTMENTS
(Total cost of $331,616) $ 327,659
============
(a) Denotes issuer is in bankruptcy proceedings.
(b) Security is a Pay-in-Kind bond. Income on this bond accrues based upon the
effective interest rate.
(c) Security is valued at fair value using methods determined by the Board of
Directors. The total value of these securities at June 30, 2004 was $0.
(d) Percentages indicated are based on total net assets to common shareholders
of $200,592.
(e) Not rated.
(f) Non-income producing.
(g) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. See Note
1(a) of the Notes to Financial Statements for vaulation policy. Total
market value of Rule 144A securities amounted to $75,529 as of June 30,
2004.
(h) Securities are step interest bonds. Interest on these bonds accrue based
upon the effective interest rate.
The accompanying notes are an integral
part of these financial statements.
15
The New America High Income Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
ASSETS: (Dollars in thousands,except per share amounts)
INVESTMENTS IN SECURITIES, at value (Identified
cost of $331,616 see Schedule of Investments
and Notes 1 and 2) $ 327,659
CASH 1,277
RECEIVABLES:
Investment securities sold 1,418
Interest and dividends 6,661
PREPAID EXPENSES 103
------------
Total assets $ 337,118
------------
LIABILITIES:
PAYABLES:
Investment securities purchased $ 2,901
Dividend on common stock 184
Dividend on preferred stock 58
Swap settlement payable 283
INTEREST RATE SWAP, at fair value (Note 6) 2,917
ACCRUED EXPENSES (Note 3) 183
------------
Total liabilities $ 6,526
------------
AUCTION TERM PREFERRED STOCK:
$1.00 par value, 1,000,000 shares authorized,
5,200 shares issued and outstanding,
liquidation preference of $25,000 per share
(Notes 4 and 5) $ 130,000
------------
NETASSETS $ 200,592
============
REPRESENTED BY:
COMMON STOCK:
$0.01 par value, 200,000,000 shares authorized,
93,868,118 shares issued and outstanding $ 939
CAPITAL IN EXCESS OF PAR VALUE 381,226
UNDISTRIBUTED NET INVESTMENT INCOME
(Note 2) 2,865
ACCUMULATED NET REALIZED LOSS FROM
SECURITIES TRANSACTIONS (Note 2) (177,564)
NET UNREALIZED DEPRECIATION ON
INVESTMENTS AND INTEREST RATE SWAPS (6,874)
------------
NET ASSETS APPLICABLE TO COMMON STOCK
(Equivalent to $2.14 per share, based on
93,868,118 shares outstanding) $ 200,592
============
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED
JUNE 30, 2004 (UNAUDITED)
INVESTMENT INCOME: (Note 1) (Dollars in thousands)
Interest income $ 13,422
Other income 310
Dividend income 87
------------
Total investment income $ 13,819
------------
EXPENSES:
Cost of leverage:
Preferred and auction fees (Note 5) $ 171
------------
Total cost of leverage $ 171
------------
Professional services expenses:
Management fees (Note 3) $ 574
Custodian and transfer agent fees 150
Legal fees (Note 8) 147
Audit fees 43
------------
Total professional services expenses $ 914
------------
Administrative expenses:
General administrative fees $ 222
Directors' fees 85
NYSE fees 43
Shareholder meeting expenses 22
Shareholder communications expense 22
Miscellaneous expenses 5
------------
Total administrative expenses $ 399
------------
Total expenses $ 1,484
------------
Net investment income $ 12,335
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT ACTIVITIES:
Realized loss on investments, net $ (131)
------------
Net swap settlement disbursements (Note 6) $ (1,717)
------------
Change in net unrealized depreciation
on investments $ (8,717)
Change in unrealized depreciation
on interest rate swap agreement 2,423
------------
Total change in net unrealized depreciation
on investments and interest rate swap $ (6,294)
------------
Net loss on investments and interest rate swap $ (8,142)
------------
COST OF PREFERRED LEVERAGE
Distributions to preferred stockholders $ (763)
------------
Net increase in net assets resulting
from operations $ 3,430
============
The accompanying notes are an integral
part of these financial statements.
16
The New America High Income Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED
2004 DECEMBER 31,
(UNAUDITED) 2003
---------------- ------------------
FROM OPERATIONS: (Dollars in thousands, except per share amounts)
Net investment income $ 12,335 $ 21,094
Realized loss on investments, net (131) (122)
Net swap settlement disbursements (1,717) (3,316)
Change in net unrealized depreciation on investments and other
financial instruments (6,294) 32,574
Distributions from net investment income related to preferred stock
Dividends to preferred stockholders ($147 and $313 per
preferred share in 2004 and 2003, respectively) (763) (1,330)
---------------- ------------------
Net increase in net assets resulting from operations $ 3,430 $ 48,900
---------------- ------------------
FROM FUND SHARE AND AUCTION TERM PREFERRED STOCK TRANSACTIONS:
Proceeds from rights offering (23,397,095 shares), net of
$84 of offering costs in 2004 and $817 in 2003 (Note 9) $ (84) $ 41,532
Offering costs and sales load from sale of Auction Term
Preferred Stock Series C (Note 4) -- (658)
Net asset value of 339,724 shares and 583,346 shares issued to
common stockholders for reinvestment of dividends in 2004
and 2003, respectively 750 1,213
---------------- ------------------
Increase in net assets resulting from fund share transactions $ 666 $ 42,087
---------------- ------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
From net investment income ($.09 and $.22 per share in 2004
and 2003, respectively) $ (8,209) $ (17,452)
---------------- ------------------
Total net increase (decrease) in net assets $ (4,113) $ 73,535
---------------- ------------------
NET ASSETS APPLICABLE TO COMMON STOCK:
Beginning of period $ 204,705 $ 131,170
---------------- ------------------
End of period (Including $2,865 and $570 of undistributed net
investment income at June 30, 2004 and December 31, 2003,
respectively) $ 200,592 $ 204,705
================ ==================
The accompanying notes are an integral
part of these financial statements.
17
The New America High Income Fund, Inc.
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
FOR EACH SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD
FOR THE
SIX MONTHS
ENDED
JUNE 30,
2004 FOR THE YEARS ENDED DECEMBER 31,
(UNAUDITED) 2003 (b) 2002 2001 (c) 2000 1999
------------ -------- -------- -------- -------- --------
NET ASSET VALUE:
Beginning of period $ 2.19 $ 1.89 $ 2.61 $ 2.85 $ 3.86 $ 4.16
------------ -------- -------- -------- -------- --------
NET INVESTMENT INCOME .13 .26# .37 .48 .60 .66
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
OTHER FINANCIAL INSTRUMENTS (.06) .34 (.72) (.24) (1.00) (.30)
DISTRIBUTIONS FROM NET INVESTMENT INCOME
RELATED TO PREFERRED STOCK: (.03) (.06) (.08) (.12) (.18) (.18)
------------ -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .04 .54 (.43) .12 (.58) .18
------------ -------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income (.09) (.22) (.29) (.36) (.43) (.48)
------------ -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (.09) (.22) (.29) (.36) (.43) (.48)
------------ -------- -------- -------- -------- --------
Effect of rights offering and related expenses;
and Auction Term Preferred Stock offering
costs and sales load -- (.02) -- -- -- --
------------ -------- -------- -------- -------- --------
NET ASSET VALUE:
End of period $ 2.14 $ 2.19 $ 1.89 $ 2.61 $ 2.85 $ 3.86
============ ======== ======== ======== ======== ========
PER SHARE MARKET VALUE:
End of period $ 1.94 $ 2.16 $ 2.01 $ 2.64 $ 2.63 $ 3.13
============ ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ (6.35)% 19.23% (12.97)% 13.97% (3.84)% (16.92)%
============ ======== ======== ======== ======== ========
The accompanying notes are an integral
part of these financial statements.
18
FOR THE
SIX MONTHS
ENDED
JUNE 30,
2004 FOR THE YEARS ENDED DECEMBER 31,
(UNAUDITED) 2003 (b) 2002 2001 (c) 2000 1999
------------ --------- --------- --------- --------- ---------
NET ASSETS, END OF PERIOD, APPLICABLE
TO COMMON STOCK (a) $ 200,592 $ 204,705 $ 131,170 $ 178,231 $ 191,928 $ 258,215
============ ========= ========= ========= ========= =========
NET ASSETS, END OF PERIOD, APPLICABLE
TO PREFERRED STOCK (a) $ 130,000 $ 130,000 $ 100,000 $ 150,000 $ 160,000 $ 210,000
============ ========= ========= ========= ========= =========
TOTAL NET ASSETS APPLICABLE
TO COMMON AND PREFERRED STOCK,
END OF PERIOD (a) $ 330,592 $ 334,705 $ 231,170 $ 328,231 $ 351,928 $ 468,215
============ ========= ========= ========= ========= =========
EXPENSE RATIOS:
Ratio of preferred and other leverage
expenses to average net assets* .17%** .16% .18% .17% .19% .18%
Ratio of operating expenses to average
net assets* 1.29%** 1.56% 1.46% 1.11% .99% .89%
------------ --------- --------- --------- --------- ---------
RATIO OF TOTAL EXPENSES TO AVERAGE
NET ASSETS* 1.46%** 1.72% 1.64% 1.28% 1.18% 1.07%
============ ========= ========= ========= ========= =========
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS* 12.13%** 12.81% 16.48% 16.70% 17.46% 16.36%
RATIO OF TOTAL EXPENSES TO AVERAGE
NET ASSETS APPLICABLE TO COMMON
AND PREFERRED STOCK .89%** 1.05% .89% .71% .64% .60%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS APPLICABLE TO
COMMON AND PREFERRED STOCK 7.42%** 7.79% 8.91% 9.23% 9.41% 9.16%
PORTFOLIO TURNOVER RATE 43.46% 120.47% 82.47% 38.89% 45.58% 66.74%
(a) Dollars in thousands.
(b) The Fund issued Series C ATP on October 17, 2003. The per share data and
ratios for the year ended December 31, 2003 reflect this transaction.
(c) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing discount and premium on debt securities. This had no effect on
net investment income per share and a $.01 increase to net realized and
unrealized loss per share for the year ended December 31, 2001. The effect
of this change increased the ratio of net investment income to average net
assets from 16.29% to 16.70%. Per share, ratios and supplemental data for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
* Ratios calculated on the basis of expenses and net investment income
applicable to the common shares relative to the average net assets of the
common stockholders only. The expense ratio and net investment income ratio
do not reflect the effect of dividend payments (including net swap
settlement receipts/payments) to preferred stockholders.
** Annualized.
# Calculation is based on average shares outstanding during the indicated
period due to the per share effect of the Fund's August, 2003 rights
offering.
+ Total investment return is calculated assuming a purchase of common stock
at the current market value on the first day and a sale at the current
market value on the last day of each year reported. Dividends and
distributions are assumed for purposes of this calculation to be reinvested
at prices obtained under the dividend reinvestment plan. This calculation
does not reflect brokerage commissions.
The accompanying notes are an integral
part of these financial statements.
19
The New America High Income Fund, Inc.
INFORMATION REGARDING SENIOR SECURITIES
JUNE 30, 2004 AS OF DECEMBER 31,
(UNAUDITED) 2003 2002 2001 2000 1999
------------- ------------- ------------- ------------- ------------- -------------
TOTAL AMOUNT OUTSTANDING:
Preferred Stock $ 130,000,000 $ 130,000,000 $ 100,000,000 $ 150,000,000 $ 160,000,000 $ 210,000,000
ASSET COVERAGE:
Per Preferred Stock Share (1) $ 63,575 $ 64,366 $ 57,793 $ 54,705 $ 54,989 $ 55,740
INVOLUNTARY LIQUIDATION PREFERENCE:
Preferred Stock Share (2) $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
APPROXIMATE MARKET VALUE:
Per Preferred Stock Share (2) $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
(1) Calculated by subtracting the Fund's total liabilities (not including the
Preferred Stock) from the Fund's total assets and dividing such amount by
the number of Preferred Shares outstanding.
(2) Plus accumulated and unpaid dividends.
The accompanying notes are an integral
part of these financial statements.
20
The New America High Income Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004 (UNAUDITED)
(1) SIGNIFICANT ACCOUNTING AND OTHER POLICIES
The New America High Income Fund, Inc. (the Fund) was organized as a
corporation in the state of Maryland on November 19, 1987 and is registered with
the Securities and Exchange Commission as a diversified, closed-end investment
company under the Investment Company Act of 1940. The Fund commenced operations
on February 26, 1988. The investment objective of the Fund is to provide high
current income while seeking to preserve stockholders' capital through
investment in a professionally managed, diversified portfolio of "high yield"
fixed-income securities.
The Fund invests primarily in fixed maturity corporate debt securities that
are rated less than investment grade. Risk of loss upon default by the issuer is
significantly greater with respect to such securities compared to investment
grade securities because these securities are generally unsecured and are often
subordinated to other creditors of the issuer and because these issuers usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as a recession, than are investment grade issuers. In some
cases, the collection of principal and timely receipt of interest is dependent
upon the issuer attaining improved operating results, selling assets or
obtaining additional financing.
See the schedule of investments for information on individual securities as
well as industry diversification and credit quality ratings.
The Fund's financial statements have been prepared in conformity with
accounting principles generally accepted in the United States for investment
companies that require the management of the Fund to, among other things, make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
The following is a summary of significant accounting policies consistently
followed by the Fund, which are in conformity with those generally accepted in
the investment company industry.
(a) VALUATION OF INVESTMENTS--Investments for which market quotations are
readily available are stated at market value, which is determined by using the
most recently quoted bid price provided by an independent pricing service or
principal market maker. Independent pricing services provide market quotations
based primarily on quotations from dealers and brokers, market transactions,
accessing data from quotations services, offering sheets obtained from dealers
and various relationships between securities. Short-term investments with
original maturities of 60 days or less are stated at amortized cost, which
approximates market value. Following procedures approved by the Board of
Directors, investments for which market quotations are not readily available
(primarily fixed-income corporate bonds and notes) are stated at fair value on
the basis of subjective valuations furnished by securities dealers and brokers.
Other investments, with a cost of approximately $7,214,000 and a value of $0,
are valued in good faith at fair market value using methods determined by the
Board of Directors.
(b) INTEREST AND DIVIDEND INCOME--Interest income is accrued on a daily
basis. Discount on short-term investments is amortized to investment income.
Premiums or discounts on corporate debt securities are amortized based on the
interest method for financial reporting purposes. All income on original issue
discount and step interest bonds is accrued based on the effective interest
method for tax reporting purposes as required by federal income tax regulations.
The Fund does not amortize market premiums or discounts for tax purposes.
Dividend payments received in the
21
form of additional securities are recorded on the ex-dividend date in an amount
equal to the value of the security on such date.
(c) FEDERAL INCOME TAXES--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and to distribute substantially all of its
taxable income to its shareholders each year. Accordingly, no federal income tax
provision is required.
(2) TAX MATTERS AND DISTRIBUTIONS
At June 30, 2004, the total cost of securities (including temporary cash
investments) for federal income tax purposes was approximately $331,612,000.
Aggregate gross unrealized gain on securities in which there was an excess of
value over tax cost was approximately $7,489,000. Aggregate unrealized loss on
securities in which there was an excess of tax cost over value was approximately
$11,443,000. Net unrealized loss on investments for tax purposes at June 30,
2004 was approximately $3,954,000.
At December 31, 2003, the Fund had approximate capital loss carryovers
available to offset future capital gains, if any, to the extent provided by
regulations:
CARRYOVER AVAILABLE EXPIRATION DATE
------------------- ------------------
$ 35,581,000 December 31, 2007
21,821,000 December 31, 2008
67,043,000 December 31, 2009
45,239,000 December 31, 2010
7,387,000 December 31, 2011
-------------
$ 177,071,000
=============
It is the policy of the Fund to reduce future distributions of realized gains
to shareholders to the extent of the unexpired capital loss carry forward.
The tax character of distributions paid to common and preferred shareholders
of approximately $18,782,000 in 2003 was from ordinary income.
As of December 31, 2003, the components of distributable earnings on a tax
basis were approximately:
Undistributed Net Investment Income $ 542,000
Undistributed Long-Term Gain --
Unrealized Gain $ 4,649,000
Capital Losses Carry Forward
and Post October Losses Deferred $ (177,071,000)
The difference between components of distributable earnings on a tax basis
and the amounts reflected in the Statement of Assets and Liabilities are
primarily due to wash sales, accrued interest on defaulted bonds and
amortization of swap termination payments.
Distributions on common stock are declared based upon annual projections of
the Fund's investment company taxable income. The Fund records all dividends and
distributions payable to shareholders on the ex-dividend date and declares and
distributes income dividends monthly.
The Fund was required to amortize market discounts and premiums for financial
reporting purposes beginning January 1, 2001. This new accounting policy results
in additional interest income in some years and decreased interest income in
others for financial reporting purposes only. The Fund does not amortize market
discounts or premiums for tax purposes. Therefore, the additional or decreased
interest income for financial reporting purposes does not result in additional
or decreased common stock dividend income.
The Fund has recorded several reclassifications in the capital accounts to
present undistributed net investment income or accumulated net realized gains
and losses on a tax basis, which is considered to be more informative to the
shareholder. These reclassifications have no impact on the net asset value of
the Fund.
22
(3) INVESTMENT ADVISORY AGREEMENT
T. Rowe Price Associates, Inc. (T. Rowe Price), the Fund's Investment
Advisor, earned approximately $574,000 in management fees during the six months
ended June 30, 2004. Management fees paid by the Fund to T. Rowe Price were
calculated at 0.50% on the first $50,000,000 of the Fund's average weekly net
assets, 0.40% on the next $50 million and 0.30% on average weekly net assets in
excess of $100 million. T. Rowe Price's fee is calculated based on assets
attributable to the Fund's common and auction term preferred stock. At June 30,
2004, the fee payable to T. Rowe Price was approximately $93,000, which was
included in accrued expenses on the accompanying statement of assets and
liabilities.
(4) AUCTION TERM PREFERRED STOCK (ATP)
On October 17, 2003, the Fund issued 1,200 shares of Series C ATP. The
underwriting discount of $300,000 and offering expenses of $358,000 were
recorded as a reduction of the capital in excess of par value on common stock.
The Fund had 5,200 shares of ATP issued and outstanding at June 30, 2004. The
ATP's dividends are cumulative at a rate determined at an auction, and dividend
periods will typically be 28 days unless notice is given for periods to be
longer or shorter than 28 days. Dividend rates ranged from 1.08% to 1.47% for
the six months ended June 30, 2004. The average dividend rate as of June 30,
2004 was 1.41%.
The ATP is redeemable, at the option of the Fund, or subject to mandatory
redemption (if the Fund is in default of certain coverage requirements) at a
redemption price equal to $25,000 per share plus accumulated and unpaid
dividends. The ATP has a liquidation preference of $25,000 per share plus
accumulated and unpaid dividends. The Fund is required to maintain certain asset
coverages with respect to the ATP under the Fund's Charter and the 1940 Act in
order to maintain the Fund's Aaa/AAA ratings by Moody's Investors Service, Inc.
and Fitch, Inc., respectively.
(5) ATP AUCTION-RELATED MATTERS
Bankers Trust Company (BTC) serves as the ATP's auction agent pursuant to an
agreement entered into on January 4, 1994. The term of the agreement is
unlimited and may be terminated by either party. BTC may resign upon notice to
the Fund, such resignation to be effective on the earlier of the 90th day after
the delivery of such notice and the date on which a successor auction agent is
appointed by the Fund. The Fund may also replace BTC as auction agent at any
time.
After each auction, BTC as auction agent will pay to each broker-dealer, from
funds provided by the Fund, a maximum service charge at the annual rate of 0.25
of 1% or such other percentage subsequently agreed to by the Fund and the
broker-dealers, of the purchase price of shares placed by such broker-dealers at
such auction. In the event an auction scheduled to occur on an auction date
fails to occur for any reason, the broker-dealers will be entitled to service
charges as if the auction had occurred and all holders of shares placed by them
had submitted valid hold orders. The Fund incurred approximately $158,000 for
service charges for the six month period ended June 30, 2004. This amount is
included under the caption preferred and auction fees in the accompanying
statement of operations.
(6) INTEREST RATE SWAPS
The Fund entered into an interest payment swap arrangement with Fleet Bank
(Fleet) for the purpose of partially hedging its dividend payment obligations
with respect to the ATP. Pursuant to the Swap Arrangement the Fund makes
payments to Fleet on a monthly basis at a fixed annual rate. In exchange for
such payment Fleet makes payments to the Fund on a monthly basis
23
at a variable rate determined with reference to one month LIBOR. The variable
rates ranged from 1.09% to 1.17% for the six months ended June 30, 2004. The
effective date, notional amount, maturity and fixed rate of the swap is as
follows:
NOTIONAL FIXED
EFFECTIVE CONTRACT ANNUAL
DATE AMOUNT MATURITY RATE
--------- ------------- -------- -------
10/1/01 $ 100 million 10/1/06 4.50%
Swap transactions, which involve future settlement, give rise to credit risk.
Credit risk is the amount of loss the Fund would incur in the event
counterparties failed to perform according to the terms of the contractual
commitments. In the event of nonperformance by the counterparty, the Fund's
dividend payment obligation with respect to the ATP would no longer be partially
hedged. Therefore, the ATP dividend would no longer be partially fixed. In an
unfavorable interest rate environment, the Fund would be subject to higher net
ATP dividend payments, resulting in less income available for the common share
dividend. The Fund does not anticipate nonperformance by any counterparty. While
notional contract amounts are used to express the volume of interest rate swap
agreements, the amounts potentially subject to credit risk, in the event of
nonperformance by counterparties, are substantially smaller.
The Fund recognizes all freestanding derivative instruments in the balance
sheet as either assets or liabilities and measures them at fair value. Any
change in the unrealized gain or loss is recorded in current earnings. For the
six months ended June 30, 2004, the Fund's obligations under the swap agreements
were more than the amount received from Fleet by approximately $1,717,000 and
such amount is included in the accompanying statement of operations.
The estimated fair value of the interest rate swap agreement at June 30, 2004
amounted to approximately $2,917,000 of unrealized loss and is presented in the
accompanying balance sheet.
(7) PURCHASES AND SALES OF SECURITIES
Purchases and proceeds of sales or maturities of long-term securities during
the six months ended June 30, 2004 were approximately:
Purchases of securities $ 140,876,000
Sales of securities $ 139,309,000
(8) RELATED PARTY TRANSACTIONS
A partner of Goodwin Procter LLP, counsel to the Fund, serves as a Director
of the Fund. Fees earned by Goodwin Procter LLP amounted to approximately
$108,000 for the six months ended June 30, 2004.
The Fund paid approximately $131,000 during the six months ended June 30,
2004 to two officers of the Fund for the provision of certain administrative
services.
(9) RIGHTS OFFERING
The Fund issued to stockholders of record as of the close of business on July
21, 2003, rights to subscribe for an aggregate of 23,397,095 shares of common
stock, $.01 par value per share, of the Fund. One right was issued for each
three full shares of common stock beneficially held on the record date. The
rights entitled a stockholder to acquire at the subscription price of $1.81 per
share one share for each right held. The subscription price was 94% of the
average of the last reported sales price of the Fund's Common Stock on the New
York Stock Exchange on August 18, 2003, the expiration date and the nine
preceding business days. On August 22, 2003 the Fund completed its rights
offering. Proceeds of approximately $42,349,000 and shares of 23,397,095 were
recorded. In addition the deferred offering expense of approximately $817,000
was netted against the rights offering proceeds in 2003 and $84,000 in 2004.
24
COMMON AND AUCTION TERM PREFERRED STOCK TRANSACTIONS
From time to time in the future, the Fund may effect redemptions and/or
repurchases of its ATP as provided in the applicable constituent instruments or
as agreed upon by the Fund and sellers. The Fund intends to effect such
redemptions and/or repurchases to the extent necessary to maintain applicable
asset coverage requirements.
The Fund may purchase shares of its Common Stock in the open market when the
Common Stock trades at a discount to net asset value or at other times if the
Fund determines such purchases are in the best interest of its stockholders.
There can be no assurance that the Fund will take such action in the event of a
market discount to net asset value or that Fund purchases will reduce a
discount.
25
The New America High Income Fund, Inc.
DIRECTORS
Robert F. Birch
Joseph L. Bower
Richard E. Floor
Bernard J. Korman
Ernest E. Monrad
OFFICERS
Robert F. Birch - President
Ellen E. Terry - Vice President, Treasurer
Richard E. Floor - Secretary
INVESTMENT ADVISOR
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, Maryland 21202
ADMINISTRATOR
The New America High Income Fund, Inc.
33 Broad Street
Boston, MA 02109
(617) 263-6400
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
EquiServe Trust Company N.A.
P.O. Box 43011
Providence, RI 02940-3011
(617) 328-5000 ext. 6406
(800) 426-5523
Listed: NYSE
Symbol: HYB
Web site: www.newamerica-hyb.com
26
EquiServe Trust Company N.A.
P.O. Box 43011
Providence, RI 02940-3011
3709-SAR-04
ITEM 2-ITEM 9 Not applicable
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Fund's principal executive officer and principal financial officer
concluded that the Fund disclosure controls and procedures (as defined in Rule
30a-3(c) under the 1940 Act) provide reasonable assurances that information
required to be disclosed by the Fund on Form N-CSR is recorded, processed,
summarized and reported within the required time periods and that information
required to be disclosed by the Fund in the reports that it files or submits on
Form N-CSR is accumulated and communicated to the Fund's management, including
its principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure, based on their evaluation
of the disclosure controls and procedures as of a date within 90 days of the
filing date of this report.
(b) There was no change in the Fund's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during
the Fund's first fiscal half-year that has materially affected, or is
reasonably likely to materially affect, the Fund's internal control over
financial reporting.
ITEM 11. EXHIBITS.
4
(a)(1) not applicable.
(a)(2) The certifications required by Rule 30a-2(a) under the 1940 Act.
(a)(3) Not applicable.
(b) The certifications required by Rule 30a-2(b) under the 1940 Act.
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.
The New America High Income Fund, Inc.
By: /s/ Robert F. Birch
------------------------------------
Name: Robert F. Birch
Title: President and Director
Date: September 3, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert F. Birch
------------------------------------
Name: Robert F. Birch
Title: President
Date: September 3, 2004
By: /s/ Ellen E. Terry
------------------------------------
Name: Ellen E. Terry
Title: Treasurer
Date: September 3, 2004
5