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 No. 811-05399
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THE NEW AMERICA HIGH INCOME FUND, INC.
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(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
The New America High Income Fund, Inc.
33 Broad Street
Boston, MA 02109
Registrant's telephone number, including area code: (617) 263-6400
Date of fiscal year end: December 31
Date of reporting period: July 1, 2004 to December 31, 2004
THE NEW
AMERICA
HIGH INCOME
FUND, INC.
[THE NEW AMERICA HIGH INCOME FUND LOGO]
ANNUAL
REPORT
DECEMBER 31, 2004
February 1, 2005
DEAR FELLOW SHAREHOLDER,
This was a good year for our investors as the market value of the shares was
little changed year-over-year, despite fluctuations during the period, and the
dividend was stable throughout the year:
- The Fund's shares opened the year at a market price of $2.16, a discount of
-1.4% from the net asset value ("NAV") of $2.19 per share.
- At year-end, the Fund's shares closed at a market price of $2.19, a discount
of -3.1% from the closing NAV of $2.26.
- The Fund paid dividends totaling approximately $.23 per common share, a
dividend yield of 10.6% based on the beginning of year market price of $2.16.
TOTAL RETURNS FOR THE PERIODS ENDING DECEMBER 31, 2004
1 YEAR 3 YEARS CUMULATIVE
---------------------------------------------------------------------------------------------------------------
New America High Income Fund
(Stock Price and Dividends)* 12.80% 17.05%
New America High Income Fund
(NAV and Dividends) 14.60% 22.21%
Lipper Closed-End Fund Leveraged
High Yield Average 17.02% 55.98%
CS First Boston High Yield Index 11.95% 47.67%
10 Year U.S. Treasury Bond 4.87% 21.75%
Sources: CS First Boston, Citigroup, Lipper, The New America High Income Fund,
Inc,
* Because the Fund's shares may trade at either a discount or premium to the
Fund's net asset value per share, returns based upon the share price and
dividends will tend to differ from those derived from the underlying change
in net asset value.
In prior shareholder letters, we have discussed the impact of the Fund's
leverage on the Fund's performance. Again, we remind our fellow shareholders
that in times of high yield market volatility, leverage creates greater
volatility in the Fund's NAV than we would experience with an identical
un-leveraged portfolio. When prices in the high yield bond market rise, the
Fund's NAV may rise at a faster rate, however this positive effect becomes a
negative effect when the market declines. One has only to look back to the
period from 1998 through 2002 to judge the punishing impact of a poor market on
a portfolio with leverage.
In 2004 the Fund's leverage was an important contributor to the common stock
dividend. The Fund's leverage is in the form of Auction Term Preferred Stock
(the "ATP"). The additional income contributed by the ATP is generated by the
difference between the current cost of the leverage and the higher income earned
on the portfolio assets attributable to the ATP. The dividend paid on the ATP is
set at monthly auctions and fluctuates with short-term interest rates. The
common stock dividend is principally affected by two factors, the current yield
on the Fund's portfolio and the cost of the ATP. While we cannot control the
portfolio yield, we have fixed the dividend cost of the ATP at 3.775% by
entering into a 5 year interest rate swap. If the portfolio's current yield
changes significantly, it is likely the Board of Directors will consider a
change in the common stock dividend.
The portfolio had total net assets attributable to common stock and ATP ("TNA")
of $342 million at year-end, of which $130 million were assets attributable to
the ATP. The Fund is governed by the Investment Company Act of 1940 (the "1940
Act"). The 1940 Act limits the amount of leverage in the form of ATP that the
Fund may employ to a maximum of 50% of the TNA. In addition, the Fund must
comply with a number of asset coverage tests imposed by Moody's Investors
Service and Fitch, Inc., both of which provide credit ratings for the Fund's
ATP. During declining
markets the Fund may reduce the amount of ATP outstanding to ensure that the
ratio of the leverage to TNA continues to meet 1940 Act and rating agency
requirements. If the Fund needs to reduce the ATP outstanding, it may have to
raise the necessary cash by selling high yield portfolio securities, which may
negatively impact the common stock dividend.
Despite the strong high yield market environment over the last two years, we
remain reasonably positive about the stability of our portfolio under the
management of Mark Vaselkiv, assisted by Paul Karpers and the able high yield
team at T. Rowe Price Associates. Mark's and Paul's comments on the high yield
market and portfolio strategy are outlined below.
HIGH YIELD MARKET UPDATE
The high yield bond market delivered gains for 2004, on the heels of its strong
results in 2003, marking the first time it has delivered double-digit returns in
consecutive years since the 1996-1997 period. For the past two years the high
yield asset class has enjoyed near perfect market conditions, to the benefit of
high yield companies and investors alike. Corporate fundamentals showed
improvement in a temperate economic climate, while investor demand for
higher-yielding securities in an overall low interest rate environment continued
to attract capital to the asset class and support prices. Returns were solid
across the spectrum of ratings categories, but particularly strong among the
lowest rated (CCC) credits. The good results have left the asset class with
historically low absolute yields, and in our view, limited potential for
additional capital appreciation in 2005. While the favorable trends most high
yield companies have enjoyed seem likely to persist into the year, the high
yield bond market now has little room to absorb negative surprises. With
interest rates remaining low and credit spreads extremely tight, the potential
for a repeat of 2004 performance seems highly unlikely.
A positive development in the latter months of the year put a strong exclamation
point on the excellent performance high yield investors have enjoyed for over
two years. Merger and acquisition activity in the U.S. has accelerated, and high
yield companies are in many cases targets of investment grade corporations
looking to consolidate their industries. The Fund benefited in the fourth
quarter from Nextel's announced merger with Sprint, the planned roll up of
International Steel Group and Ispat Inland by their high grade foreign buyer,
Mittal, and the purchase of luxury retailer Barney's, completed in December by
Jones Apparel Group. These deals and several others contributed to capital gains
in the portfolio throughout the year. The Nextel announcement was particularly
rewarding, as it was one of the Fund's largest positions.
While the pick-up in mergers was a more recent phenomenon that may carry into
2005, the pace of refinancing activity continued at a healthy clip throughout
the year as corporate issuers looked to take advantage of low interest rates.
Events from the gaming industry illustrate the impact such activity could likely
have on the portfolio's level of income as we move into 2005. Two of our largest
holdings, the Venetian and Wynn Resorts, pursued transactions that eliminated
their high cost debt. Venetian, upon completing a highly successful IPO,
announced a partial tender for a portion of an 11% bond issue, and may very well
eliminate the remainder of the issue shortly. While Wynn, taking advantage of
near insatiable investor appetite for gaming paper, replaced a 12% issue with a
new bond offering a 6.625% coupon, though the organization has yet to open its
first casino property. Throughout the year there were several large mergers
announced among casino companies, including combinations among MGM and Mandalay
Bay, Harrah's and Caesar's Palace, and Penn National and Argosy. We anticipate
the companies will eliminate any legacy high cost debt with the successful
closing of these deals. For example, bonds from Penn National carrying an
11.125% interest rate are expected to be called and replaced with a new issue
that will carry a far lower coupon. The challenge will be reinvesting the
proceeds from these mergers, tenders, and early redemptions in the gaming
industry and elsewhere at attractive rates, as the universe of truly "high
yielding" high yield debt grows evermore scarce.
2
STRATEGY UPDATE
We made few major structural changes in the portfolio throughout the year, but
kept a bias toward higher quality securities in our research efforts and
remained ever vigilant to what we see as a trend to higher interest rates. We
are particularly concerned about the lack of adequate compensation offered by
lower-rated CCC bonds. About half the CCC rated issues the Fund owns yield less
than 8%, although in our view many of them carry single-B characteristics and
deserve higher ratings from the agencies. With BB's earning about 6%, it seems
to us to make little sense to own the most speculative credits. In fact, General
Motors, rated BBB, though widely anticipated to be facing an eventual downgrade
to below investment grade, yielded 6.8% at the time of the Fund's purchase,
higher than most BB and single-B rated issues in the portfolio.
The telecommunications theme continued to play out well during the last three
months of the year. Many of our top performers came from this sector, including
AT&T, MCI, Qwest and Nextel. Given the strong performance of the AT&T bonds, we
locked in profits and sold down the position in early December. In addition to
the Nextel announcement, Western Wireless seems likely to be acquired by Alltel
in 2005. We added a significant position to Rogers Communications in the fourth
quarter, a high quality Canadian operator of wireless phone and cable television
services.
We experienced no defaults and few major credit problems during the second half
of the year and feel the quality of the positions in the Fund should allow this
trend to continue into 2005. We are growing more cautious, however, with respect
to interest rates and spreads, and see the first quarter as an ideal time to
review the portfolio for interest rate sensitive paper and questionable
situations that could run into trouble in the future. This includes any holdings
created to finance leveraged buyout activity, given the increasingly aggressive
behavior of private equity sponsors. Private equity investors that fund the
purchase of companies by issuing high yield debt are doing highly levered deals
and often paying themselves huge dividends through the issuance of subordinated
bonds. We feel that both occurrences are a very poor omen for the high yield
asset class, not necessarily in the coming year, but over the intermediate term.
As always, our focus is two fold, seeking a high level of income while
preserving the Fund's principal. While it has grown increasingly difficult to
achieve these objectives in the present environment, we are still able to
generate the occasional idea that appears to offer sufficient income relative to
the underlying credit risk. Historically, when market conditions have been at
their best for high yield investors, speculation has always crept into the asset
class. We see this development occurring now, and we will be ever mindful to it
and its consequences in our portfolio management decisions for the year ahead.
Thank you for your interest in the Fund.
Sincerely,
/s/ Robert F. Birch /s/ Mark Vaselkiv /s/ Paul Karpers, CFA
Robert F. Birch Mark Vaselkiv Paul Karpers, CFA
President Vice President Vice President
The New America High Income Fund, Inc. T. Rowe Price Associates, 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.
INDUSTRY SUMMARY AS A PERCENT OF
DECEMBER 31, 2004 TOTAL INVESTMENTS
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Telecommunications 10.47%
Containers, Packaging and Glass 8.69%
Oil and Gas 6.92%
Hotels, Motels, Inns and Gaming 6.88%
Broadcasting and Entertainment 6.32%
Utilities 6.29%
Printing and Publishing 5.97%
Chemicals, Plastic and Rubber 5.77%
Healthcare, Education and Childcare 4.97%
Mining, Steel, Iron and Non-Precious Metals 4.93%
Building and Real Estate 4.86%
Electronics 3.96%
Automobile 3.10%
Aerospace and Defense 2.43%
Diversified/Conglomerate Service 2.20%
Leisure, Amusement and Entertainment 1.95%
Diversified/Conglomerate Manufacturing 1.85%
Beverage, Food and Tobacco 1.77%
Ecological 1.56%
Personal, Food and Miscellaneous Services 1.45%
Personal Non-Durable Consumer Products 1.14%
Retail Stores 1.00%
Personal Transportation 0.79%
Finance 0.76%
Furnishings, Housewares,
Durable Consumer Products 0.61%
Banking 0.57%
Machinery 0.36%
Farming and Agriculture 0.26%
Textiles and Leather 0.03%
Shipping 0.01%
Short-Term Investments 2.13%
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Total Investments 100.00%
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MOODY'S INVESTORS SERVICE RATINGS AS A PERCENT OF
DECEMBER 31, 2004 (UNAUDITED) TOTAL INVESTMENTS
-------------------------------------------------------------------------------
Short Term Prime-1 2.13%
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B1 12.26%
B2 27.59%
B3 25.14%
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Total B 64.99%
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Ba1 1.27%
Ba2 4.81%
Ba3 12.50%
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Total Ba 18.58%
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Baa1 0.50%
Baa2 0.47%
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Total Baa 0.97%
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Caa1 10.47%
Caa2 0.93%
Caa3 0.83%
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Total Caa 12.23%
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Unrated 0.92%
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Equity 0.18%
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Total Investments 100.00%
======
4
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2004 (DOLLAR AMOUNTS IN THOUSANDS)
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
CORPORATE DEBT SECURITIES-- 155.85% (d)
AEROSPACE AND DEFENSE-- 3.88%
$ 850 Aviall, Inc., Senior Notes,
7.625%, 07/01/11 B1 $ 905
525 BE Aerospace, Inc., Senior
Subordinated Notes,
8%, 03/01/08 Caa3 524
1,125 BE Aerospace, Inc., Senior
Subordinated Notes,
8.875%, 05/01/11 Caa3 1,184
2,500 GenCorp Inc., Senior
Subordinated Notes,
9.50%, 08/15/13 Caa1 2,781
600 Sequa Corporation, Senior Notes,
9%, 08/01/09 B1 680
650 TransDigm Inc., Senior
Subordinated Notes,
8.375%, 07/15/11 B3 695
1,500 Vought Aircraft Industries, Inc.,
Senior Notes, 8%, 07/15/11 B2 1,455
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8,224
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AUTOMOBILE -- 4.94%
400 ADESA, Inc., Senior Subordinated
Notes, 7.625%, 06/15/12 B1 422
225 Advanced Accessory Systems, LLC,
Senior Notes, 10.75%, 06/15/11 B3 214
575 Asbury Automotive Group, Inc.,
Senior Subordinated Notes,
8%, 03/15/14 B3 572
50 Asbury Automotive Group, Inc.,
Senior Subordinated Notes,
9%, 06/15/12 B3 53
675 Autocam Corporation, Senior
Subordinated Notes,
10.875%, 06/15/14 B3 672
600 Cooper Standard Automotive, Inc.,
Senior Subordinated Notes,
8.375%, 12/15/14 (g) B3 600
590 Cummins, Inc., Senior Notes,
9.50%, 12/01/10 Ba2 671
350 Dura Operating Corporation,
Senior Subordinated Notes,
9%, 05/01/09 B3 348
$ 500 Hawk Corporation, Senior Notes,
8.75%, 11/01/14 (g) B2 $ 515
150 HLI Operating Company Inc.,
Senior Notes, 10.50%, 06/15/10 B1 161
550 J.B. Poindexter & Co., Inc.,
Senior Notes,
8.75%, 03/15/14 (g) B1 588
450 MSX International, Inc.,
Senior Subordinated Notes,
11.375%, 01/15/08 Caa1 356
525 Navistar International Corporation,
Senior Notes,
7.50%, 06/15/11 Ba3 563
1,125 Tenneco Automotive Inc., Senior
Subordinated Notes,
8.625%, 11/15/14 (g) B3 1,170
1,457 TRW Automotive Inc., Senior
Notes, 9.375%, 02/15/13 Ba3 1,690
1,291 TRW Automotive Inc., Senior
Subordinated Notes,
11%, 02/15/13 B1 1,557
350 Visteon Corporation,
Senior Notes, 7%, 03/10/14 Ba1 338
-----------
10,490
-----------
BANKING -- .90%
675 Dollar Financial Group, Inc.,
Senior Notes, 9.75%, 11/15/11 B3 734
1,100 Global Cash Access Inc., Senior
Subordinated Notes,
8.75%, 03/15/12 Caa1 1,185
-----------
1,919
-----------
BEVERAGE, FOOD AND TOBACCO -- 2.83%
281 Agrilink Foods, Inc., Senior
Subordinated Notes,
11.875%, 11/01/08 B3 292
925 B&G Foods, Inc., Senior Notes,
8%, 10/01/11 B2 985
400 Dole Food Company, Inc.,
Senior Notes 8.625%, 05/01/09 B2 434
700 Dole Food Company, Inc.,
Senior Notes 8.875%, 03/15/11 B2 764
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
$ 1,175 Le-Nature's, Inc., Senior
Subordinated Notes,
10.00%, 06/15/13 (g) Caa1 $ 1,304
400 Pierre Foods, Inc., Senior
Subordinated Notes,
9.875%, 07/15/12 (g) B3 414
950 Pinnacle Foods Holding
Corporation, Senior
Subordinated Notes,
8.25%, 12/01/13 (g) B3 903
450 Reddy Ice Holdings, Inc., Senior
Discount Notes,
10.50%, 10/15/12 (g)(h) Caa1 309
550 Wornick Company, Senior Secured
Notes, 10.875%, 07/15/11 B2 597
-----------
6,002
-----------
BROADCASTING AND ENTERTAINMENT -- 10.09%
275 AMC Entertainment, Inc., Senior
Notes, 8.625%, 08/15/12 (g) B2 304
800 CCO Holdings, LLC, Senior Notes,
8.75%, 11/15/13 B3 828
600 CCO Holdings, LLC, Senior Notes,
6.615%, 12/15/10 (g) B3 599
825 Cablevision Systems Corporation,
Senior Notes, 8%, 04/15/12(g) B3 879
800 Charter Communications
Operating, LLC, Senior Secured
Notes, 8%, 04/30/12 (g) B2 834
100 Charter Communications
Operating, LLC, Senior Secured
Notes, 8.375%, 04/30/14 (g) B2 105
250 Cinemark, Inc., Senior Discount
Notes, 9.75%, 03/15/14 (g)(h) Caa1 190
975 Cinemark, Inc., Senior Discount
Notes, 9.75%, 03/15/14 (h) Caa1 741
75 Cinemark USA, Inc., Senior
Subordinated Notes,
9%, 02/01/13 B3 86
625 CSC Holdings, Inc., Senior Notes,
6.75%, 04/15/12 (g) B1 642
2,625 CSC Holdings, Inc., Senior Notes,
7.625%, 04/01/11 B1 2,828
1,475 EchoStar DBS Corporation, Senior
Notes, 6.625%, 10/01/14 (g) Ba3 1,497
$ 644 EchoStar DBS Corporation, Senior
Notes, 9.125%, 01/15/09 Ba3 $ 708
225 Fisher Communications, Inc.,
Senior Notes,
8.625%, 09/15/14 (g) B2 243
375 Insight Midwest, L.P., Senior
Notes, 9.75%, 10/01/09 B2 393
750 Insight Midwest, L.P., Senior Notes,
10.50%, 11/01/10 B2 822
825 Loews Cineplex Entertainment
Corporation, Senior
Subordinated Notes,
9%, 08/01/14 (g) B3 895
600 Mediacom Broadband LLC,
Senior Notes, 11%, 07/15/13 B2 645
25 Paxson Communications
Corporation, Senior
Subordinated Notes,
10.75%, 07/15/08 Caa1 26
2,475 Quebecor Media, Inc., Senior
Notes, 11.125%, 07/15/11 B2 2,834
300 Rogers Cable Inc., Senior Secured
Notes, 6.75%, 03/15/15 (g) Ba3 305
825 Sinclair Broadcast Group, Inc.,
Senior Subordinated Notes,
8.75%, 12/15/11 B2 899
500 Spanish Broadcasting System, Inc.,
Senior Subordinated Notes,
9.625%, 11/01/09 Caa1 525
225 Universal City Florida Holding Co.,
Senior Notes, 7.20%, 05/1/10 (g) B3 235
225 Universal City Florida Holding Co.,
Senior Notes,
8.375%, 05/1/10 (g) B3 235
825 Videotron Ltee., Senior Notes,
6.875%, 01/15/14 (g) Ba3 854
1,150 Warner Music Group, Senior
Subordinated Notes,
7.375%, 04/15/14 (g) B3 1,179
300 WDAC Subsidiary Corp., Senior
Notes, 8.375%, 12/1/14 (g) B2 297
656 XM Satellite Radio Inc., Senior
Secured Notes, 12%, 06/15/10 Caa1 776
-----------
21,404
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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
BUILDING AND REAL ESTATE-- 7.75%
$ 1,000 ACIH Inc., Senior Discount Notes,
11.50%, 12/15/12 (g)(h) B3 $ 725
1,600 Associated Materials Inc., Senior
Subordinated Notes,
9.75%, 04/15/12 Caa1 1,792
625 B.F. Saul Real Estate Investment
Trust, Senior Secured Notes,
7.50%, 03/1/14 B3 644
700 Building Materials Corporation of
America, Senior Notes,
7.75%, 08/01/14 (g) B2 712
1,050 Collins & Aikman Floorcoverings,
Inc., Senior Subordinated Notes,
9.75%, 02/15/10 Caa1 1,129
400 GEO Group, Inc., Senior Notes,
8.25%, 07/15/13 B1 428
825 Hovnanian Enterprises, Inc.,
Senior Subordinated Notes,
7.75%, 05/15/13 Ba3 892
750 LNR Property Corporation, Senior
Subordinated Notes,
7.25%, 10/15/13 Caa1 844
375 LNR Property Corporation, Senior
Subordinated Notes,
7.625%, 07/15/13 Caa1 425
775 Mobile Mini, Inc., Senior Notes,
9.50%, 07/01/13 B2 903
1,050 Norcraft Companies, L.P., Senior
Subordinated Notes,
9%, 11/01/11 B3 1,134
325 Omega Healthcare Investors, Inc.,
Senior Notes, 7%, 04/01/14 B1 332
675 RMCC Acquisition Company,
Senior Subordinated Notes,
9.50%, 11/01/12 (g) Caa1 673
650 Shaw Group Inc., Senior Notes,
10.75%, 03/15/10 Ba3 718
750 Texas Industries, Inc., Senior
Notes, 10.25%, 06/15/11 B1 870
550 U.S. Concrete, Inc., Senior
Subordinated Notes,
8.375%, 04/1/14 B3 593
775 WII Components, Inc., Senior Notes,
10%, 02/15/12 B2 783
$ 700 WCI Communities, Inc., Senior
Subordinated Notes,
9.125%, 05/01/12 Ba3 $ 777
975 WCI Communities, Inc., Senior
Subordinated Notes,
10.625%, 02/15/11 Ba3 1,087
225 Williams Scotsman, Inc., Senior
Notes, 9.875%, 06/01/07 B3 225
675 Williams Scotsman, Inc., Senior
Secured Notes, 10%, 08/15/08 B2 749
-----------
16,435
-----------
CHEMICALS, PLASTICS AND RUBBER -- 9.20%
525 ARCO Chemical Company, Senior
Debentures, 10.25%, 11/01/10 B1 609
300 ARCO Chemical Company, Senior
Notes, 9.80%, 02/01/20 B1 342
1,600 BCP Caylux Holdings Luxembourg
S.C.A., Senior Subordinated
Notes, 9.625%, 06/15/14 (g) B3 1,798
675 Borden Chemical, Inc., Senior
Secured Notes, 9%, 07/15/14 (g) B3 748
1,650 Compass Minerals Group, Inc.,
Senior Subordinated Notes,
10%, 08/15/11 B3 1,856
75 Crystal US Holdings 3 LLC, Senior
Discount Notes,
10%, 10/01/14 (g)(h) Caa2 52
450 Crystal US Holdings 3 LLC, Senior
Discount Notes,
10.50%, 10/01/14 (g)(h) Caa2 308
475 Ethyl Corporation, Senior Notes,
8.875%, 05/01/10 B2 525
425 Freeport McMoran Resources,
Senior Notes, 7%, 02/15/08 Caa1 444
600 Huntsman International LLC,
Senior Notes, 9.875%, 03/01/09 B3 659
1,475 Huntsman LLC, Senior Secured
Notes, 11.625%, 10/15/10 B2 1,740
1,300 Invista, Units,
9.25%, 05/01/12 (g) B1 1,448
2,000 Koppers Inc., Senior Secured
Notes, 9.875%, 10/15/13 B2 2,280
400 Lyondell Chemical Company,
Senior Secured Notes,
9.50%, 12/15/08 B1 434
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
$ 725 OMNOVA Solutions Inc.,
Senior Secured Notes,
11.25%, 06/01/10 B2 $ 816
525 PolyOne Corporation, Senior Notes,
10.625%, 05/15/10 B3 592
825 Resolution Performance Products,
LLC, Senior Secured Notes,
9.50%, 04/15/10 B3 893
1,475 Rhodia S.A., Senior Notes,
10.25%, 06/01/10 B3 1,674
1,150 Rockwood Specialties Group, Inc.,
Senior Subordinated Notes,
10.625%, 05/15/11 B3 1,322
200 VWR International, Inc.,
Senior Notes,
6.875%, 04/15/12 B3 210
725 VWR International, Inc., Senior
Subordinated Notes,
8%, 04/15/14 Caa1 772
-----------
19,522
-----------
CONTAINERS, PACKAGING AND GLASS -- 13.87%
700 AEP Industries, Inc., Senior
Subordinated Notes,
9.875%, 11/15/07 B3 711
800 Ball Corporation, Senior Notes,
6.875%, 12/15/12 Ba3 860
950 Boise Cascade, LLC, Senior
Subordinated, Notes,
7.125%, 10/15/14 (g) B2 1,005
775 BWAY Corporation, Senior
Subordinated Notes,
10%, 10/15/10 B3 829
575 Constar International, Inc. Senior
Subordinated Notes,
11%, 12/01/12 Caa1 595
1,300 Crown European Holdings, S.A.,
Senior Secured Notes,
9.50%, 03/01/11 B1 1,482
1,725 Crown European Holdings, S.A.,
Senior Secured Notes,
10.875%, 03/01/13 B2 2,040
500 Georgia-Pacific Corporation, Senior
Notes, 8.875%, 02/01/10 Ba2 582
$ 2,850 Georgia-Pacific Corporation, Senior
Notes, 9.375%, 02/01/13 Ba2 $ 3,331
525 Graham Packaging Company, L.P.,
Senior Notes,
8.50%, 10/15/12 (g) Caa1 551
1,200 Graham Packaging Company, L.P.,
Senior Subordinated Notes,
9.875%, 10/15/14 (g) Caa2 1,287
450 Graphic Packaging International Inc.,
Senior Notes,
8.50%, 08/15/11 B2 490
325 Graphic Packaging International Inc.,
Senior Subordinated, Notes,
9.50%, 08/15/13 B3 369
350 Greif Brothers Corporation, Senior
Subordinated Notes,
8.875%, 08/1/12 B1 389
850 Jefferson Smurfit Corporation, (U.S.)
Senior Notes, 7.50%, 06/01/13 B2 907
1,425 Longview Fibre Company, Senior
Subordinated Notes,
10%, 01/15/09 B2 1,557
2,110 MDP Acquisitions Plc, Senior
Notes, 9.625%, 10/01/12 B3 2,353
782 MDP Acquisitions Plc, Subordinated
Notes, 15.50%, 10/01/13 (b) Caa1 919
475 Owens-Brockway Glass Container,
Inc., Senior Notes,
8.25%, 05/15/13 B2 521
450 Owens-Brockway Glass Container,
Inc., Senior Secured Notes,
7.75%, 05/15/11 B1 486
725 Owens-Brockway Glass Container,
Inc., Senior Secured Notes,
8.75%, 11/15/12 B1 821
1,225 Owens-Brockway Glass Container,
Inc., Senior Secured Notes,
8.875%, 02/15/09 B1 1,332
1,550 Plastipak Holdings, Inc., Senior Notes,
10.75%, 09/01/11 B3 1,748
1,025 Riverside Forest Products Ltd., Senior
Notes, 7.875%, 03/01/14 B2 1,122
375 Silgan Holdings Inc., Senior
Subordinated Notes,
6.75%, 11/15/13 B1 388
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
$ 725 Solo Cup Company, Senior
Subordinated Notes,
8.50%, 02/15/14 B3 $ 749
100 Stone Container Corporation, Senior
Notes, 9.75%, 02/01/11 B2 110
625 Stone Container Finance Company
of Canada, Senior Notes,
7.375%, 07/15/14 B2 662
725 Tekni-Plex, Inc., Senior Secured
Notes, 8.75%, 11/15/13 (g) Caa1 721
450 Western Forest Products, Inc.,
15%, 07/28/09 (g) (e) 507
-----------
29,424
-----------
DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 2.96%
850 Aearo Company, Senior
Subordinated Notes,
8.25%, 04/15/12 B3 875
275 AGCO Corporation, Senior Notes,
9.50%, 05/01/08 Ba3 293
850 Case New Holland Inc., Senior Notes,
9.25%, 08/01/11 (g) Ba3 948
500 Columbus McKinnon Corporation,
Senior Subordinated Notes,
8.50%, 04/01/08 Caa1 501
550 Manitowoc Company, Inc., Senior
Notes, 7.125%, 11/01/13 B1 595
1,700 Rexnord Corp., Senior Subordinated
Notes, 10.125%, 12/15/12 B3 1,923
1,075 TriMas Corporation, Senior
Subordinated Notes,
9.875%, 06/15/12 B3 1,140
-----------
6,275
-----------
DIVERSIFIED/CONGLOMERATE SERVICE -- 3.50%
1,475 Brand Services, Inc., Senior
Subordinated Notes,
12%, 10/15/12 B3 1,652
1,225 Brickman Group, LTD, Senior
Subordinated Notes,
11.75%, 12/15/09 B2 1,433
864 Coinmach Corporation, Senior Notes,
9%, 02/01/10 B3 899
1,525 National Waterworks, Inc., Senior
Subordinated Notes,
10.50%, 12/01/12 B3 1,708
$ 1,600 Synagro Technologies, Inc., Senior
Subordinated Notes,
9.50%, 04/01/09 B3 $ 1,744
-----------
7,436
-----------
ECOLOGICAL -- 2.48%
1,575 Allied Waste North America, Inc.,
Senior Secured Notes,
7.875%, 04/15/13 B2 1,616
850 Allied Waste North America, Inc.,
Senior Secured Notes,
8.875%, 04/01/08 B2 905
1,625 Casella Waste Systems, Inc., Senior
Subordinated Notes,
9.75%, 02/01/13 B3 1,792
800 IESI Corporation, Senior
Subordinated Notes,
10.25%, 06/15/12 (e) 948
-----------
5,261
-----------
ELECTRONICS -- 6.32%
325 AMI Semiconductor, Inc., Senior
Subordinated Notes,
10.75%, 02/01/13 B3 379
700 Amkor Technology, Inc., Senior Notes,
9.25%, 02/15/08 B3 716
200 Coleman Cable, Inc., Senior Notes,
9.875%, 10/01/12 (g) B3 212
875 Fairchild Semiconductor Corporation,
Senior Subordinated Notes,
10.50%, 02/01/09 B2 926
650 Freescale Semiconductor, Inc.,
Senior Notes, 6.875%, 07/15/11 Ba2 699
925 Freescale Semiconductor, Inc.,
Senior Notes, 7.125%, 07/15/14 Ba2 1,004
450 General Cable Corporation, Senior
Notes, 9.50%, 11/15/10 B2 513
675 Invensys plc, Senior Notes,
9.875%, 03/15/11 (g) B3 726
300 MagnaChip Semiconductor S.A.,
Senior Secured Notes,
6.875%, 12/15/11 (g) Ba3 310
350 MagnaChip Semiconductor S.A.,
Senior Subordinated, Notes,
8%, 12/15/14 (g) B2 365
375 New Asat Finance LLC, Senior
Notes 9.25%, 02/01/11 (g) B3 334
975 Sanmina-SCI Corporation,
Senior Secured Notes,
10.375%, 01/15/10 Ba2 1,126
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
$ 450 Semiconductor Note Participation
Trust, 10%, 08/04/11 (g) (e) $ 668
925 Solectron Corporation, Senior Notes,
9.625%, 02/15/09 B1 1,016
350 STATS ChipPAC Ltd., Senior Notes,
6.75%, 11/15/11 (g) Ba2 349
1,325 Stratus Technologies, Inc., Senior
Notes, 10.375%, 12/01/08 B3 1,196
775 Superior Essex Communications LLC,
Senior Notes, 9%, 04/15/12 B3 802
800 Telex Communications, Inc.,
Senior Secured Notes,
11.50%, 10/15/08 B3 868
1,050 UGS Corp., Senior Subordinated
Notes, 10%, 06/01/12 (g) B3 1,197
-----------
13,406
-----------
FARMING AND AGRICULTURE-- .41%
150 IMC Global Inc., Senior Notes,
10.875%, 06/01/08 B1 180
125 IMC Global Inc., Senior Notes,
10.875%, 08/01/13 B1 156
100 IMC Global Inc., Senior Notes,
11.25%, 06/01/11 B1 116
397 United Agri Products, Inc., Senior
Notes, 8.25%, 12/15/11 (g) B1 426
-----------
878
-----------
FINANCE -- 1.21%
1,700 General Motors Acceptance
Corporation, Senior Notes,
6.75%, 12/01/14 Baa1 1,700
800 Refco Financial Holdings LLC,
Senior Subordinated Notes,
9%, 08/01/12 (g) B3 872
-----------
2,572
-----------
FURNISHINGS, HOUSEWARES, DURABLE CONSUMER PRODUCTS -- .97%
775 MAAX Corporation, Senior
Subordinated Notes,
9.75%, 06/15/12 (g) B3 837
775 Sealy Mattress Company, Senior
Subordinated Notes,
8.25%, 06/15/14 Caa1 814
$ 650 Simmons Company, Senior Discount
Notes, 10%, 12/15/14 (g)(h) Caa2 $ 398
-----------
2,049
-----------
HEALTHCARE, EDUCATION AND CHILDCARE -- 7.92%
900 Ameripath, Inc. Senior Subordinated
Notes, 10.50%, 04/01/13 Caa1 956
875 AmerisourceBergen Corporation,
Senior Notes, 8.125%, 09/01/08 Ba3 973
700 Biovail Corporation, Senior
Subordinated Notes,
7.875%, 04/01/10 B2 724
375 Community Health Systems, Inc.,
Senior Subordinated Notes,
6.50%, 12/15/12 (g) B3 378
1,425 Concentra Operating Corporation,
Senior Subordinated Notes,
9.50%, 08/15/10 B3 1,614
825 Elan Finance plc, Senior Notes,
7.75%, 11/15/11(g) B3 883
566 Fisher Scientific International Inc.,
Senior Subordinated Notes,
8.125%, 05/01/12 Ba3 631
575 Fresenius Medical Care Capital
Trust IV, 7.875%, 06/15/11 Ba2 638
1,125 Genesis Healthcare Corporation,
Senior Subordinated Notes,
8%, 10/15/13 B3 1,221
600 HCA Inc., Senior Notes,
6.375%, 01/15/15 Ba2 601
425 InSight Health Services Corp.,
Senior Subordinated Notes,
9.875%, 11/01/11 B3 429
250 Inverness Medical Innovations, Inc.,
Senior Subordinated Notes,
8.75%, 02/15/12 (g) Caa1 261
250 MedQuest, Inc., Senior Subordinated
Notes, 11.875%, 08/15/12 B3 294
1,175 Omnicare, Inc., Senior Subordinated
Notes, 8.125%, 03/15/11 Ba2 1,260
1,125 Quintiles Transnational Corp., Senior
Subordinated Notes,
10%, 10/01/13 B3 1,260
450 Tenet Healthcare Corporation,
Senior Notes, 6.50%, 06/01/12 B3 419
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
$ 300 Tenet Healthcare Corporation,
Senior Notes, 7.375%, 02/01/13 B3 $ 291
175 Tenet Healthcare Corporation,
Senior Notes,
9.875%, 07/01/14 (g) B3 190
1,050 Triad Hospitals, Inc., Senior
Subordinated Notes,
7%, 11/15/13 B3 1,071
775 US Oncology, Inc., Senior Notes,
9%, 08/15/12 (g) B2 866
525 Vanguard Health Holding Company II,
LLC, Senior Subordinated Notes,
9%, 10/01/14 (g) Caa1 562
1,175 Vicar Operating Inc., Senior
Subordinated Notes,
9.875%, 12/01/09 B2 1,287
-----------
16,809
-----------
HOTELS, MOTELS, INNS AND GAMING -- 10.97%
625 American Casino & Entertainment
Properties LLC, Senior Secured
Notes, 7.85%, 02/01/12 B2 667
1,000 Ameristar Casinos, Inc., Senior
Subordinated Notes,
10.75%, 02/15/09 B2 1,115
450 Argosy Gaming Company, Senior
Subordinated Notes,
7%, 01/15/14 B1 499
75 Argosy Gaming Company, Senior
Subordinated Notes,
9%, 09/01/11 Ba3 84
1,000 Boyd Gaming Corporation, Senior
Subordinated Notes,
6.75%, 04/15/14 B1 1,052
500 Herbst Gaming, Inc., Senior
Subordinated Notes,
7%, 11/15/14 (g) B3 506
740 Host Marriott L.P., Senior Notes,
9.50%, 01/15/07 Ba3 810
975 Isle of Capri Casinos, Inc., Senior
Subordinated Notes,
7%, 03/01/14 B2 1,002
1,625 John Q. Hammons Hotels, LP,
First Mortgage Notes,
8.875%, 05/15/12 B2 1,844
3,275 La Quinta Properties, Inc.,
Senior Notes, 8.875%, 03/15/11 Ba3 3,652
$ 275 MGM MIRAGE, Senior Notes,
6.75%, 09/01/12 Ba1 $ 290
1,500 MGM MIRAGE, Senior Secured
Notes, 6.875%, 02/06/08 Ba1 1,624
1,100 Mohegan Tribal Gaming Authority,
Senior Subordinated Notes,
8%, 04/01/12 Ba3 1,200
1,625 Penn National Gaming, Inc., Senior
Subordinated Notes,
11.125%, 03/01/08 B2 1,737
425 Premier Entertainment Biloxi LLC,
Senior Secured Notes,
10.75%, 02/01/12 B3 465
75 Resorts International Hotel and
Casino, Inc., Senior Notes,
11.50%, 03/15/09 B2 88
150 Scientific Games Corporation, Senior
Subordinated Notes,
6.25%, 12/15/12 (g) B1 151
525 Station Casinos, Inc., Senior Notes,
6%, 04/01/12 Ba3 537
125 Station Casinos, Inc., Senior
Subordinated Notes,
6.50%, 2/01/14 B1 128
425 Station Casinos, Inc., Senior
Subordinated Notes,
6.875%, 03/01/16 B1 444
3,275 Venetian Casino Resort, LLC,
Senior Secured Notes,
11%, 06/15/10 B2 3,750
1,650 Wynn Las Vegas, LLC, Senior
Secured Notes,
6.625%, 12/01/14 (g) B2 1,634
-----------
23,279
-----------
LEISURE, AMUSEMENT AND ENTERTAINMENT -- 3.11%
800 AMF Bowling Worldwide, Inc. Senior
Subordinated Notes,
10%, 03/01/10 B3 856
575 Equinox Holdings, Inc., Senior Notes,
9%, 12/15/09 B3 612
775 K2 Inc., Senior Notes,
7.375%, 07/01/14 (g) Ba3 851
175 Riddell Bell Holdings, Inc., Senior
Subordinated Notes,
8.375%, 10/01/12 (g) B3 182
600 Six Flags Inc., Senior Notes,
8.875%, 02/01/10 Caa1 611
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
$ 375 Six Flags Inc., Senior Notes,
9.75%, 04/15/13 Caa1 $ 383
800 Town Sports International, Inc.,
Senior Notes, 9.625%, 04/15/11 B2 844
1,925 Universal City Development
Partners, Ltd., Senior Notes,
11.75%, 04/01/10 B2 2,267
-----------
6,606
-----------
MACHINERY -- .58%
1,150 JLG Industries, Inc., Senior
Subordinated Notes,
8.375%, 06/15/12 B3 1,230
-----------
MINING, STEEL, IRON AND NON-PRECIOUS METALS-- 7.87%
75 Algoma Steel Inc., Secured Notes,
11%, 12/31/09 (e) 84
700 Allegheny Technologies Inc., Senior
Notes, 8.375%, 12/15/11 B3 773
825 Alpha Natural Resources, LLC,
Senior Notes, 10%, 06/01/12 (g) B3 941
450 Century Aluminum Company, Senior
Notes, 7.50%, 08/15/14 (g) B1 479
2,675 Earle M. Jorgensen Company,
Senior Secured Notes,
9.75%, 06/01/12 B2 3,009
825 Euramax Internanational, Inc.,
Senior Subordinated Notes,
8.50%, 08/15/11 B2 879
675 Foundation PA Coal Company,
Senior Notes,
7.25%, 08/01/14 (g) B1 722
1,500 Gerdau Ameristeel Corporation,
Senior Notes,
10.375%, 07/15/11 Ba3 1,759
375 IMCO Recycling Escrow Inc.,
Senior Notes, 9%, 11/15/14 (g) B3 391
600 IPSCO, Inc., Senior Notes,
8.75%, 06/01/13 Ba2 690
423 Ispat Inland ULC, Senior Secured
Notes, 9.75%, 04/01/14 B3 523
150 Joy Global Inc., Senior
Subordinated Notes,
8.75%, 03/15/12 B1 168
725 Luscar Coal Ltd., Senior Notes,
9.75%, 10/15/11 Ba3 823
$ 675 Massey Energy Company, Senior
Notes, 6.625%, 11/15/10 Ba3 $ 699
500 Neenah Foundry Company, Senior
Secured Notes, 11%, 09/30/10 (g) B2 552
2,000 Peabody Energy Corporation,
Senior Notes, 6.875%, 03/15/13 Ba3 2,170
1,009 United States Steel Corporation,
Senior Notes, 9.75%, 05/15/10 Ba2 1,155
850 Valmont Industries, Inc., Senior
Subordinated Notes,
6.875%, 05/01/14 Ba3 882
-----------
16,699
-----------
OIL AND GAS -- 11.05%
2,300 AmeriGas Partners, L.P., Senior
Notes, 8.875%, 05/20/11 B2 2,507
275 ANR Pipeline Company, Senior
Notes, 8.875%, 03/15/10 B1 310
450 Chesapeake Energy Corporation,
Senior Notes,
6.375%, 06/15/15 (g) Ba3 465
175 Chesapeake Energy Corporation,
Senior Notes, 7%, 08/15/14 Ba3 186
300 Chesapeake Energy Corporation,
Senior Notes, 8.125%, 04/01/11 Ba3 325
875 Chesapeake Energy Corporation,
Senior Notes, 9%, 08/15/12 Ba3 1,000
1,050 Compagnie Generale de
Geophysique (CGG), Senior Notes,
10.625%, 11/15/07 Ba3 1,105
125 Compton Petroleum Corporation,
Senior Notes, 9.90%, 05/15/09 B2 138
750 Denbury Resources, Inc., Senior
Subordinated Notes,
7.50%, 04/01/13 B2 810
325 Dresser-Rand Group Inc., Senior
Subordinated Notes,
7.375%, 11/01/11 (g) B3 332
150 Encore Acquisition Company, Senior
Subordinated Notes,
8.375%, 06/15/12 B2 167
1,725 Ferrellgas Partners L.P., Senior Notes,
8.75%, 06/15/12 B2 1,872
200 Hornbeck Offshore Services, Inc.,
Senior Notes,
6.125%, 12/01/14 (g) Ba3 200
800 Inergy, L.P., Senior Notes,
6.875%, 12/15/14 (g) B1 804
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
$ 650 Magnum Hunter Resources, Inc.,
Senior Notes, 9.60%, 03/15/12 B2 $ 738
250 MarkWest Energy Partners, L.P.,
Senior Notes,
6.875%, 11/01/14 (g) B1 254
100 North American Energy Partners,
Senior Notes, 8.75%, 12/01/11 B2 102
200 Northwest Pipeline Corporation,
Senior Notes, 8.125%, 03/01/10 Ba2 222
375 Petroleum Geo-Services ASA,
Senior Notes, 10%, 11/05/10 (e) 428
950 Petroleum Helicopters, Inc., Senior
Notes, 9.375%, 05/01/09 B1 1,031
775 Plains Exploration & Production
Co., L.P., Senior Subordinated
Notes, 8.75%, 07/01/12 Ba3 868
600 Pride International, Inc., Senior
Notes, 7.375%, 07/15/14 Ba2 656
500 Range Resources Corporation,
Senior Subordinated Notes,
7.375%, 07/15/13 B3 539
375 Southern Natural Gas Company,
Senior Notes, 8.875%, 03/15/10 B1 422
1,100 Stone Energy Corporation, Senior
Subordinated Notes,
8.25%, 12/15/11 B2 1,188
850 Suburban Propane Partners, L.P.,
Senior Notes, 6.875%, 12/15/13 B1 867
400 Swift Energy Company, Senior Notes,
7.625%, 07/15/11 B1 433
925 Universal Compression, Inc., Senior
Notes, 7.25%, 05/15/10 Ba3 990
175 Williams Companies, Inc., Senior
Notes, 7.625%, 07/15/19 B1 193
3,700 Williams Companies, Inc., Senior
Notes, 8.125%, 03/15/12 B1 4,283
-----------
23,435
-----------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES -- 2.32%
175 El Pollo Loco, Inc., Senior Secured
Notes, 9.25%, 12/15/09 B2 184
25 EPL Intermediate, Inc., Senior
Discount Notes,
12.50%, 03/15/10 (h) Caa1 16
425 FTD, Inc., Senior Subordinated Notes,
7.75%, 02/15/14 B3 438
$ 600 Landry's Restaurants, Inc., Senior
Notes, 7.50%, 12/15/14 (g) B2 $ 596
850 O'Charleys, Inc., Senior
Subordinated Notes,
9%, 11/01/13 Ba3 914
250 Perkins Family Restaurants, L.P.,
Senior Notes,
10.125%, 12/15/07 B1 259
1,475 TravelCenters of America, Inc.,
Senor Subordinated Notes,
12.75%, 05/01/09 B3 1,681
825 Worldspan, L.P., Senior Notes,
9.625%, 06/15/11 B2 829
-----------
4,917
-----------
PERSONAL NON-DURABLE CONSUMER PRODUCTS-- 1.82%
1,050 American Achievement Corporation,
Senior Subordinated Notes,
8.25%, 04/01/12 B3 1,089
575 Chattem, Inc., Senior Subordinated
Notes, 7%, 03/01/14 B2 592
325 Church & Dwight Company, Inc.,
Senior Subordinated Notes,
6%, 12/15/12 (g) Ba3 331
1,675 Rayovac Corporation, Senior
Subordinated Notes,
8.50%, 10/01/13 B3 1,859
-----------
3,871
-----------
PERSONAL TRANSPORTATION -- 1.26%
725 CHC Helicopter Corporation, Senior
Subordinated Notes,
7.375%, 05/01/14 B2 763
1,625 Laidlaw International Inc.,
Senior Notes, 10.75%, 06/15/11 B2 1,901
-----------
2,664
-----------
PRINTING AND PUBLISHING-- 9.52%
450 Advanstar Communications Inc.,
Senior Notes, 10.75%, 08/15/10 B3 506
325 Advanstar Communications Inc.,
Senior Subordinated Notes,
12%, 02/15/11 Caa2 349
575 Advanstar Inc., Senior Discount
Debentures, 15%, 10/15/11 (h) (e) 486
525 Affinity Group Inc., Senior
Subordinated Notes,
9%, 02/15/12 B3 568
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
$ 500 American Media Operations, Inc.,
Senior Subordinated Notes,
10.25%, 05/01/09 B3 $ 525
1,878 CanWest Media, Inc., Senior
Subordinated Notes,
8%, 09/15/12 (g) B2 2,014
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 Caa1 159
1,137 Dex Media East LLC, Senior
Subordinated Notes,
12.125%, 11/15/12 B2 1,387
825 Dex Media West LLC, Senior Notes,
8.50%, 08/15/10 B1 920
1,685 Dex Media West LLC, Senior
Subordinated Notes,
9.875%, 08/15/13 B2 1,942
50 Haights Cross Communications
Operating Company, Senior Notes,
11.75%, 08/15/11 Caa1 57
175 Haights Cross Communications
Operating Company, Senior Notes,
11.75%, 08/15/11 (g) Caa1 198
1,675 Houghton Mifflin Company, Senior
Subordinated Notes,
9.875%, 02/01/13 Caa1 1,830
950 Jostens Intermediate Holding Corp.,
Senior Subordinated Notes,
7.625%, 10/1/12 (g) B3 990
925 Liberty Group Operating, Inc.,
Senior Subordinated Notes,
9.375%, 02/01/08 Caa1 939
785 Mail-Well I Corporation, Senior
Notes, 9.625%, 03/15/12 B1 867
675 Reader's Digest Association, Inc.,
Senior Notes, 6.50%, 03/01/11 Ba3 705
1,970 R.H. Donnelley Inc., Senior
Subordinated Notes,
10.875%, 12/15/12 B2 2,339
1,675 Vertis, Inc., Senior Secured Notes,
9.75%, 04/01/09 B2 1,817
$ 500 Vertis, Inc., Senior Subordinated
Notes, 13.50%, 12/07/09 (g) Caa1 $ 530
-----------
20,194
-----------
RETAIL STORES -- 1.56%
75 Alimentation Couche-Tard, Inc.,
Senior Subordinated Notes,
7.50%, 12/15/13 Ba3 81
575 Jean Coutu Group, Inc., Senior Notes,
7.625%, 08/01/12 (g) B2 609
1,700 Jean Coutu Group, Inc., Senior
Subordinated Notes,
8.50%, 08/01/14 (g) B3 1,747
850 Nebraska Book Company, Inc.,
Senior Subordinated Notes,
8.625%, 03/15/12 Caa1 871
-----------
3,308
-----------
SHIPPING -- .02%
50 Great Lakes Dredge and Dock
Corporation, Senior Subordinated
Notes, 7.75%, 12/15/13 Caa2 46
-----------
TELECOMMUNICATIONS -- 16.71%
1,822 Alamosa (Delaware), Inc., Senior
Notes, 11%, 07/31/10 Caa1 2,159
1,325 AT&T Corporation, Senior Notes,
9.05%, 11/15/11 Ba1 1,531
425 AT&T Corporation, Senior Notes,
9.75%, 11/15/31 Ba1 511
1,000 Call-Net Enterprises Inc.,
Senior Secured Notes
10.625%, 12/31/08 Caa3 998
825 Centennial Communications Corp.,
Senior Notes, 8.125%, 02/01/14 Caa1 850
350 Centennial Communications Corp.,
Senior Notes, 10.125%, 06/15/13 Caa1 393
1,025 Crown Castle International Corp.,
Senior Notes, 10.75%, 08/01/11 B3 1,115
1,025 Eircom Funding plc, Senior
Subordinated Notes,
8.25%, 08/15/13 B1 1,153
75 FairPoint Comunications, Inc., Senior
Notes, 11.875%, 03/01/10 B3 88
The accompanying notes are an integral
part of these financial statements.
14
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
CORPORATE DEBT SECURITIES-- CONTINUED
$ 400 FairPoint Comunications, Inc., Senior
Subordinated Notes,
12.50%, 05/01/10 Caa1 $ 432
500 Horizon PCS, Inc., Senior Notes,
11.375%, 07/15/12 (g) B3 562
275 Inmarsat Finance, plc, Senior Notes,
7.625%, 06/30/12 B2 286
950 IPC Information Systems, Inc.,
Senior Subordinated Notes,
11.50%, 12/15/09 B3 1,040
450 iPCS Escrow Company, Senior Notes,
11.50%, 05/01/12 B3 512
1,200 MCI, Inc., Senior Notes,
7.688%, 05/01/09 B2 1,245
1,650 MCI, Inc., Senior Notes,
8.735%, 05/01/14 B2 1,782
3,075 NEXTEL Communications, Inc.,
Senior Notes, 6.875%, 10/31/13 Ba3 3,359
2,575 NEXTEL Communications, Inc.,
Senior Notes, 7.375%, 08/01/15 Ba3 2,849
725 Nextel Partners, Inc., Senior
Notes, 8.125%, 7/01/11 B3 805
1,075 PanAmSat Corporation, Senior
Notes, 9%, 08/15/14 (g) B2 1,199
825 Primus Telecommunications Holding,
Inc., Senior Notes, 8%, 01/15/14 B3 722
2,197 Qwest Services Corp., Senior
Subordinated Notes,
14%, 12/15/10 (g) Caa1 2,642
200 Rogers Wireless Inc., Senior
Secured Notes,
6.375%, 03/01/14 Ba3 199
375 Rogers Wireless Inc., Senior
Secured Notes,
7.50%, 03/15/15 (g) Ba3 397
1,000 Rogers Wireless Inc., Senior
Secured Notes,
9.625%, 05/01/11 Ba3 1,175
1,050 Rogers Wireless Inc., Senior
Subordinated Notes,
8%, 12/15/12 (g) B2 1,110
175 Rural Cellular Corporation, Senior
Secured Notes, 8.25%, 03/15/12 B2 185
1,750 Time Warner Telecom, Inc., Senior
Notes, 9.75%, 07/15/08 B3 1,772
$ 1,025 TSI Telecommunications Services,
Inc., Senior Subordinated Notes,
12.75%, 02/01/09 B3 $ 1,166
675 UbiquiTel Operating Co., Senior
Notes, 9.875%, 03/01/11 Caa1 756
900 US Unwired Inc., Senior Secured
Notes, 10%, 06/15/12 Caa1 1,015
1,325 Western Wireless Corporation,
Senior Notes, 9.25%, 07/15/13 Caa1 1,441
-----------
35,449
-----------
TEXTILES AND LEATHER -- .05%
100 Interface, Inc., Senior Subordinated
Notes, 9.50%, 02/01/14 Caa3 109
-----------
UTILITIES -- 9.78%
350 The AES Corporation, Senior Notes,
7.75%, 03/01/14 B2 379
725 The AES Corporation, Senior Notes,
9.375%, 09/15/10 B2 838
1,550 The AES Corporation, Senior
Secured Notes, 9%, 05/15/15 (g) B1 1,773
1,050 Allegheny Energy Supply Company,
LLC, Senior Notes,
8.25%, 04/15/12 (g) B3 1,187
1,500 CE Electric UK Funding
Company, Senior Notes,
6.995%, 12/30/07 (g) Baa3 1,591
1,500 CenterPoint Energy, Inc., Senior
Notes, 7.25%, 09/01/10 Ba2 1,673
1,125 Midwest Generation, LLC, Senior
Secured Notes, 8.75%, 05/01/34 B1 1,277
1,850 NRG Energy, Inc., Senior Secured
Notes, 8%, 12/15/13 (g) B1 2,017
1,650 Orion Power Holdings, Inc., Senior
Notes, 12%, 05/01/10 B2 2,095
375 PSEG Energy Holdings, L.L.C.,
Senior Notes, 8.50%, 06/15/11 Ba3 432
125 PSEG Energy Holdings, L.L.C.,
Senior Notes, 10%, 10/01/09 Ba3 148
700 Roseton-Danskammer 2001, Senior
Secured Notes, 7.27%, 11/08/10 Caa2 705
1,725 Sierra Pacific Resources, Senior
Notes, 8.625%, 03/15/14 B2 1,960
1,500 TECO Energy, Inc., Senior Notes,
7%, 05/01/12 Ba2 1,639
1,300 Texas Genco LLC, Senior Notes,
6.875%, 12/15/14 (g) B1 1,344
The accompanying notes are an integral
part of these financial statements.
15
MOODY'S
PRINCIPAL RATING VALUE
AMOUNT/UNITS (UNAUDITED) (NOTE 1(a))
CORPORATE DEBT SECURITIES-- CONTINUED
$ 1,575 TNP Enterprises, Inc.,
Subordinated Notes,
10.25%, 04/01/10 B2 $ 1,681
-----------
20,739
-----------
TOTAL CORPORATE DEBT SECURITIES
(Total cost of $314,917) 330,652
-----------
SHARES
PREFERRED STOCK -- .26% (d)
BANKING -- 0.00%
57,935 WestFed Holdings, Inc., Cumulative,
Series A, Preferred Stock,
15.50% (a)(c)(f) (e) --
-----------
MINING, STEEL, IRON, NON-PRECIOUS METALS -- 0.00%
18,000 Weirton Steel Corporation, Series C
Preferred Stock (a)(f) (e) 1
-----------
UTILITIES -- .26%
500 NRG Energy, Inc., Convertible
Preferred Stock, 4% (g) B3 563
-----------
TOTAL PREFERRED STOCK
(Total cost of $5,810) 564
-----------
COMMON STOCK AND WARRANTS-- .03% (d)
950 Barney's, Inc., Warrants exp.
02/1/08 (f)(g) 61
27,474 WestFed Holdings, Inc.,
Common Stock (a)(c)(f) --
10,052 WKI Holding Company, Inc.,
Common Stock (c)(f) --
-----------
TOTAL COMMON STOCK AND WARRANTS
(Total cost of $2,295) 61
-----------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS-- 3.40% (d)
$ 7,208 Rabobank USA Financial Corporation,
Commercial Paper, Due 01/03/05,
Discount of 2.17% P-1 $ 7,207
TOTAL SHORT-TERM INVESTMENTS
(Total cost of $7,207) 7,207
-----------
TOTAL INVESTMENTS
(Total cost of $330,229) $ 338,484
===========
----------
(a) Denotes issuer is in bankruptcy proceedings.
(b) Security is a Pay-in-Kind bond. Income on this bond accrues based upon the
interest method which results in a constant rate of interest being
recognized.
(c) Security is valued at fair value using methods determined by the Board of
Directors. The total value of these securities at December 31, 2004 was $0.
(d) Percentages indicated are based on total net assets to common shareholders
of $212,165.
(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. Unless
otherwise noted, 144A securities are deemed to be liquid. See Note 1(a) of
the Notes to Financial Statements for vaulation policy. Total market value
of Rule 144A securities amounted to $66,338 as of December 31, 2004.
(h) Securities are step interest bonds. Interest on these bonds accrue based on
the interest method which results in a constant rate of interest being
recognized.
The accompanying notes are an integral
part of these financial statements.
16
THE NEW AMERICA HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS:(Dollars in thousands, except per share amounts)
INVESTMENTS IN SECURITIES, at value (Identified cost of
$330,229 see Schedule of Investments and Notes 1 and 2) $ 338,484
INTEREST RATE SWAP, at fair value (Note 6) 923
CASH 30
RECEIVABLES:
Investment securities sold 587
Interest and dividends 6,449
PREPAID EXPENSES 30
-----------
Total assets $ 346,503
-----------
LIABILITIES:
PAYABLES:
Dividend on common stock $ 3,830
Dividend on preferred stock 130
Swap settlement payable 136
ACCRUED EXPENSES (Note 3) 242
-----------
Total liabilities $ 4,338
-----------
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
-----------
NET ASSETS $ 212,165
===========
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 382,030
UNDISTRIBUTED (OVERDISTRIBUTED) NET
INVESTMENT INCOME (Note 2) (864)
ACCUMULATED NET REALIZED LOSS FROM
SECURITIES TRANSACTIONS (Note 2) (179,118)
NET UNREALIZED APPRECIATION ON
INVESTMENTS AND INTEREST RATE SWAPS 9,178
-----------
NET ASSETS APPLICABLE TO COMMON STOCK
(Equivalent to $2.26 per share, based on
93,868,118 shares outstanding) $ 212,165
===========
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 2004
INVESTMENT INCOME: (Note 1) (Dollars in thousands)
Interest income $ 26,862
Other income 815
Dividend income 87
-----------
Total investment income $ 27,764
-----------
EXPENSES:
Cost of leverage:
Preferred and auction (Note 5) $ 317
-----------
Total cost of leverage $ 317
-----------
Professional services:
Management (Note 3) $ 1,159
Custodian and transfer agent 290
Legal (Note 8) 275
Audit 70
-----------
Total professional services $ 1,794
-----------
Administrative:
General administrative $ 453
Directors 166
NYSE 87
Shareholder communications 52
Shareholder meeting 40
Miscellaneous 31
-----------
Total administrative $ 829
-----------
Total expenses $ 2,940
-----------
Net investment income $ 24,824
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT ACTIVITIES:
Realized gain on investments, net $ 2,165
Realized loss on interest rate swap agreement (3,157)
-----------
Total net realized loss on investments and interest
rate swap agreement (992)
-----------
Net swap settlement disbursements (Note 6) $ (3,071)
-----------
Change in net unrealized appreciation
on investments $ 3,495
Change in unrealized depreciation
on interest rate swap agreements 6,263
-----------
Total change in net unrealized appreciation
on investments and interest rate swap $ 9,758
-----------
Net gain on investments and interest rate swap $ 5,695
-----------
COST OF PREFERRED LEVERAGE
Distributions to preferred stockholders $ (1,999)
-----------
Net increase in net assets resulting
from operations $ 28,520
===========
The accompanying notes are an integral
part of these financial statements.
17
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
2004 2003
--------------- --------------
FROM OPERATIONS: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net investment income $ 24,824 $ 21,094
Realized loss on investments, net (992) (122)
Net swap settlement disbursements (3,071) (3,316)
Change in net unrealized appreciation on investments and other
financial instruments 9,758 32,574
Distributions from net investment income related to preferred stock
Dividends to preferred stockholders (1,999) (1,330)
--------------- --------------
Net increase in net assets resulting from operations $ 28,520 $ 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 ($.23 and $.22 per share in 2004 and 2003,
respectively) $ (21,726) $ (17,452)
--------------- --------------
Total net increase in net assets $ 7,460 $ 73,535
--------------- --------------
NET ASSETS APPLICABLE TO COMMON STOCK:
Beginning of period $ 204,705 $ 131,170
--------------- --------------
End of period (Including $(864) and $570 of undistributed net investment
income at December 31, 2004 and December 31, 2003, respectively) $ 212,165 $ 204,705
=============== ==============
The accompanying notes are an integral
part of these financial statements.
18
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
FOR EACH SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD
FOR THE YEARS ENDED DECEMBER 31,
2004 2003 (b) 2002 2001 (c) 2000
-------- -------- -------- -------- --------
NET ASSET VALUE:
Beginning of period $ 2.19 $ 1.89 $ 2.61 $ 2.85 $ 3.86
-------- -------- -------- -------- --------
NET INVESTMENT INCOME .26 .26# .37 .48 .60
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
OTHER FINANCIAL INSTRUMENTS .09 .34 (.72) (.24) (1.00)
DISTRIBUTIONS FROM NET INVESTMENT INCOME
RELATED TO PREFERRED STOCK: (.05) (.06) (.08) (.12) (.18)
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS .30 .54 (.43) .12 (.58)
-------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income (.23) (.22) (.29) (.36) (.43)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (.23) (.22) (.29) (.36) (.43)
-------- -------- -------- -------- --------
Effect of rights offering and related expenses;
and Auction Term Preferred Stock offering
costs and sales load -- (.02) -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE:
End of period $ 2.26 $ 2.19 $ 1.89 $ 2.61 $ 2.85
======== ======== ======== ======== ========
PER SHARE MARKET VALUE:
End of period $ 2.19 $ 2.16 $ 2.01 $ 2.64 $ 2.63
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ 12.80% 19.23% (12.97)% 13.97% (3.84)%
======== ======== ======== ======== ========
The accompanying notes are an integral
part of these financial statements.
19
FOR THE YEARS ENDED DECEMBER 31,
2004 2003 (b) 2002 2001 (c) 2000
------------- ------------- ------------- ------------- -------------
NET ASSETS, END OF PERIOD, APPLICABLE
TO COMMON STOCK (a) $ 212,165 $ 204,705 $ 131,170 $ 178,231 $ 191,928
============= ============= ============= ============= =============
NET ASSETS, END OF PERIOD, APPLICABLE
TO PREFERRED STOCK (a) $ 130,000 $ 130,000 $ 100,000 $ 150,000 $ 160,000
============= ============= ============= ============= =============
TOTAL NET ASSETS APPLICABLE
TO COMMON AND PREFERRED STOCK,
END OF PERIOD (a) $ 342,165 $ 334,705 $ 231,170 $ 328,231 $ 351,928
============= ============= ============= ============= =============
EXPENSE RATIOS:
Ratio of preferred and other leverage
expenses to average net assets* .15% .16% .18% .17% .19%
Ratio of operating expenses to average
net assets* 1.27% 1.56% 1.46% 1.11% .99%
------------- ------------- ------------- ------------- -------------
RATIO OF TOTAL EXPENSES TO AVERAGE
NET ASSETS* 1.42% 1.72% 1.64% 1.28% 1.18%
============= ============= ============= ============= =============
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS* 12.02% 12.81% 16.48% 16.70% 17.46%
RATIO OF TOTAL EXPENSES TO AVERAGE
NET ASSETS APPLICABLE TO COMMON
AND PREFERRED STOCK .87% 1.05% .89% .71% .64%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS APPLICABLE TO
COMMON AND PREFERRED STOCK 7.38% 7.79% 8.91% 9.23% 9.41%
PORTFOLIO TURNOVER RATE 70.90% 120.47% 82.47% 38.89% 45.58%
(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.
# 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.
20
INFORMATION REGARDING
SENIOR SECURITIES
AS OF DECEMBER 31,
2004 2003 2002 2001 2000
------------- ------------- ------------- ------------- -------------
TOTAL AMOUNT OUTSTANDING:
Preferred Stock $ 130,000,000 $ 130,000,000 $ 100,000,000 $ 150,000,000 $ 160,000,000
ASSET COVERAGE:
Per Preferred Stock Share (1) $ 65,801 $ 64,366 $ 57,793 $ 54,705 $ 54,989
INVOLUNTARY LIQUIDATION PREFERENCE:
Preferred Stock Share (2) $ 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
(1) Calculated by subtracting the Fund's total liabilities 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.
21
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
(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.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a Fund that is more diversified. 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
22
for tax purposes. Dividend payments received in the 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 December 31, 2004, the total cost of securities (including temporary cash
investments) for federal income tax purposes was approximately $331,405,000.
Aggregate gross unrealized gain on securities in which there was an excess of
value over tax cost was approximately $15,779,000. Aggregate unrealized loss on
securities in which there was an excess of tax cost over value was approximately
$8,700,000. Net unrealized gain on investments for tax purposes at December 31,
2004 was approximately $7,079,000
At December 31, 2004, 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
125,000 December 31, 2012
--------------
$ 177,196,000
--------------
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 $23,725,000 in 2004 was from ordinary income.
As of December 31, 2004, the components of distributable earnings on a tax
basis were approximately:
Undistributed Net Investment Income $ 443,000
Undistributed Long-Term Gain --
Unrealized Gain $ 8,001,000
Capital Losses Carry Forward
and Post October Losses Deferred $ 179,118,000
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 market discount adjustments.
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.
23
(3) INVESTMENT ADVISORY AGREEMENT
T. Rowe Price Associates, Inc. (T. Rowe Price), the Fund's Investment
Advisor, earned approximately $1,159,000 in management fees during the year
ended December 31, 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 December
31, 2004, the fee payable to T. Rowe Price was approximately $100,000, 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 December 31, 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 2.55% for
the year ended December 31, 2004. The average dividend rate as of December 31,
2004 was 2.47%.
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 $317,000 for
service charges for the year ended December 31, 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
National 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
24
monthly basis at a variable rate determined with reference to one month LIBOR.
The variable rates ranged from 1.09% to 2.33% for the year ended December 31,
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
11/5/04 $130 million 11/5/09 3.775%
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
year ended December 31, 2004, the Fund's obligations under the swap agreements
were more than the amount received from Fleet by approximately $3,071,000 and
such amount is included in the accompanying statement of operations.
In connection with the termination of an interest rate swap agreement during
the year, the Fund also paid approximately $3,157,000 to Fleet. This payment is
reflected on the accompanying statement of operations as a realized loss on
interest rate swap agreements.
The estimated fair value of the interest rate swap agreement at December 31,
2004 amounted to approximately $923,000 of unrealized gain 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 year ended December 31, 2004 were approximately:
Cost of purchases $231,657,000
Proceeds of sales or maturities $230,267,000
(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
$208,000 for the year ended December 31, 2004.
The Fund paid approximately $311,000 during the year ended December 31, 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
25
shares of 23,397,095 were recorded. In addition, offering expense of
approximately $817,000 was netted against the rights offering proceeds in 2003
and $84,000 in 2004.
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.
COMPLIANCE CERTIFICATIONS
(Unaudited)
On May 25, 2004, your Fund submitted a CEO annual certification to the New York
Stock Exchange (NYSE) on which the Fund's principal executive officer certified
that he was not aware, as of that date, of any violation by the Fund of the
NYSE's Corporate Governance listing standards. In addition, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Fund's
principal executive and principal financial officers have made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q,
relating to, among other things, the Fund's disclosure controls and procedures
and internal control over financial reporting.
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
The New America High Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of The
New America High Income Fund, Inc., including the schedule of investments, as of
December 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2004, by correspondence with
custodians and brokers or by other appropriate auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
New America High Income Fund, Inc. as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
February 17, 2005
27
DIRECTORS
Robert F. Birch
Joseph L. Bower
Richard E. Floor
Bernard J. Korman
Ernest E. Monrad
Marguerite A. Piret
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
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
KPMG LLP
99 High Street
Boston, MA 02110
Listed: NYSE
Symbol: HYB
Web site: www.newamerica-hyb.com
28
INFORMATION ABOUT THE FUND'S DIRECTORS AND OFFICERS
INDEPENDENT DIRECTORS
NUMBER OF
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, POSITION(s) TERM OF OFFICE(2) OCCUPATION(s) COMPLEX(3) DIRECTORSHIPS
ADDRESS(1), AND HELD WITH AND LENGTH OF DURING OVERSEEN HELD BY
DATE OF BIRTH FUND TIME SERVED PAST 5 YEARS BY DIRECTOR DIRECTOR
-------------------- ------------ ----------------- ----------------------------- ------------ ---------------------
Joseph L. Bower Director Director Professor, Harvard Business 1 Director of Anika
DOB: 09/21/38 since 1988 School since 1963 - as Therapeutics, Inc.,
Donald K. David Professor Sonesta International
of Business Administration Hotels Corporation,
since 1986, Senior Loews, Corporation
Associate Dean, Chair of the (a conglomerate),
Doctoral Programs, Chair of and Brown Shoe
the General Management Company, Inc.,
Area, and currently, Chair and Trustee of
of the General Manager TH Lee-Putnam
Program. Emerging
Opportunities
Portfolio.
Bernard J. Korman Director Director Chairman of the Board of 1 Director of
DOB: 10/13/31 since 1987 Directors of Philadelphia Kramont Realty
Health Care Trust. Trust, Omega
Healthcare
Investors, Inc. (real
estate investment
trust), and
Nutramax
Products, Inc. (a
consumer healthcare
products company).
----------
(1) The address for each Director is c/o The New America High Income Fund, Inc.
33 Broad Street, Boston, MA 02109.
(2) Each Director serves as such until the next annual meeting of the Fund's
stockholders and until the Director's successor shall have been duly
elected and qualified.
(3) The New America High Income Fund, Inc. is not part of any fund complex.
29
NUMBER OF
PORTFOLIOS
PRINCIPAL IN FUND OTHER
NAME, POSITION(s) TERM OF OFFICE(2) OCCUPATION(s) COMPLEX(3) DIRECTORSHIPS
ADDRESS(1), AND HELD WITH AND LENGTH OF DURING OVERSEEN HELD BY
DATE OF BIRTH FUND TIME SERVED PAST 5 YEARS BY DIRECTOR DIRECTOR
-------------------- ------------ ----------------- ----------------------------- ------------ ---------------------
Ernest E. Monrad(4) Director Director Trustee since 1960 and 1 Trustee Century
DOB: 5/30/30 since 1988 Chairman of the Trustees Shares Trust and
from 1969 to May 2001 of Century Small
Northeast Investors Trust; Cap Select
Chairman, Assistant
Treasurer and a Director
since 1981 of Northeast
Investors Growth Fund;
Director of Northeast
Investment Management, Inc.,
Northeast Management &
Research Co., Inc.
Marguerite A. Director Director President and Chief 1 Trustee of Pioneer
Piret since 2004 Executive Officer, Newbury, Funds
DOB: 5/10/48 Piret & Company, Inc.
INTERESTED DIRECTORS AND OFFICERS
Robert F. Birch(5) Director and Director Mutual Fund Director 1 Director of
DOB: 3/12/36 President since 1992 Hyperion Funds and
the Brandywine
Funds
Richard E. Floor(6) Director and Director Partner through his 1 Director of
DOB: 8/3/40 Secretary since 1987 professional corporation with Affiliated Managers
the law firm of Group, Inc.
Goodwin Procter LLP,
Boston, Massachusetts
----------
(1) The address for each Director is c/o The New America High Income Fund, Inc.
33 Broad Street, Boston, MA 02109.
(2) Each Director serves as such until the next annual meeting of the Fund's
stockholders and until the Director's successor shall have been duly
elected and qualified.
(3) The New America High Income Fund, Inc. is not part of any fund complex.
(4) In accordance with the Fund's By-Laws, Mr. Monrad will not be seeking an
additional term as a Fund Director at the 2005 Annual Meeting of
Stockholders, but will instead elect Director Emeritus status at the end of
his current term.
(5) As the Fund's President, Mr. Birch is an interested person of the Fund
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
(6) Mr. Floor is an interested person of the Fund within the meaning of the
1940 Act because, through his professional corporation, Mr. Floor is a
partner of Goodwin Procter LLP, counsel to the Fund.
Ellen E. Terry (D.O.B. 4/9/59), Vice President and Treasurer of the Fund
since February 18, 1992, is the only executive officer of the Fund not named in
the above table of interested Directors. Ms. Terry served as Acting President
and Treasurer of the Fund from October 1991 through February 18, 1992, and as
Vice President of the Fund prior to such time. Ms. Terry's address is: c/o The
New America High Income Fund, 33 Broad Street, Boston, MA 02109. A Fund officer
holds office until the officer's successor is duly elected and qualified, until
the officer's death or until the officer resigns or has been removed.
30
EquiServe Trust Company N.A.
P.O. Box 43011
Providence, RI 02940-3011
3709-AR-05
ITEM 2. CODE OF ETHICS.
As of December 31, 2003, the Fund has adopted a code of ethics, as defined
in Item 2 of Form N-CSR, that applies to its Principal Executive Officer,
Principal Financial Officer/Chief Financial Officer, Principal Accounting
Officer, Vice President, Treasurer and Manager of Accounting and Finance. The
code of ethics is posted on the Fund's web site at www.newamerica-hyb.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Audit and Nominating Committee is comprised solely of
Directors who are "independent" as such term has been defined by the
Securities and Exchange Commission in regulations implementing Section 407 of
the Sarbanes-Oxley Act. The Board of Directors (a) has determined that each
member of the Audit and Nominating Committee is "financially literate" and
has "accounting or related financial management experience" as these terms
are used in the corporate governance standards of the New York Stock Exchange
and (b) believes that each has substantial experience relating to the review
of financial statements and the operations of audit committees. In addition,
the Board of Directors has determined that based upon their review of her
experience and education, Ms. Piret qualifies as an "audit committee financial
expert", as that term has been defined by the instructions to this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES. For fiscal 2004 and 2003, the aggregate fees billed by KPMG LLP
("KPMG"), the Fund's independent public accountants, for audit of the Fund's
annual financial statements, review of the semi-annual financial statements and
assistance in connection with the Fund's filing of the registration statements
totaled $50,000 and $96,000, respectively.
AUDIT-RELATED FEES. KPMG billed $15,000 and $31,500 for fiscal 2004 and
2003, respectively, for assurance and related services that are reasonably
related to the performance of the audit and review of the Fund's financial
statements, including quarterly agreed upon procedures related to requirements
of the Fund's articles supplementary.
TAX FEES. During fiscal 2004, KPMG's fees for its professional services
related to preparation of the Fund's federal and state tax returns, review of
excise distributions, and testing of quarterly asset diversification totaled
$7,250. During fiscal 2003, KPMG's fees for its professional services related to
preparation of the Fund's federal and state tax returns, review of excise
distributions, and testing of quarterly asset diversification totaled $7,000.
ALL OTHER FEES. KPMG did not provide any other services to the Fund in 2004
or 2003 other than those listed above.
NON-AUDIT FEES. KPMG did not provide any other services to the Fund in
2004 or 2003 other than those listed above. KPMG's fees for non-audit
services in fiscal 2004 billed to T. Rowe Price Group, Inc. ("Price Group")
and its subsidiaries totaled approximately $418,600. KPMG's fees for
non-audit services in fiscal 2003 billed to Price Group totaled $257,500,
other than fees billed for professional services rendered for the audit of
the annual financial statements and the reviews of the financial statements
included in Forms 10-Q. The Committee has considered and determined that the
performance by KPMG of non-audit services to Price Group and its subsidiaries
is compatible with maintaining that firm's independence in connection with
serving as the Fund's independent public accountants.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Fund has a separately-designated standing audit committee, the Audit
and Nominating Committee, established by and amongst the Fund's Board of
Directors for the purpose of overseeing the accounting and financial reporting
processes of the Fund and audits of the Fund's financial statements. The Audit
and Nominating Committee consists of the Fund's Directors who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act") - Joseph L. Bower, Bernard J. Korman,
Ernest E. Monrad, and Marguerite A. Piret.
ITEM 6.
This schedule is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
PROXY VOTING POLICIES AND PROCEDURES
At its June 26, 2003 meeting, the Fund's Board of Directors authorized and
directed T. Rowe Price, the Fund's investment adviser, to vote proxies relating
to the Fund's portfolio securities in accordance with T. Rowe Price's proxy
voting policies and procedures. T. Rowe Price, as an investment adviser with a
fiduciary responsibility to the Fund, analyzes the proxy statements of issuers
whose stock is owned by the Fund, if any.
PROXY ADMINISTRATION. The T. Rowe Price Proxy Committee develops T. Rowe
Price's positions on all major corporate issues, creates guidelines, and
oversees the voting process. The Proxy Committee, composed of portfolio
managers, investment operations managers, and internal legal counsel, analyzes
proxy policies based on whether they would adversely affect stockholders'
interests and make a company less attractive to own. In evaluating proxy
policies each year, the Proxy Committee relies upon its own fundamental
research, independent research provided by third parties, and information
presented by company managements and stockholder groups.
Once the Proxy Committee establishes its recommendations, they are
distributed to the firm's portfolio managers as voting guidelines. Ultimately,
the portfolio manager votes on the proxy proposals of companies in his or her
portfolio. When portfolio managers cast votes that are counter to the Proxy
Committee's guidelines, they are required to document their reasons in
2
writing to the Proxy Committee. Annually, the Proxy Committee reviews T. Rowe
Price's proxy voting process, policies, and voting records.
T. Rowe Price has retained Institutional Shareholder Services ("ISS"), an
expert in the proxy voting and corporate governance area, to provide proxy
advisory and voting services. These services include in-depth research,
analysis, and voting recommendations as well as vote execution, reporting,
auditing and consulting assistance for the handling of proxy voting
responsibility and corporate governance-related efforts. While the Proxy
Committee relies upon ISS research in establishing T. Rowe Price's voting
guidelines--many of which are consistent with ISS positions--T. Rowe Price may
deviate from ISS recommendations on general policy issues or specific proxy
proposals.
FIDUCIARY CONSIDERATIONS. T. Rowe Price's decisions with respect to proxy
issues are made in light of the anticipated impact of the issue on the
desirability of investing in the portfolio company. Proxies are voted solely in
the interests of the Fund or Fund stockholders. Practicalities involved with
international investing may make it impossible at times, and at other times
disadvantageous, to vote proxies in every instance.
CONSIDERATION GIVEN MANAGEMENT RECOMMENDATIONS. When determining whether to
invest in a particular company, one of the key factors T. Rowe Price considers
is the quality and depth of its management. As a result, T. Rowe Price believes
that recommendations of management on most issues should be given weight in
determining how proxy issues should be voted.
T. ROWE PRICE VOTING POLICIES. Specific voting guidelines have been
established by the Proxy Committee for recurring issues that appear on proxies.
The following is a summary of the more significant T. Rowe Price policies:
- ELECTION OF DIRECTORS. T. Rowe Price generally supports slates with a
majority of independent directors and nominating committees chaired by
an independent board member. T. Rowe Price withholds votes for inside
directors serving on compensation and audit committees and for
directors who miss more than one-fourth of the scheduled board
meetings.
- EXECUTIVE COMPENSATION. T. Rowe Price's goal is to assure that a
company's equity-based compensation plan is aligned with stockholders'
long-term interests. While it evaluates most plans on a case-by-case
basis, T. Rowe Price generally opposes compensation packages that
provide what it views as excessive awards to a few senior executives
or that contain excessively dilutive stock option plans. T. Rowe Price
bases its review on criteria such as the costs associated with the
plan, plan features, dilution to stockholders and comparability to
plans in the company's peer group. T. Rowe Price generally opposes
plans that give a company the ability to reprice options.
- ANTI-TAKEOVER AND CORPORATE GOVERNANCE ISSUES. T. Rowe Price generally
opposes anti-takeover measures and other proposals designed to limit
the ability of stockholders to act on possible transactions. When
voting on
3
corporate governance proposals, T. Rowe Price will consider the
dilutive impact to stockholders and the effect on stockholder rights.
- SOCIAL AND CORPORATE RESPONSIBILITY ISSUES. T. Rowe Price generally
votes with a company's management on social issues unless they have
substantial economic implications for the company's business and
operations that have not been adequately addressed by management.
MONITORING AND RESOLVING CONFLICTS OF INTEREST. The Proxy Committee is also
responsible for monitoring and resolving possible material conflicts between the
interests of T. Rowe Price and those of its clients with respect to proxy
voting. Because T. Rowe Price's voting guidelines are pre-determined by the
Proxy Committee using recommendations from ISS, an independent third party,
application of the T. Rowe Price guidelines to vote clients' proxies should in
most instances adequately address any possible conflicts of interest. However,
for proxy votes inconsistent with T. Rowe Price guidelines, the Proxy Committee
reviews all such proxy votes in order to determine whether the portfolio
manager's voting rationale appears reasonable. The Proxy Committee also assesses
whether any business or other relationships between T. Rowe Price and a
portfolio company could have influenced an inconsistent vote on that company's
proxy. Issues raising possible conflicts of interest are referred to designated
members of the Proxy Committee for immediate resolution.
ITEM 8.
Not applicable.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. 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 second fiscal quarter of the period that has materially
affected, or is reasonably likely to materially affect, the Fund's internal
control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) The code of ethics referenced in Item 2.
4
(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: March 7, 2005
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: March 7, 2005
By: /s/ Ellen E. Terry
------------------------------------
Name: Ellen E. Terry
Title: Treasurer
Date: March 7, 2005
5