<PAGE>
[GRAPHIC]
A reddish square located under the fund name
showing a bunch of leaves hanging downward, gently
flowing to the left side in a curled up motion.
MANAGED
HIGH INCOME
P O R T F O L I O I N C .
Annual
Report
[LOGO]
February 28, 1994
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO
SHAREHOLDERS
APRIL 1, 1994
MANAGED
HIGH INCOME
PORTFOLIO INC.
Dear Shareholder:
We are pleased to provide the annual report for the Managed
High Income Portfolio Inc. (the "Portfolio") for the period ended February
28, 1994. From inception on March 26, 1993 through the period ended
February 28, 1994, the Portfolio paid dividends totaling $1.075, per
share, generating a total return of 12.65%, based on a net asset value of
$12.39 on February 28, 1994. The Portfolio's primary objective is to
deliver a consistently high level of current income with total return its
secondary objective. To achieve these goals, we use the consistent and
disciplined strategy of investing primarily in bonds that are among the
higher rated high yield issues, B rated or better and that have the
potential of receiving an upgrade in credit rating over the next one to
three years. We have also selectively added convertible bonds, preferred
stocks, and common stocks to the Portfolio to further enhance total
return. By emphasizing the improving credits in the high yield market we
hope to generate not only attractive current dividend yields for the
shareholder, but capital appreciation as well. We are not attempting to
maximize yield regardless of credit risk, but rather to provide a
competitive dividend yield with superior total return.
MARKET AND ECONOMIC OVERVIEW
The high yield market generated relatively strong performance over the
past 12 months despite the general backup in interest rates in the fourth
quarter of 1993 and so far in early 1994. The strengthening economic
recovery has continued to benefit the corporate sector of the economy,
especially the more leveraged high yield companies. We believe that after
a very strong fourth quarter, the economy will settle
1
<PAGE>
into a moderate growth pattern with only a modest bias for higher
inflation. Nevertheless, we believe the pervasive decline in interest
rates has ended as the Federal Reserve Board moves to a more
restrictive monetary policy. In fact, in the first quarter of 1994,
the Federal Reserve raised the short-term Federal funds rate to 3.50%
from 3.00% in two policy moves and signaled that further increases
were likely given the strength of the economy. This shift towards
higher interest rates will make fixed income investing more
challenging.
As noted previously, the Portfolio's total return from inception
through February 28, 1994 was 12.65%. The Lehman Brothers High Yield
Index, an unmanaged index which includes fixed-rate public, non-
convertible debt issues, rated Ba1 or lower by Moody's returned
12.52% for the same period. The Portfolio's performance was above the
Lehman Brothers High Yield Index even though the Portfolio was not
fully invested and did not pay dividends until the end of its second
month of operation. Moreover, we accomplished our objectives without
chasing the riskier lower tier (CCC-rated) issues which outperformed
in this overheated period. As we have mentioned in previous
commentaries, the Portfolio tends to avoid the lower tier issues
given their higher default risk and greater price fluctuations.
Instead, we focused on better quality issues which carry B or higher
ratings. We try to emphasize improving credits in the Portfolio that
are showing increased potential for credit rating upgrades.
We continue to emphasize the more economically sensitive companies
that are benefiting from the improving economy. This includes such
industries as automobile manufacturing and related suppliers, general
manufacturing, residential homebuilders, paper and forest products,
containers, transportation, and metals and mining (especially steel
producers). These industries continue to experience improving sales
and profitability in reaction to the strengthening economic recovery.
SUMMARY THOUGHTS
We continue to believe that returns in the financial markets will
be lower than previous years as interest rates gravitate higher. Our
goal is to maintain the Portfolio's net asset value, minimizing
downside price action and generate the most attractive current yield
attainable without incurring undue credit risk. In this harsher
environment, we believe this
2
<PAGE>
more defensive strategy will generate superior results. We appreciate
your past support and look forward to satisfying your financial needs
in what should prove to be a more challenging environment.
Sincerely,
Heath B. McLendon John C. Bianchi, CFA
CHAIRMAN OF THE BOARD INVESTMENT OFFICER
April 1, 1994
3
<PAGE>
- --------------------------------------------------------------------------------
UNAUDITED FINANCIAL DATA
PER SHARE OF COMMON STOCK
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
INCOME CAPITAL GAINS DIVIDEND
NYSE NET ASSET DIVIDEND DIVIDEND REINVESTMENT
CLOSING PRICE VALUE PAID PAID PRICE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1993* -- $12.00 -- -- --
April 30, 1993 $12.375 12.03 -- -- --
May 31, 1993 12.375 12.10 $0.096 -- $12.10
June 30, 1993 12.250 12.34 0.096 -- 12.28
July 31, 1993 12.125 12.33 0.096 -- 12.23
August 31, 1993 12.000 12.33 0.096 -- 12.22
September 30, 1993 12.125 12.24 0.096 -- 12.19
October 31, 1993 12.250 12.39 0.096 -- 12.38
November 30, 1993 12.125 12.37 0.096 -- 12.38
December 31, 1993 12.250 12.30 0.096 $0.120 12.25
January 31, 1994 12.375 12.50 0.096 -- 12.41
February 28, 1994 11.750 12.39 0.091 -- 11.83
</TABLE>
*The Portfolio commenced operations on March 26, 1993. Net Asset Value does
not reflect offering cost of $0.02.
- --------------------------------------------------------------------------------
DIVIDEND DATA
<TABLE>
<CAPTION>
PER SHARE ANNUALIZED
DIVIDEND DISTRIBUTION
DISTRIBUTIONS** RATE***
- ------------------------------------------------------------------------
<S> <C> <C>
$1.092 8.81%
- ------------------------------------------------------------------------
<FN>
**Assuming the February 28, 1994 income dividend of $0.091 for 12 months.
***Based on February 28, 1994 net asset value of $12.39 per share.
Each registered shareholder is considered a participant in the Fund's Dividend Reinvest-
ment Plan, unless the shareholder elects to receive all dividends and distributions in cash,
or unless the shareholder's shares are registered in the name of a broker, bank or nominee
(other than Smith Barney Shearson Inc.) which does not provide the service. Questions
and correspondence concerning the Dividend Reinvestment Plan should be directed
to The Shareholder Services Group, Inc., P.O. Box 1376, Boston, Massachusetts 02104.
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - 86.5%
HOTEL, CASINOS AND GAMING - 8.8%
$ 4,405,000 Bally's Park Place Funding,
Inc.,
1st Mortgage,
11.875% due 8/15/1999......... B1 BB $ 4,757,400
5,450,000 GNF Corporation, First
Mortgage Note, Series B,
10.625% due 4/1/2003.......... B2 NR 5,204,750
4,050,000 Lady Luck Gambling Financial
Corporation, Note,
10.500% due 3/1/2001+......... B1 B+ 4,110,750
3,030,000 Santa Fe Hotel Inc.,
Unit Guaranteed Note,
11.000% due 12/15/2000........ B2 B- 3,181,500
3,725,000 Showboat Inc., Guaranteed 1st
Mortgage,
9.250% due 5/1/2008........... Ba3 BB- 3,841,406
4,475,000 Station Casinos, Inc., Sr.
Sub. Note,
9.625% due 6/1/2003........... B2 B 4,570,094
6,375,000 Trump Plaza Funding, Inc.,
1st Mortgage, Note,
10.875% due 6/15/2001......... B3 B 6,343,125
13,444,000 Trump Taj Mahal Funding,
Unit Building 1 Management,
11.350% due 11/15/1999
(Pay-in-Kind)................. Caa NR 13,880,930
------------------------------------------------------------------------------
45,889,955
------------------------------------------------------------------------------
GROCERY AND RETAIL - 8.2%
5,075,000 Barnes & Noble Inc., Sr. Sub.
Note, Series B,
11.875% due 1/15/2003......... B2 B 5,848,937
3,750,000 Big V Supermarket Inc., Sr.
Sub. Note,
11.000% due 2/15/2004+........ B3 B- 3,806,250
4,535,000 Bradlees, Inc., Sr. Sub. Note,
11.000% due 8/1/2002.......... B2 B+ 4,829,775
6,725,000 Grand Union Corporation, Sr.
Note,
11.250% due 7/15/2000......... B2 B+ 7,128,500
</TABLE>
5 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
GROCERY AND RETAIL - (CONTINUED)
Pathmark Stores Inc.:
$ 4,375,000 Sr. Sub. Note,
9.625% due 5/1/2003........... B2 B $ 4,440,625
Sub. Notes:
3,550,000 11.625% due 6/15/2002......... B3 B 3,900,563
4,050,000 12.625% due 6/15/2002......... B3 B 4,601,812
5,675,000 Penn Traffic Company, Sr. Sub.
Note,
9.625% due 4/15/2005.......... B2 B 5,902,000
2,300,000 PMI Acquisition Corporation,
Sr. Sub. Note,
10.250% due 9/1/2003.......... B2 B 2,466,750
------------------------------------------------------------------------------
42,925,212
------------------------------------------------------------------------------
PACKAGING AND CONTAINERS - 7.0%
3,275,000 Anchor Glass Container
Corporation,
Sr. Sub. Debenture,
9.875% due 12/15/2008......... B2 B 3,463,313
9,850,000 Container Corporation of
America,
Sr. Sub. Note,
13.500% due 12/1/1999......... B2 B 10,982,750
4,490,000 Gaylord Container Corporation,
Sr. Note,
11.500% due 5/15/2001......... B3 B 4,860,425
1,725,000 Silgan Holdings Inc., Sr.
Discount
Debenture, Step up Bond,
Zero Coupon to 6/15/1996,
13.250% due 12/15/2002........ B3 B- 1,392,938
5,025,000 Stone Consolidated, Sr.
Secured Note,
9.875% due 2/1/2001........... B1 B 4,924,500
4,100,000 Stone Container Corporation,
Sr. Secured Note,
10.250% due 12/15/2000........ B1 B+ 4,233,250
2,325,000 Sweetheart Cup Inc., Sr. Sub.
Note,
10.500% due 9/1/2003.......... B2 B- 2,505,187
</TABLE>
6 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
PACKAGING AND CONTAINERS - (CONTINUED)
$ 3,400,000 United States Can Company,
Sr. Sub. Note,
13.500% due 1/15/2002......... B3 B- $ 3,935,500
------------------------------------------------------------------------------
36,297,863
------------------------------------------------------------------------------
BUILDING AND CONSTRUCTION - 6.7%
American Standard, Inc.:
9,575,000 Sr. Debenture,
11.375% due 5/15/2004......... Ba3 B+ 10,771,875
4,700,000 Sr. Sub. Debenture,
Zero coupon to 6/1/1998,
10.500% due 6/1/2005.......... B1 B 3,196,000
Hovnanian (K.) Enterprises
Inc.,
(Home Builder):
1,450,000 Guaranteed Note,
11.250% due 4/15/2002......... B1 B 1,595,000
3,450,000 Sr. Sub. Note,
9.750% due 6/1/2005........... B1 B 3,605,250
2,050,000 Kaufman & Broad Home
Corporation,
Sr. Sub. Note,
9.375% due 5/1/2003........... Ba3 BB- 2,152,500
5,145,000 UDC Homes, Sr. Notes,
11.750% due 4/30/2003......... B2 B+ 5,569,463
7,235,000 US Home Corporation, Sr. Note,
9.750% due 6/15/2003.......... Ba3 B+ 7,524,400
675,000 Webb (Del) Corporation,
Sr. Sub. Debenture,
9.000% due 2/15/2006.......... B2 B- 673,312
------------------------------------------------------------------------------
35,087,800
------------------------------------------------------------------------------
METAL AND MINING - 6.3%
2,000,000 Dual Drilling Company, Sr.
Sub. Note,
9.875% due 1/15/2004.......... B3 B- 2,035,000
3,200,000 Essex Group, Inc., Sr. Note,
10.000% due 5/1/2003.......... B1 B+ 3,288,000
</TABLE>
7 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
METAL AND MINING - (CONTINUED)
$ 3,900,000 Federal Industries Ltd., Sr.
Note,
10.250% due 6/15/2000......... B3 B- $ 4,046,250
1,075,000 Geneva Steel Company, Sr.
Note,
9.500% due 1/15/2004.......... B1 B+ 1,103,219
3,925,000 Ispat Mexicana, Debenture,
10.375% due 3/15/2001+........ NR NR 3,925,000
1,500,000 Jorgensen (Earle) Company, Sr.
Note,
10.750% due 3/1/2000.......... B2 B 1,612,500
5,000,000 Republic Engineered Steels,
1st Mortgage Note,
9.875% due 12/15/2001......... B2 B 5,200,000
CAD 4,150,000 Stelco Inc., Canadian Dollar,
Debenture Note, Retractable,
10.400% due 11/30/2009........ NR NR 3,115,454
$ 8,000,000 Wheeling Pittsburgh
Corporation,
Sr. Note,
9.375% due 11/15/2003......... B1 BB- 8,340,000
------------------------------------------------------------------------------
32,665,423
------------------------------------------------------------------------------
HEALTH CARE - 6.0%
2,805,000 Abbey Healthcare Group Inc.,
Sr. Sub. Note,
9.500% due 11/1/2002.......... B1 B- 2,861,100
1,421,000 Alco Health Distributor
Corporation,
Sr. Debenture,
11.250% due 7/15/2005......... B3 B- 1,511,589
7,425,000 American Medical
International, Inc.,
Sr. Sub. Note,
13.500% due 8/15/2001......... B1 B 8,668,687
1,000,000 Epic Healthcare Group Inc.,
Sr. Sub. Note,
10.875% due 6/1/2003.......... B3 CCC+ 1,167,500
5,850,000 Healthtrust, Inc., The
Hospital Company, Sub. Note,
10.750% due 5/1/2002.......... B1 B 6,522,750
</TABLE>
8 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
HEALTH CARE - (CONTINUED)
$ 3,000,000 Hillhaven Corporation, Sr.
Sub. Note,
10.125% due 9/1/2001.......... B2 B- $ 3,217,500
6,275,000 Ornda Healthcorp, Sr. Sub.
Note,
12.250% due 5/15/2002......... B3 B- 7,090,750
------------------------------------------------------------------------------
31,039,876
------------------------------------------------------------------------------
FOREST PRODUCTS/PAPER - 4.8%
Domtar Inc.:
550,000 Debenture,
11.250% due 9/15/2017......... Ba1 BB- 576,125
2,750,000 Sr. Note,
12.000% due 4/15/2001......... Ba1 BB- 3,086,875
4,750,000 Fort Howard Corporation, Sr.
Sub. Note,
9.000% due 2/1/2006........... B2 B 4,678,750
Repap Wisconsin Inc., Sr.
Secured Notes:
2,425,000 First Priority,
9.250% due 2/1/2002........... B1 B+ 2,443,188
3,305,000 Second Priority,
9.875% due 05/1/2006.......... B3 B 3,395,887
Riverwood International
Corporation,
Sr. Sub. Notes:
5,020,000 11.250% due 6/15/2002......... B1 B 5,522,000
2,855,000 11.250% due 6/15/2002......... B1 B 3,140,500
1,875,000 Wickes Lumber Company, Sr.
Sub. Note,
11.625% due 12/15/2003........ B3 B- 2,008,594
------------------------------------------------------------------------------
24,851,919
------------------------------------------------------------------------------
CONSUMER DURABLES - 3.8%
9,100,000 Colman Holdings Inc., Sr.
Secured Note,
Zero coupon due 5/27/1998+.... NR B 6,131,125
19,750,000 International Semi-Tech, Sr.
Note,
Zero coupon to 8/15/2000,
11.500% due 8/15/2003......... Ba2 B+ 10,615,625
</TABLE>
9 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
CONSUMER DURABLES - (CONTINUED)
$ 2,800,000 Tarkett International GMBH,
Sr. Sub. Note,
9.000% due 3/1/2002+.......... B1 B+ $ 2,800,000
------------------------------------------------------------------------------
19,546,750
------------------------------------------------------------------------------
PUBLISHING - 3.6%
AUD 6,400,000 News America Holdings, Inc.,
Australian
Dollar, Debenture,
8.625% due 2/7/2014........... Ba1 BBB- 4,503,948
$ 9,025,000 Bell & Howell Holdings
Company,
Series A, Step up Bond,
Zero coupon to 3/1/2000,
11.500% due 3/1/2005.......... B3 B- 5,166,812
7,325,000 Marvel Holdings, Inc., Sr.
Discount Note,
Zero coupon due 4/15/1998..... B3 B 4,852,812
4,475,000 Marvel III Holdings, Inc., Sr.
Note,
9.125% due 2/15/1998.......... NR NR 4,469,406
------------------------------------------------------------------------------
18,992,978
------------------------------------------------------------------------------
BROADCASTING - 3.6%
2,220,000 Continental Broadcasting Ltd.,
Sr. Sub. Notes,
10.625% due 7/1/2003.......... B3 B- 2,317,125
Continental Cablevision, Inc.,
Sr. Note:
1,225,000 11.000% due 6/1/2007.......... B1 BB- 1,434,781
4,275,000 9.500% due 8/1/2013........... Ba2 BB 4,574,250
Rogers Cablesystems Ltd.:
CAD 4,900,000 Canadian Dollar, Debenture,
9.650% due 1/15/2014.......... Ba1 BB+ 3,569,764
$ 3,200,000 Sr. Secured 2nd Priority
Debenture,
10.125% due 9/1/2012.......... Ba1 BB+ 3,576,000
3,000,000 Rogers Communication, Inc.,
Sr. Debenture,
10.875% due 4/15/2004......... Ba3 BB- 3,247,500
------------------------------------------------------------------------------
18,719,420
------------------------------------------------------------------------------
</TABLE>
10 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
OIL AND NATURAL GAS - 3.6%
$ 2,800,000 Giant Industries Inc.,
Guaranteed Sr. Sub. Note,
9.750% due 11/15/2003......... B2 B+ $ 2,891,000
7,190,000 Gulf CDA Resources Ltd., Sr.
Sub. Note,
9.250% due 1/15/2004.......... B2 B+ 7,297,850
3,825,000 Mesa Petroleum Capital
Corporation,
Secured Discount Note, Step up
Bond,
Zero coupon to 6/30/1995,
12.750% 6/30/1998............. B3 CCC+ 3,432,938
1,545,000 Transco Energy Company, Note,
11.250% due 7/1/1999.......... Ba3 B+ 1,738,125
3,000,000 Trident NGL Inc., Sub. Notes,
10.250% due 4/15/2003......... B1 B+ 3,135,000
------------------------------------------------------------------------------
18,494,913
------------------------------------------------------------------------------
PERSONAL CARE - 3.1%
3,800,000 MacAndrews & Forbes Group,
Sub. Note,
12.250% due 7/1/1996.......... NR NR 3,937,750
4,815,000 Revlon Consumer Products
Corporation, Sr. Sub. Note,
10.500% due 2/15/2003......... B3 NR 4,730,738
15,100,000 Revlon Worldwide Corporation,
Sr. Secured Note,
Zero coupon due 3/15/1998..... B3 B- 7,625,500
------------------------------------------------------------------------------
16,293,988
------------------------------------------------------------------------------
ELECTRONICS/COMPUTERS - 3.1%
2,225,000 ADT Operations Inc.,
Guaranteed Sr. Sub. Note,
9.250% due 8/1/2003........... B2 BB- 2,294,531
11,940,000 Anacomp, Inc., Sr. Sub. Note,
15.000% due 11/1/2000......... B3 CCC+ 13,850,400
------------------------------------------------------------------------------
16,144,931
------------------------------------------------------------------------------
</TABLE>
11 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
AUTOMOBILE - 3.1%
Chrysler Financial
Corporation:
$ 3,250,000 Note,
13.250% due 10/15/1999........ Baa2 BBB $ 4,314,375
6,900,000 Sr. Note,
12.750% due 11/1/1999......... Baa2 BBB 8,970,000
2,450,000 Fairfield Manufacturing Inc.,
Sr. Sub. Note,
11.375% due 7/1/2001.......... Caa CCC+ 2,593,938
------------------------------------------------------------------------------
15,878,313
------------------------------------------------------------------------------
TEXTILES AND APPAREL - 3.0%
4,850,000 CMI Industries Sr., Sub Notes,
9.500% due 10/1/2003.......... B1 B+ 4,898,500
1,000,000 Dan River Inc., Sr. Sub Note,
10.125% due 12/15/2003........ B3 B 1,037,500
JPS Textile Group Inc.:
1,300,000 Sr. Note,
11.750% due 6/1/1996.......... B3 CCC 1,342,250
1,525,000 Sub. Note,
10.250% due 6/1/1999.......... Caa CCC- 1,555,500
570,000 Sr. Sub. Note,
10.850% due 6/1/1999.......... Caa CCC- 574,275
2,275,000 Stevens J.P. & Company Inc.,
Debenture,
9.000% due 3/1/2017........... Ba3 BB 2,309,125
3,605,000 Westpoint Stevens Inc., Sr.
Sub. Note,
9.375% due 12/15/2005......... B3 B+ 3,686,113
------------------------------------------------------------------------------
15,403,263
------------------------------------------------------------------------------
FINANCIAL SERVICES - 2.7%
2,525,000 Coldwell Banker Corporation,
Note,
10.250% due 6/30/2003+........ NR B+ 2,701,750
3,875,000 Lomas Mortgage USA Inc., Sr.
Note,
10.250% due 10/1/2002......... Ba1 BB 4,218,906
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
FINANCIAL SERVICES - (CONTINUED)
Reliance Group Holdings Inc.:
$ 3,575,000 Sr. Note,
9.000% due 11/15/2000......... Ba3 BB+ $ 3,575,000
3,525,000 Note,
9.750% due 11/15/2003......... B1 BB- 3,608,719
------------------------------------------------------------------------------
14,104,375
------------------------------------------------------------------------------
INSURANCE - 2.3%
4,000,000 Bankers Life Holdings
Corporation,
Sr. Sub. Note, Series B,
13.000% due 11/1/2002......... Ba3 BB+ 4,930,000
5,950,000 Life Partners Group Inc., Sr.
Sub. Note,
12.750% due 7/15/2002......... Ba3 BB- 7,021,000
------------------------------------------------------------------------------
11,951,000
------------------------------------------------------------------------------
CHEMICALS - 2.2%
1,900,000 Buckeye Cellulose Corporation,
Sr. Note,
10.250% due 5/15/2001......... B2 B 2,004,500
3,925,000 Harris Chemical North
American, Inc.,
Sr. Sub. Note,
10.750% due 10/15/2003........ B3 B 4,248,813
UCC Investors Holding, Inc.:
1,900,000 Sr. Note,
10.500% due 5/1/2002.......... B2 B- 2,085,250
4,800,000 Sub. Notes, Step up Bond,
Zero coupon to 5/1/1998,
12.000% due 5/1/2005.......... B3 B- 3,192,000
------------------------------------------------------------------------------
11,530,563
------------------------------------------------------------------------------
TELE-COMMUNICATIONS - 1.9%
3,050,000 Cencall Communications
Corporation,
Sr. Discount Notes, Step up
Bond,
Zero coupon to 1/15/1999,
10.125% due 1/15/2004......... Caa CCC- 1,936,750
</TABLE>
13 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
TELE-COMMUNICATIONS - (CONTINUED)
$ 2,310,000 Dial Call Communication,
Sr. Discount Note,
Zero coupon to 12/15/1998,
10.250% due 12/15/2005+....... NR NR $ 1,501,500
3,375,000 Mobilemedia Communication,
Sr. Sub. Note, Step up Bond,
Zero coupon to 12/1/1998,
10.500% due 12/1/2003......... B3 CCC+ 2,155,781
3,750,000 Pagemart Inc., Sr. Discount
Note,
Zero coupon due 11/1/2003+.... NR NR 2,400,000
1,600,000 USA Mobile Communication Inc.,
Sr. Note,
9.500% due 2/1/2004........... B3 CCC+ 1,596,000
------------------------------------------------------------------------------
9,590,031
------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.9%
4,319,488 Midland Funding Corporation I,
Sr. Secured Note, Series C,
10.330% due 7/23/2002+........ Ba3 BB 4,578,658
------------------------------------------------------------------------------
LEISURE - 0.9%
2,126,000 Gillett Holdings, Inc., Sr.
Sub. Note,
12.250% due 6/30/2002......... NR NR 2,327,970
2,100,000 Remington Arms Inc., Sr. Note,
9.50% due 12/1/2003+.......... B3 B 2,131,500
------------------------------------------------------------------------------
4,459,470
------------------------------------------------------------------------------
RAIL/TRUCKING - 0.5%
2,625,000 Southern Pacific
Transportation Company, Sr.
Secured Note,
10.500% due 7/1/1999.......... Ba1 BB 2,907,188
------------------------------------------------------------------------------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
RATINGS MARKET
FACE (UNAUDITED) VALUE
VALUE MOODY'S S&P (NOTE 1)
CORPORATE BONDS AND NOTES - (continued)
AEROSPACE - 0.4%
<S> <C> <C> <C> <C> <C>
$ 2,175,000 Tracor Inc., Sr. Sub. Note,
10.875% due 8/15/2001......... B2 B $ 2,302,781
------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $441,199,631) 449,656,670
------------------------------------------------------------------------------
CONVERTIBLE PREFERRED - 6.5%
1,600 Dime Savings Bank, New York,
Convertible Preferred,
Exch. 10.500%................. 1,704,000
15,900 Geneva Steel Company, Series
B,
Preferred, Exch. 14.000%...... 2,114,700
K-III Communications
Corporation,
Convertible Preferred:
64,500 Exch. 11.500%................. 1,789,875
43,160 Series B, Exch. $11.625....... 4,402,366
96,125 Navistar International
Corporation,
Series G, Convertible
Preferred $6.00............... 5,082,609
374,600 Unisys Corporation, Series A,
Convertible Preferred $3.75... 18,823,650
------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED
(Cost $32,594,663) 33,917,200
------------------------------------------------------------------------------
<CAPTION>
Shares
<S> <C> <C> <C> <C> <C>
COMMON STOCKS - 0.6%
31,385 Kendall International Inc..... 1,396,633
43,378 Mesa Inc...................... 309,068
68,000 Station Casinos, Inc.......... 1,445,000
------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,081,052) 3,150,701
------------------------------------------------------------------------------
</TABLE>
15 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994 (Continued)
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
<S> <C> <C> <C> <C> <C>
PREFERRED STOCKS - 1.7%
334,625 Algoma Finance Corporation,
Series A,
5.500% Cum. Pfd............... $ 5,321,133
422,050 Gulf CDA Resources Ltd.,
Series 1...................... 1,248,635
67,600 National Intergroup Inc.,
Series A, $4.20............... 2,501,200
------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $9,543,172) 9,070,968
------------------------------------------------------------------------------
WARRANTS - 0.2%
184,350 Gaylord Container Corporation,
Expires 1996++................ 806,531
260 Trump Plaza Holding
Association,
Expires 1996++................ 208,000
------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,061,869) 1,014,531
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Value
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT - 2.1%
(Cost $11,004,000)
$11,004,000 Agreement with Credit Lyonnais, 3.400% dated
2/28/1994, to be repurchased at $11,005,039 on
3/1/1994, collateralized by $11,228,625 U.S.
Treasury Note, 4.625% due 12/31/1994............. 11,004,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $498,484,387*)................... 97.6% 507,814,070
OTHER ASSETS AND LIABILITIES (Net)..... 2.4 12,276,743
----------------------------------------------------------------------------
NET ASSETS............................. 100.0% $520,090,813
----------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These
securities may be resold in transactions exempt from registration to qualified
institutional buyers.
++ Non-income producing security.
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
FEBRUARY 28, 1994 (Unaudited)
<TABLE>
<CAPTION>
PERCENT
TOTAL OF
STANDARD & CORPORATE BONDS
MOODY'S OR POOR'S AND NOTES
<S> <C> <C> <C> <C>
Baa BBB 4.0%
Ba BB 23.4
B B 63.2
Caa CCC 4.6
NR NR 4.8
------
100.0%
------
------
</TABLE>
17 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $498,484,387) (Note 1)
See accompanying schedule................................ $507,814,070
Cash...................................................... 67
Receivable for investment securities sold................. 18,874,269
Interest receivable....................................... 8,837,714
Other assets.............................................. 51,651
--------------------------------------------------------------------------------
Total Assets............................................ 535,577,771
--------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased............... $12,988,146
Dividends payable......................................... 1,881,503
Investment advisory fee payable (Note 2).................. 361,107
Administration fee payable (Note 2)....................... 80,246
Custodian fees payable (Note 2)........................... 22,000
Accrued Directors' fees and expenses (Note 2)............. 12,250
Transfer agent fees payable (Note 2)...................... 12,000
Accrued expenses and other payables....................... 129,706
--------------------------------------------------------------------------------
Total Liabilities....................................... 15,486,958
--------------------------------------------------------------------------------
NET ASSETS.................................................. $520,090,813
--------------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income....................... 1,167,162
Accumulated net realized gain on investments and currency
transactions............................................. 6,261,024
Net unrealized appreciation of investments, currencies and
net other assets......................................... 9,328,149
Par value................................................. 41,982
Paid-in capital in excess of par value.................... 503,292,496
--------------------------------------------------------------------------------
Total Net Assets........................................ $520,090,813
--------------------------------------------------------------------------------
NET ASSET VALUE, per share ($520,090,813 DIVIDED BY
41,981,589 shares of common stock outstanding)............. $12.39
--------------------------------------------------------------------------------
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FEBRUARY 28, 1994*
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $44,249,998
Dividends................................................. 2,284,734
--------------------------------------------------------------------------------
Total Investment Income................................. 46,534,732
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2).......................... $4,217,562
Administration fee (Note 2)............................... 937,236
Custodian fees (Note 2)................................... 83,361
Transfer agent fees (Note 2).............................. 64,123
Legal and audit fees...................................... 49,363
Directors' fees and expenses (Note 2)..................... 47,155
Other..................................................... 178,494
--------------------------------------------------------------------------------
Total Expenses.......................................... 5,577,294
--------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 40,957,438
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(Notes 1 and 3):
Net realized gain/(loss) on:
Securities.............................................. 11,264,139
Currencies.............................................. (8,727)
--------------------------------------------------------------------------------
Net realized gain on investments during the year.......... 11,255,412
Net change in unrealized appreciation/(depreciation) of:
Securities.............................................. 9,329,683
Currencies and net other assets......................... (1,534)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments during the
year....................................................... 9,328,149
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 20,583,561
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $61,540,999
--------------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on March 26, 1993.
</TABLE>
19 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period Ended
2/28/94*
<S> <C> <C>
Net investment income...................................................... $ 40,957,438
Net realized gain on investments and currency transactions
during the period......................................................... 11,255,412
Net unrealized appreciation of investments, currencies and net other
assets during the period.................................................. 9,328,149
--------------------------------------------------------------------------------
Net increase in net assets resulting from operations....................... 61,540,999
Offering cost charged to paid-in-capital (Note 4).......................... (637,850)
Distributions to shareholders from:
Net investment income...................................................... (39,781,549)
Net realized gain on investments........................................... (5,003,115)
Net increase in net assets from Portfolio share transactions (Note 4)...... 503,872,328
--------------------------------------------------------------------------------
Net increase in net assets................................................. 519,990,813
NET ASSETS:
Beginning of period........................................................ 100,000
--------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$1,167,162 at February 28, 1994).......................................... $520,090,813
--------------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on March 26, 1993.
</TABLE>
20 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
Period Ended
2/28/94*
<S> <C>
Operating performance:
Net asset value, beginning of period.................. $12.00
---------------------------------------------------------------------
Net investment income................................. 0.98
Net realized and unrealized gain on investments....... 0.51
---------------------------------------------------------------------
Net increase in net asset value resulting from
investment operations................................ 1.49
Offering cost charged to paid-in-capital.............. (0.02)
Distributions from:
Net investment income................................. (0.96)
Net realized capital gains............................ (0.12)
---------------------------------------------------------------------
Net asset value, end of period........................ $12.39
---------------------------------------------------------------------
Market value, end of period........................... $11.750
---------------------------------------------------------------------
Total investment return**............................. 6.85%
---------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's).................. $520,091
Ratio of net investment income to average net
assets............................................... 8.74%+
Ratio of operating expenses to average net assets..... 1.19%+
Portfolio turnover rate............................... 108%
---------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on March 26, 1993.
** Total return represents aggregate return based on market value for
the period indicated.
+ Annualized.
</TABLE>
21 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Managed High Income Portfolio Inc. (the "Portfolio") was organized as a
corporation under the laws of the State of Maryland on December 24, 1992 and is
registered with the Securities and Exchange Commission as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The policies described below are followed consistently by the
Portfolio in the preparation of its financial statements in conformity with
generally accepted accounting principles.
PORTFOLIO VALUATION: Investments are valued by The Boston Company
Advisors, Inc. ("Boston Advisors") after consultation with an independent
pricing service (the "Service") approved by the Board of Directors. When, in
the judgment of the Service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the Service, no readily
obtainable market quotations are available, are carried at fair value as
determined by the Service, based on methods that include consideration of:
yields or prices of high income obligations of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. The Service may use electronic data processing techniques and/or
a matrix system to determine valuations. Short-term investments that mature
in fewer than 60 days are valued at amortized cost.
REPURCHASE AGREEMENTS: The Portfolio may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the
Portfolio takes possession of an underlying debt obligation subject to an
obligation of the seller to repurchase, and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the
Portfolio's holding period. The value of the collateral is at least equal at
all times to the total amount of the repurchase obligations, including
interest. In the event of counterparty default, the Portfolio has the right
to use the collateral to offset losses incurred. There is potential loss to
the Portfolio in the event that the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 (Continued)
the period while the Portfolio seeks to assert its rights. The Portfolio's
investment adviser, acting under the supervision of the Trust's Board of
Trustees, reviews the value of the collateral and the creditworthiness of
those banks and dealers with which the Portfolio enters into repurchase
agreements to evaluate potential risks.
FOREIGN CURRENCY: The books and records of the Portfolio are maintained in
U.S. dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions. Unrealized gains and losses which result from changes in
foreign currency exchange rates have been included in the unrealized
appreciation/(depreciation) of currencies and net other assets. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment transactions, foreign currency transactions and the
difference between the amounts of interest and dividends recorded on the
books of the Portfolio and the amount actually received. The portion of
foreign currency gains and losses related to fluctuation in the exchange
rates between the initial purchase trade date and subsequent sale trade date
is included in realized gain and losses on investment securities sold.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued
or delayed-delivery basis may be settled a month or more after trade date.
Realized gains and losses on investments sold are recorded on the basis of
identified cost. Interest income is recorded on the accrual basis.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the
Portfolio to make monthly distributions of substantially all of its net
investment income to shareholders. Net realized capital gains, if any, will
be distributed to shareholders at least once a year. In addition, in order
to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Portfolio
may make an additional distribution shortly before December 31 in each year
of any undistributed ordinary income or capital gains and expects to make
any other distributions as are necessary to avoid the application of this
tax. To the extent that net realized capital gains can be offset by capital
losses and loss carryforwards, it is the policy of the Portfolio not to
distribute such gains. Income distributions and
23
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 (Continued)
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains on various investment securities held by the Portfolio, timing
differences and differing characterization of distributions made by the
Portfolio as a whole.
Permanent differences incurred during the year ended February 28, 1994
resulting from different book and tax accounting for currency gain/(loss) on
certain securities were reclassifed from accumulated capital gains to
undistributed net investment income.
FEDERAL INCOME TAXES: It is the policy of the Portfolio to qualify as a
regulated investment company, if such qualification is in the best interest
of its shareholders, by complying with the requirements of the Internal
Revenue Code of 1986, as amended, applicable to regulated investment
companies and by distributing substantially all of its earnings to its
shareholders. Therefore, no Federal income tax is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS.
Prior to July 31, 1993, the Portfolio had entered into an investment advisory
agreement (the "Advisory Agreement") with Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers") on behalf of Shearson Lehman Advisors, a member of
the Asset Management Group of Shearson Lehman Brothers. Under the Advisory
Agreement, the Portfolio paid a monthly fee at the annual rate of .90% of the
value of its average daily net assets.
As of the close of business on July 30, 1993, The Travelers Inc.
("Travelers") (formerly known as Primerica Corporation) and Smith Barney,
Harris Upham & Co. Incorporated completed the acquisition of substantially
all of the domestic retail brokerage and asset management business of
Shearson Lehman Brothers and Smith Barney, Harris Upham & Co. Incorporated
was renamed Smith Barney Shearson Inc. ("Smith Barney Shearson").
As of the close of business on July 30, 1993, Greenwich Street Advisors, a
division of Mutual Management Corp. which is controlled by Smith Barney
Shearson Holdings Inc. ("Holdings"), succeeded Shearson Lehman Advisors as
the Portfolio's investment adviser. Holdings is a wholly owned subsidiary of
Travelers. The new investment
24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 (Continued)
advisory agreement with Greenwich Street Advisors contains terms and
conditions substantially similar to the Advisory Agreement and provides for
the payment of fees at the same rate as was paid to the previous investment
adviser.
The Portfolio has also entered into an administration agreement
("Administration Agreement") with Boston Advisors, an indirect wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under the Administration
Agreement, the Portfolio pays a monthly fee at the annual rate of .20% of
the value of its average daily
net assets.
No officer, director, or employee of Smith Barney Shearson or Boston
Advisors or of any parent or subsidiary of those corporations receives any
compensation from the Portfolio for serving as a Director or officer of the
Portfolio. The Portfolio pays each Director, who is not an officer, director
or employee of Smith Barney Shearson or Boston Advisors or any of their
affiliates, $5,000 per annum plus $500 per meeting attended and reimburses
each such Director for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Portfolio's custodian. The Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, serves as the
Portfolio's transfer agent.
3. SECURITIES TRANSACTIONS.
For the year ended February 28, 1994, cost of purchases and proceeds from
sales of investment securities (excluding short-term investments) aggregated
$981,173,348 and $513,270,251, respectively.
At February 28, 1994, gross unrealized appreciation for all securities in
which there was an excess of value over tax cost amounted to $13,949,325,
and gross unrealized depreciation for all securities in which there was an
excess of tax cost over value amounted to $4,619,642.
4. PORTFOLIO SHARES.
At February 28, 1994, 500,000,000 shares of common stock, with a par value of
$.001 per share, were authorized.
25
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994 (Continued)
Common stock transactions were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
2/28/94*
SHARES AMOUNT
<S> <C> <C>
----------------------------------------------------------------------------
Initial public offering 36,000,000 $432,000,000
Subsequent offering 5,400,000 64,800,000
Issued as reinvestment of dividends 573,255 7,072,328
-------------------------------------------------------------------------------
Total increase 41,973,255 $503,872,328+
-------------------------------------------------------------------------------
<FN>
+ Before offering costs charged to paid-in capital of $637,850.
* The Portfolio commenced operations on March 26, 1993.
</TABLE>
5. CONCENTRATION OF CREDIT RISK
The Portfolio invests in securities offering high current income which
generally will be in the lower rating categories of recognized rating agencies.
These securities generally involve more credit risk than securities in the
higher rating categories. In addition, the trading market for high yield
securities may be relatively less liquid than the market for higher rated
securities.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
NET INCREASE IN
NET REALIZED AND NET ASSETS
INVESTMENT NET INVESTMENT UNREALIZED GAIN RESULTING FROM
INCOME INCOME ON INVESTMENT OPERATIONS
QUARTER PER PER PER PER
ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31,
1993* $7,383,178 $0.18 $6,294,236 $0.15 $2,272,520 $0.06 $8,566,756 $0.21
August 31,
1993 12,752,722 0.30 11,200,876 0.27 10,769,274 0.26 21,970,150 0.53
November 30,
1993 13,389,378 0.32 11,792,080 0.28 1,588,864 0.04 13,380,944 0.32
February 28,
1994 13,009,454 0.32 11,670,246 0.28 5,952,903 0.15 17,623,149 0.43
-------------------------------------------------------------------------------------
<FN>
* The Portfolio commenced operations on March 26, 1993.
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders, and Board of Directors of the
Managed High Income Portfolio Inc.:
We have audited the accompanying statement of assets and liabilities of
Managed High Income Portfolio Inc., including the portfolio of investments, as
of February 28, 1994, and the related statement of operations and statement of
changes in net assets and financial highlights for the period from March 26,
1993 (commencement of operations) to February 28, 1994. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 investments and cash held by the custodians as of February 28,
1994. 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 audit provides 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
Managed High Income Portfolio Inc. as of February 28, 1994, the results of its
operations and the changes in net assets and financial highlights for the period
from March 26, 1993 (commencement of operations) to February 28, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
April 8, 1994
27
<PAGE>
- -------------------------------------------------------------------------
ADDITIONAL INFORMATION (Unaudited)
DIVIDEND REINVESTMENT PLAN
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose shares of Common Stock are registered in his own name will have all
distributions from the Portfolio reinvested automatically by TSSG as agent under
the Plan, unless the shareholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(that is, in "street name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own Common Stock registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
Portfolio shareholders who do not participate in the Plan will be paid by check
mailed directly to the record holder by or under the direction of TSSG as
dividend-paying agent.
If the Portfolio declares a dividend or capital gains distribution payable
either in shares of Common Stock or in cash, shareholders who are not Plan
participants will receive cash, and Plan participants will receive the
equivalent amount in shares of Common Stock. When the market price of the Common
Stock is equal to or exceeds the net asset value per share of the Common Stock
on the Valuation Date (as defined below), Plan participants will be issued
shares of Common Stock valued at the net asset value most recently determined as
described below under "Net Asset Value" or, if net asset value is less than 95%
of the then current market price of the Common Stock, then at 95% of the market
value. The Valuation Date is the dividend or capital gains distribution payment
date or, if that date is not a NYSE trading day, the immediately preceding
trading day.
If the market price of the Common Stock is less than the net asset value of
the Common Stock, or if the Portfolio declares a dividend or capital gains
distribution payable only in cash, a broker-dealer not affiliated with Shearson
Lehman Brothers, as purchasing agent for Plan participants (the "Purchasing
Agent"), will buy Common Stock in the open market, on the NYSE or elsewhere, for
the participants' accounts. If, following the commencement of the purchases and
before the Purchasing Agent has completed its purchases, the market price
exceeds the net asset value of the Common Stock, the average per share purchase
price paid by the Purchasing Agent may exceed the net asset value of the Common
Stock, resulting in the acquisition of fewer shares than if the dividend or
capital gains distribution had been paid in Common Stock issued by the Portfolio
at net asset value. Additionally, if the market price exceeds the net asset
value of shares before the Purchasing Agent has completed its purchases, the
Purchasing Agent is permitted to cease purchasing shares and the Portfolio
28
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (Unaudited) (Continued)
may issue the remaining shares at a price equal to the greater of (a) net asset
value or (b) 95% of the then current market price. In a case where the
Purchasing Agent has terminated open market purchases and the Portfolio has
issued the remaining shares, the number of shares received by the participant in
respect of the cash dividend or distribution will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Portfolio issues the remaining shares. TSSG will apply all cash
received as a dividend or capital gains distribution to purchase Common Stock on
the open market as soon as practicable after the payment date of the dividend or
capital gains distribution, but in no event later than 30 days after that date,
except when necessary to comply with applicable provisions of the federal
securities laws.
TSSG will maintain all shareholder accounts in the Plan and will furnish
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by TSSG on behalf of the Plan participant, and each shareholder's proxy will
include those shares purchased pursuant to the Plan.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. TSSG's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Portfolio. No
brokerage charges apply with respect to shares of Common Stock issued directly
by the Portfolio as a result of dividends or capital gains distributions payable
either in Common Stock or in cash. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to open
market purchases made in connection with the reinvestment of dividends or
capital gains distributions.
Experience under the Plan may indicate that changes to it are desirable. The
Portfolio reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by TSSG, with the Portfolio's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to The Shareholders Services Group, Inc., P.O.
Box 1376, Boston, Massachusetts 02104 or by telephone at (800) 331-1710.
29
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MANAGED
HIGH INCOME
PORTFOLIO INC.
DIRECTORS
James J. Crisona
Paolo M. Cucchi
Allesandro C. diMontezemolo
Andrea Farace
Paul R. Hardin
George M. Pavia
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
John C. Bianchi
VICE PRESIDENT AND
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
30
<PAGE>
THIS REPORT IS SENT TO THE SHARE-
HOLDERS OF MANAGED HIGH INCOME
PORTFOLIO INC. FOR THEIR INFORMATION.
IT IS NOT A PROSPECTUS, CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN
THE PURCHASE OR SALE OF SHARES OF
THE PORTFOLIO OR OF ANY SECURITIES
MENTIONED IN THE REPORT.
