<PAGE>
MANAGED HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
AUGUST 31, 1994
Dear Shareholder:
We are pleased to provide the Semi-Annual report for the Managed High
Income Portfolio for the six months ended August 31, 1994. Over the past
three months, the Fund paid dividends totaling $0.279 per share,
equivalent to an annualized distribution rate of 10.05%, based on the
August 31, 1994 net asset value of $11.11 per share, and 10.63%, based on
the New York Stock Exchange closing price of $10.50 per share. The Fund
generated a negative total return, based on net asset value per share, of
(2.49)% for the past three months and (7.36)% for the past six months.
This negative performance was not the result of holding any defaulting
issues, but instead was the result of a number of factors. The major one
was the significant rise in interest rates in 1994 in reaction to the
Federal Reserve's tightening of monetary policy. Since the beginning of
1994, the Federal Reserve has raised short-term rates by 175 basis points
(1.75%) to prevent the general economy from overheating and causing
inflation rates to increase dramatically. We believe the Federal Reserve
will succeed in limiting inflationary pressures and that interest rates
will once again move lower with corresponding bond price appreciation. The
Fund's performance also was negatively impacted in the past three months
by a large decline in the gaming sector.
PORTFOLIO STRATEGY
We have continued to shift the portfolio into higher coupon,
intermediate maturity (5-10 years) issues in order to limit overall
interest rate risk. In addition, we have also continued to emphasize more
economically-sensitive companies in order to capitalize on the improving
economy. We continue to increase our exposure to forest products, paper
and containers, metals and mining, and general manufacturing industries.
We have been slowly reducing our gaming exposure given the increasingly
competitive conditions in that industry. Since we believe the high yield
market is in a bottoming phase, we will look to move the portfolio to a
relatively fully invested position in the fourth quarter with an average
1
<PAGE>
maturity of 6-8 years. We believe that the worst of the bond market
correction is behind us and are looking forward to improving market
conditions in 1995.
SUMMARY THOUGHTS
Our goal is to limit the Fund's net asset value erosion, minimize
downside price action and generate the most attractive current yield
attainable without incurring undue credit risk. In this harsher
environment, we believe this more defensive strategy will generate
better results. We appreciate your past support and look forward to
satisfying your financial needs in this more challenging investment
environment.
Sincerely,
Heath B. McLendon John C. Bianchi
CHAIRMAN OF THE BOARD INVESTMENT OFFICER
October 24, 1994
2
<PAGE>
- --------------------------------------------------------------------------------
UNAUDITED FINANCIAL DATA
PER SHARE OF COMMON STOCK
AUGUST 31, 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>
September 30, 1993....... $12.125 $12.24 $0.096 -- $ 12.19
October 31, 1993......... 12.250 12.39 0.096 -- 12.28
November 30, 1993........ 12.125 12.37 0.096 -- 12.38
December 31, 1993........ 12.250 12.30 0.096 $0.120 12.42 **
January 31, 1994......... 12.375 12.50 0.096 -- 12.41
February 28, 1994........ 11.750 12.39 0.091 -- 11.83
March 31, 1994........... 10.500 11.82 0.091 -- 10.97
April 30, 1994........... 10.875 11.54 0.091 -- 11.26
May 31, 1994............. 11.000 11.49 0.091 -- 11.30
June 30, 1994............ 10.750 11.47 0.093 -- 10.98
July 31, 1994............ 11.000 11.34 0.093 -- 10.98
August 31, 1994.......... 10.500 11.11 0.093 -- 10.73
<FN>
**During reinvestment period: NAV ranged $12.30-$12.45, market ranged
$12.25-$12.50.
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND DATA
<TABLE>
<CAPTION>
PER SHARE ANNUALIZED
DIVIDEND DISTRIBUTION
DISTRIBUTIONS RATE*
---------------------------------------
<S> <C> <C>
$0.093 10.05%
---------------------------------------
<FN>
*Based on August 31, 1994 net asset value of $11.11 per share.
Each registered shareholder is considered a participant in the
Portfolio's Dividend Reinvestment 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 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>
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - 88.2%
HOTELS, CASINOS, AND GAMING - 8.3%
$ 3,875,000 Boyd Gaming Corporation,
Series B,
10.750% due 9/1/2003.......... B2 B+ $ 3,681,250
4,300,000 Empress River Casino Financial
Corporation, Note,
10.750% due 4/1/2002.......... B1 BB 4,047,375
5,450,000 GNF Corporation, First
Mortgage Note, Series B,
10.625% due 4/1/2003.......... B2 BB 3,460,750
4,875,000 Lady Luck Gambling Financial
Corporation, Note,
10.500% due 3/1/2001.......... B2 B+ 2,730,000
3,030,000 Santa Fe Hotel Inc., Unit
Guaranteed Note,
11.000% due 12/15/2000........ B2 B- 2,727,000
Station Casinos, Inc., Sr.
Sub. Note,
9,200,000 9.625% due 6/1/2003........... B2 B 7,831,500
6,375,000 Trump Plaza Funding, Inc.,
1st Mortgage, Note,
10.875% due 6/15/2001......... B3 B 4,733,438
13,662,706 Trump Taj Mahal Funding, Unit
Building 1 Management,
11.350% due 11/15/1999
(Pay-in-Kind)................. Caa NR 9,700,521
------------------------------------------------------------------------------
38,911,834
------------------------------------------------------------------------------
PACKAGING AND CONTAINERS - 7.6%
Container Corporation of
America:
5,000,000 Sr. Note,
11.250% due 5/1/2004.......... B2 B+ 5,237,500
9,850,000 Sr. Sub. Note,
13.500% due 12/1/1999......... B2 B+ 10,711,875
7,265,000 Gaylord Container Corporation,
Sr. Note,
11.500% due 5/15/2001......... B3 B 7,419,381
</TABLE>
4 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
PACKAGING AND CONTAINERS - (CONTINUED)
$3,325,000 Silgan Holdings Inc., Sr.
Discount Debenture, Step up
Bond,
Zero Coupon to 6/15/1996,
13.250% due 12/15/2002........ B3 B- $ 2,664,156
Stone Container Corporation:
Sr. Notes:
800,000 12.625% due 7/15/1998......... B1 B 838,000
2,850,000 9.875% due 2/1/2001........... B1 B 2,657,625
2,325,000 Sweetheart Cup Inc., Sr. Sub.
Note,
10.500% due 9/1/2003.......... B2 B- 2,243,625
3,400,000 United States Can Company,
Sr. Sub. Note,
13.500% due 1/15/2002......... B3 B- 3,803,750
------------------------------------------------------------------------------
35,575,912
------------------------------------------------------------------------------
BUILDING AND CONSTRUCTION - 7.5%
American Standard, Inc.:
9,575,000 Sr. Debenture,
11.375% due 5/15/2004......... Ba3 B+ 10,149,500
4,300,000 Sr. Sub. Debenture, Step up
Bond,
Zero coupon to 6/1/1998,
10.500% due 6/1/2005.......... B1 B 2,838,000
5,350,000 Greystone Homes, Inc.,
Guaranteed Sr. Note,
10.750% due 3/1/2004.......... B3 B 4,948,750
Hovnanian (K.) Enterprises
Inc., (Home Builder), Sub.
Notes:
1,450,000 11.250% due 4/15/2002......... B1 B 1,408,313
3,450,000 9.750% due 6/1/2005........... B1 B 2,984,250
3,050,000 Miles Homes Services, Inc.,
Sr. Note,
12.000% due 4/1/2001.......... B2 B- 2,992,813
5,145,000 UDC Homes, Sr. Notes,
11.750% due 4/30/2003......... B2 B+ 4,791,281
5,410,000 US Home Corporation, Sr. Note,
9.750% due 6/15/2003.......... Ba3 B+ 4,923,100
------------------------------------------------------------------------------
35,036,007
------------------------------------------------------------------------------
</TABLE>
5 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
GROCERY AND RETAIL - 7.5%
$ 5,075,000 Barnes & Noble Inc., Sr. Sub.
Note, Series B,
11.875 % due 1/15/2003........ B1 B $ 5,531,750
2,200,000 Big V Supermarket Inc., Sr.
Sub. Note,
11.000% due 2/15/2004......... B3 B- 1,936,000
4,535,000 Bradlees, Inc., Sr. Sub. Note,
11.000% due 8/1/2002.......... B2 B+ 4,444,300
3,675,000 Farm Fresh, Inc., Sr. Sub.
Note,
12.250% due 10/1/2000......... B2 B+ 3,528,000
4,925,000 Grand Union Corporation, Sr.
Note,
11.250% due 7/15/2000......... B2 B 4,580,250
Pathmark Stores Inc., Sub.
Notes:
3,550,000 11.625% due 6/15/2002......... B3 B 3,514,500
4,050,000 12.625% due 6/15/2002......... B3 B 4,252,500
4,075,000 Penn Traffic Company, Sr. Sub.
Note,
9.625% due 4/15/2005.......... B2 B 3,769,375
3,115,000 Wickes Lumber Company,
Sr. Sub. Note,
11.625% due 12/15/2003........ B3 B- 3,196,769
------------------------------------------------------------------------------
34,753,444
------------------------------------------------------------------------------
FOREST PRODUCTS/PAPER - 6.3%
Domtar Inc.:
Sr. Notes:
1,400,000 11.750% due 3/15/1999......... Ba1 BB- 1,477,000
6,075,000 12.000% due 4/15/2001......... Ba1 BB- 6,469,875
Indah Kiat International
Finance Company, B.V.,
Guaranteed Notes:
750,000 11.375% due 6/15/1999......... Ba3 BB 759,375
2,050,000 11.875% due 6/15/2002......... Ba3 BB 2,065,375
2,200,000 Malette Inc., Sr. Sub. Note,
12.250% due 7/15/2004......... Ba3 BB- 2,230,250
4,355,000 Repap Wisconsin Inc.,
Sr. Secured Note,
Second Priority,
9.875% due 05/1/2006.......... B3 B 3,799,738
</TABLE>
6 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
FOREST PRODUCTS/PAPER - (CONTINUED)
$ 7,875,000 Riverwood International
Corporation, Sr. Sub. Notes,
11.250% due 6/15/2002......... B1 B $ 8,288,437
4,100,000 Stone Consolidated, Sr.
Secured Note,
10.250% due 12/15/2000........ B1 B+ 4,038,500
------------------------------------------------------------------------------
29,128,550
------------------------------------------------------------------------------
HEALTH CARE - 5.8%
493 Alco Health Distributor
Corporation, Sr. Debenture,
11.250% due 7/15/2005
(Pay-in-kind)................. B3 B- 499
7,150,000 American Medical
International, Inc., Sr. Sub.
Note,
13.500% due 8/15/2001......... B1 B 8,061,625
3,050,000 Charter Medical Corporation,
Sr. Sub. Note,
11.250% due 4/15/2004+........ B2 B 3,156,750
5,300,000 Healthtrust, Inc., The
Hospital Company, Sub. Note,
10.750% due 5/1/2002.......... B1 B 5,525,250
9,725,000 Ornda Healthcorp, Sr. Sub.
Note,
12.250% due 5/15/2002......... B3 B- 10,308,500
------------------------------------------------------------------------------
27,052,624
------------------------------------------------------------------------------
METAL AND MINING - 5.3%
3,125,000 AK Steel Holding Corporation,
Sr. Note,
10.750% due 4/1/2004.......... B2 B 3,195,312
1,000,000 Armco, Inc., Sr. Note,
11.375% due 10/15/1999........ B1 B 1,040,000
2,050,000 Essex Group, Inc., Sr. Note,
10.000% due 5/1/2003.......... B1 B+ 1,988,500
3,900,000 Federal Industries Ltd., Sr.
Note,
10.250% due 6/15/2000......... B3 B- 3,826,875
</TABLE>
7 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
METAL AND MINING - (CONTINUED)
$ 1,000,000 Geneva Steel Company, Sr.
Note,
11.125% due 3/15/2001......... B1 B+ $ 1,017,500
1,000,000 Inland Steel Company, 1st
Mortgage Note, Series T,
12.000% due 12/1/1998......... Ba3 BB- 1,110,000
2,250,000 Interlake Corporation, Sr.
Sub. Note,
12.125% due 3/1/2002.......... B3 CCC+ 2,140,312
5,000,000 Republic Engineered Steels,
1st Mortgage Note,
9.875% due 12/15/2001......... B2 B 4,875,000
CAD 7,954,000 Stelco Inc., Canadian Dollar,
Debenture Note, Retractable,
10.400% due 11/30/2009........ NR NR 5,527,843
------------------------------------------------------------------------------
24,721,342
------------------------------------------------------------------------------
BROADCASTING/CABLE T.V. - 4.9%
$ 7,900,000 Bell Cablemedia PLC, Sr.
Discount Note, Step up Bond,
Zero coupon due 7/15/1999,
11.950% due 7/15/2004......... B2 B+ 4,522,750
Cablevision Systems
Corporation:
1,700,000 Note,
9.875% due 2/15/2013.......... B2 B 1,615,000
1,000,000 Sr. Sub. Note,
9.875% due 4/1/2023........... B3 B 936,250
2,375,000 Continental Cablevision, Inc.,
Sr. Sub. Debenture,
11.000% due 6/1/2007.......... B1 BB- 2,431,406
1,275,000 Jones Intercable Inc.,
Sr. Sub. Debenture,
10.500% due 3/1/2008.......... B2 B+ 1,294,125
Rogers Cablesystems Ltd.:
CAD 4,900,000 Canadian Dollar Debenture,
9.650% due 1/15/2014.......... Ba3 BB+ 3,128,306
$ 1,825,000 Sr. Secured 2nd Priority
Debenture,
10.125% due 9/1/2012.......... Ba3 BB+ 1,809,031
</TABLE>
8 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
BROADCASTING/CABLE T.V. - (CONTINUED)
$ 3,000,000 Rogers Communication, Inc.,
Sr. Debenture,
10.875% due 4/15/2004......... Ba3 BB- $ 3,112,500
7,200,000 Videotron Holdings PLC, Sr.
Discount Note, Step up Bond,
Zero coupon to 7/1/1999
11.125% due 7/1/2004.......... B3 B+ 4,032,000
------------------------------------------------------------------------------
22,881,368
------------------------------------------------------------------------------
CONSUMER DURABLES - 4.7%
11,275,000 Coleman Holdings Inc.,
Sr. Secured Note,
Zero coupon due 5/27/1998..... NR B 7,526,063
19,750,000 International Semi-Tech, Sr.
Note,
Step up Bond,
Zero coupon to 8/15/2000,
11.500% due 8/15/2003......... Ba2 B+ 9,578,750
5,275,000 Remington Arms Inc., Sr. Note,
10.500% due 12/1/2003+........ B3 B 4,793,656
------------------------------------------------------------------------------
21,898,469
------------------------------------------------------------------------------
TELE-COMMUNICATIONS - 4.5%
Dial Call Communications Inc:
3,100,000 Step up Bond,
Zero coupon to 10/15/1999,
12.250% due 4/15/2004......... Caa CCC 1,918,125
2,310,000 Sr. Discount Note, Step up
Bond,
Zero coupon to 12/15/1998,
10.250% due 12/15/2005........ NR NR 1,235,850
17,275,000 Nextel Communications, Inc.,
Sr. Note,
Zero coupon due 8/15/2004..... B3 CCC+ 9,242,125
5,400,000 Pagemart Inc., Discount Note &
Warrant,
Zero coupon due 11/1/2003+.... NR NR 3,402,000
</TABLE>
9 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
TELE-COMMUNICATIONS - (CONTINUED)
$3,500,000 Paging Network, Inc., Sr. Sub.
Note,
11.750% due 5/15/2002......... B2 B $ 3,644,375
1,600,000 USA Mobile Communication Inc.,
Sr. Note,
9.500% due 2/1/2004........... B3 CCC+ 1,434,000
------------------------------------------------------------------------------
20,876,475
------------------------------------------------------------------------------
PUBLISHING - 3.8%
11,275,000 Bell & Howell Holdings
Company, Series A, Step up
Bond,
Zero coupon to 3/1/2000,
11.500% due 3/1/2005.......... B3 B- 5,750,250
7,325,000 Marvel Holdings, Inc.,
Sr. Discount Note,
Zero coupon due 4/15/1998..... B3 B 4,449,938
4,475,000 Marvel III Holdings, Inc., Sr.
Note,
9.125% due 2/15/1998.......... Caa B 3,915,625
AUD 6,400,000 News America Holdings, Inc.,
Australian Dollar Debenture,
8.625% due 2/7/2014........... Ba1 BBB- 3,788,779
------------------------------------------------------------------------------
17,904,592
------------------------------------------------------------------------------
OIL AND NATURAL GAS - 3.4%
$3,300,000 Giant Industries Inc.,
Guaranteed Sr. Sub. Note,
9.750% due 11/15/2003......... B2 B+ 3,118,500
11,900,000 Mesa Petroleum Capital
Corporation, Secured Discount
Note, Step up Bond,
Zero coupon to 6/30/1995,
12.750% 6/30/1998............. B3 CCC+ 10,561,250
2,350,000 Santa Fe Energy Resources,
Inc.,
Sr. Sub. Note,
11.000% due 5/15/2004......... B2 B 2,364,687
------------------------------------------------------------------------------
16,044,437
------------------------------------------------------------------------------
</TABLE>
10 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
ELECTRONICS/COMPUTERS - 2.9%
$ 11,940,000 Anacomp, Inc., Sr. Sub. Note,
15.000% due 11/1/2000......... B3 CCC+ $ 13,328,025
------------------------------------------------------------------------------
PERSONAL CARE - 2.8%
4,705,000 MacAndrews & Forbes Group,
Sub. Note,
12.250% due 7/1/1996.......... NR NR 4,699,119
4,815,000 Revlon Consumer Products
Corporation, Sr. Sub. Note,
10.500% due 2/15/2003......... B3 NR 3,960,338
11,025,000 Revlon Worldwide Corporation,
Sr. Secured Note,
Zero coupon due 3/15/1998..... B3 B- 4,575,375
------------------------------------------------------------------------------
13,234,832
------------------------------------------------------------------------------
CHEMICALS - 2.8%
1,200,000 Buckeye Celluose Corporation,
Sr. Note,
10.250% due 5/15/2001......... B2 B 1,161,000
3,100,000 Huntsman Corporation, 1st
Mortgage Note,
11.000% due 4/15/2004......... B1 BB- 3,231,750
5,300,000 NL Industries, Inc., Sr.
Secured Note,
11.750% due 10/15/2003........ B1 B 5,485,500
4,800,000 UCC Investors Holding, Inc.,
Sub. Notes, Step up Bond,
Zero coupon to 5/1/1998,
12.000% due 5/1/2005.......... B3 B- 3,186,000
------------------------------------------------------------------------------
13,064,250
------------------------------------------------------------------------------
INSURANCE - 2.4%
4,000,000 Bankers Life Holdings
Corporation, Sr. Sub.
Debenture, Series B,
13.000% due 11/1/2002......... Ba3 BB+ 4,560,000
</TABLE>
11 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
INSURANCE - (CONTINUED)
$ 5,950,000 Life Partners Group Inc.,
Sr. Sub. Note,
12.750% due 7/15/2002......... Ba3 BB $ 6,708,625
------------------------------------------------------------------------------
11,268,625
------------------------------------------------------------------------------
TEXTILES AND APPAREL - 2.1%
4,100,000 CMI Industries Sr., Sub Notes,
9.500% due 10/1/2003.......... B1 B+ 3,403,000
1,000,000 Dan River Inc., Sr. Sub Note,
10.125% due 12/15/2003........ B3 B 912,500
4,575,000 Hartmarx Corporation, Sr. Sub.
Note,
10.875% due 1/15/2002......... B3 B 4,323,375
1,525,000 JPS Textile Group Inc., Sr.
Sub. Note,
10.250% due 6/1/1999.......... Caa CCC- 1,273,375
------------------------------------------------------------------------------
9,912,250
------------------------------------------------------------------------------
AUTOMOBILE/TRUCK - 1.6%
2,950,000 Fairfield Manufacturing Inc.,
Sr. Sub. Note,
11.375% due 7/1/2001.......... Caa CCC+ 2,968,437
2,150,000 Harvard Industries, Inc., Sr.
Note,
12.000% due 7/15/2004......... B2 B 2,171,500
2,200,000 Truck Components, Inc., Sr.
Note,
12.250% due 6/30/2001......... B2 B 2,337,500
------------------------------------------------------------------------------
7,477,437
------------------------------------------------------------------------------
FINANCIAL SERVICES - 1.1%
3,875,000 Lomas Mortgage USA Inc., Sr.
Note,
10.250% due 10/1/2002......... Ba1 BB 3,453,594
Reliance Group Holdings Inc.:
700,000 Sr. Note,
9.000% due 11/15/2000......... Ba3 BB+ 648,375
1,300,000 Sr. Sub. Note,
9.750% due 11/15/2003......... B1 BB- 1,176,500
------------------------------------------------------------------------------
5,278,469
------------------------------------------------------------------------------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE RATINGS VALUE
VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
ELECTRIC UTILITIES - 0.9%
$ 4,118,051 Midland Funding Corporation I,
Debenture, Series C,
10.330% due 7/23/2002+........ Ba3 BB $ 4,015,100
------------------------------------------------------------------------------
MACHINERY - 0.7%
3,350,000 SPX Coporation, Sr. Sub. Note,
11.750% due 6/1/2002.......... B3 B 3,463,063
------------------------------------------------------------------------------
LEISURE - 0.5%
2,126,000 Gillett Holdings, Inc., Sr.
Sub. Note,
12.250% due 6/30/2002......... NR NR 2,253,560
------------------------------------------------------------------------------
AEROSPACE - 0.5%
2,175,000 Tracor Inc., Sr. Sub. Note,
10.875% due 8/15/2001......... B2 B 2,175,000
------------------------------------------------------------------------------
TRANSPORTATION SERVICES - 0.3%
1,525,000 Sea Containers Ltd., Sr. Sub.
Debenture,
12.500% due 12/1/2004......... B1 BB- 1,618,406
------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $442,717,049) 411,874,071
------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS - 3.2%
22,900 Geneva Steel Company, Series
B, Preferred,
Exch. 14.000% (Pay-in-kind)... 2,977,000
K-III Communications
Corporation, Convertible
Preferred:
91,500 Exch. 11.500%................. 2,401,875
45,705 Series B, Exch. $11.625
(Pay-in-kind)................. 4,479,127
</TABLE>
13 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<S> <C> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS - (continued)
96,125 Navistar International
Corporation, Series G,
Convertible Preferred $6.00... $ 4,986,484
------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $15,490,357) 14,844,486
------------------------------------------------------------------------------
PREFERRED STOCKS - 2.6%
326,294 Algoma Finance Corporation,
Series A, 5.500% Cum. Pfd..... 4,999,580
4,220,050 Gulf CDA Resources Ltd.,
Series 1...................... 1,154,783
166,125 National Intergroup Inc.,
Series A, $4.20
(Pay-in-kind)................. 5,814,375
------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $12,848,361) 11,968,738
------------------------------------------------------------------------------
WARRANTS - 0.3%
219,350 Gaylord Container Corporation,
Expires 7/31/1996++........... 1,151,587
260 Trump Plaza Holding
Association,
Expires 6/15/1996++........... 117,000
------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,220,769) 1,268,587
------------------------------------------------------------------------------
COMMON STOCKS - 0.2%
(Cost $1,360,000)
68,000 Station Casinos, Inc.++....... 807,500
------------------------------------------------------------------------------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994 (Unaudited) (Continued)
<TABLE>
<CAPTION>
MARKET
FACE VALUE
VALUE (NOTE 1)
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT - 3.6%
(Cost $16,687,000)
$16,687,000 Agreement with Credit Lyonnais, 4.820% dated
8/31/1994, to be repurchased at $16,689,234 on
9/1/1994, collateralized by $17,130,000 U.S.
Treasury Note, 6.000% due 12/31/1997........... $ 16,687,000
------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $490,323,536*)......................98.1% 457,450,382
OTHER ASSETS AND LIABILITIES (Net)......... 1.9 9,060,144
------------------------------------------------------------------------------
NET ASSETS.............................. 100.0% $466,510,526
------------------------------------------------------------------------------
<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>
15 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF CORPORATE BONDS AND NOTES BY COMBINED RATINGS
AUGUST 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
PERCENT
TOTAL
STANDARD & CORPORATE BONDS
MOODY'S OR POOR'S AND NOTES
<S> <C> <C> <C>
Baa BBB 0.9 %
Ba BB 20.0
B B 71.1
Caa CCC 3.8
NR NR 4.2
------
100.0 %
------
------
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $490,323,536) (Note 1)
See accompanying schedule............................. $457,450,382
Cash...................................................... 59
Interest receivable....................................... 9,940,184
Receivable for investment securities sold................. 8,192,170
Other assets.............................................. 18,783
--------------------------------------------------------------------------------
Total Assets............................................ 475,601,578
--------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased............... $ 6,583,460
Dividends payable......................................... 1,879,594
Investment advisory fee payable (Note 2).................. 359,736
Administration fee payable (Note 2)....................... 79,941
Transfer agent fees payable (Note 2)...................... 23,707
Custodian fees payable (Note 2)........................... 23,008
Accrued Directors' fees and expenses (Note 2)............. 7,400
Accrued expenses and other payables....................... 134,206
--------------------------------------------------------------------------------
Total Liabilities....................................... 9,091,052
--------------------------------------------------------------------------------
NET ASSETS.................................................. $466,510,526
--------------------------------------------------------------------------------
NET ASSETS consist of:
Undistributed net investment income....................... $ 1,983,953
Accumulated net realized loss on investments, futures
contracts and currency transactions..................... (5,948,645)
Net unrealized depreciation of investments, currencies and
net other assets........................................ (32,877,406)
Par value................................................. 41,982
Paid-in capital in excess of par value.................... 503,310,642
--------------------------------------------------------------------------------
Total Net Assets........................................ $466,510,526
--------------------------------------------------------------------------------
NET ASSET VALUE per share ($466,510,526 DIVIDED BY
41,981,589 shares of common stock outstanding)............. $11.11
--------------------------------------------------------------------------------
</TABLE>
17 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 1994 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 24,613,063
Dividends (net of foreign withholding taxes of $24,639)... 2,343,429
--------------------------------------------------------------------------------
Total Investment Income................................. 26,956,492
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2).......................... $2,207,359
Administration fee (Note 2)............................... 490,524
Legal and audit fees...................................... 64,610
Custodian fees (Note 2)................................... 37,925
Transfer agent fees (Note 2).............................. 31,319
Directors' fees and expenses (Note 2)..................... 17,460
Other..................................................... 116,656
--------------------------------------------------------------------------------
Total Expenses.......................................... 2,965,853
--------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 23,990,639
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (Notes 1 and 3):
Net realized loss on:
Securities.............................................. (11,314,498)
Futures contracts....................................... (889,756)
Currencies.............................................. (5,415)
--------------------------------------------------------------------------------
Net realized loss on investments during the period........ (12,209,669)
--------------------------------------------------------------------------------
Net change in unrealized depreciation of:
Securities.............................................. (42,202,837)
Currencies and net other assets......................... (2,718)
--------------------------------------------------------------------------------
Net unrealized depreciation of investments during the
period..................................................... (42,205,555)
--------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
</TABLE>
