Managed
HIGH INCOME
PORTFOLIO INC.
[Drawing]
Quarterly
Report
SMITH BARNEY
------------ May 31, 1996
A Member of Travelers Group {Logo]
<PAGE>
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Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
May 31, 1996
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Dear Shareholder:
We are pleased to provide you with the first quarter report for the Managed
High Income Portfolio for the three-month period ended May 31, 1996. Over the
past three months, the Portfolio paid dividends totaling $0.279 per share. The
table below details the annualized distribution rates based on the Portfolio's
May 31, 1996 net asset value (NAV) per share and New York Stock Exchange (NYSE)
closing price.
Price Per Share Annualized Distribution Rate
--------------- ----------------------------
$11.18 (NAV) 9.98%
$10.63 (NYSE) 10.50%
The Managed High Income Portfolio generated a positive total return on net
asset value of 1.01% for the past three months and 5.81% for the past six
months, compared to average peer group total returns of 1.82% and 7.38% for the
same respective periods as reported by Lipper Analytical Services. Because of
its relatively higher credit quality and somewhat greater interest rate
sensitivity, the Portfolio's three and six-month performance were somewhat less
than the average returns of other closed end high yield portfolios.
Market and Economic Overview
The fixed-income markets remained relatively volatile over the past three
months with the more interest-rate sensitive instruments, such as U.S.
Government securities and investment grade corporate bonds continuing to
generate negative returns. The longer end of the market performed extremely
poorly. The 30-Year Treasury Bond, for example, posted a negative total return
of 10.90% for the first five months of 1996. Despite a rather turbulent bond
market, high yield bonds, which tend to be slightly less sensitive to interest
rate fluctuations than government or investment-grade corporate bonds, continued
to post positive total returns as many investors remained optimistic that U.S.
economic expansion would continue.
Within the high yield market, the lowest quality issues (i.e., CCC/Caa
rated and lower) which tend to be more sensitive to economic conditions, had
returns of roughly 11.00% over the past six months. This performance compares
with modestly positive total returns of 1.50% for BB/Ba rated
1
<PAGE>
issues and slightly greater total returns of 5.50% for B/B rated issues. Given
the considerable rise in interest rates during the first five months of 1996 and
the negative performance of both U.S. Treasury bonds and investment grade
corporate bonds in response to the stronger-than-expected economic growth, we
are not surprised by this performance disparity.
Portfolio Strategy
The Managed High Income Portfolio has maintained a relatively conservative
investment strategy over the past six months with a strong emphasis on the
upper- and middle-rated tiers of the high-yield market, those issues rated B/B
and Ba/BB by Standard and Poor's and Moody's. These bonds are issued by
improving companies which we believe have a great likelihood of receiving
upgrades and, as a consequence, should experience price appreciation.
Despite the fact the Portfolio's higher credit quality held back its
relative performance in the first five months of 1996, we will continue to avoid
lower quality CCC/Caa rated issues because we are not comfortable with the level
of risk associated with these issues. Moreover, we believe the Portfolio's
investment strategy of concentrating on improving high yield bonds rated B/B and
BB/Ba is prudent over the long term. As of May 31, 1996 approximately 85% of the
Portfolio was invested in B/B-rated and BB/Ba-rated bonds.
In terms of industry breakdown, the Portfolio is heavily weighted in the
telecommunications and cable industries, which currently make up approximately
34% of total assets. Many companies within these industries continue to show
strong growth and tend to be less sensitive to changing economic conditions.
Because of our positive views on the telecommunications and cable industries, we
added several new issues to the Portfolio including: Time Warner, which has
significantly expanded its cable and programming services, and now has
approximately 11.4 million subscribers; Intelcom Group, an expanding
Colorado-based company which provides alternate local telecommunications access;
and Intermedia Communications of Florida, which provides local telephone
companies in the Southeast with access to its extensive fiber-optic system and
its voice and data networks.
In light of the strong performance of the high yield market in the past six
months -- in contrast to the sell-off in the U.S. Treasury market -- we would
not be surprised to see a short-term pullback in the market, especially
considering the increased level of new issues amounting to over $10 billion,
scheduled to be offered over the next two months. In anticipation, we eliminated
or reduced several holdings including Harvard Industries, Coleman, a camping
equipment manufacturer, and Marvel
2
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Entertainment, a company that specializes in comic books. In our view, the
Portfolio's modestly higher cash reserves will not only partially buffer against
increased market volatility, but will allow us greater flexibility to take
advantage of any new attractive investment opportunities. It is our goal to
reinvest excess cash back into the market over the near term.
On a final note, the Managed High Income Portfolio reduced the monthly
dividend rate from $0.093 to $0.091 per share in June. The reduction in the
monthly dividend rate is reflective of our more conservative higher credit
stance, which consequently reduced the Portfolio's income stream.
In closing, we anticipate the high yield market will generate competitive
performance returns as more investors become convinced that U.S. economic growth
will continue throughout the rest of the year. We believe the Portfolio's
prudent investment philosophy should work well over a full economic cycle and we
look forward to meeting the challenges that may lie ahead in a more volatile
market. We look forward to continuing to help you achieve your investment goals.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman and Vice President and
Chief Executive Officer Investment Officer
June 26, 1996
3
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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CORPORATE BONDS AND NOTES -- 92.9%
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<C> <C> <S> <C>
Aerospace/Defense -- 2.0%
$ 2,750,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19........................ $ 2,866,875
2,760,000 BB Howmet Corp., Sr. Sub. Notes,
10.000% due 12/1/03+....................... 2,925,600
2,175,000 B Tracor Inc., Sr. Sub. Notes,
10.875% due 8/15/01........................ 2,316,375
1,350,000 B UNC Inc., Sr. Sub. Notes,
11.000% due 6/1/06+........................ 1,370,250
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9,479,100
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Automobile -- 1.0%
Harvard Industries, Inc., Sr. Notes:
3,975,000 B 12.000% due 7/15/04........................ 3,965,063
800,000 B+ 11.125% due 8/1/05+........................ 767,000
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4,732,063
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Broadcasting -- 16.5%
10,995,000 CCC+ Australis Media Ltd., Sr. Discount Notes,
step bond to yield 13.790% due 5/15/03++... 6,899,363
Bell Cablemedia, Sr. Discount Notes:
9,725,000 BB- Step bond to yield 13.320% due 7/15/04..... 7,002,000
6,275,000 BB- Step bond to yield 12.030% due 9/15/05+.... 4,047,375
Cablevision Systems Corp., Sr. Sub. Debentures:
4,375,000 B 10.750% due 4/1/04......................... 4,588,281
4,295,000 B 9.875% due 2/15/13......................... 4,166,150
4,800,000 B Comcast UK Cable, Sr. Discount Debentures,
step bond to yield 12.150% due 11/15/07.... 2,856,000
2,175,000 B Grupo Televisa, Sr. Notes, Series B,
11.875% due 5/15/06........................ 2,218,500
14,000,000 B Marcus Cable Capital Corp., Sr. Discount
Notes, step bond to yield
12.660% due 8/1/04......................... 10,220,000
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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<C> <C> <S> <C>
Broadcasting -- 16.5% (continued)
$13,325,000 B NWCG Holdings, Sr. Discount Notes,
zero coupon bond to yield
11.240% due 6/15/99........................ $ 9,827,188
Rogers Cablesystems, Sr. Secured Debentures:
2,575,000 BB+ 10.000% due 12/1/07........................ 2,575,000
3,150,000 BB- 11.000% due 12/1/15........................ 3,307,500
3,200,000 BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14....................... 2,045,073
1,750,000 BB- SCI Television Inc., Sr. Notes,
11.000% due 6/30/05........................ 1,837,500
3,675,000 B- SFX Broadcasting, Sr. Sub. Notes,
10.750% due 5/15/06+....................... 3,693,375
5,125,000 B- United International Holdings Inc.,
Sr. Discount Notes, 11.670% due 11/15/99... 3,344,063
1,515,000 BB+ Videotron Group Ltd., Sr. Notes,
10.625% due 2/15/05........................ 1,609,688
3,325,000 B+ Videotron Holdings PLC, Sr. Discount Notes,
step bond to yield 11.960% due 8/15/05..... 2,211,125
2,475,000 BB+ Videotron Ltd., Sr. Sub. Notes,
10.250% due 10/15/02....................... 2,580,188
1,550,000 B Young Broadcasting, Sr. Sub. Notes,
11.750% due 11/15/04....................... 1,674,000
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76,702,369
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Building/Construction -- 1.8%
1,575,000 BB- American Standard Inc., Sr. Sub. Debentures,
11.375% due 5/15/04........................ 1,708,875
4,125,000 B Greystone Homes, Inc., Sr. Notes,
10.750% due 3/1/04......................... 4,135,313
1,550,000 B- Miles Homes Services Inc., Sr. Notes,
12.000% due 4/1/01......................... 1,112,125
1,525,000 B+ Southdown Inc., Sr. Sub. Notes,
10.000% due 3/1/06+........................ 1,538,344
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8,494,657
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</TABLE>
See Notes to Financial Statements.
5
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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<C> <C> <S> <C>
Chemicals -- 5.3%
$ 4,100,000 B+ Clark USA Inc., Sr. Notes,
10.875% due 12/1/05........................ $ 4,305,000
NL Industries, Sr. Secured Notes:
9,175,000 B 13.000% due 10/15/03....................... 9,530,531
2,925,000 B Step bond to yield 12.290% due 10/15/05.... 2,310,750
3,462,000 BB- Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01........................ 3,782,235
4,350,000 B+ Terra Industries, Inc., Sr. Notes,
10.500% due 6/15/05........................ 4,654,500
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24,583,016
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Communications -- 17.7%
3,075,000 B- Allbritton Communications Co.,
Sr. Sub. Debentures, 9.750% due 11/30/07+.. 2,859,750
8,500,000 NR Clearnet Communications Inc.,
Sr. Discount Notes, step bond to yield
13.920% due 12/15/05....................... 5,312,500
Dial Call Communications, Inc.,
Sr. Discount Notes:
4,700,000 CCC- Step bond to yield 10.220% due 4/15/04+.. 3,055,000
2,310,000 Caa* Step bond to yield 10.780% due 12/15/05+. 1,426,425
2,425,000 B+ Fonorola Inc., Sr. Sub. Notes,
12.500% due 8/15/02........................ 2,619,000
8,750,000 NR Intelcom Group USA Inc., Sr. Discount Notes,
12.440% due 5/1/06+........................ 4,943,750
4,200,000 B- Intermedia Communications, Sr. Discount Notes,
12.380% due 5/15/06........................ 2,341,500
4,450,000 NR International Cabletelecommunications Inc.,
Sr. Deferred Coupon Notes, Series A,
step bond to yield 12.770% due 2/1/06+..... 2,636,625
2,300,000 B- Metrocall Inc., Sr. Sub. Notes,
10.375% due 10/1/07........................ 2,242,500
7,975,000 B- Millicom International Cellular SA, Sr. Sub.
Discount Notes, 13.500% due 6/1/06+........ 4,286,563
4,525,000 B- Mobile Telecommunications Tech. Corp.,
Sr. Notes, 13.500% due 12/15/02............ 4,739,938
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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<C> <C> <S> <C>
Communications -- 17.7% (continued)
$ 5,575,000 NR Nextlink Communications, Sr. Discount
Notes, 12.500% due 4/15/06+................ $ 5,658,625
15,325,000 CCC- Nextel Communications, Sr. Discount Notes,
step bond to yield 13.440% due 8/15/04..... 9,348,250
Pagemart Nationwide, Inc.,
Sr. Discount Notes:
5,400,000 NR Step bond to yield 13.590% due 11/1/03... 4,077,000
5,000,000 NR Step bond to yield 14.960% due 2/1/05.... 3,375,000
6,135,000 BB- Rogers Communications, Sr. Debentures,
10.875% due 4/15/04........................ 6,303,713
18,825,000 BB Telewest Communications PLC,
Sr. Discount Debentures, step bond
to yield 11.480% due 10/1/07............... 11,295,000
3,250,000 B- USA Mobile Communication Inc.,
Sr. Discount Notes, 14.000% due 11/1/04.... 3,761,875
1,050,000 B- Western Wireless Corp., Sr. Sub. Notes,
10.500% due 6/1/06......................... 1,057,875
1,125,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03....................... 1,198,125
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82,539,014
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Consumer Durables -- 2.8%
13,500,000 B+ International Semi-Tech., Sr. Discount
Secured Notes, step bond to yield
12.770% due 8/15/03........................ 7,998,750
2,975,000 B- TAG-Heuer International Inc., Sr. Sub. Notes,
12.000% due 12/15/05....................... 3,131,188
2,050,000 BB- TLC Beatrice International Inc.,
Sr. Secured Notes, 11.500% due 10/1/05..... 2,091,000
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13,220,938
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Diversified/Conglomerate Manufacturing -- 2.4% Interlake Corp.:
1,625,000 B- Sr. Notes, 12.000% due 11/15/01............ 1,698,125
6,665,000 CCC+ Sr. Sub. Debentures, 12.125% due 3/1/02.... 6,631,675
2,850,000 B- Russel Metals Inc., Sr. Notes,
10.250% due 6/15/00........................ 2,807,250
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11,137,050
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</TABLE>
See Notes to Financial Statements.
7
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
<C> <C> <S> <C>
Electric Utilities -- 1.3%
$ 1,619,958 BB- Midland Cogeneration Venture Limited
Partnership, Midland Funding,
Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02.............. $ 1,702,981
4,250,000 B Calpine Corp., Sr. Notes,
10.500% due 5/15/06+....................... 4,260,625
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5,963,606
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Electronics/Computers -- 2.3%
5,775,000 B Bell and Howell Holdings Co., Sr. Discount
Sub. Notes, step bond to yield
12.240% due 3/1/05......................... 3,955,875
1,825,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/00+....................... 1,957,313
4,600,000 B+ Unisys Corp., Sr. Notes,
12.000% due 4/15/03+....................... 4,749,500
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10,662,688
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Finance -- 0.9%
4,300,000 BB- Trizec Finance, Sr. Notes,
10.875% due 10/15/05....................... 4,364,500
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Grocery/Convenience Stores -- 3.3%
3,475,000 B- Farm Fresh Inc., Sr. Notes,
12.250% due 10/1/00........................ 3,110,125
573 B- Kash-N-Karry, Sr. Notes,
11.500% due 2/1/03......................... 576
Pathmark Stores Inc.:
4,450,000 B Sub. Debentures, 12.625% due 6/15/02....... 4,605,750
2,200,000 B Sub. Notes, 11.625% due 6/15/02............ 2,255,000
1,500,000 B- Ralph's Grocery, Sr. Sub. Notes,
11.000% due 6/15/05........................ 1,391,250
2,325,000 B- Smith's Food & Drug Centers Inc.,
Sr. Sub. Notes, 11.250% due 5/15/07........ 2,365,688
1,365,000 B- Van De Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05+....................... 1,460,550
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15,188,939
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</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
<C> <C> <S> <C>
Healthcare -- 3.3%
$ 3,900,000 B Magellan Health Services, Sr. Sub. Notes,
11.250% due 4/15/04........................ $ 4,290,000
10,375,000 B- OrNda Healthcorp, Sr. Sub. Notes,
12.250% due 5/15/02........................ 11,269,844
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15,559,844
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Hotel, Casinos and Gaming -- 7.3%
4,775,000 B Aztar Corp., Sr. Sub. Notes,
13.750% due 10/1/04........................ 5,491,250
6,900,000 BB Bally's Grand, 1st Mortgage Notes,
10.375% due 12/15/03....................... 7,193,250
3,250,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08+........................ 3,233,750
1,025,000 BB Empress River Casino, Sr. Notes,
10.750% due 4/1/02......................... 1,066,000
1,700,000 BB- HMC Acquisition Properties, Sr. Notes,
9.000% due 12/15/07+....................... 1,591,625
3,025,000 NR Mohegan Tribal Gaming Authority,
Sr. Secondary Notes, 13.500% due 11/15/02+. 3,781,250
3,275,000 B Showboat Inc., Sr. Sub. Notes,
13.000% due 8/1/09......................... 3,749,875
Station Casinos Inc., Sr. Sub. Notes:
4,725,000 B+ 9.625% due 6/1/03.......................... 4,606,875
1,900,000 B 10.125% due 3/15/06........................ 1,876,250
1,525,000 B Series B, 9.625% due 6/1/03................ 1,486,875
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34,077,000
- -------------------------------------------------------------------------------------
Insurance -- 2.3%
4,000,000 BB+ Bankers Life Holdings, Sr. Sub. Debentures,
Series B, 13.000% due 11/1/02.............. 4,590,000
5,550,000 BB+ Life Partners Group Inc., Sr. Sub. Notes,
12.750% due 7/15/02........................ 6,063,375
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10,653,375
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</TABLE>
See Notes to Financial Statements.
9
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
<C> <C> <S> <C>
Leisure -- 2.8%
$5,975,000 B Coleman Holdings Inc., Sr. Secured
Discount Notes, zero coupon bond
to yield 12.150% due 5/27/98............... $ 5,033,938
1,682,390 NR Gillett Holdings Inc., Sr. Sub. Notes,
12.250% due 6/30/02........................ 1,770,715
5,275,000 B Remington Arms Co., Inc., Sr. Sub. Notes,
9.500% due 12/1/03 (Current penalty
coupon 10.000%)+........................... 4,826,625
1,325,000 B- Remington Products Co., Sr. Sub. Notes,
11.000% due 5/15/06+....................... 1,325,000
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12,956,278
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Machinery -- 0.5%
1,000,000 B- Alvey Systems, Sr. Sub. Notes,
11.325% due 1/31/03+....................... 1,045,000
1,425,000 B- Day International Group, Sr. Sub. Notes,
11.125% due 6/1/05+........................ 1,471,313
- -------------------------------------------------------------------------------------
2,516,313
- -------------------------------------------------------------------------------------
Metals/Mining -- 2.5%
7,875,000 B- Kaiser Aluminum Corp., Sr. Sub. Notes,
12.750% due 2/1/03......................... 8,564,063
2,105,000 B+ UCAR Global Enterprises Inc.,
Sr. Sub Notes, 12.000% due 1/15/05......... 2,415,488
500,000 B+ WCI Steel Inc., Sr. Notes,
Series B, 10.500% due 3/1/02............... 511,250
- -------------------------------------------------------------------------------------
11,490,801
- -------------------------------------------------------------------------------------
Oil/Natural Gas -- 2.7%
3,860,000 B+ Global Marine, Sr. Secured Notes,
12.750% due 12/15/99....................... 4,197,750
1,600,000 B+ Kelley Oil & Gas Corp., Sr. Notes,
13.500% due 6/15/99........................ 1,694,000
3,550,000 BB- Santa Fe Energy Resources, Sr. Sub.
Debentures, 11.000% due 5/15/04............ 3,869,500
2,625,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05....................... 2,716,875
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12,478,125
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</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
<C> <C> <S> <C>
Packaging/Containers -- 0.5%
$2,300,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
step bond to yield 11.400% due 5/15/05..... $ 2,426,500
- -------------------------------------------------------------------------------------
Paper/Printing -- 6.1%
2,475,000 B Crown Paper Co., Sr. Sub. Notes,
11.000% due 9/1/05......................... 2,357,438
Indah Kiat International Finance Co.,
Sr. Secured Notes:
2,075,000 BB 11.375% due 6/15/99...................... 2,170,969
6,475,000 BB 11.875% due 6/15/02...................... 6,831,125
5,200,000 B+ Repap New Brunswick, Sr. Notes,
10.625% due 4/15/05........................ 4,849,000
3,725,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01......................... 4,144,063
6,725,000 B- UIH Australia Inc., Sr. Discount Notes,
13.920% due 5/15/06+....................... 3,564,250
4,025,000 B- Williamhouse Regency, Sr. Sub. Notes,
13.000% due 11/15/05....................... 4,568,375
- -------------------------------------------------------------------------------------
28,485,220
- -------------------------------------------------------------------------------------
Personal Care -- 4.0%
4,705,000 B3* McAndrew Forbes, Sub. Notes,
12.250% due 7/1/96......................... 4,728,525
3,365,000 B- Revlon Consumer Products Corp.,
Sr. Sub. Notes, 10.500% due 2/15/03........ 3,432,300
12,825,000 B- Revlon Worldwide Corp., Sr. Secured
Notes, zero coupon bond to yield
22.300% due 3/15/98........................ 10,564,594
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18,725,419
- -------------------------------------------------------------------------------------
Publishing -- 0.7%
4,500,000 BBB- News America Holdings Inc.,
Sr. Debentures, 8.625% due 2/7/14.......... 2,991,376
- -------------------------------------------------------------------------------------
Retail -- 1.0%
4,325,000 B Barnes and Noble, Sr. Sub. Notes,
11.875% due 1/15/03........................ 4,681,813
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
<C> <C> <S> <C>
Textiles/Apparels -- 0.0%
$ 200,000 B Dan River Inc., Sr. Sub. Notes,
10.125% due 12/15/03....................... $ 194,500
- -------------------------------------------------------------------------------------
Tobacco -- 0.7%
3,000,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03......................... 3,172,500
- -------------------------------------------------------------------------------------
Transportation -- 0.9%
3,630,000 BB- Sea Containers Ltd., Sub. Debentures,
Series A, 12.500% due 12/1/04.............. 4,002,066
- -------------------------------------------------------------------------------------
Utilities -- 0.3%
1,350,000 BB- California Energy, Sr. Discount Notes,
step bond to yield 7.760% due 1/15/04...... 1,377,000
- -------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $428,808,462)....................... 432,856,070
=====================================================================================
Shares Security Value
- -------------------------------------------------------------------------------------
COMMON STOCKS -- 0.6%
- -------------------------------------------------------------------------------------
Communications -- 0.0%
3,875 Western Wireless Corp. ...................... 94,938
- -------------------------------------------------------------------------------------
Metal/Mining -- 0.2%
193,537 Algoma Steel Inc. ........................... 734,003
- -------------------------------------------------------------------------------------
Oil & Natural Gas -- 0.4%
84,000 Freeport McMoRan Resource,
LP Depository Unit......................... 1,688,000
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $2,896,744)......................... 2,516,941
=====================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
PREFERRED STOCKS -- 5.0%
- -------------------------------------------------------------------------------------
<C> <S> <C>
Broadcasting -- 1.1%
5,300 Time Warner Inc., Series K,
Exchange 10.250%+.......................... $ 5,220,500
- -------------------------------------------------------------------------------------
Communications -- 0.4%
Cablevision System Corp.:
638 Series G, Exchange 11.750%+................ 64,140
18,905 Series L, Exchange 11.125%+................ 1,843,213
- -------------------------------------------------------------------------------------
1,907,353
- -------------------------------------------------------------------------------------
Healthcare and Pharmaceuticals -- 1.1%
174,445 Foxmeyer Health Corp., Series A,
Payment-in-kind, Exchange $4.200........... 5,080,711
- -------------------------------------------------------------------------------------
Metals/Mining -- 0.4%
71,180 BCP/Essex Holding, Series A,
Exchange $31.875........................... 1,886,281
- -------------------------------------------------------------------------------------
Publishing -- 0.0%
862 K-III Communications Corp.
Series B, Exchange 11.625%+++.............. 86,173
- -------------------------------------------------------------------------------------
Telecommunications -- 2.0%
7,918 PanAmSat Corp., Series A,
Exchange $31.875........................... 9,185,308
- -------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost -- $23,512,042)........................ 23,366,326
=====================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 1.0%
- -------------------------------------------------------------------------------------
<C> <S> <C>
Automobiles/Trucking -- 1.0%
87,625 Navistar International Series G,
Convertible $6.00 (Cost -- $4,915,186)........... $ 4,753,655
=====================================================================================
- -------------------------------------------------------------------------------------
WARRANTS -- 0.1%
- -------------------------------------------------------------------------------------
18,000 Miles Homes Inc., Expire 4/1/97+++................. 4,500
3,900 Nextel Comm. Inc., Expire 4/25/99+++............... 78
12,250 Pagemart Inc., Expire 12/31/04+.................... 110,250
24,840 Pagemart Nationwide, Expire 12/31/03+.............. 198,720
4,800 SD Warren, Expire 12/15/06+........................ 62,400
3,375 Wireless One Corp., Expire 10/15/03+++............. 27,000
- -------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $84,043).................................. 402,948
=====================================================================================
Face
Amount Security Value
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
- -------------------------------------------------------------------------------------
$1,721,000 Citibank, 5.400% due 3/1/96,
Proceeds at maturity -- $1,721,749;
(Fully collateralized by U.S. Treasury Bill
due 5/31/97; Market value -- $1,756,140)
(Cost -- $1,721,000)............................... 1,721,000
=====================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $461,937,477**)........................... $465,616,940
=====================================================================================
</TABLE>
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
++ Security issued with attached warrants.
+++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 16 for definitions of ratings.
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
Percent
of Total
Standard & Corporate Bonds
Moody's and/or Poor's and Notes
- --------------------------------------------------------------------------------
Baa BBB 1.0%
Ba BB 30.7
B B 55.3
Caa CCC 7.0
NR NR 6.0
-----
100.0%
=====
15
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation ("Standard & Poor's"), except
that those identified by an asterisk(*) are rated by Moody's Investors Services
("Moody's.") The definitions of the applicable rating symbols are set forth
below:
Standard & Poor's -- Ratings from "BBB" to "D" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB, B and CCC -- Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of speculation
than "B," and "CCC" the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C -- The rating "C" is reserved for income bonds on which no
interest is being paid.
D -- Bonds rated "D" are in default, and payment of interest and/or
repayment of principal is in arrears.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Baa" to "C," where 1 is the highest and 3 the lowest ranking within its
generic category.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment
characteristics and may have speculative characteristics as
well.
Ba -- Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues
may be in default, or present elements of danger may exist
with respect to principal or interest.
Ca -- Bonds that are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds that are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
ASSETS:
Investments, at value (Cost -- $461,937,477) ........... $ 465,616,940
Cash ................................................... 632
Receivable for securities sold ......................... 3,895,765
Interest receivable .................................... 8,924,981
Other assets ........................................... 2,825
- --------------------------------------------------------------------------------
Total Assets ........................................... 478,441,143
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased ....................... 6,499,778
Dividends payable ...................................... 1,584,357
Investment advisory fees payable ....................... 354,775
Administration fees payable ............................ 84,672
Accrued expenses ....................................... 101,274
Other liabilities ...................................... 264,792
- --------------------------------------------------------------------------------
Total Liabilities ...................................... 8,889,648
- --------------------------------------------------------------------------------
Total Net Assets .......................................... $ 469,551,495
================================================================================
NET ASSETS:
Par value of capital shares ............................ $ 41,982
Capital paid in excess of par value .................... 502,094,948
Overdistributed net investment income .................. (1,550,062)
Accumulated net realized loss from
security transactions ................................ (34,717,021)
Net unrealized appreciation on investments
and foreign currencies ............................... 3,681,648
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.18 a share on 41,981,589
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ......................... $ 469,551,495
================================================================================
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1996 (unaudited)
INVESTMENT INCOME:
Interest ................................................ $ 12,274,102
Dividends ............................................... 727,406
- --------------------------------------------------------------------------------
Total Investment Income ................................. 13,001,508
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) ....................... 1,064,471
Administration fees (Note 2) ............................ 236,549
Shareholder and system servicing fees ................... 47,104
Shareholder communications .............................. 35,604
Custody ................................................. 24,012
Audit and legal ......................................... 19,320
Registration fees ....................................... 13,340
Directors' fees ......................................... 11,040
Other ................................................... 7,452
- --------------------------------------------------------------------------------
Total Expenses .......................................... 1,458,892
- --------------------------------------------------------------------------------
Net Investment Income ...................................... 11,542,616
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS,
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain From:
Security transactions
(excluding short-term securities) ................... 463,795
Futures contracts ..................................... 941,415
- --------------------------------------------------------------------------------
Net Realized Gain ....................................... 1,405,210
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments and Foreign Currencies:
Beginning of period ................................... 12,189,381
End of period ......................................... 3,681,648
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation ................. (8,507,733)
- --------------------------------------------------------------------------------
Net Loss on Investments, Futures Contracts and
Foreign Currencies ...................................... (7,102,523)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations ..................... $ 4,440,093
================================================================================
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1996 (unaudited)
and the Year Ended February 29, 1996
<TABLE>
<CAPTION>
May 31 February 29
=========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income .............................. $ 11,542,616 $ 45,933,323
Net realized gain (loss) ........................... 1,405,210 (9,713,821)
Increase (decrease) in net unrealized appreciation . (8,507,733) 38,580,381
- -----------------------------------------------------------------------------------------
Increase in Net Assets From Operations ............. 4,440,093 74,799,883
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (11,712,863) (53,548,915)
Capital ............................................ -- (1,215,693)
- -----------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .................... (11,712,863) (54,764,608)
- -----------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets ............... (7,272,770) 20,035,275
NET ASSETS:
Beginning of period ................................ 476,824,265 456,788,990
- -----------------------------------------------------------------------------------------
End of period* ..................................... $ 469,551,495 $ 476,824,265
=========================================================================================
*Includes overdistributed net investment income of: ... $ (1,550,062) $ (1,379,815)
=========================================================================================
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
1. Significant Accounting Policies
Managed High Income Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The following are significant accounting policies consistently followed by
the Fund: (a) security transactions are accounted for on trade date; (b)
securities are valued at the mean between the quoted bid and ask prices provided
by an independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates market value; (d) gains or losses on
the sale of securities are calculated by using the specific identification
method; (e) interest income, adjusted for accretion of original issue discount,
is recorded on the accrual basis; (f) dividends are recorded by the Fund on the
ex-dividend date except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date; (g) foreign
currencies (and receivables and payables for unsettled foreign securities
transactions) are translated into U.S. Dollars based on the rate of exchange of
such currencies against U.S. Dollars on the date of valuation; (h) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At February 29, 1996,
reclassifications are made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, $215,598 of foreign currency gains was
reclassified to overdistributed net investment income and a portion of
overdistributed net investment income amounting to $1,215,693 has been
reclassified to paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change; and (j) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings ("SBH"), through its Greenwich Street Advisors division, acts as
investment adviser to the Fund. The Fund pays SBMFM an advisory fee calculated
at an annual rate of 0.90% of the average daily net assets. This fee is
calculated daily and paid monthly.
SBMFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Smith Barney
Inc.
3. Investment Transactions
For the three months ended May 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were $81,899,219 and $85,746,438, respectively.
At May 31, 1996, aggregate gross unrealized appreciation for all securities
in which there is an excess of market value over tax cost amounted to
approximately $19,157,593 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
approximately $15,478,130, or a net unrealized appreciation of $3,679,463.
4. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. Government
securities from banks subject to agreements to resell the securities to the
sellers at a future date (generally, the next business day) at an agreed-upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian as is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by marking to market on a daily basis to reflect the market value of the
contract at the end of each day's trading. Variation margin payments are made or
received and recognized as assets due from or liabilities due to broker,
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)(continued)
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Fund's basis in the contract.
At May 31, 1996, the Fund had no open futures contracts.
6. Payment-in-Kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIK securities
pay interest through the issuance of additional securities. PIK bonds carry a
risk in that, unlike bonds which pay interest throughout the period to maturity,
the Fund will realize no cash until the cash payment dates unless a portion of
such securities is sold. If the issuer of a PIK bond defaults, the Fund may
obtain no return at all on its investment.
7. Capital Loss Carryforward
At February 29, 1996, the Fund had, for Federal tax purposes, $36,118,795
of loss carryforwards available to offset future capital gains. To the extent
that these carryforward losses are used to offset capital gains, it is probable
that the gains so offset will not be distributed. The amount and expiration of
the carryforwards are indicated below. Expiration occurs on the last day in
February, of the year indicated:
2003 2004
================================================================================
Carryforward Amounts $18,004,113 $18,114,682
================================================================================
22
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1996 1995 1994(2)
====================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 11.36 $ 10.88 $ 12.39 $ 12.00
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income ................. 0.27 1.13 1.12 0.98
Net realized and unrealized gain (loss) (0.17) 0.65 (1.48) 0.51
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations ..... 0.10 1.78 (0.36) 1.49
- ----------------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
to Paid-In Capital .................... -- -- 0.00* (0.02)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income ................. (0.28) (1.27) (1.00) (0.96)
Net realized gains .................... -- -- (0.15) (0.12)
Capital ............................... -- (0.03) -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions ..................... (0.28) (1.30) (1.15) (1.08)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period .......... $ 11.18 $ 11.36 $ 10.88 $ 12.39
- ----------------------------------------------------------------------------------------------------
Total Return ............................ 1.01%++ 17.79% (0.43)% 6.85%++
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) ........ $ 469,551 $ 476,824 $ 456,789 $ 520,091
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .............................. 1.23%+ 1.24% 1.24% 1.19%+
Net investment income ................. 9.70+ 9.74 9.96 8.74+
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate ................. 18% 73% 62% 108%
- ----------------------------------------------------------------------------------------------------
Market Value, End of Period ............. $ 10.625 $ 11.125 $ 10.500 $ 11.750
====================================================================================================
</TABLE>
(1) For the three months ended May 31, 1996 (unaudited).
(2) For the period from March 26, 1993 (commencement of operations) to February
28, 1994.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
23
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease) in
and Unrealized Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments 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
May 31,
1994 13,770,124 0.33 12,213,050 0.29 (29,239,421) (0.70) (17,026,371) (0.41)
August 31,
1994 13,186,368 0.31 11,777,589 0.28 (25,175,803) (0.60) (13,398,214) (0.32)
November 30,
1994 12,944,849 0.31 11,569,422 0.28 (17,816,469) (0.42) (6,247,047) (0.14)
February 28,
1995 12,720,474 0.30 11,250,507 0.27 10,275,042 0.24 21,525,549 0.51
May 31,
1995 12,525,032 0.30 11,084,402 0.27 14,597,234 0.35 25,681,636 0.61
August 31,
1995 13,294,948 0.32 11,827,361 0.28 1,313,938 0.03 13,141,299 0.31
November 30,
1995 13,166,852 0.31 11,710,524 0.28 1,796,990 0.04 13,507,514 0.32
February 29,
1996 12,770,322 0.30 11,311,036 0.27 11,158,398 0.26 22,469,434 0.53
May 31,
1996 13,001,508 0.31 11,542,616 0.27 (7,102,523) (0.17) 4,440,093 0.10
==========================================================================================================================
</TABLE>
* For the period from March 26, 1993 (commencement of operations) to May 31,
1993.
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA
- --------------------------------------------------------------------------------
May 31, 1996 (unaudited)
For a share of capital stock outstanding throughout each period:
Dividend
NYSE Net Asset Distributions Reinvestment
Closing Price Value Paid Price
================================================================================
September 30, 1994 $10.375 $ 11.00 $ 0.093 $ 10.40
October 31, 1994 10.000 10.91 0.093 9.93
November 30, 1994 10.125 10.68 0.093 9.97
December 31, 1994 9.500 10.62 0.131 9.99
January 31, 1995 10.125 10.59 0.093 10.44
February 28, 1995 10.500 10.88 0.093 10.54
March 31, 1995 10.625 10.90 0.093 10.23
April 30, 1995 10.125 11.04 0.093 10.81
May 31, 1995 10.750 11.21 0.093 10.87
June 30, 1995 10.500 11.15 0.093 10.67
July 31, 1995 10.625 11.31 0.093 10.65
August 31, 1995 10.625 11.25 0.093 10.68
September 30, 1995 10.375 11.26 0.093 10.67
October 31, 1995 10.500 11.31 0.093 10.68
November 30, 1995 10.750 11.29 0.093 10.71
December 31, 1995 10.500 11.20 0.093 10.76
December 31, 1995* 10.500 11.20 0.188 10.76
January 31, 1996 11.188 11.35 0.093 11.19
February 29, 1996 11.125 11.36 0.093 11.09
March 31, 1996 10.875 11.18 0.093 10.79
April 30, 1996 10.750 11.20 0.093 10.79
May 31, 1996 10.625 11.18 0.093 10.56
================================================================================
* Includes capital gain.
25
<PAGE>
- --------------------------------------------------------------------------------
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 First Data
Investor Services Group, Inc. ("First Data") (formerly known as "The Shareholder
Services Group, Inc.") 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 Fund 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
First Data as dividend-paying agent.
If the Fund 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 New York Stock Exchange, Inc. ("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 Fund declares a dividend or capital gains
distribution payable only in cash, a broker-dealer not affiliated with Smith
Barney, 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 (effective June 1, 1996, the Plan's valuation date will
change from the payable date to the record date). 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 Fund 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
26
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (continued)
- --------------------------------------------------------------------------------
shares and the Fund 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
Fund 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 Fund issues the remaining shares. First Data 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.
First Data 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 First Data 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. First Data's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. No brokerage
charges apply with respect to shares of Common Stock issued directly by the Fund
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 Fund 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 First Data, with the Fund'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 First Data Investor Services Group, Inc.,
P.O. Box 1376, Boston, Massachusetts 02104 or by telephone at (800) 331-1710.
27
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
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Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase at
market prices shares of its common stock in the open market.
28
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Managed
HIGH INCOME
PORTFOLIO INC.
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Directors
Paolo M. Cucchi
Allesandro C. di Montezemolo
Andrea Farace
Paul R. Hardin
George M. Pavia
Heath B. McLendon, Chairman
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser and
Administrator
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
Transfer Agent
First Data Investor Services Group, Inc.
P.O. Box 1376
Boston, Massachusetts 02104
Custodian
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
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This report is sent to the shareholders
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 Fund or of any
securities mentioned in the report.
FD0839 7/96
