Managed
HIGH INCOME
--------------
Portfolio Inc.
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Annual
Report
SMITH BARNEY February 29, 1996
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A Member Of Travelers Group [Logo]
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Managed
HIGH INCOME
LETTER TO --------------
SHAREHOLDERS PORTFOLIO INC.
February 29, 1996 --------------
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Dear Shareholder:
We are pleased to provide the annual report for the Managed High Income
Portfolio Inc. for the year ended February 29, 1996.
The table below represents the Portfolio's annualized distribution rates
based on its February 29, 1996 net asset value (NAV) per share and New York
Stock Exchange (NYSE) closing price, and its current monthly distribution of
$0.093 per share.
Price Annualized
Per Share Distribution Rate
--------- -----------------
$11.36 (NAV) 11.48%
$11.12 (NYSE) 11.73%
The Managed High Income Portfolio posted a positive total return of 4.86%
based on net asset value for the three months ended February 29, 1996 and 17.79%
for the twelve months ended on that same date. The Portfolio's performance was
roughly in line with the high yield closed-end fund average total returns of
5.40% and 18.25%, respectively, for the same time periods as reported by Lipper
Analytical Services Inc., a major mutual fund performance tracking organization.
Market and Economic Overview
Despite some confusing economic reports that at first indicated a rather weak
fourth quarter of 1995 followed by a stronger first quarter of 1996, the U.S.
economy continues to grow moderately with a controlled rate of inflation. A
slowdown in consumer spending and softer trends in manufacturing occurred during
the fourth quarter of 1995. The retail sector of the economy was weak, with
disappointing sales results reported by many leading retail stores. Consumers
were buffeted by heavy debt burdens, a weaker job market and little income
growth and they continued to keep their spending to a minimum. However, signs of
somewhat stronger economic growth appeared during the first quarter of 1996,
specifically in the retail and manufacturing sectors of the economy.
On March 8, 1996, the Labor Department estimated payroll employment growth
for the month of February to be 705,000 jobs, the highest level in fourteen
years. When this payroll employment number was released, the bond market fell
sharply, with 30-year Treasuries falling in value by more than 3%. Since the
beginning of the year, the price of
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30-year Treasuries has fallen by more than 8% and their yield has risen by 65 to
75 basis points.
In our view, the bond market overreacted. Despite the recent reports
indicating stronger-than-expected economic growth, the economy does not appear
to be overheating and inflation remains relatively well contained. Consumers who
are overburdened with debt will not be spending, and that should help to limit
overall economic growth for the foreseeable future.
In response to the weakening economic performance in the latter half of 1995,
the Federal Reserve Board began to gradually shift from a restrictive monetary
policy to a neutral monetary policy with a series of three short-term interest
rate reductions over the past six months. The latest interest rate reduction
occurred in January 1996. It would appear at this time that given the
stronger-than-expected economic strength of the first quarter of 1996, the
Federal Reserve will not reduce short-term rates any further. The Federal
Reserve will wait and see if the current economic momentum will continue. We
still expect economic growth in 1996 to remain constrained and that should allow
the Federal Reserve to reduce interest rates later on in 1996.
Portfolio Strategy
We believe that the uncertain state of the overall economy has negatively
impacted certain segments of the high yield bond market and will continue to do
so in the near future. This has been borne out by the fact that in the past
three months, the lower quality segment of the high yield market (i.e., issues
rated "CAA/CCC" by Moody's Investors Service and Standard & Poor's Corporation,
two major bond rating agencies) began to lag the rally in the U.S. Treasury
market.
For this reason, the Managed High Income Portfolio has been managed more
conservatively than many other high yield bond funds and will continue to
emphasize higher credit quality securities. At the end of the period covered by
this report, 26.5% of the Fund's portfolio was invested in bonds rated "BB" or
better by Moody's Investors Services and/or Standard & Poor's Corporation. This
investment strategy has been working well recently as the higher grade issues
have outperformed the lower rated issues in the current market environment.
During the last few quarters, the Portfolio has shifted its industry
orientation away from the more economically-sensitive sectors and increased its
holdings in sectors that are experiencing strong growth trends such as
telecommunications, media and cable television, to name but a few. During the
period covered by this report, the Portfolio bought Pan Am Sat, Australis Media,
Bell Cable Media, Telewest Communications
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and Rogers Communications. In addition, the Portfolio sold its holdings in
Container Corporation, Stone Container, Domtar and Geneva Steel.
Summary Thoughts
The Managed High Income Portfolio will continue to search for the high yield
bonds of companies that can generate meaningful unit sales growth and that are
less reliant on price increases to improve their profitability. The Portfolio
will strive to be close to fully invested, but will not compromise its overall
credit quality as it reinvests any remaining cash balances back into the market.
In closing, we believe the high yield bond market will generate competitive
performance returns as investors become convinced the economic expansion will
continue well into 1996. In addition, we are happy to report that the Managed
High Income Portfolio received a "buy" recommendation in the March 1996 edition
of Closed-End Fund Digest. We appreciate your past support and look forward to
continuing to help you meet 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
March 26, 1996
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SCHEDULE OF INVESTMENTS
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February 29, 1996
Face
Amount Rating Security Value
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CORPORATE BONDS AND NOTES -- 93.7%
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Aerospace/Defense -- 1.1%
$ 2,760,000 B Howmet Corp., Sr. Sub. Notes,
10.000% due 12/1/03+........................ $ 2,929,050
2,175,000 B Tracor Inc., Sr. Sub. Notes,
10.875% due 8/15/01......................... 2,300,062
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5,229,112
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Automobile -- 1.3%
Harvard Industries Inc., Sr. Notes:
2,975,000 B+ 12.000% due 7/15/04......................... 3,183,250
3,000,000 B+ 11.125% due 8/1/05+......................... 3,135,000
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6,318,250
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Broadcasting -- 17.9%
9,345,000 CCC Australis Media Ltd., Sr. Discount Notes,
step bond to yield 14.000% due 5/15/03**.... 6,681,675
Bell Cablemedia, Sr. Discount Notes:
9,225,000 BB- Step bond to yield 13.460% due 7/15/04...... 6,780,375
6,775,000 BB- Step bond to yield 11.730% due 9/15/05+..... 4,420,688
Cablevision Systems Corp., Sr. Sub.
Debentures:
4,375,000 B 10.750% due 4/1/04........................ 4,653,905
3,725,000 B 9.250% due 11/1/05........................ 3,883,313
4,295,000 B 9.875% due 2/15/13........................ 4,649,337
5,400,000 B- Comcast UK Cable, Sr. Discount Debentures,
step bond to yield 11.970% due 11/15/07..... 3,240,000
3,850,000 BB- Continental Cablevision Inc., Sr. Sub. Notes,
11.000% due 6/1/07.......................... 4,504,500
2,550,000 B- EZ Communications, Sr. Sub. Notes,
9.750% due 12/1/05.......................... 2,620,125
15,000,000 B Marcus Cable Capital Corp., Sr. Discount
Notes, step bond to yield 13.340%
due 8/1/04.................................. 11,325,000
13,325,000 B NWCG Holding, Sr. Discount Notes,
zero coupon bond to yield
10.940% due 6/15/99........................... 9,560,688
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Broadcasting -- 17.9% (continued)
Rogers Cablesystems, Sr. Secured Debentures:
$ 2,575,000 BB+ 10.000% due 12/1/07......................... $ 2,781,000
3,150,000 BB- 11.000% due 12/1/15......................... 3,496,500
3,200,000 BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14........................ 2,111,094
1,750,000 BB- SCI Television, Sr. Notes,
11.000% due 6/30/05......................... 1,870,313
3,425,000 B- United Intl. Hldgs. Inc., Sr. Discount Notes,
11.670% due 11/15/99........................ 2,226,250
1,215,000 BB+ Videotron Group Ltd., Sr. Notes,
10.625% due 2/15/05......................... 1,336,500
5,650,000 B+ Videotron Holdings PLC, Sr. Discount Notes,
step bond to yield 11.820% due 8/15/05...... 3,714,875
2,475,000 BB+ Videotron Ltd., Sr. Sub. Notes,
10.250% due 10/15/02........................ 2,642,063
1,550,000 B Young Broadcasting, Sr. Sub. Notes,
11.750% due 11/15/04........................ 1,736,000
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84,234,201
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Building/Construction -- 1.5%
1,575,000 BB- American Standard Inc., Sr. Sub. Debentures,
11.375% due 5/15/04......................... 1,742,343
4,125,000 B Greystone Homes Inc., Sr. Notes,
10.750% due 3/1/04.......................... 4,155,938
1,550,000 CCC+ Miles Homes Services Inc., Sr. Notes,
12.000% due 4/1/01.......................... 1,083,063
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6,981,344
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Chemicals -- 4.9%
4,100,000 B+ Clark USA Inc., Sr. Notes,
10.875% due 12/1/05......................... 4,294,750
NL Industries, Sr. Secured Notes:
1,625,000 B 13.000% due 10/15/98........................ 1,283,750
9,175,000 B Step bond to yield 11.870% due 10/15/05..... 9,817,250
2,150,000 BB- Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01......................... 2,289,750
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Chemicals -- 4.9% (continued)
$ 4,350,000 B+ Terra Industries, Inc., Sr. Notes,
10.500% due 6/15/05......................... $ 4,855,688
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22,541,188
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Communications -- 14.2%
2,325,000 B- Allbritton Communications Co., Sr. Sub.
Debentures, 9.750% due 11/30/07+............ 2,275,593
3,115,000 NR Brooks Fiber Properties Inc., Sr. Disc. Notes,
step bond to yield 10.700% due 3/1/06+...... 1,853,425
6,150,000 NR Clearnet Communications Inc., Sr. Discount
Notes, step bond to yield
13.560% due 12/15/05**...................... 3,628,500
Dial Call Communications, Inc.,
Sr. Discount Notes:
4,700,000 CCC- Step bond to yield 10.460%
due 4/15/04+............................ 2,972,750
2,310,000 Caa* Step bond to yield 10.270%
due 12/15/05+........................... 1,368,675
2,425,000 B+ Fonorola Inc., Sr. Sub. Notes,
12.500% due 8/15/02......................... 2,625,062
6,550,000 NR International Cabletelecommunications Inc.,
Sr. deferred coupon Notes, Series A,
step bond to yield 11.460% due 2/1/06+...... 3,938,188
2,300,000 B- Metrocall Inc., Sr. Sub. Notes,
10.375% due 10/1/07......................... 2,369,000
5,575,000 B Mobile Telecommunications Tech. Corp.,
Sr. Notes, 13.500% due 12/15/02............. 6,048,875
13,725,000 CCC- Nextel Communications, Sr. Discount Notes,
step bond to yield 13.460% due 8/15/04...... 8,132,063
Pagemart Nationwide, Inc., Sr. Discount Notes:
5,400,000 NR Step bond to yield 12.970% due 11/1/03...... 4,097,250
5,000,000 NR Step bond to yield 14.960% due 2/1/05....... 3,350,000
Roger Communications, Sr. Debentures:
6,135,000 BB- 10.875% due 4/15/04......................... 6,472,425
1,025,000 BB- 9.125% due 1/15/06.......................... 1,032,688
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Communications -- 14.2% (continued)
$ 19,775,000 BB Telewest Communications PLC, Sr. Discount
Debentures, step bond to yield
10.920% due 10/1/07......................... $12,013,313
3,250,000 B- USA Mobile Communication Inc., Sr.
Discount Notes, 14.000% due 11/1/04......... 3,826,875
1,125,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03**...................... 1,215,000
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67,219,682
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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......................... 8,066,250
800,000 B- Knoll Inc., Sr. Sub. Notes,
10.875% due 3/15/06+........................ 820,000
2,275,000 B- TAG-Heuer International Inc., Sr. Sub Notes,
12.000% due 12/15/05+....................... 2,320,500
2,050,000 BB- TLC Beatrice International Inc., Sr. Secured
Notes, 11.500% due 10/1/05.................. 2,075,625
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13,282,375
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Consumer Non-Durables -- 0.1%
650,000 B+ Doane Products Co., Sr. Notes,
10.625% due 3/1/06.......................... 651,625
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Diversified/Conglomerate Manufacturing -- 2.5%
875,000 BB- Buckeye Cellulose Corp., Sr. Sub. Notes,
8.500% due 12/15/05......................... 901,250
Interlake Corp.:
1,625,000 B- Sr. Notes, 12.000% due 11/15/01............. 1,677,813
6,665,000 CCC+ Sr. Sub. Debentures, 12.125% due 3/1/02..... 6,231,775
2,850,000 B- Russel Metals Inc., Sr. Notes,
10.250% due 6/15/00......................... 2,785,875
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11,596,713
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See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Electric Utilities -- 1.6%
$ 2,175,000 BB- El Paso Electric Co., 1st Mortgage Notes,
Series E, 9.400% due 5/1/11................. $ 2,223,937
5,150,636 BB- Midland Cogeneration Venture Limited
Partnership, Midland Funding,
Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02............... 5,511,181
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7,735,118
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Electronics/Computers -- 1.6%
5,775,000 B Bell and Howell Holdings Co., Sr. Discount
Sub. Notes, step bond to yield
11.730% due 3/1/05.......................... 3,876,469
1,825,000 B- Dictaphone Corp., Sr. Sub. Notes,
11.750% due 8/1/05.......................... 1,838,688
1,825,000 NR Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/00+........................ 1,939,063
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7,654,220
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Finance -- 1.4%
2,225,000 CCC+ GPA Delaware Inc., Sr. Sub. Debentures,
8.750% due 12/15/98......................... 2,213,875
4,300,000 BB- Trizec Finance, Sr. Notes,
10.875% due 10/15/05........................ 4,525,750
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6,739,625
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Grocery/Convenience Stores -- 3.9%
5,800,000 B- Farm Fresh Inc., Sr. Notes,
12.250% due 10/1/00......................... 5,031,500
23,690 B- Kash-N-Karry, Sr. Notes,
11.500% due 2/1/03.......................... 23,631
Pathmark Stores Inc.:
4,450,000 B- Sub. Debentures, 12.625% due 6/15/02........ 4,572,375
3,550,000 B- Sub. Notes, 11.625% due 6/15/02............. 3,550,000
4,200,000 B- Ralph's Grocery, Sr. Sub. Notes,
11.000% due 6/15/05......................... 3,948,000
1,365,000 B- Van De Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05+........................ 1,463,963
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18,589,469
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See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Healthcare -- 3.3%
$ 3,900,000 B Magellan Health Services, Sr. Sub. Notes,
11.250% due 4/15/04 ........................ $ 4,368,000
10,375,000 C Ornda Healthcorp, Sr. Sub. Notes,
12.250% due 5/15/02 ........................ 11,425,469
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15,793,469
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Hotel, Casinos and Gaming -- 9.2%
4,775,000 B Aztar Corp., Sr. Sub. Notes,
13.750% due 10/1/04......................... 5,276,375
6,900,000 BB Bally's Grand, 1st Mortgage Notes,
10.375% due 12/15/03........................ 7,279,500
3,000,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08+......................... 3,015,000
2,625,000 BB Empress River Casino, Sr. Notes,
10.750% due 4/1/02.......................... 2,743,125
1,250,000 BB GNF Corp., 1st Mortgage Notes,
Series B, 10.625% due 4/1/03................ 1,251,563
2,875,000 BB Grand Casinos Inc., 1st Mortgage Notes,
10.125% due 12/1/03......................... 3,112,187
2,200,000 BB- HMCAcquisition Properties, Sr. Notes,
9.000% due 12/15/07+........................ 2,241,250
1,000,000 BB- Host Marriott Travel Plaza, Sr. Secured Notes,
Series B, 9.500% due 5/15/05................ 1,002,500
3,025,000 NR Mohegan Tribal Gaming Authority,
Sr. Secondary Notes,
13.500% due 11/15/02+....................... 3,637,562
4,025,000 B Showboat Inc., Sr. Sub. Notes,
13.000% due 8/1/09.......................... 4,669,000
Station Casinos Inc., Sr. Sub. Notes:
4,475,000 B+ 9.625% due 6/1/03........................... 4,519,750
4,725,000 B+ Series B, 9.625% due 6/1/03................. 4,772,250
44 Caa* Trump Taj Mahal Funding Debentures,
11.350% due 11/15/99........................ 45
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43,520,107
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Insurance -- 2.3%
4,000,000 BB+ Bankers Life Holdings, Sr. Sub. Debentures,
Series B, 13.000% due 11/1/02............... 4,650,000
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Insurance -- 2.3% (continued)
$ 5,550,000 BB+ Life Partners Group Inc., Sr. Sub. Notes,
12.750% due 7/15/02......................... $ 6,021,750
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10,671,750
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Leisure -- 2.4%
5,975,000 B Coleman Holdings Inc., Sr. Secured
Discount Notes, zero coupon bond
to yield 11.970% due 5/27/98................ 4,884,563
1,682,390 NR Gillett Holdings Inc., Sr. Sub. Notes,
12.250% due 6/30/02......................... 1,772,818
5,275,000 B Remington Arms Co., Inc., Sr. Sub. Notes,
9.500% due 12/1/03 (Current penalty
coupon 10.000%)+............................ 4,470,562
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11,127,943
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Machinery -- 0.5%
1,000,000 B- Alvey Systems, Sr. Sub. Notes,
11.375% due 1/31/03+........................ 1,042,500
1,425,000 B- Day International Group, Sr. Sub. Notes,
11.125% due 6/1/05+......................... 1,492,688
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2,535,188
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Metals/Mining -- 2.7%
7,375,000 B- Kaiser Aluminum, Sr. Sub. Notes,
12.750% due 2/1/03.......................... 8,020,312
2,400,000 B+ Republic Steel Inc., 1st Mortgage Notes,
9.875% due 12/15/01......................... 2,262,000
2,105,000 B+ UCAR Global Enterprises Inc.,
Sr. Sub. Notes, 12.000% due 1/15/05......... 2,460,219
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12,742,531
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Oil/Natural Gas -- 2.2%
3,860,000 B+ Global Marine, Sr. Secured Notes,
12.750% due 12/15/99........................ 4,284,600
925,000 B+ Kelley Oil & Gas Corp., Sr. Notes,
13.500% due 6/15/99......................... 941,188
2,350,000 BB- Santa Fe Energy Resources,
Sr. Sub. Debentures, 11.000% due 5/15/04.... 2,596,750
See Notes to Financial Statements.
10
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Oil/Natural Gas -- 2.2% (continued)
$ 2,625,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05........................ $ 2,802,188
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10,624,726
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Other Utilities -- 0.7%
California Energy:
2,150,000 BB- Sr. Discount Notes, step bond to yield
10.120% due 1/15/04....................... 2,096,250
1,350,000 BB- Sr. Notes, 9.875% due 6/30/03............... 1,441,125
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3,537,375
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Packaging/Containers -- 0.9%
4,075,000 B- Gaylord Container Corp., Sr. Notes,
12.750% due 5/15/05......................... 4,227,813
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Paper/Printing -- 6.7%
1,750,000 B Crown Paper Co., Sr. Sub. Notes,
11.000% due 9/1/05.......................... 1,631,875
Indah Kiat International Finance Co.,
Sr. Secured Notes:
2,075,000 BB 11.375% due 6/15/99....................... 2,215,062
6,475,000 BB 11.875% due 6/15/02....................... 6,782,562
5,200,000 B+ Repap New Brunswick, Sr. Notes,
10.625% due 4/15/05......................... 5,057,000
Riverwood International, Sr. Sub. Notes:
1,805,000 B 11.250% due 6/15/02......................... 1,992,269
5,020,000 B Series II, 11.250% due 6/15/02.............. 5,528,275
3,725,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01.......................... 4,130,094
4,025,000 B- Williamhouse Regency Inc., Sr. Sub. Notes,
13.000% due 11/15/05+....................... 4,437,563
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31,774,700
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Personal Care -- 3.9%
4,705,000 NR McAndrew Forbes, Sub. Notes,
12.250% due 7/1/96.......................... 4,740,288
3,365,000 B- Revlon Consumer Products Corp.,
Sr. Sub. Notes, 10.500% due 2/15/03......... 3,508,013
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Face
Amount Rating Security Value
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Personal Care -- 3.9% (continued)
$12,825,000 B- Revlon Worldwide Corp., Sr. Secured Notes,
zero coupon bond to yield
21.980% due 3/15/98......................... $10,324,125
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18,572,426
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Publishing -- 1.4%
5,000,000 B- Marvel Holdings Inc., Sr. Secured Notes,
zero coupon bond to yield
15.490% due 4/15/98......................... 3,787,500
4,500,000 BBB News America Holdings Inc.,
Sr. Debentures, 8.625% due 2/7/14........... 3,019,875
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6,807,375
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Retail -- 1.2%
5,075,000 B+ Barnes and Noble, Sr. Sub. Notes,
11.875% due 1/15/03......................... 5,645,937
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Textiles/Apparel -- 0.1%
200,000 B Dan River Inc., Sr. Sub. Notes,
10.125% due 12/15/03........................ 189,500
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Tobacco -- 0.7%
3,000,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03.......................... 3,131,250
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Transportation -- 0.7%
2,880,000 BB- Sea Containers Ltd., Sr. Sub. Debentures,
Series A, 12.500% due 12/1/04............... 3,146,400
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TOTAL CORPORATE BONDS
AND NOTES (Cost-- $431,517,726)............... 442,821,412
================================================================================
Shares Security Value
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COMMON STOCKS -- 0.4%
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Metals/Mining -- 0.2%
193,536 Algoma Steel Inc.............................. 723,046
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Oil & Natural Gas -- 0.2%
50,000 Freeport McMoRan Resource,
LP Depository Unit.......................... 1,106,250
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TOTAL COMMON STOCKS
(Cost-- $2,054,831) .......................... 1,829,296
================================================================================
See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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(continued)
February 29, 1996
Shares Security Value
- --------------------------------------------------------------------------------
PREFERRED STOCKS -- 4.2%
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Communications -- 0.6%
620 Cablevision System Corp., Series G,
Exchange 0.000%+............................ $ 66,650
28,500 Cablevision System Corp., Series L,
Exchange 11.125%+........................... 2,935,500
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3,002,150
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Health Care/Pharmaceuticals -- 1.3%
169,983 Foxmeyer Health Corp., Series A,
Payment-in-kind, Exchange $4.200@........... 5,524,448
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Publishing -- 0.0%
K-III Communications Corp.,
837 Series B, Exchange 11.625%++................ 86,671
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Metals/Mining -- 0.4%
68,680 BCP/Essex Holding Inc., Series B,
Exchange $31.875............................ 1,785,691
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Telecommunications -- 1.9%
7,673 PanAmSat Corp., Series A,
Exchange $31.875............................ 9,055,047
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TOTAL PREFERRED STOCKS
(Cost-- $18,682,343).......................... 19,454,007
================================================================================
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 1.1%
- --------------------------------------------------------------------------------
Automobiles/Trucking -- 1.1%
97,425 Navistar International, Series G,
Convertible $6.00 (Cost-- $5,507,374)....... 5,334,019
================================================================================
- --------------------------------------------------------------------------------
WARRANTS -- 0.2%
- --------------------------------------------------------------------------------
3,900 Dial Call Communications, Inc.,
Expire 4/25/99++............................ 39
61,082 Gaylord Container Corp., Expire 11/2/02++..... 595,557
18,000 Miles Homes Inc., Expire 4/1/97++............. 4,500
24,840 Pagemart Inc., Expire 12/31/03+............... 198,720
12,250 Pagemart Nationwide+.......................... 110,250
4,800 SD Warren, Expire 12/15/06+................... 9,600
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $405,745)............................. 918,666
================================================================================
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
(continued)
February 29, 1996
Face
Amount Security Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
- --------------------------------------------------------------------------------
$ 2,018,000 Citibank, 5.400% due 3/1/96;
Proceeds at maturity-- $2,018,302;
(Fully collateralized by U.S. Treasury Bill
due 12/31/97; Market value--
$2,058,459) (Cost-- $2,018,000) $ 2,018,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $460,186,019*) $472,375,400
================================================================================
+ 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.
@ Formerly known as National Intergroup.
* Aggregate cost for Federal income tax purposes is substantially the same.
================================================================================
Summary of Bonds by Combined Ratings
% of Total Corporate
Moody's and/or Standard & Poor's Bonds & Notes
- --------------------------------------------------------------------------------
B B 26.5%
Ba BB 61.0
Baa BBB 0.7
Caa CCC 6.8
NR NR 5.0
-----
100.0%
================================================================================
See page 15 for definitions of ratings.
See Notes to Financial Statements.
14
<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.
15
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 29, 1996
ASSETS:
Investments, at value (Cost-- $460,186,019).................. $472,375,400
Receivable for securities sold............................... 2,286,572
Interest receivable.......................................... 8,636,652
Other assets................................................. 2,727
- --------------------------------------------------------------------------------
Total Assets................................................. 483,301,351
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased............................. 4,304,157
Dividends payable............................................ 1,379,815
Investment advisory fees payable............................. 340,348
Administration fees payable.................................. 79,557
Accrued expenses............................................. 114,951
Other liabilities............................................ 258,258
- --------------------------------------------------------------------------------
Total Liabilities............................................ 6,477,086
- --------------------------------------------------------------------------------
Total Net Assets................................................. $476,824,265
================================================================================
NET ASSETS:
Par value of capital shares.................................. $ 41,982
Capital paid in excess of par value.......................... 502,094,948
Overdistributed net investment income........................ (1,379,815)
Accumulated net realized loss on security transactions....... (36,122,231)
Net unrealized appreciation on investments................... 12,189,381
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.36 a share on 41,981,589
shares of $0.001 par value outstanding;
500,000,000 shares authorized)............................... 476,824,265
================================================================================
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended February 29, 1996
INVESTMENT INCOME:
Interest...................................................... 48,607,160
Dividends..................................................... 3,220,307
Less: Foreign withholding tax................................. (70,313)
- --------------------------------------------------------------------------------
Total Investment Income....................................... 51,757,154
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)............................. 4,253,885
Administration fees (Note 2).................................. 945,308
Shareholder communications.................................... 290,000
Audit and legal............................................... 75,600
Shareholder and system servicing fees......................... 60,000
Custody....................................................... 50,000
Directors' fees............................................... 43,200
Registration fees............................................. 20,000
Other......................................................... 85,838
- --------------------------------------------------------------------------------
Total Expenses................................................ 5,823,831
- --------------------------------------------------------------------------------
Net Investment Income............................................. 45,933,323
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions
(excluding short-term securities)......................... (9,929,419)
Foreign currency transactions............................... 215,598
- --------------------------------------------------------------------------------
Net Realized Loss............................................. (9,713,821)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Foreign Currencies:
Beginning of year........................................... (26,391,000)
End of year................................................. 12,189,381
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation....................... 38,580,381
- --------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies.................... 28,866,560
- --------------------------------------------------------------------------------
Increase in Net Assets from Operations............................ $ 74,799,883
================================================================================
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Years Ended February 29, 1996
and February 28, 1995
1996 1995
================================================================================
OPERATIONS:
Net investment income............................. $ 45,933,323 $ 46,810,568
Net realized loss................................. (9,713,821) (26,237,502)
Increase (decrease) in net unrealized appreciation 38,580,381 (35,719,149)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations. 74,799,883 (15,146,083)
- --------------------------------------------------------------------------------
OFFERING COSTS CREDITED
TO PAID-INCAPITAL+................................ -- 18,145
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income............................. (53,548,915) (41,912,861)
Net realized gains................................ -- (6,261,024)
Capital........................................... (1,215,693) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders................... (54,764,608) (48,173,885)
- --------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets............. 20,035,275 (63,301,823)
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of year................................. 456,788,990 520,090,813
- --------------------------------------------------------------------------------
End of year*...................................... $476,824,265 $456,788,990
================================================================================
*Includes undistributed (overdistributed) net
investment income of:.............................. $ (1,379,815) $ 6,020,179
================================================================================
+ For the year ended February 28, 1995, the amount credited represents less
than $0.01 per share.
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
February 29, 1996
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 Fund commenced
operations on March 26, 1993 after completion of the initial public offering of
36,000,000 shares of its common stock and the issuance of 8,334 shares to
related parties at $12.00 per share.
The following are significant accounting policies consistently followed by
the Fund: (a) securities are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid prices and asked 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)
investments, for which no prices are readily available, are carried at fair
value as determined by an independent pricing service, based on methods that
include consideration of yields or prices of high income obligations of
comparable quality, coupon, maturity and type, indications as to values from
dealers and general market conditions; (d) securities maturing within 60 days or
less are valued at cost plus accreted discount or minus amortized premium, which
approximates market value; (e) gains or losses on the sale of securities are
calculated by using the specific identification method; (f) interest income,
adjusted for accretion of original issue discount, is recorded on the accrual
basis; (g) 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; (h) 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. Translation gains or losses on the settlement of foreign
currency transactions are reported in the statement of operations; (i) 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; (j) 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,
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(continued)
February 29, 1996
$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
(k) 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 from these amounts.
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.
Prior to March 6, 1995, The Boston Company Advisors, Inc. ("Boston
Advisors"), an indirect wholly owned subsidiary of Mellon Bank Corporation,
acted as sub-administrator to the Fund. SBMFM paid Boston Advisors a fee at a
rate agreed upon from time to time between SBMFM and Boston Advisors.
As of March 6, 1995, this relationship was terminated.
All officers and one Director of the Fund are employees of Smith Barney Inc.
3. Investment Transactions
For the year ended February 29, 1996 the aggregate cost of purchases and
proceeds from sales of investments (including maturities but excluding
short-term investments) were $329,787,274 and $344,570,889, respectively.
At February 29, 1996, aggregate unrealized appreciation for all securities in
which there is an excess of market value over tax cost amounted to approximately
$18,097,171 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to approximately
$5,907,790, or a net unrealized appreciation of $12,189,381.
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(continued)
February 29, 1996
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 due from the broker (the Fund's agent in acquiring the
futures position). 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, 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 February 29, 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 Portfolio had for Federal tax purposes
approximately $36,118,795 of unused 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
================================================================================
Capital Loss Carryforward $18,004,113 $18,114,682
================================================================================
21
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
1996 1995 1994(1)
================================================================================
Net Asset Value, Beginning of Period........... $ 10.88 $ 12.39 $ 12.00
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income........................ 1.13 1.12 0.98
Net realized and unrealized gain (loss)...... 0.65 (1.48) 0.51
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations............ 1.78 (0.36) 1.49
- --------------------------------------------------------------------------------
Offering Costs Credited (Charged) to
Paid-In Capital ............................. -- 0.00* (0.02)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income........................ (1.27) (1.00) (0.96)
Capital...................................... (0.03) -- --
Net realized gains........................... -- (0.15) (0.12)
- --------------------------------------------------------------------------------
Total Distributions............................ (1.30) (1.15) (1.08)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period................. $ 11.36 $10.88 $12.39
- --------------------------------------------------------------------------------
Total Return................................... 17.79% (0.43)% 6.85%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s)............... $476,824 $456,789 $520,091
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses..................................... 1.24% 1.24% 1.19%+
Net investment income........................ 9.74 9.96 8.74+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate........................ 73% 62% 108%
- --------------------------------------------------------------------------------
Market Value, End of Period.................... $ 11.125 $ 10.500 $ 11.750
================================================================================
(1) 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.
22
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of the
Managed High Income Portfolio Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Managed High Income Portfolio Inc.
as of February 29, 1996, and the related statements of operations, changes in
net assets, and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibilty is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets and financial highlights for the year ended February 28, 1995 and
the financial highlights for the period from March 26, 1993 (commencement of
operations) to February 28, 1994 were audited by other auditors whose report
thereon, dated April 10, 1995, expressed an unqualified opinion on that
statement of changes in net assets and those of financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996, by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Managed High Income
Portfolio Inc. as of February 29, 1996, and the results of its operations,
changes in its net assets and financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
New York, New York
April 26, 1996
23
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
February 29, 1996 (unaudited)
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
=====================================================================================================
</TABLE>
* For the period from March 26, 1993 (commencement of operations) to May 31,
1993.
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
February 29, 1996
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
================================================================================
25
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
- --------------------------------------------------------------------------------
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 shares and the
Fund may
26
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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>
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DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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.
This report, including the financial statements herein, is sent to the
shareholders of the Fund 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.
28
<PAGE>
- --------------------------------------------------------------------------------
Managed
HIGH INCOME
--------------
PORTFOLIO INC.
--------------
- --------------------------------------------------------------------------------
Directors
Paolo M. Cucchi
Allesandro C. di Montezomolo
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
29
<PAGE>
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.
FD0882 4/96
