Managed
HIGH INCOME
PORTFOLIO Inc.
[GRAPHIC OMITTED]
Semi-Annual
Report
August 31, 1997
[SMITH BARNEY LOGO OMITTED]
<PAGE>
Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
August 31, 1997
Dear Shareholder:
We are pleased to provide the semi-annual report for the Managed High
Income Portfolio Inc. ("Fund") for the six-months ended August 31, 1997. During
the past six months, the Fund distributed income dividends totaling $0.55 per
share. The table below shows the annualized distribution rate and the six-month
total return based on the Fund's August 31, 1997 net asset value ("NAV") per
share and New York Stock Exchange ("NYSE") closing price.
Annualized Six-Month
Price Per Share Distribution Rate* Total Return
--------------- ------------------ ------------
$11.77 (NAV) 9.28% 6.37%
$11.875 (NYSE) 9.20% 8.22%
The Fund generated a total return of 6.37% for the past six months based
on NAV. These results were competitive with the six-month average total return
of 6.85% for closed-end high yield bond funds as reported by Lipper Analytical
Services Inc. ("Lipper"). (Lipper is an independent mutual fund-tracking
organization.)
Since the beginning of 1997, the Fund has generated a total return of
9.28%, compared to 9.96% the average total return for closed-end high yield bond
funds as reported by Lipper. Because a significant number of closed-end
high-yield funds are leveraged, they tend to generate somewhat stronger
performance returns than the unleveraged Fund in bond market rallies. As a
result the overall average performance returns for closed-end high yield funds
tend to be overstated in market rallies. However, in market declines such as
what occurred in 1994, the leveraged funds suffer much greater principal losses
than the unleveraged Fund. In our view, we have been able to generate
competitive performance returns through prudent asset selection with a strong
focus on identifying promising companies.
Market and Economic Overview
The U.S. bond market rebounded from a weak first quarter to post its best
quarterly return since the fourth quarter of 1995. Unlike the first quarter when
- ----------
* This distribution rate assumes monthly dividends at the current rate of $0.091
per share for twelve months.
1
<PAGE>
a strong economy led the Federal Reserve Board ("Fed") to tighten short-term
interest rates by 25 basis points (0.25%) and bond returns were relatively poor,
the second quarter brought a moderating economy with continued low inflation.
This economic environment allowed the Fed to refrain from further tightening
monetary policy. As a result, bond markets responded with solid returns in the
second quarter as interest rates continued to decline. Since the end of June,
the 30-year U.S. Treasury bond has dropped in yield by roughly 70 basis points
(0.70%) from a peak of 7.20% to roughly 6.50% as of October 1, 1997.
Market Update
The high yield market has continued to rally on strong demand from
investors in other types of funds and the fund industry in general. Given the
strong market conditions, we have seen a record amount of new high yield
issuance (over $70 billion) during the first eight months of this year. We
expect this heavy issuance trend to continue over the remainder of 1997. There
has been more than adequate demand to absorb the heavy new issue supply.
Increasing amounts of capital are flowing into the high yield market from a
variety of sources. The traditional open end high yield mutual funds have had
more than $11 billion of cash inflows over the first seven months of 1997, not
to mention the roughly $5 billion of dividends that were reinvested in
additional mutual fund shares.
More importantly, the high yield bond market has continued to broaden and
mature into a more widely accepted investment alternative among more traditional
institutional investors. Pension funds are allocating increasing percentages of
their investment portfolios to the high yield market. For example, two large New
York City pension funds that together have nearly $13 billion in assets recently
boosted their high yield investments by over $250 million, concentrating on the
better quality B- and BB-rated high yield issues.
During the past 12 months, there has been a meaningful increase in the
number of structured transactions incorporating high yield securities that have
caused high yield bond demand to increase more. In the past two years, a number
of institutions, particularly insurance companies, have begun creating
Collateralized Bond Obligations ("CBOs") that use high yield bonds as
collateral. Given the intense demand for current yield over the past year, there
has been a significant increase in the creation of CBOs. The amount of total
capital being invested in the high yield market has risen to record levels.
In addition, given this record demand, many high yield bonds have
appreciated to fully valued levels. For example, yield premiums over U.S.
Treasuries have narrowed approximately 100 basis points (one percentage point)
than their historical averages. In addition to the above technical factors,
there are a number of positive fundamental factors driving high yield bond
valuations. Besides the significant amount of capital being invested into the
market, economic conditions remain supportive with moderate growth and low
2
<PAGE>
inflation. The stock market with its higher valuation, has allowed a number of
high yield companies to issue equity securities to further bolster their balance
sheets. In addition, the banking system remains highly liquid, enabling it to
accommodate high yield borrowers. Consequently, high yield default rates remain
at the low end of their historical range at approximately 1.5% per year for the
past two years. As long as overall economic and market conditions remain
relatively favorable, high yield bond spreads should remain at the narrow end of
their historical range.
Because of the positive fundamental factors outlined in this report, we do
not believe the high yield bond market is becoming increasingly speculative.
However, we are naturally becoming increasingly more sensitive to the
possibility for disappointment and underperformance among individual issues.
Given the deceleration of economic growth in the second and third
quarters, we do not believe the Fed will need to raise interest rates unless the
economy begins to accelerate in the remainder of the year. Therefore the overall
environment remains positive for the high yield market with solid economic
growth, modest inflation and a supportive stock market. Nevertheless,
selectivity has become increasingly more important when making investment
decisions especially given the high yield market's fully valued levels and the
potential for disappointment among individual companies.
Market Outlook
We expect the economy to grow moderately over the future with little
serious threat of either an acceleration in inflation or economic recession, we
do not anticipate any material deterioration in high yield bond performance.
However, if the economy were to reaccelerate and cause the Fed to actively raise
short term interest rates to slow economic momentum, we could expect the high
yield market to be negatively affected along with all of the other financial
markets.
Portfolio Strategy
We expect the stronger high yield companies to continue to outperform.
These companies tend to be in industries that continue to benefit from new
technology. We have found many attractive opportunities in the
telecommunications, media, cable TV and oil and natural gas industries, and the
Fund is overweighed in these areas. Some of the issues that we continue to favor
include Time Warner, Cablevision Systems Corporation, Brooks Fiber, Nextel
Communications Inc., Rogers Cable System, Teleport, Pride Petroleum and Parker
Drilling to name a few. All of these companies continue to generate improving
results through either increased market share and/or improved internal cost
controls.
We still firmly believe that over a full economic cycle the better quality
high yield issues offer superior risk adjusted returns and lower default risk
relative to lower-quality issues. Considering the trend toward greater industry
competition
3
<PAGE>
and little pricing power in most sectors of the domestic economy, we believe our
prudent approach to high yield investing will generate the most consistent
positive returns in 1997. We therefore will continue to avoid the sectors of the
economy that are experiencing weak growth trends as well as heavy industry
competition.
In closing, thank you for investing in the Managed High Income Portfolio
Inc. We look forward to continuing to help you pursue your investment goals. If
you have any questions about your investment in the Fund, please call First Data
Investor Services Group at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President and
Investment Officer
October 1, 1997
4
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 87.2%
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Aerospace/Defense -- 1.8%
$3,925,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19................................... $4,567,052
2,560,000 B Howmet Corp., Sr. Sub. Notes,
10.000% due 12/1/03+.................................. 2,758,400
1,350,000 B UNC Inc., Sr. Sub. Notes,
11.000% due 6/1/06+.................................. 1,591,313
- -------------------------------------------------------------------------------------------------------
8,916,765
- -------------------------------------------------------------------------------------------------------
Banking -- 1.7%
7,775,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Notes, 12.500% due 4/15/03................. 8,727,438
- -------------------------------------------------------------------------------------------------------
Broadcasting/Cable -- 14.4%
1,000,000 B- All American Communications Inc., Sr. Sub.
Notes, 10.875% due 10/15/01+.......................... 1,067,500
5,425,000 B Australis Holdings Property Ltd., Sr. Secured
Discount Notes, step bond to yield
14.155% due 11/1/02+.................................. 4,258,625
Cablevision Systems Corp., Sr. Sub. Debentures:
4,045,000 B 9.875% due 2/15/13.................................... 4,338,263
2,900,000 B 10.500% due 5/15/16................................... 3,277,000
2,475,000 B 9.875% due 4/1/23..................................... 2,648,250
6,000,000 B Comcast UK Cable Partners Ltd., Sr. Discount
Debentures, step bond to yield 11.424%
due 11/15/07.......................................... 4,605,000
Marcus Cable Capital Corp., Sr. Discount Notes:
2,400,000 B Step bond to yield 11.361% due 8/1/04................. 2,136,000
1,525,000 B Step bond to yield 12.748% due 12/15/05............... 1,246,688
Rogers Cablesystems Ltd.:
Sr. Secured Debentures:
2,575,000 BB+ 10.000% due 12/1/07.................................. 2,793,875
7,175,000 BB- 11.000% due 12/1/15.................................. 8,107,750
2,275,000 BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14.................................. 1,708,093
</TABLE>
See Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Broadcasting/Cable -- 14.4% (continued)
$ 850,000 BB+ Sr. Secured Second Priority Notes, Series B,
10.000% due 3/15/05................................... $ 926,500
2,900,000 BB- Rogers Communications Inc., Sr. Debentures,
8.875% due 7/15/07.................................... 2,885,500
1,750,000 BB- SCI Television Inc., Sr. Notes,
11.000% due 6/30/05................................... 1,835,313
3,675,000 B- SFX Broadcasting Inc., Sr. Sub. Notes,
10.750% due 5/15/06+.................................. 3,978,188
6,975,000 BB Telewest Communications PLC,
Sr. Discount Debentures, step bond to yield
11.109% due 10/1/07................................... 5,161,500
TV Azteca SA, Guaranteed Sr. Notes:
1,675,000 NR Series A, 10.125% due 2/15/07+........................ 1,739,906
2,325,000 B Series B, 10.500% due 2/15/07+........................ 2,447,063
6,725,000 B- UIH Australia Inc., Sr. Discount Notes,
step bond to yield 14.000% due 5/15/06+............... 4,438,500
United International Holdings Inc.,
Sr. Discount Notes:
2,325,000 B- Zero coupon bond to yield 13.860%
due 11/15/99.................................... 1,842,563
3,975,000 B- Zero coupon bond to yield 14.150%
due 11/15/99.................................... 3,150,188
1,515,000 BB+ Videotron Group Ltd., Sr. Notes,
10.625% due 2/15/05................................... 1,696,800
2,475,000 BB+ Videotron Ltd., Sr. Sub. Notes,
10.250% due 10/15/02.................................. 2,638,969
2,625,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03.................................. 1,594,688
1,550,000 B Young Broadcasting Corp., Guaranteed Secured
Notes, 11.750% due 11/15/04........................... 1,732,125
- -------------------------------------------------------------------------------------------------------
72,254,847
- -------------------------------------------------------------------------------------------------------
Building/Construction -- 0.2%
850,000 NR American Builders and Contractors Supply Inc.,
Sr. Sub. Notes, 10.625% due 5/15/07+.................. 884,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Chemicals -- 2.1%
$3,000,000 B NL Industries, Sr. Secured Notes,
11.7500% due 10/15/03................................. $ 3,300,000
1,350,000 B+ Polytama International Finance BV, Guaranteed
Secured Notes, 11.250% due 6/15/07.................... 1,309,500
4,350,000 B+ Terra Industries, Inc., Sr. Notes,
10.500% due 6/15/05................................... 4,795,875
850,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06+................................... 922,250
- -------------------------------------------------------------------------------------------------------
10,327,625
- -------------------------------------------------------------------------------------------------------
Consumer Durables -- 0.2%
1,450,000 B+ International Semi-Tech., Sr. Discount
Secured Notes, step bond to yield
10.916% due 8/15/03................................... 917,125
- -------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 1.0%
2,565,000 B3* Interlake Corp., Sr. Sub. Debentures,
12.125% due 3/1/02.................................... 2,680,425
2,175,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03................................... 2,251,125
- -------------------------------------------------------------------------------------------------------
4,931,550
- -------------------------------------------------------------------------------------------------------
Electric Utilities -- 1.2%
4,250,000 B+ Calpine Corp., Sr. Notes,
10.500% due 5/15/06+.................................. 4,648,438
1,318,408 BB- Midland Cogeneration Venture Limited
Partnership, Midland Funding,
Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02......................... 1,448,601
- -------------------------------------------------------------------------------------------------------
6,097,039
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Electronics/Computers -- 4.9%
$2,450,000 B Celestica International Inc., Guaranteed
Sr. Sub. Notes, 10.500% due 12/31/06+................. $ 2,639,875
3,175,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07+.................................. 3,405,188
1,775,000 NR FSC Semiconductor Inc., Notes,
11.740% due 3/14/08................................... 1,854,875
2,675,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05+.................................. 2,996,000
Unisys Corp., Sr. Notes:
4,600,000 B+ 12.000% due 4/15/03+................................... 5,083,000
4,925,000 B+ 11.750% due 10/15/04................................... 5,442,125
3,075,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07+.................................... 3,151,875
- -------------------------------------------------------------------------------------------------------
24,572,938
- -------------------------------------------------------------------------------------------------------
Finance -- 2.5%
3,250,000 B Amresco Inc., Sr. Sub. Notes, Series A,
10.000% due 3/15/04................................... 3,380,000
2,300,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07+................................... 2,294,250
3,200,000 B- Ocwen Capital Trust, Guaranteed Notes,
10.875% due 8/1/27.................................... 3,336,000
1,550,000 B+ Ocwen Financial Corp., Notes,
11.875% due 10/1/03................................... 1,728,250
2,025,000 BB+ SIG Capital Trust I, Preferred Secured Notes,
10.875% due 8/15/27+.................................. 2,014,875
- -------------------------------------------------------------------------------------------------------
12,753,375
- -------------------------------------------------------------------------------------------------------
Foods -- 0.8%
2,050,000 BB- TLC Beatrice International Holdings Inc.,
Sr. Sub. Debentures, 11.500% due 10/1/05.............. 2,311,375
1,365,000 B- Van De Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05+.................................. 1,523,681
- -------------------------------------------------------------------------------------------------------
3,835,056
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Grocery/Convenience Stores -- 2.1%
Pathmark Stores Inc.:
$10,300,000 B- Jr. Sub. Deferred Notes, step bond to yield
12.910% due 11/1/03................................... $ 7,107,000
1,000,000 B- Sub. Notes, 9.625% due 5/1/03........................... 965,000
2,200,000 B- Sub. Debentures, 12.625% due 6/15/02.................... 2,271,500
- -------------------------------------------------------------------------------------------------------
10,343,500
- -------------------------------------------------------------------------------------------------------
Health Care -- 3.0%
5,100,000 BB ICN Pharmaceutical Inc., Sr. Notes,
9.250% due 8/15/05+................................... 5,214,750
3,900,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04................................... 4,324,125
Tenet Healthcare Corp.:
2,400,000 BB Sr. Notes, 8.000% due 1/15/05......................... 2,466,000
3,000,000 B+ Sr. Sub. Notes, 8.625% due 1/15/07.................... 3,131,250
- -------------------------------------------------------------------------------------------------------
15,136,125
- -------------------------------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 4.4%
1,500,000 B Aztar Corp., Sr. Sub. Notes,
13.750% due 10/1/04................................... 1,717,500
3,250,000 B- Courtyard by Marriott Ltd., Sr. Secured Notes,
10.750% due 2/1/08+................................... 3,518,125
2,150,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage,
10.125% due 12/1/03................................... 2,289,750
HMH Properties Inc., Sr. Notes:
2,950,000 BB- Series B, 8.875% due 5/15/05.......................... 3,075,375
1,675,000 BB- 9.500% due 7/15/07+................................... 1,704,313
3,025,000 BB+ Mohegan Tribal Gaming Authority, Sr. Secondary
Notes, 13.500% due 11/15/02+.......................... 3,962,750
3,275,000 B Showboat Inc., Sr. Sub. Notes,
13.000% due 8/1/09.................................... 3,774,438
2,275,000 B Signature Resorts Inc., Sr. Sub. Notes,
9.750% due 10/1/07+................................... 2,257,938
- -------------------------------------------------------------------------------------------------------
22,300,189
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Leisure -- 0.8%
Coleman Escrow Corp., Sr. Secured
1st Priority Discount Notes,
zero coupon bonds to yield:
$5,100,000 B 11.300% due 5/15/01................................... $ 3,366,000
1,300,000 B 12.810% due 5/15/01................................... 783,250
- -------------------------------------------------------------------------------------------------------
4,149,250
- -------------------------------------------------------------------------------------------------------
Machinery -- 1.1%
4,784,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02................................... 5,453,760
- -------------------------------------------------------------------------------------------------------
Metals/Mining -- 5.6%
2,225,000 B- Commonwealth Aluminum Co., Sr. Sub. Notes,
10.750% due 10/1/06+.................................. 2,364,063
2,475,000 BB- Echo Bay Mines Ltd., Jr. Sub. Debentures Capital
Securities, 11.000% due 4/1/27........................ 2,332,688
2,650,000 B Envirosource Inc., Sr. Notes,
9.750% due 6/15/03.................................... 2,646,688
5,925,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04.................................... 6,502,688
2,900,000 B Intertek Finance PLC, Sr. Sub. Notes,
10.250% due 11/1/06+.................................. 3,012,375
4,525,000 B- Kaiser Aluminum Corp., Sr. Sub. Notes,
12.750% due 2/1/03.................................... 4,898,313
1,850,000 B- Russel Metals Inc., Sr. Notes,
10.250% due 6/15/00+.................................. 1,942,500
3,705,000 B+ UCAR Global Enterprises Inc.,
Sr. Sub. Notes, 12.000% due 1/15/05................... 4,214,438
- -------------------------------------------------------------------------------------------------------
27,913,753
- -------------------------------------------------------------------------------------------------------
Miscellaneous Services -- 0.9%
1,750,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03+.................................. 1,804,688
2,300,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06+.................................. 2,530,000
- -------------------------------------------------------------------------------------------------------
4,334,688
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Oil/Natural Gas -- 5.9%
$2,175,000 BB Clark Oil Refining Corp., Sr. Notes,
10.500% due 12/1/01................................... $ 2,251,125
3,075,000 B+ Clark USA Inc., Sr. Notes,
10.875% due 12/1/05................................... 3,321,000
4,650,000 B+ Dawson Production Services Inc., Sr. Notes,
9.375% due 2/1/07..................................... 4,836,000
2,315,000 CCC+ Deeptech International Inc., Sr. Secured Notes,
12.000% due 12/15/00.................................. 2,465,475
2,150,000 B+ ICO Inc., Sr. Notes,
10.375% due 6/1/07+................................... 2,236,000
4,575,000 B+ Parker Drilling Co., Sr. Notes,
9.750% due 11/15/06+.................................. 4,860,938
2,900,000 BB- Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07..................................... 3,059,500
3,550,000 BB- Santa Fe Energy Resources Inc., Sr. Sub.
Debentures, 11.000% due 5/15/04....................... 3,834,000
2,625,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05.................................. 2,848,125
- -------------------------------------------------------------------------------------------------------
29,712,163
- -------------------------------------------------------------------------------------------------------
Packaging/Containers -- 1.4%
1,875,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
12.750% due 5/15/05................................... 2,050,781
3,000,000 NR Impress Metal Packaging Holdings, Sr. Sub.
Notes, 9.875% due 5/29/07+............................ 1,766,470
4,000,000 B- Ivex Holdings Corp., Sr. Sub. Debentures,
step bond to yield 12.910% due 3/15/05................ 3,260,000
- -------------------------------------------------------------------------------------------------------
7,077,251
- -------------------------------------------------------------------------------------------------------
Paper/Forest Products and Printing -- 6.1%
2,616,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05.................................. 3,077,070
4,150,000 B+ Asia Pulp & Paper Ltd., Guaranteed Preferred
Notes, Series A, 12.000% due 12/29/49+................ 4,175,938
3,000,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06.................................. 3,337,500
</TABLE>
See Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Paper/Forest Products and Printing -- 6.1% (continued)
$8,525,000 BB Indah Kiat International Finance Co., Sr. Secured
Notes, 11.875% due 6/15/02............................ $ 9,111,094
6,050,000 B+ SD Warren Co., Sr. Sub. Notes,
12.000% due 12/15/04.................................. 6,806,250
3,725,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01.................................... 4,144,063
- -------------------------------------------------------------------------------------------------------
30,651,915
- -------------------------------------------------------------------------------------------------------
Pollution Control -- 1.0%
2,325,000 B+ Allied Waste North America Inc., Sr. Sub. Notes,
10.250% due 12/1/06+.................................. 2,534,250
2,225,000 NR Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04.................................... 2,364,063
- -------------------------------------------------------------------------------------------------------
4,898,313
- -------------------------------------------------------------------------------------------------------
Real Estate -- 0.6%
2,780,000 BB- Trizec Finance, Sr. Notes,
10.875% due 10/15/05................................ 3,169,200
- -------------------------------------------------------------------------------------------------------
Telecommunications -- 20.0%
Brooks Fiber Properties Inc., Sr. Discount Notes:
2,575,000 NR Step bond to yield 10.766% due 3/1/06................. 1,866,875
5,550,000 NR Step bond to yield 11.640% due 11/1/06................ 3,857,250
9,750,000 B Clearnet Communications Inc., Sr. Discount
Notes, step bond to yield
13.948% due 12/15/05.................................. 7,312,500
5,000,000 NR Colt Telecommunications Group PLC,
Sr. Discount Notes, step bond to yield
11.647% due 12/15/06.................................. 3,462,500
2,000,000 NR Dobson Communications Corp., Sr. Notes,
11.750% due 4/18/07+.................................. 1,967,500
2,425,000 B+ Fonorola Inc., Sr. Sub. Notes,
12.500% due 8/15/02................................... 2,709,938
3,400,000 B Globalstar LP Corp., Sr. Notes,
11.375% due 2/15/04+.................................. 3,425,500
2,300,000 B Hermes Europe Railtel BV, Sr. Notes,
11.500% due 8/15/07+.................................. 2,426,500
</TABLE>
See Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Telecommunications -- 20.0% (continued)
$2,125,000 NR Hyperion Telecommunications Inc., Sr. Secured
Notes, 12.250% due 9/1/04+............................ $ 2,188,750
4,100,000 NR Intelcom Group Holdings Inc., Sr. Discount
Notes, step bond to yield
12.272% due 5/1/06.................................... 2,870,000
8,675,000 B- Intermedia Communications, Sr. Discount Notes,
step bond to yield 12.094% due 5/15/06................ 6,332,750
4,125,000 B- Iridium LLC Capital Corp., Sr. Notes,
13.000% due 7/15/05................................... 4,599,375
5,525,000 B Mcleod USA Inc., Sr. Discount Notes,
step bond to yield 10.591% due 3/1/07+................ 3,646,500
5,250,000 NR Metronet Communications Corp., Sr. Notes,
12.000% due 8/15/07+.................................. 5,617,500
5,025,000 B- Millicom International Cellular SA, Sr. Sub.
Discount Notes, step bond to yield 13.500%
due 6/1/06+........................................... 3,768,750
15,800,000 CCC- Nextel Communications Inc., Sr. Discount Notes,
step bond to yield 12.136% due 8/15/04................ 13,153,500
4,575,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06+.................................. 5,066,813
Pagemart Nationwide, Inc., Sr. Discount Notes:
5,400,000 NR Step bond to yield 11.950% due 11/1/03................ 4,846,500
2,800,000 NR Step bond to yield 13.297% due 2/1/05................. 2,240,000
4,475,000 B- Primus Telecommunications Group, Sr. Notes,
11.750% due 8/1/04.................................... 4,631,625
2,125,000 NR Qwest Communications International Inc.,
Sr. Notes, 10.875% due 4/1/07+........................ 2,364,063
4,125,000 NR RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06+................................. 4,300,313
4,375,000 B Teleport Communications Inc., Sr. Discount
Notes, step bond to yield
11.535% due 7/1/07 ................................... 3,259,375
7,575,000 B- Telesystems International Wireless Inc.,
Sr. Discount Notes, step bond to yield
12.763% due 6/30/07+.................................. 4,450,313
- -------------------------------------------------------------------------------------------------------
100,364,690
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Textiles -- 0.8%
$3,462,000 BB Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01................................. $ 3,933,698
- -------------------------------------------------------------------------------------------------------
Tobacco -- 0.6%
3,000,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03.................................. 3,142,500
- -------------------------------------------------------------------------------------------------------
Transportation -- 2.1%
2,000,000 NR Central Transport Rental Group, Secured Notes,
9.500% due 4/30/03.................................... 2,110,000
5,000,000 BB GS Superhighways Holdings, Sr. Notes,
10.250% due 8/18/07+.................................. 4,943,750
3,130,000 BB- Sea Containers Ltd., Sub. Debentures,
Series A, 12.500% due 12/1/04......................... 3,556,446
- -------------------------------------------------------------------------------------------------------
10,610,196
- -------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $414,537,236).................................... 437,408,949
=======================================================================================================
Shares Security Value
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
STOCKS 8.7%
- -------------------------------------------------------------------------------------------------------
Automobiles/Trucking -- 1.1%
87,625 Navistar International, Series G, Preferred,
Convertible $6.00 ...................................... 5,246,547
- -------------------------------------------------------------------------------------------------------
Banking -- 0.3%
63,850 California Federal Capital Corp., Preferred............... 1,660,100
- -------------------------------------------------------------------------------------------------------
Broadcasting/Cable -- 4.3%
18,637 Time Warner Inc., Series K, Preferred,
Exchange 0.000%+........................................ 21,293,524
- -------------------------------------------------------------------------------------------------------
Health Care -- 0.3%
156,014 Avatex Corp., Series A, Preferred,
Payment-in-kind, Exchange $4.200........................ 1,677,151
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Publishing -- 0.0%
939 K-III Communications Corp., Series B, Preferred,
Exchange 11.625%++....................................... $ 100,475
- -------------------------------------------------------------------------------------------------------
Telecommunications -- 2.7%
32,175 Clearnet Communications Inc............................... 176,963
2,450 IXC Communications Inc., Jr. Preferred.................... 2,590,875
9,263 PanAmSat Corp., Series A,
Exchange 12.750%...................................... 11,116,092
- -------------------------------------------------------------------------------------------------------
13,883,930
- -------------------------------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $44,193,160)..................................... 43,861,727
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
WARRANTS - 0.2%
- -------------------------------------------------------------------------------------------------------
Broadcasting/Cable -- 0.0%
5,425 Australis Holdings Property Ltd.,
Expire 10/30/01 ...................................... 163
3,375 Wireless One Inc., Expire 10/15/03........................ 2,531
- -------------------------------------------------------------------------------------------------------
2,694
- -------------------------------------------------------------------------------------------------------
Paper/Forest Products and Printing -- 0.0%
4,800 SD Warren Co., Expire 12/15/06+........................... 62,400
- -------------------------------------------------------------------------------------------------------
Telecommunications -- 0.2%
4,725 Globalstar Telecommunications, Expire 2/15/04............. 419,344
3,900 Nextel Communications Inc., Expire 4/25/99................ 39
12,250 Pagemart Inc., Expire 12/31/04+........................... 116,375
24,840 Pagemart Nationwide, Expire 12/31/03+..................... 186,300
4,125 RSL Communications Ltd., Expire 11/15/06.................. 24,750
- -------------------------------------------------------------------------------------------------------
746,808
- -------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $397,165)........................................ 811,902
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
- -------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
- -------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.9%
- -------------------------------------------------------------------------------------------------------
$19,613,000 Goldman, Sachs & Co., 5.500% due 9/2/97,
Proceeds at maturity -- $19,624,982;
(Fully collaterized by U.S. Treasury Notes, 6.250%
due 2/28/02; Market value - $20,019,989)
(Cost -- $19,613,000)..................................... $ 19,613,000
=======================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $478,740,561**).................................. $501,695,578
=======================================================================================================
</TABLE>
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 17 for definition of ratings.
================================================================================
Summary of Bonds by Combined Ratings
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Ba BB 22.2%
B B 62.5
Caa CCC 3.6
NR NR 11.7
----
100.0%
=====
================================================================================
See Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Rating Service ("Standard & Poor's"),
except that those identified by an asterisk(*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "BBB" to "C" 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.
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.
17
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $478,740,561) ................ $501,695,578
Cash ........................................................ 785
Receivable for securities sold .............................. 4,104,882
Interest receivable ......................................... 8,537,612
- --------------------------------------------------------------------------------
Total Assets ................................................ 514,338,857
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased ............................ 3,732,151
Investment advisory fees payable ............................ 385,071
Administration fees payable ................................. 91,405
Accrued expenses ............................................ 123,473
- --------------------------------------------------------------------------------
Total Liabilities ........................................... 4,332,100
- --------------------------------------------------------------------------------
Total Net Assets ............................................... $510,006,757
================================================================================
NET ASSETS:
Par value of capital shares ................................. $ 43,345
Capital paid in excess of par value ......................... 516,977,440
Undistributed net investment income ......................... 160,208
Accumulated net realized loss from
security transactions and futures contracts .................. (30,129,253)
Net unrealized appreciation of investments .................. 22,955,017
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.77 a share on 43,344,712
shares of $0.001 par value outstanding;
500,000,000 shares authorized) .............................. $510,006,757
================================================================================
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended August 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .................................................... $24,465,527
Dividends ................................................... 2,093,117
- ------------------------------------------------------------------------------
Total Investment Income ..................................... 26,558,644
- ------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) ........................... 2,247,381
Administration fees (Note 2) ................................ 499,418
Shareholder communications .................................. 120,986
Audit and legal ............................................. 29,238
Directors' fees ............................................. 21,173
Registration fees ........................................... 18,652
Shareholder and system servicing fees ....................... 10,887
Custody ..................................................... 10,586
Other ....................................................... 12,601
- ------------------------------------------------------------------------------
Total Expenses .............................................. 2,970,922
- ------------------------------------------------------------------------------
Net Investment Income .......................................... 23,587,722
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCIES AND FUTURES CONTRACTS
(NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) ... 6,288,080
Foreign currency transactions ............................. 4,588
Futures contracts ......................................... (55,984
- ------------------------------------------------------------------------------
Net Realized Gain ........................................... 6,236,684
- ------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ....................................... 21,798,449
End of period ............................................. 22,955,017
- ------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation ..................... 1,156,568
- ------------------------------------------------------------------------------
Net Gain on Investments, Foreign Currencies
and Futures Contracts ........................................ 7,393,252
- ------------------------------------------------------------------------------
Increase in Net Assets From Operations ......................... $30,980,974
==============================================================================
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Six Months Ended August 31, 1997 (unaudited)
and the Year Ended February 28, 1997
- --------------------------------------------------------------------------------
August 31 February 28
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income ........................ $ 23,587,722 $ 47,001,438
Net realized gain (loss) ..................... 6,236,684 (239,118)
Increase in net unrealized appreciation ...... 1,156,568 9,609,068
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations ....... 30,980,974 56,371,388
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................ (23,432,102) (45,621,623)
Capital ...................................... -- (668,631)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .............. (23,432,102) (46,290,254)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net asset value of shares issued for
reinvestment of dividends .................. 8,551,889 7,000,597
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions .................... 8,551,889 7,000,597
- --------------------------------------------------------------------------------
Increase in Net Assets .......................... 16,100,761 17,081,731
NET ASSETS:
Beginning of period .......................... 493,905,996 476,824,265
- --------------------------------------------------------------------------------
End of period* ............................... $ 510,006,757 $ 493,905,996
================================================================================
*Includes undistributed net investment income of: $ 160,208 --
================================================================================
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (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 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 an accrual basis; (f) dividend income is recorded by the Fund on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) the accounting
records of the Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (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 28, 1997, reclassifications were 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, overdistributed net
investment income amounting to $668,631 was 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
21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
- --------------------------------------------------------------------------------
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.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("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. Investments
For the six months ended August 31, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $201,301,639
- -------------------------------------------------------------------------------
Sales 225,169,064
================================================================================
At August 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 28,326,075
Gross unrealized depreciation (5,371,058)
- -------------------------------------------------------------------------------
Net unrealized appreciation $ 22,955,017
================================================================================
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.
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
- -------------------------------------------------------------------------------
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. 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 received or made 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.
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts)and the credit
risk should a counterparty fail to perform under such contracts.
At August 31, 1997, the Fund had no open futures contracts.
6. Options Contracts
Premiums paid when put or call options are purchased by the Fund,
represent investments, which are marked-to-market daily. When a purchased option
expires, the Fund will realize a loss in the amount of the premium paid. When
the Fund enters into closing sales transaction, the Fund will realize a gain or
loss depending on whether the sales proceeds from the closing sales transaction
are greater or less than the premium paid for the option. When the Fund
exercises a put option, it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the premium
originally paid.
At August 31, 1997, the Fund had no open purchased call or put option
contracts.
When a Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
23
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
August 31, 1997 (unaudited)(continued)
- -------------------------------------------------------------------------------
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is eliminated. When a written
call option is exercised, the proceeds of the security sold will be increased by
the premium originally received. When a written put option is exercised, the
amount of the premium received will reduce the cost of the security which the
Fund purchased upon exercise. When written index options are exercised,
settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of loss if the market price of the underlying security declines.
During the six months ended August 31, 1997, the Fund did not write any
covered call or put options.
7. 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 are sold. If the issuer of a PIK bond defaults, the Fund may
obtain no return at all on its investment.
8. Capital Loss Carryforward
At February 28, 1997, the Fund had, for Federal income tax purposes,
$36,358,000 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 2005
================================================================================
Carryforward Amounts $18,004,000 $18,115,000 $239,000
================================================================================
9. Capital Shares
During the six months ended August 31, 1997, capital stock transactions
were as follows: Shares Amount
Shares Amount
================================================================================
Shares issued on reinvestment 742,617 $8,551,889
================================================================================
24
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997(1) 1997 1996 1995 1994(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.59 $11.36 $10.88 $12.39 $12.00
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income ........... 0.55 1.12 1.13 1.12 0.98
Net realized and
unrealized gain (loss) ........ 0.18 0.21 0.65 (1.48) 0.51
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.73 1.33 1.78 (0.36) 1.49
- ----------------------------------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
to Paid-In Capital .............. -- -- -- 0.00* (0.02)
- ----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income ........... (0.55) (1.08) (1.27) (1.00) (0.96)
Net realized gains .............. -- -- -- (0.15) (0.12)
Capital ......................... -- (0.02) (0.03) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions ............... (0.55) (1.10) (1.30) (1.15) (1.08)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period .... $ 11.77 $ 11.59 $ 11.36 $ 10.88 $ 12.39
- ----------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value ........... 8.22%++ 15.37% 18.83% 0.14% 6.85%++
- ----------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value** ...... 6.37%++ 12.65% 17.80% (2.18)% 12.67%++
- ----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) .. $ 510,007 $ 493,906 $ 476,824 $ 456,789 $ 520,091
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses ........................ 1.19%+ 1.20% 1.24% 1.24% 1.19%+
Net investment income ........... 9.44+ 9.89 9.74 9.96 8.74+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate ........... 42% 61% 73% 62% 108%
- ----------------------------------------------------------------------------------------------------------------------
Market Value, End of Period ....... $ 11.875 $ 11.625 $ 11.125 $ 10.500 $ 11.750
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended August 31, 1997 (unaudited).
(2) For the period from March 26, 1993 (commencement of operations) to
February 28, 1994.
* Amount represents less than $0.01.
** The total return assumes the purchase and redemption of shares using the
Fund's net asset value rather than the market value. Dividends are
reinvested in accordance with the Fund's dividend reinvestment plan.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
25
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized Net Increase
and Unrealized in 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,
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
August 31,
1996 13,247,484 0.31 11,804,210 0.29 (7,860,018) (0.19) 3,944,192 0.10
November 30,
1996 13,267,331 0.31 11,856,227 0.28 15,505,326 0.37 27,361,553 0.65
February 28,
1997 13,188,573 0.31 11,798,385 0.28 8,827,165 0.20 20,625,550 0.48
May 31,
1997 13,200,189 0.31 11,741,167 0.27 (5,289,541) (0.12) 6,451,626 0.15
August 31,
1997 13,358,455 0.31 11,846,555 0.28 12,682,793 0.30 24,529,348 0.58
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
26
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA (unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
- --------------------------------------------------------------------------------
Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
================================================================================
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 10.74
May 31, 1996 10.625 11.18 0.093 10.56
June 30, 1996 10.625 11.07 0.091 10.71
July 31, 1996 10.875 10.98 0.091 10.97
August 31, 1996 11.000 11.01 0.091 11.01
September 30, 1996 11.125 11.27 0.091 11.13
October 31, 1996 11.125 11.21 0.091 11.19
November 30, 1996 11.250 11.38 0.091 11.16
December 31, 1996 11.250 11.46 0.091 11.27
January 31, 1997 11.625 11.50 0.091 11.48
February 28, 1997 11.625 11.59 0.091 11.62
March 31, 1997 11.375 11.29 0.091 11.35
April 30, 1997 11.500 11.26 0.091 11.22
May 31, 1997 11.625 11.47 0.091 11.45
June 30, 1997 11.750 11.62 0.091 11.65
July 31, 1997 12.000 11.84 0.091 11.69
August 31, 1997 11.875 11.77 0.091 11.76
================================================================================
*Capital gain distribution.
27
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by First Data Investor
Services Group, Inc. ("First Data") 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
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 ("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 ("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 changed 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
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
28
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (unaudited)(continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 payable 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.
---------------------------
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
shares of its common stock in the open market.
29
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On June 6, 1997 the annual meeting of shareholders of the Fund was held
for the purpose of voting on the following matters:
1. To approve or diapprove for the Fund the election of Paolo M. Cucchi
and Andrea Farace as Directors; and
2. To approve or disapprove the selection of KPMG Peat Marwick LLP as
the independent auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors Votes For Shares Voted Against Shares Voted
================================================================================
Paolo M. Cucchi 37,708,317.314 98.70% 494,949.648 1.30%
Andrea Farace 37,747,536.314 98.81% 455,730.648 1.19%
================================================================================
The results of the vote on Proposal 2 were as follows:
================================================================================
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
37,741,477.594 98.79% 136,891.534 0.36% 324,897.834 0.85%
The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Paul R. Hardin, Alessandro C. di
Montezemolo, George M. Pavia and Heath B. McLendon.
30
- --------------------------------------------------------------------------------
<PAGE>
Managed
HIGH INCOME
PORTFOLIO INC.
- --------------------------------------------------------------------------------
Directors
Paolo M. Cucchi
Andrea Farace
Paul R. Hardin
Heath B. McLendon, Chairman
Alessandro C. di Montezemolo
George M. Pavia
James J. Crisona, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
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
- --------------------------------------------------------------------------------
<PAGE>
[This page intentionally left blank.]
<PAGE>
This report is intended only for the shareholders of Managed High Income
Portfolio Inc. 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.
FD0777 10/97
