Managed
HIGH INCOME
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PORTFOLIO INC.
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[Drawing]
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Quarterly
SMITH BARNEY Report
------------ May 31, 1997
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A Member of TravelersGroup [LOGO]
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Managed
HIGH INCOME
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PORTFOLIO INC.
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LETTER TO
SHAREHOLDERS
May 31, 1997
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Dear Shareholder:
We are pleased to provide the first quarter report for the Managed High
Income Portfolio Inc. ("Fund") for the period ended May 31, 1997. The table
below details the annualized distribution rates and year-to-date total returns
for the Fund based on the Fund's May 31, 1997 net asset value (NAV) per share
and the New York Stock Exchange (NYSE) closing price.
Annualized Three-Month
Price Per Share Distribution Rate Total Return
--------------- ----------------- ------------
$11.47 (NAV) 9.52% 1.37%
$11.625 (NYSE) 9.39% 2.43%
The Fund generated a total return of 1.37% for the past three months. The
three month results were slightly lower than the three-month average total
return of 1.71% for closed-end high yield funds as reported by Lipper Analytical
Services, Inc. (Lipper Analytical Services, Inc. is an independent mutual fund
tracking organization). Since the beginning of 1997, the Managed High Income
Portfolio generated a total return of 4.14%, compared to a 4.66% average total
return for closed-end high yield funds as reported by Lipper Analytical
Services, Inc. Because many closed-end high yield funds are leveraged, they tend
to generate somewhat stronger performance returns than the unleveraged Managed
High Income Portfolio in bond market rallies. As a result, the overall average
performance returns for leveraged closed-end high yield funds tend to be
overstated in market rallies. However, in market declines, leveraged funds
suffer much greater principal losses than the unleveraged Managed High Income
Portfolio.
Market and Economic Overview
Throughout the past three months, the high yield bond market has generally
outperformed the more interest-rate sensitive, longer maturity Treasury and
investment grade bond markets. More specifically, the lower-quality issues
(CCC/Caa rated) turned in the strongest performance, most likely due to the
strong equity market and strong U.S. economy. These lower-quality issues tend to
be more sensitive to the general economy and equity market. Conversely, the
higher-quality high yield issues tend to be a little more sensitive to volatile
interest rates. Not surprisingly, the higher-quality issues were more negatively
affected by the swings in interest rates witnessed during the first five months
of this year.
1
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We remain convinced that interest rates will gradually decline during the
remainder of the year, which should benefit the overall bond market. Because
economic growth appears to be decelerating during the second quarter, we would
not be surprised to see some drop in earnings for a number of companies,
especially those most sensitive to economic conditions and the weaker, less
competitive companies. Consequently, we continue to believe that higher-quality
issues offer superior reward for their risk versus the more speculative
lower-quality issues.
Given the relatively strong performance of high yield securities compared
to U.S. Treasuries over the past twelve months, high yield bond premiums remain
roughly 100 basis points tighter than they were in early 1996. As a result, we
continue to describe the high yield market as fully valued at this time. Since
we expect the U.S. economy to grow moderately over the coming months with little
serious threat of either an inflationary acceleration or an economic recession,
we do not anticipate any material deterioration in high yield bond performance.
If the U.S. economy were to defy expectations and strengthen too quickly
and cause the Federal Reserve Board ("Fed") to raise short-term interest rates,
we would expect high yield issues to underperform other fixed income
investments. Given the recent deceleration of economic growth in the second
quarter, we do not believe the Fed will need to raise interest rates in the near
term. In our view, the current environment of solid economic growth, modest
inflation and a supportive equity market remains positive for the high yield
market. Nevertheless, selectivity has become increasingly more important when
making investment decisions, especially given the high yield market's fully
valued levels and potential for disappointment among some companies.
Portfolio Strategy
In this kind of growth environment, we would expect strong growth from
companies 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. The Fund is overweighted in these areas.
Some of the issues that we continue to favor include Time Warner, Cablevision
System 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, improved internal cost controls, or both.
We still firmly believe that over a full ten-year 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 and little pricing power in most sectors of the
domestic economy, we believe our prudent approach to high yield bond investing
will generate the most consistent positive returns in 1997. We therefore will
continue
2
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to avoid sectors of the U.S. economy that are experiencing weak growth as well
as heavy industry competition. Given the economic and market conditions noted
above, we are also focused on maintaining sound credit quality throughout the
Fund.
In closing, thank you for investing in the Managed High Income Portfolio
Inc. We look forward to continuing to help you achieve your investment goals.
Should you have any questions about your investment in the Fund, please call
First Data Investor Services Group, Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President
Investment Officer
June 25, 1997
3
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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CORPORATE BONDS AND NOTES -- 86.8%
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Aerospace/Defense -- 1.8%
<S> <C> <C> <C>
$3,925,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19.......................... $ 4,373,274
2,560,000 B Howmet Corp., Sr. Sub. Notes,
10.000% due 12/1/03+......................... 2,764,800
1,350,000 B UNC Inc., Sr. Sub. Notes,
11.000% due 6/1/06+.......................... 1,576,125
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8,714,199
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Automobiles/Trucking -- 0.2%
1,000,000 NR Navistar Financial Corp., Sr. Sub. Notes,
9.000% due 6/1/02+........................... 1,012,500
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Banking -- 1.8%
7,775,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Notes, 12.500% due 4/15/03...... 8,766,313
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Broadcasting/Cable -- 19.4%
1,000,000 B- All American Communications Inc., Sr. Sub.
Notes, 10.875% due 10/15/01+................. 1,036,250
2,625,000 B- Allbritton Communications Co., Sr. Sub.
Debentures, 11.500% due 8/15/04.............. 2,775,938
4,150,000 B Australis Holdings Property Ltd., Sr. Secured
Discount Notes, step bond to yield
15.000% due 11/1/02+......................... 2,614,500
9,745,000 CCC+ Australis Media Ltd., Sr. Discount Notes,
step bond to yield 15.826% due 5/15/03++..... 6,066,263
Cablevision Systems Corp., Sr. Sub. Debentures:
6,250,000 B 10.750% due 4/1/04........................... 6,468,750
5,395,000 B 9.875% due 2/15/13........................... 5,435,463
2,900,000 B 10.500% due 5/15/16.......................... 3,016,000
6,000,000 B Comcast UK Cable, Sr. Discount Debentures,
step bond to yield 11.424% due 11/15/07...... 4,440,000
</TABLE>
4 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Broadcasting/Cable -- 19.4% (continued)
<S> <C> <C> <C>
Globo Communicacoes Co., Guaranteed Notes:
$1,800,000 B+ Series A, 9.875% due 12/20/04+............... $ 1,854,000
1,800,000 B+ Series B, 10.500% due 12/20/06+.............. 1,874,250
2,550,000 B- Innova S Del RL, Sr. Notes,
12.875% due 4/1/07+.......................... 2,652,000
Marcus Cable Capital Corp., Sr. Discount Notes:
2,400,000 B Step bond to yield 11.361% due 8/1/04........ 2,070,000
1,525,000 B Step bond to yield 12.748% due 12/15/05...... 1,155,188
2,025,000 BB Multicanal SA, Notes, 10.500% due 2/1/07+...... 2,090,813
Rogers Cablesystems Ltd.:
Sr. Secured Debentures:
2,575,000 BB+ 10.000% due 12/1/07........................ 2,729,500
7,175,000 BB- 11.000% due 12/1/15........................ 7,677,250
3,200,000 BB+ Sr. Secured Second Priority Debentures,
9.650% due 1/15/14........................ 2,307,708
6,135,000 BB- Rogers Communications Inc., Sr. Debentures,
10.875% due 4/15/04.......................... 6,441,750
1,750,000 BB- SCI Television Inc., Sr. Notes,
11.000% due 6/30/05.......................... 1,846,250
3,675,000 B- SFX Broadcasting Inc., Sr. Sub. Notes,
10.750% due 5/15/06.......................... 3,950,625
6,975,000 BB Telewest Communications PLC,
Sr. Discount Debentures, step bond to yield
11.108% due 10/1/07.......................... 4,865,063
2,325,000 B TV Azteca SA, Guaranteed Sr. Notes, Series B,
10.500% due 2/15/07+......................... 2,386,031
6,725,000 B- UIH Australia Inc., Sr. Discount Notes,
step bond to yield 14.000% due 5/15/06+...... 3,631,500
United International Holdings Inc.,
Sr. Discount Notes:
2,325,000 B- Zero coupon bond to yield
13.730% due 11/15/99..................... 1,767,000
3,975,000 B- Zero coupon bond to yield
13.450% due 11/15/99..................... 3,021,000
1,515,000 BB+ Videotron Group Ltd., Sr. Notes,
10.625% due 2/15/05.......................... 1,674,075
</TABLE>
See Notes to Financial Statements. 5
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Broadcasting/Cable -- 19.4% (continued)
<S> <C> <C> <C>
$3,325,000 B+ Videotron Holdings PLC, Sr. Discount Notes,
step bond to yield 11.312% due 8/15/05....... $ 2,743,125
2,475,000 BB+ Videotron Ltd., Sr. Sub. Notes,
10.250% due 10/15/02......................... 2,635,875
2,625,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03......................... 1,653,750
1,550,000 B Young Broadcasting Corp., Guaranteed
Secured Notes, 11.750% due 11/15/04.......... 1,681,750
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94,561,667
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Building/Construction -- 0.2%
850,000 NR American Builders and Contractors Supply Inc.,
Sr. Sub. Notes, 10.625% due 5/15/07+......... 875,500
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Chemicals -- 3.1%
NL Industries, Sr. Secured Notes:
3,000,000 B 11.750% due 10/15/03......................... 3,307,500
2,550,000 B Step bond to yield 12.529% due 10/15/05...... 2,428,875
3,462,000 BB Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01.......................... 3,912,060
4,350,000 B+ Terra Industries Inc., Sr. Notes,
10.500% due 6/15/05.......................... 4,730,625
850,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06+.......................... 914,813
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15,293,873
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Consumer Durables -- 1.0%
4,500,000 B+ International Semi-Tech., Sr. Discount
Secured Notes, step bond to yield
11.303% due 8/15/03......................... 2,722,500
1,934,000 B+ TAG-Heuer International Inc., Sr. Sub. Notes,
12.000% due 12/15/05........................ 2,190,255
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4,912,755
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</TABLE>
6 See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Diversified/Conglomerate Manufacturing -- 1.0%
<S> <C> <C> <C>
$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
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4,931,550
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Electric Equipment -- 0.5%
2,450,000 B Celestica International Inc., Guaranteed Sr. Sub.
Notes, 10.500% due 12/31/06+................. 2,639,875
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Electric Utilities -- 1.2%
4,250,000 B+ Calpine Corp., Sr. Notes,
10.500% due 5/15/06.......................... 4,505,000
1,435,333 BB- Midland Cogeneration Venture Limited
Partnership, Midland Funding,
Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02................ 1,550,160
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6,055,160
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Electronics/Computers -- 3.3%
3,175,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07+......................... 3,286,125
2,675,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05.......................... 2,949,188
Unisys Corp., Sr. Notes:
4,600,000 B+ 12.000% due 4/15/03.......................... 4,956,500
4,700,000 B+ 11.750% due 10/15/04......................... 5,064,250
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16,256,063
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Finance -- 1.1%
3,250,000 B Amresco Inc., Sr. Sub. Notes, Series A,
10.000% due 3/15/04.......................... 3,258,125
2,300,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07........................... 2,282,750
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5,540,875
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</TABLE>
See Notes to Financial Statements. 7
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Foods -- 0.8%
<S> <C> <C> <C>
$2,050,000 BB- TLC Beatrice International Holdings Inc.,
Sr. Sub. Debentures, 11.500% due 10/1/05..... $ 2,275,500
1,365,000 B- Van De Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05.......................... 1,515,150
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3,790,650
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Grocery/Convenience Stores -- 0.5%
Pathmark Stores Inc.:
2,200,000 B- Sub. Debentures, 12.625% due 6/15/02......... 2,252,250
400,000 B- Sub. Notes, 9.625% due 5/1/03................ 381,000
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2,633,250
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Healthcare -- 2.0%
3,900,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04.......................... 4,338,750
Tenet Healthcare Corp.:
2,400,000 BB Sr. Notes, 8.000% due 1/15/05................ 2,391,000
3,000,000 B+ Sr. Sub. Notes, 8.625% due 1/15/07........... 3,041,250
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9,771,000
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Hotel, Casinos and Gaming -- 3.1%
1,500,000 B Aztar Corp., Sr. Sub. Notes
13.750% due 10/1/04.......................... 1,710,000
3,250,000 B- Courtyard by Marriott Ltd., Sr. Secured Notes,
10.750% due 2/1/08........................... 3,501,875
2,150,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage,
10.125% due 12/1/03.......................... 2,225,250
3,025,000 BB+ Mohegan Tribal Gaming Authority,
Sr. Secondary Notes, 13.500% due 11/15/02.... 3,985,438
3,275,000 B Showboat Inc., Sr. Sub. Notes,
13.000% due 8/1/09........................... 3,741,688
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15,164,251
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</TABLE>
8 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Industrial Goods and Services -- 0.2%
<S> <C> <C> <C>
$1,075,000 B+ Anchor Advanced Products Inc., Sr. Notes,
11.750% due 4/1/04+.......................... $ 1,134,125
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Leisure -- 0.5%
Coleman Escrow Corp., Sr. Secured 1st Priority
Discount Notes:
2,900,000 B Zero coupon bond to yield
10.770% due 5/15/01...................... 1,885,000
1,300,000 B Zero coupon bond to yield
12.420% due 5/15/01...................... 789,750
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2,674,750
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Machinery -- 2.0%
1,750,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03.......................... 1,800,313
7,175,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02.......................... 8,036,000
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9,836,313
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Metals/Mining -- 5.5%
268,000 B Algoma Steel Inc., 1st Mortgage Notes,
12.375% due 7/15/05.......................... 304,341
2,225,000 B- Commonwealth Aluminum Co., Sr. Sub. Notes,
10.750% due 10/1/06.......................... 2,325,125
1,550,000 BB- Echo Bay Mines Ltd., Jr. Sub. Debentures Capital
Securities, 11.000% due 4/1/27............... 1,569,375
2,650,000 B Envirosource Inc., Sr. Notes,
9.750% due 6/15/03........................... 2,570,500
5,925,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04........................... 6,339,750
2,650,000 B Intertek Finance PLC, Sr. Sub. Notes,
10.250% due 11/1/06+......................... 2,749,375
4,525,000 B- Kaiser Aluminum Corp., Sr. Sub. Notes,
12.750% due 2/1/03........................... 4,943,563
1,850,000 B- Russel Metals Inc., Sr. Notes,
10.250% due 6/15/00.......................... 1,882,375
</TABLE>
See Notes to Financial Statements. 9
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
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Metals/Mining -- 5.5% (continued)
<S> <C> <C> <C>
$3,705,000 B+ UCAR Global Enterprises Inc.,
Sr. Sub. Notes, 12.000% due 1/15/05.......... $ 4,186,650
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26,871,054
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Miscellaneous Services -- 0.5%
2,300,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06+......................... 2,461,000
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Oil/Natural Gas -- 7.0%
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.......................... 3,236,438
4,150,000 B+ Dawson Productions Services Inc., Sr. Notes,
9.375% due 2/1/07............................ 4,170,750
2,315,000 CCC+ Deeptech International Inc., Sr. Secured Notes,
12.000% due 12/15/00......................... 2,465,475
1,050,000 B Forcenergy Inc., Sr. Sub. Notes,
8.500% due 2/15/07+.......................... 1,022,438
3,660,000 B+ Global Marine Inc., Sr. Secured Notes,
12.750% due 12/15/99......................... 3,861,300
1,075,000 B Lomak Petroleum Inc., Sr. Sub. Notes,
8.750% due 1/15/07........................... 1,064,250
4,575,000 B+ Parker Drilling Co., Sr. Notes,
9.750% due 11/15/06.......................... 4,780,875
2,900,000 BB- Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07............................ 3,008,750
3,550,000 BB- Santa Fe Energy Resources Inc., Sr. Sub.
Debentures, 11.000% due 5/15/04.............. 3,851,750
2,625,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05......................... 2,828,438
1,150,000 B+ Wiser Oil Co., Sr. Sub. Notes,
9.500 due 5/15/07+........................... 1,154,313
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33,695,902
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</TABLE>
10 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
Packaging/Containers -- 2.4%
<S> <C> <C> <C>
$1,875,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
12.750% due 5/15/05.......................... $ 2,057,813
2,475,000 NR Impress Metal Packaging Holdings, Sr. Sub.
Notes, 9.875% due 5/29/07+................... 1,487,380
4,000,000 B- Ivex Holdings Corp., Sr. Sub. Debentures,
step bond to yield 12.910% due 3/15/05....... 3,160,000
1,225,000 B- Stone Container Corp., Sr. Sub. Debentures,
12.250% due 4/1/02........................... 1,255,625
3,625,000 B+ Vicap SA De Cv, Guaranteed Sr. Notes,
11.375% due 5/15/07+......................... 3,779,063
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11,739,881
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Paper/Printing -- 6.5%
2,616,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05......................... 3,041,100
5,350,000 B+ Asia Pulp & Paper Ltd., Guaranteed Preferred
Notes, Series A, 12.000% due 12/29/49+....... 5,350,000
3,000,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06......................... 3,247,500
8,525,000 BB Indah Kiat International Finance Co., Sr.
Secured Notes, 11.875% due 6/15/02........... 9,366,844
6,050,000 B+ SD Warren Co., Sr. Sub. Notes,
12.000% due 12/15/04......................... 6,745,750
3,725,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01........................... 4,237,188
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31,988,382
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Pollution Control -- 0.8%
2,325,000 B+ Allied Waste North America Inc., Sr. Sub. Notes,
10.250% due 12/1/06+......................... 2,470,313
1,425,000 NR Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04........................... 1,474,875
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3,945,188
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</TABLE>
See Notes to Financial Statements. 11
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
Real Estate -- 0.9%
<S> <C> <C> <C>
$4,150,000 BB- Trizec Finance, Sr. Notes,
10.875% due 10/15/05......................... $ 4,606,500
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Retail -- 1.0%
4,325,000 B+ Barnes and Noble, Sr. Sub. Notes,
11.875% due 1/15/03.......................... 4,708,844
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Telecommunications -- 17.1%
Brooks Fiber Properties Inc.:
5,375,000 NR Sr. Discount Notes, step bond to yield
10.931% due 3/1/06......................... 3,648,281
7,550,000 NR Sr. Discount Notes, step bond to yield
11.703% due 11/1/06........................ 4,907,500
1,425,000 NR Sr. Notes, 10.000% due 6/1/07+............... 1,442,813
9,750,000 B Clearnet Communications Inc., Sr. Discount
Notes, step bond to yield 13.948%
due 12/15/05................................. 6,483,750
5,000,000 NR Colt Telecommunications Group PLC,
Sr. Discount Notes, step bond to yield 11.647%
due 12/15/06................................. 3,200,000
2,000,000 NR Dobson Communications Corp., Sr. Notes,
11.750% due 4/15/07.......................... 1,940,000
2,425,000 B+ Fonorola Inc., Sr. Sub. Notes,
12.500% due 8/15/02.......................... 2,619,000
2,600,000 B Globalstar L.P. Corp., Sr. Notes,
11.375% due 2/15/04+......................... 2,626,000
7,850,000 NR Intelcom Group USA Inc., Sr. Discount Notes,
step bond to yield 12.381% due 5/1/06+....... 5,102,500
8,675,000 B- Intermedia Communications, Sr. Discount Notes,
step bond to yield 12.094% due 5/15/06+...... 5,985,750
2,150,000 B ITC Deltacom Inc., Sr. Notes,
11.000% due 6/1/07+.......................... 2,193,000
10,100,000 NR McCaw International Ltd., Sr. Discount Notes,
step bond to yield 10.919% due 4/15/07+...... 4,911,125
7,025,000 B McLeod Inc., Sr. Discount Notes,
step bond to yield 10.572% due 3/1/07+....... 4,215,000
</TABLE>
12 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Rating Security Value
- -------------------------------------------------------------------------------------
Telecommunications -- 17.1% (continued)
<S> <C> <C> <C>
$7,975,000 B- Millicom International Cellular SA, Sr. Sub.
Discount Notes, step bond to yield
13.500% due 6/1/06+.......................... $ 5,861,625
9,225,000 B3* Nextel Communications Inc., Sr. Discount Notes,
step bond to yield 12.578% due 8/15/04+...... 6,964,875
4,575,000 NR Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06+......................... 4,832,344
Pagemart Nationwide, Inc., Sr. Discount Notes:
5,400,000 NR Step bond to yield 11.950% due 11/1/03+...... 4,441,500
2,800,000 NR Step bond to yield 13.297% due 2/1/05........ 2,023,000
2,125,000 NR Qwest Communications International Inc.,
Sr. Notes, 10.875% due 4/1/07+............... 2,284,375
4,125,000 NR RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06+........................ 4,259,063
5,650,000 B Teleport Communications Inc., Sr. Discount
Notes, step bond to yield 11.442% due 7/1/07. 3,976,188
- -------------------------------------------------------------------------------------
83,917,689
- -------------------------------------------------------------------------------------
Tobacco -- 0.7%
3,000,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03........................... 3,172,500
- -------------------------------------------------------------------------------------
Transportation -- 0.7%
3,130,000 BB- Sea Containers Ltd., Sub. Debentures,
Series A, 12.500% due 12/1/04................ 3,489,936
- -------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $411,027,471).......................... 425,161,545
=====================================================================================
Shares Security Value
- -------------------------------------------------------------------------------------
STOCKS -- 8.1%
- -------------------------------------------------------------------------------------
Automobiles/Trucking -- 1.1%
87,625 Navistar International, Series G, Preferred,
Convertible $6.00............................ 5,180,828
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------
Banking -- 0.3%
<S> <C> <C> <C>
63,850 California Federal Preferred Capital Corp.,
Preferred.................................... $ 1,612,213
- -------------------------------------------------------------------------------------
Broadcasting -- 4.1%
18,172 Time Warner Inc., Series K, Preferred,
Exchange 0.000%+............................. 20,125,490
- -------------------------------------------------------------------------------------
Communications -- 0.0%
32,175 Clearnet Communications Inc., Common........... 136,744
- -------------------------------------------------------------------------------------
Healthcare and Pharmaceuticals -- 0.3%
156,014 Avatex Corp., Series A, Preferred,
Payment-in-kind, Exchange $4.200............. 1,248,112
- -------------------------------------------------------------------------------------
Publishing -- 0.0%
939 K-III Communications Corp., Series B, Preferred,
Exchange 11.625% ++.......................... 101,414
- -------------------------------------------------------------------------------------
Telecommunications -- 2.3%
8,977 PanAmSat Corp., Series A,
Exchange 12.750%............................. 11,221,578
- -------------------------------------------------------------------------------------
TOTAL STOCKS
(Cost-- $40,843,806)........................... 39,626,379
=====================================================================================
- -------------------------------------------------------------------------------------
WARRANTS -- 0.0%
- -------------------------------------------------------------------------------------
4,150 Australis Holdings Property Ltd.,
Expire 10/30/01.............................. 125
3,900 Nextel Communications Inc., Expire 4/25/99..... 39
12,250 Pagemart Inc., Expire 12/31/04+................ 67,375
24,840 Pagemart Nationwide, Expire 12/31/03+.......... 65,205
4,800 SD Warren Co., Expire 12/15/06+................ 62,400
3,375 Wireless One Inc., Expire 10/15/03............. 3,375
- -------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $84,167)............................... 198,519
=====================================================================================
</TABLE>
14 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 5.1%
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$5,053,000 Chase Manhattan Bank, 5.470% due 6/2/97,
Proceeds at maturity-- $5,055,302;
(Fully collateralized by U.S. Treasury Notes,
6.375% due 5/15/00; Market value--
$5,154,065).................................... $ 5,053,000
20,000,000 Union Bank of Switzerland, 5.510% due 6/2/97,
Proceeds at maturity-- $20,009,179;
(Fully collaterized by U.S. Treasury Notes,
6.375% due 3/31/01; Market value--
$20,400,215).................................. 20,000,000
- -------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost-- $25,053,000).......................... 25,053,000
=====================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $477,008,444**)....................... $490,039,443
=====================================================================================
</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.
++ Security issued with attached warrants.
++ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 16 for definitions of ratings.
================================================================================
Summary of Bonds by Combined Ratings
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Ba BB 20.1%
B B 62.3
Caa CCC 4.3
NR NR 13.3
-----
100.0%
=====
================================================================================
See Notes to Financial Statements. 15
<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.
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited)
ASSETS:
Investments, at value (Cost-- $477,008,444) ...... $490,039,443
Receivable for securities sold ................... 302,534
Interest receivable .............................. 8,037,777
- --------------------------------------------------------------------------------
Total Assets ..................................... 498,379,754
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased ................. 4,800,387
Dividends payable ................................ 1,427,960
Investment advisory fees payable ................. 369,120
Administration fees payable ...................... 87,860
Accrued expenses ................................. 135,339
- --------------------------------------------------------------------------------
Total Liabilities ................................ 6,820,666
- --------------------------------------------------------------------------------
Total Net Assets ................................... $491,559,088
================================================================================
NET ASSETS:
Par value of capital shares ...................... $ 42,856
Capital paid in excess of par value .............. 511,292,544
Undistributed net investment income .............. 76,129
Accumulated net realized loss from
security transactions and futures contracts ..... (32,883,440)
Net unrealized appreciation of investments ....... 13,030,999
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.47 a share on 42,856,106
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ................... $491,559,088
================================================================================
See Notes to Financial Statements. 17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1997 (unaudited)
INVESTMENT INCOME:
Interest ................................................ $12,137,815
Dividends ............................................... 1,062,374
- --------------------------------------------------------------------------------
Total Investment Income ................................. 13,200,189
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) ....................... 1,102,059
Administration fees (Note 2) ............................ 244,902
Shareholder communications .............................. 60,493
Audit and legal ......................................... 14,619
Directors' fees ......................................... 10,586
Registration fees ....................................... 9,326
Shareholder and system servicing fees ................... 5,444
Custody ................................................. 5,293
Other ................................................... 6,300
- --------------------------------------------------------------------------------
Total Expenses .......................................... 1,459,022
- --------------------------------------------------------------------------------
Net Investment Income ..................................... 11,741,167
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
(NOTES 3 AND 5):
Realized Gain From:
Security transactions (excluding short-term securities) 3,181,740
Futures contracts ..................................... 296,169
- --------------------------------------------------------------------------------
Net Realized Gain ....................................... 3,477,909
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period ................................... 21,798,449
End of period ......................................... 13,030,999
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation ................. (8,767,450)
- --------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts ............. (5,289,541)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations .................... $ 6,451,626
================================================================================
18 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1997 (unaudited)
and the Year Ended February 28, 1997
May 31 February 28
================================================================================
OPERATIONS:
Net investment income.............. $ 11,741,167 $ 47,001,438
Net realized gain (loss)........... 3,477,909 (239,118)
Increase (decrease) in net unrealized
appreciation ................... (8,767,450) 9,609,068
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 6,451,626 56,371,388
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............. (11,665,038) (45,621,623)
Capital............................ -- (668,631)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders.... (11,665,038) (46,290,254)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net asset value of shares issued for
reinvestment of dividends........ 2,866,504 7,000,597
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions.......... 2,866,504 7,000,597
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets.... (2,346,908) 17,081,731
NET ASSETS:
Beginning of period................ 493,905,996 476,824,265
- --------------------------------------------------------------------------------
End of period*..................... $491,559,088 $493,905,996
================================================================================
*Includes undistributed net investment
income of: ....................... $ 76,129 --
================================================================================
See Notes to Financial Statements. 19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 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 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) 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 the 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
and 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
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 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 ("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 three months ended May 31, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $ 79,413,422
- --------------------------------------------------------------------------------
Sales 102,767,466
================================================================================
At May 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $30,115,008
Gross unrealized depreciation (17,084,009)
- --------------------------------------------------------------------------------
Net unrealized appreciation $13,030,999
================================================================================
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.
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 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 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. 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 May 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.
As of May 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
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security,
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 31, 1997 (unaudited)(continued)
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 three months ended May 31, 1997, the Fund did not write any
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 three months ended May 31, 1997, capital stock transactions
were as follows:
Shares Amount
================================================================================
Shares issued on reinvestment 254,011 $2,866,504
================================================================================
23
<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 ............ 0.27 1.12 1.13 1.12 0.98
Net realized and
unrealized gain (loss) ......... (0.12) 0.21 0.65 (1.48) 0.51
- -------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.15 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 ............ (0.27) (1.08) (1.27) (1.00) (0.96)
Net realized gains ............... -- -- -- (0.15) (0.12)
Capital .......................... -- (0.02) (0.03) -- --
- -------------------------------------------------------------------------------------------------
Total Distributions ................ (0.27) (1.10) (1.30) (1.15) (1.08)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Period ..... $ 11.47 $ 11.59 $ 11.36 $ 10.88 $ 12.39
- -------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value ............ 2.43%++ 15.37% 18.83% 0.14% 6.85%++
- -------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value** ....... 1.37%++ 12.65% 17.80% (2.18)% 12.67%++
- -------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) ... $491,559 $493,906 $476,824 $456,789 $520,091
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses ......................... 1.18%+ 1.20% 1.24% 1.24% 1.19%+
Net investment income ............ 9.49+ 9.89 9.74 9.96 8.74+
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate ............ 17% 61% 73% 62% 108%
- -------------------------------------------------------------------------------------------------
Market Value, End of Period ........ $ 11.625 $ 11.625 $ 11.125 $ 10.500 $ 11.750
=================================================================================================
</TABLE>
(1) For the three months ended May 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.
24
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease) in
and Unrealized Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments Operations
- --------------------------------------------------------------------------------------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31,
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
===================================================================================================
</TABLE>
25
<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
================================================================================
*Capital gain distribution.
26
<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") 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, 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 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
27
<PAGE>
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DIVIDEND REINVESTMENT PLAN (unaudited)(continued)
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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 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.
28
<PAGE>
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Managed
HIGH INCOME
--------------
PORTFOLIO INC.
--------------
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Directors
Paolo M. Cucchi
Alessandro C. di Montezemolo
Andrea Farace
Paul R. Hardin
George M. Pavia
Heath B. McLendon, Chairman
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 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.
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FD0839 7/97
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