Managed
HIGH INCOME
PORTFOLIO INC.
Quarterly
Report
SMITH BARNEY
November 30, 1997
A Member of TravelersGroup [Logo]
<PAGE>
Managed
HIGH INCOME
LETTER TO PORTFOLIO INC.
SHAREHOLDERS
November 30, 1997
Dear Shareholder:
We are pleased to provide the third quarter report for the Managed High
Income Portfolio Inc. ("Fund") for the nine months ended November 30, 1997.
During the past nine months, the Fund distributed income dividends totaling
$0.82 per share. The table below shows the annualized distribution rate and the
nine-month total return for the Fund based on its November 30, 1997 net asset
value ("NAV") per share and New York Stock Exchange ("NYSE") closing price.
Annualized Nine-Month
Price Per Share Distribution Rate Total Return
------------- ----------------- ------------
$11.78 (NAV) 9.27% 9.05%
$12.125 (NYSE) 9.01% 11.90%
We are pleased to report that your Fund generated a positive total return
of 9.05% based on NAV during the past nine months. The Fund's nine-month results
were better than the nine-month average total return based on NAV of 6.28%
generated by closed-end high yield funds as reported by Lipper Analytical
Services Inc. ("Lipper"). (Lipper is a major independent mutual fund-tracking
organization). We believe we have been able to generate consistent performance
returns through careful asset selection and maintaining our strong investment
emphasis on identifying improving companies.
Market and Economic Overview
The last quarter has been marked by significant volatility in both the
domestic and international financial markets. This higher market volatility has
continued during December as investors try to sort out the potential negative
impact on world growth from the large declines in currencies and price
volatility in financial assets from the emerging markets of Asia and Latin
America.
- ----------
* This distribution rate assumes monthly income dividends at the current
rate of $0.091 per share for twelve months.
1
<PAGE>
In the past three months, the greatest price declines in the bond market
occurred in the emerging markets. At the same time, a flight to quality helped
the U.S. Treasury market to register strong gains as investors moved their
assets out of riskier market sectors. The longest maturity U.S. Treasurys
registered the strongest total returns in the past three months, with 30-year
U.S. Treasury bonds up 8.91% and 10-year U.S.Treasury notes up 5.15%.
The domestic high yield bond market underperformed U.S. Treasurys with
overall yield premiums widening by up to 25 basis points in reaction to stock
market volatility, during the last three months. The Standard & Poor's 500 Stock
Index lagged the U.S. treasury market with a total return of 3.44%. (The
Standard & Poor's 500 Stock Index is a capitalization-weighted measure of 500
widely held common stocks.) Given the high yield bond market's sensitivity to
the stock market, it was not surprising to see some investors sell their high
yield bonds. Because many high yield bond funds have exposure to emerging market
debt, the category's average total returns were negatively impacted by the price
declines in emerging market debt during the past three months.
As we discussed in our previous shareholder letters, the high yield bond
market had reached fully valued levels with yield premiums over U.S. Treasurys
approximately 75 basis points tighter than their historical averages. In
retrospect, the high yield bond market had become increasingly vulnerable to a
correction in both the U.S. stock market as well as the stock and bond markets
of less developed countries.
Fund's Investment Strategy
In this uncertain economic environment, we would still expect the stronger
companies issuing high yield bonds to perform well on a relative basis. These
companies tend to be in industries that continue to benefit from new technology.
We continue to find many attractive opportunities in the telecommunications,
media, cable TV and oil and natural gas industries, and the Fund remains
overweighed in these areas. Some of the issues that we continue to favor include
Time Warner Inc., Cablevision Systems Corp., Nextel Communications Inc., Rogers
Cablesystems Ltd., Pride Petroleum Services Inc. and Parker Drilling Co., to
name a few. All of these companies continue to generate improving results either
through increased market share and/or improved internal cost controls.
We still maintain our strong conviction 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 and little pricing power in most sectors of
the domestic economy (especially in light of recent difficulties in Asia), we
believe our prudent approach to high yield bond investing should generate
consistently positive returns in 1998. We will, therefore, continue to avoid
weak sectors of the economy as well as companies facing heavy competitive
pressures.
2
<PAGE>
Outlook
We would not be surprised to see a slowdown in economic growth over the
next six months with greater pressure on corporate profit margins. As a number
of Asian countries attempt to increase their exports of competitively priced
goods to the rest of the world, we would expect to see pricing pressures in a
number of basic industries, particularly textiles, automobiles, chemicals and
steel, to name a few. At the same time the significant slowdown in Asia should
tend to dampen worldwide economic growth. Given the potential slowdown in
economic growth early next year, we do not believe the Federal Reserve Board
will need to raise interest rates for the foreseeable future.
Moreover, depending on the extent of slower economic growth, we expect to
see greater stock market volatility. This in turn could have a negative effect
on the lower-quality segments of the high yield bond market. As a consequence,
careful issue selection has become even more crucial to future investment
success especially given the high yield bond market's fully valued levels and
the potential for disappointment among some individual companies.
Given the instability throughout the emerging markets, we are cautious
over the prospects for economic growth in 1998. Yet, we still expect modest
inflation, which should allow general interest rates to move somewhat lower.
Given these expectations, we have become even more focused on maintaining sound
credit quality in your Fund.
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
Heath B. McLendon
Chairman
/s/ John C. Bianchi, CFA
John C. Bianchi, CFA
Vice President and
Investment Officer
December 30, 1997
3
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
- ------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 89.9%
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace/Defense -- 1.5%
$3,925,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19 ............................ $ 4,688,373
2,560,000 B Howmet Corp., Sr. Sub. Notes,
10.000% due 12/1/03+ ........................... 2,790,400
- ------------------------------------------------------------------------------------------
7,478,773
- ------------------------------------------------------------------------------------------
Banking -- 1.7%
7,775,000 B First Nationwide Parent Holdings Ltd.,
Sr. Exchange Notes, 12.500% due 4/15/03 ........ 8,882,938
- ------------------------------------------------------------------------------------------
Broadcasting/Cable -- 12.5%
1,000,000 A- All American Communications Inc.,
Sr. Sub. Notes, 10.875% due 10/15/01+ .......... 1,112,500
Cablevision Systems Corp., Sr. Sub. Debentures:
9,645,000 BB- 9.875% due 2/15/13 ............................. 10,416,600
4,050,000 BB- 10.500% due 5/15/16 ............................ 4,606,875
1,525,000 BB- 9.875% due 4/1/23 .............................. 1,635,563
2,900,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/07 ............................. 2,921,750
4,675,000 B- Comcast UK Cable Partners Ltd., Sr. Discount
Debentures, step bond to yield 11.500%
due 11/15/07 ................................... 3,693,250
1,515,000 BBB- Groupe Videotron Ltd., Sr. Notes,
10.625% due 2/15/05 ............................ 1,696,800
Marcus Cable Capital Corp., Sr. Discount Notes:
2,400,000 B Step bond to yield 11.361% due 8/1/04 .......... 2,208,000
1,525,000 B Step bond to yield 12.748% due 12/15/05 ........ 1,288,625
Rogers Cablesystems Ltd.:
Sr. Secured Debentures:
2,575,000 BB+ 10.000% due 12/1/07 .......................... 2,787,438
7,175,000 BB- 11.000% due 12/1/15 .......................... 8,179,500
2,275,000 BB- Sr. Secured Second Priority Notes, Series B,
10.000% due 3/15/05 .......................... 2,468,375
</TABLE>
4 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Broadcasting/Cable -- 12.5% (continued)
$2,900,000 BB- Rogers Communications Inc., Sr. Notes,
8.875% due 7/15/07 ............................. $ 2,907,250
TV Azteca SA, Guaranteed Sr. Notes:
1,675,000 B+ Series A, 10.125% due 2/15/04+ ................. 1,725,250
2,325,000 B+ Series B, 10.500% due 2/15/07+ ................. 2,429,625
UIH Australia Inc., Sr. Discount Notes:
1,525,000 B- Step bond to yield 12.775% due 5/15/06+ ........ 1,052,250
7,100,000 B- Step bond to yield 13.913% due 5/15/06+ ........ 4,899,000
United International Holdings Inc.,
Sr. Discount Notes:
2,325,000 B- Zero coupon bond to yield
14.510% due 11/15/99 ....................... 1,883,250
3,975,000 B- Zero coupon bond to yield
14.830% due 11/15/99 ....................... 3,219,750
2,475,000 BBB- Videotron Ltd., Sr. Sub. Notes,
10.250% due 10/15/02 ........................... 2,611,125
2,625,000 B- Wireless One Inc., Sr. Discount Notes,
13.000% due 10/15/03 ........................... 1,233,750
- ------------------------------------------------------------------------------------------
64,976,526
- ------------------------------------------------------------------------------------------
Building/Construction -- 0.6%
850,000 B American Builders and Contractors Supply Inc.,
Sub. Notes, 10.625% due 5/15/07+ ............... 886,125
2,225,000 BB- Cia Latino Americana, Sr. Secured Debentures,
11.625% due 6/1/04+ ............................ 2,258,375
- ------------------------------------------------------------------------------------------
3,144,500
- ------------------------------------------------------------------------------------------
Chemicals -- 1.7%
1,325,000 B- Koppers Industries Inc., Sr. Sub. Notes,
9.875% due 12/1/07 ............................. 1,351,500
3,000,000 B NL Industries, Sr. Secured Notes,
11.750% due 10/15/03 ........................... 3,315,000
2,600,000 B- Pharmaceutical Fine Chemical Corp.,
Sr. Sub. Notes, 9.750% due 11/15/07 ............ 2,619,500
1,300,000 BB- Terra Industries Inc., Sr. Notes,
10.500% due 6/15/05 ............................ 1,417,000
- ------------------------------------------------------------------------------------------
8,703,000
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 5
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Consumer/Durable -- 0.8%
$1,300,000 NR CLN Holdings Inc., Sr. Discount Notes,
zero coupon bond to yield
13.420% due 5/15/01 ............................ $ 799,500
5,100,000 NR Coleman Escrow Corp., Sr. Secured 1st Priority
Discount Notes, zero coupon bond
to yield 11.810% due 5/15/01 ................... 3,302,250
- ------------------------------------------------------------------------------------------
4,101,750
- ------------------------------------------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 1.9%
1,800,000 B- Axiohm Transactions Solutions Inc.,
Sr. Sub. Notes, 9.750% due 10/1/07 ............. 1,827,000
2,265,000 B3* Interlake Corp., Sr. Sub. Debentures,
12.125% due 3/1/02 ............................. 2,358,431
2,650,000 B+ Park-Ohio Industries, Sr. Sub. Notes,
9.250% due 12/1/07 ............................. 2,676,500
2,600,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03 ............................ 2,697,500
- ------------------------------------------------------------------------------------------
9,559,431
- ------------------------------------------------------------------------------------------
Electric Utilities -- 3.4%
AES Corp., Sr. Sub. Notes:
1,325,000 B+ 8.375% due 8/15/07 ............................. 1,311,750
4,050,000 B+ 8.500% due 11/1/07 ............................. 4,019,625
Calpine Corp., Sr. Notes:
3,650,000 BB- 10.500% due 5/15/06+ ........................... 3,942,000
1,400,000 BB- 8.750% due 7/15/07 ............................. 1,410,500
2,000,000 BB+ Cleveland Electric Illuminating Co., Sr. Notes,
7.430% due 11/1/09 ............................. 2,042,500
2,000,000 BB- El Paso Electric Co., 1st Mortgage Obligation,
8.900% due 2/1/06 .............................. 2,182,500
1,318,408 BB Midland Cogeneration Venture Limited
Partnership, Midland Funding,
Sr. Secured Lease Obligation Bond,
Series C, 10.330% due 7/23/02 .................. 1,413,993
1,325,000 Ba3* Niagara Mohawk Power Corp., 1st Mortgage
Obligation, 7.750% due 5/15/06 ................. 1,388,362
- ------------------------------------------------------------------------------------------
17,711,230
- ------------------------------------------------------------------------------------------
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Electronics/Computers -- 5.4%
$2,300,000 B Celestica International Inc., Guaranteed
Sub. Notes, 10.500% due 12/31/06+ ............... $ 2,495,500
4,275,000 B Fairchild Semiconductor Corp.,
Sub. Notes, 10.125% due 3/15/07+ ................ 4,520,813
1,900,000 B Flextronics Inc., Sr. Sub. Notes,
50% due 10/15/07+ .............................. 1,895,250
2,675,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05+ ........................... 2,989,313
Unisys Corp., Sr. Notes:
4,750,000 B+ 12.000% due 4/15/03+ ........................... 5,379,375
4,925,000 B+ 11.750% due 10/15/04 ........................... 5,614,500
4,700,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07+ ............................. 4,864,500
- ------------------------------------------------------------------------------------------
27,759,251
- ------------------------------------------------------------------------------------------
Finance -- 2.0%
3,250,000 B Amresco Inc., Sr. Sub. Notes, Series A,
10.000% due 3/15/04 ............................ 3,396,250
1,300,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07+ ............................ 1,283,750
3,200,000 B- Ocwen Capital Trust, Guaranteed Notes,
10.875% due 8/1/27 ............................. 3,432,000
2,100,000 B+ Ocwen Financial Corp., Notes,
11.875% due 10/1/03 ............................ 2,357,250
- ------------------------------------------------------------------------------------------
10,469,250
- ------------------------------------------------------------------------------------------
Foods -- 1.1%
1,325,000 B+ Ameriserv Food Co., Sr. Notes,
8.875% due 10/15/06+ ........................... 1,328,313
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07 .............................. 2,688,375
1,365,000 B- Van de Kamp Inc., Sr. Sub. Notes,
12.000% due 9/15/05+ ........................... 1,516,856
- ------------------------------------------------------------------------------------------
5,533,544
- ------------------------------------------------------------------------------------------
Grocery/Convenience Stores -- 0.4%
2,200,000 B- Pathmark Stores Inc., Sub. Debentures,
12.625% due 6/15/02 ............................ 2,244,000
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Health Care -- 3.3%
$2,700,000 B- Extendicare Health Inc., Sr. Sub. Notes,
9.350% due 12/15/07 ............................ $ 2,710,125
5,100,000 BB ICN Pharmaceutical Inc., Sr. Notes,
9.250% due 8/15/05+ ............................ 5,367,750
3,300,000 B Magellan Health Services Inc., Sr. Sub. Notes,
11.250% due 4/15/04 ............................ 3,671,250
Tenet Healthcare Corp.:
2,400,000 BB Sr. Notes, 8.000% due 1/15/05 .................. 2,430,000
3,000,000 BB Sr. Sub. Notes, 8.625% due 1/15/07 ............. 3,082,500
- ------------------------------------------------------------------------------------------
17,261,625
- ------------------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 5.9%
1,300,000 B Aztar Corp., Sr. Sub. Notes,
13.750% due 10/1/04 ............................ 1,488,500
3,250,000 B- Courtyard by Marriott Ltd., Sr. Secured Notes,
10.750% due 2/1/08+ ............................ 3,542,500
975,000 BB Grand Casinos Inc., Guaranteed 1st Mortgage,
10.125% due 12/1/03 ............................ 1,038,375
900,000 NR HMC Acquisition Properties Inc., Sr. Notes,
9.000% due 12/15/07 ............................ 927,000
HMH Properties Inc., Sr. Notes:
10,625,000 BB- 9.500% due 5/15/05+ ............................ 11,182,813
2,550,000 BB- Series B, 8.875% due 7/15/07 ................... 2,626,500
3,025,000 BB+ Mohegan Tribal Gaming Authority,
Sr. Secondary Notes, 13.500% due 11/15/02+ ..... 3,917,375
3,275,000 B Showboat Inc., Sr. Sub. Notes,
13.000% due 8/1/09 ............................. 3,786,719
2,275,000 B Signature Resorts Inc., Sr. Sub. Notes,
9.750% due 10/1/07+ ............................ 2,309,125
- ------------------------------------------------------------------------------------------
30,818,907
- ------------------------------------------------------------------------------------------
Insurance -- 0.6%
3,225,000 BB+ SIG Capital Trust I, Preferred Secured Notes,
9.500% due 8/15/27+ ............................ 3,233,063
- ------------------------------------------------------------------------------------------
</TABLE>
8 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Machinery -- 1.4%
$1,750,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03+ ........................... $ 1,828,750
4,784,000 B- Terex Corp., Sr. Secured Notes,
13.250% due 5/15/02 ............................ 5,465,720
- ------------------------------------------------------------------------------------------
7,294,470
- ------------------------------------------------------------------------------------------
Metals/Mining -- 2.6%
5,725,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04 ............................. 6,612,375
4,525,000 B2* Kaiser Aluminum Corp., Sr. Sub. Notes,
12.750% due 2/1/03 ............................. 4,853,063
1,800,000 BB- UCAR Global Enterprises Inc.,
Sr. Sub. Notes, 12.000% due 1/15/05 ............ 2,061,000
- ------------------------------------------------------------------------------------------
13,526,438
- ------------------------------------------------------------------------------------------
Miscellaneous Services -- 1.2%
2,900,000 B- Intertek Finance PLC, Sr. Sub. Notes,
10.250% due 11/1/06+ ........................... 3,052,250
2,750,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06+ ........................... 3,059,375
- ------------------------------------------------------------------------------------------
6,111,625
- ------------------------------------------------------------------------------------------
Oil/Natural Gas -- 8.5%
2,000,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes,
8.750 due 9/15/07 .............................. 2,020,000
Clark R&M Inc., Sr. Notes:
1,150,000 BB 8.375% due 11/15/07 ............................ 1,150,000
2,000,000 BB 8.875% due 11/15/07 ............................ 2,000,000
3,400,000 B+ Clark USA Inc., Sr. Notes,
10.875% due 12/1/05 ............................ 3,689,000
2,300,000 B- Coho Energy Inc., Sr. Sub. Notes,
8.875% due 10/15/07 ............................ 2,277,000
4,965,000 B+ Dawson Production Services Inc., Sr. Notes,
9.375% due 2/1/07 .............................. 5,238,075
2,315,000 CCC+ Deeptech International Inc., Sr. Secured Notes,
12.000% due 12/15/00 ........................... 2,462,581
</TABLE>
See Notes to Financial Statements. 9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Oil/Natural Gas -- 8.5% (continued)
$4,150,000 BB- Gulf Canada Resource Ltd., Sub. Debentures,
9.625% due 7/1/05 .............................. $ 4,513,125
2,150,000 B+ ICO Inc., Sr. Notes, 10.375% due 6/1/07+ ......... 2,311,250
850,000 BB- J Ray McDermott, SA, Sr. Sub. Notes,
9.375% due 7/15/06 ............................. 904,188
5,625,000 B+ Parker Drilling Co., Sr. Notes,
9.750% due 11/15/06+ ........................... 6,103,125
2,600,000 BB- Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07 .............................. 2,801,500
3,550,000 BB- Santa Fe Energy Resources Inc., Sr. Sub.
Debentures, 11.000% due 5/15/04 ................ 3,847,313
2,150,000 B- Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07 ............................. 2,155,375
2,625,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 ........................... 2,848,125
- ------------------------------------------------------------------------------------------
44,320,657
- ------------------------------------------------------------------------------------------
Packaging/Containers -- 1.4%
1,075,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07+ ........................... 1,085,750
1,875,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
12.750% due 5/15/05 ............................ 2,025,000
2,500,000 B Huntsman Packaging Corp., Sr. Sub. Notes,
9.125% due 10/1/07 ............................. 2,556,250
3,000,000 NR Impress Metal Holdings BV, Sr. Sub. Notes,
9.875% due 5/29/07 ............................. 1,722,036
- ------------------------------------------------------------------------------------------
7,389,036
- ------------------------------------------------------------------------------------------
Paper/Forest Products and Printing -- 5.4%
1,716,000 B- American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 ........................... 2,007,720
4,150,000 B Asia Pulp and Paper Co. Ltd., Sr. Sub. Notes,
12.000% due 12/29/49 ........................... 4,015,125
3,000,000 B Goss Graphic Systems Inc., Sr. Sub. Notes,
12.000% due 10/15/06 3,390,000
</TABLE>
10 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Paper/Forest Products and Printing -- 5.4% (continued)
$8,525,000 BB Indah Kiat International Finance Co.,
Sr. Secured Notes, 11.875% due 6/15/02 ......... $ 8,738,125
5,525,000 B+ SD Warren Co., Sr. Sub. Notes,
12.000% due 12/15/04 ........................... 6,188,000
3,725,000 BB Tjiwi Kimia International, Sr. Notes,
13.250% due 8/1/01 ............................. 3,883,313
- ------------------------------------------------------------------------------------------
28,222,283
- ------------------------------------------------------------------------------------------
Personal Care Products -- 0.2%
1,500,000 B- Revlon Worldwide Corp., Sr. Discount Notes,
zero coupon bond to yield
12.400% due 3/15/01 ............................ 1,035,000
- ------------------------------------------------------------------------------------------
Pollution Control -- 0.5%
2,325,000 B+ Allied Waste North America Inc.,
Sr. Sub. Notes, 10.250% due 12/1/06+ ........... 2,540,063
- ------------------------------------------------------------------------------------------
Real Estate -- 0.3%
1,250,000 BB+ Trizec Finance, Sr. Notes,
10.875% due 10/15/05 ........................... 1,418,750
- ------------------------------------------------------------------------------------------
Telecommunications -- 23.0%
9,750,000 NR Clearnet Communications Inc.,
Sr. Discount Notes, step bond to yield
13.948% due 12/15/05 ........................... 7,336,875
Colt Telecommunications Group PLC,
Sr. Discount Notes:
800,000 B 10.125% due 11/30/07 ......................... 1,347,845
5,000,000 B Step bond to yield 11.647% due 12/15/06 ...... 3,900,000
3,825,000 BB- Fonorola Inc., Sr. Sub. Notes,
12.500% due 8/15/02 ............................ 4,264,875
1,425,000 B Globalstar LP Corp., Sr. Notes,
11.375% due 2/15/04+ ........................... 1,435,688
2,300,000 B Hermes Europe Railtel BV, Sr. Notes,
11.500% due 8/15/07+ ........................... 2,507,000
1,900,000 NR Intelcom Group Holdings Inc.,
Sr. Discount Notes, step bond to yield
12.008% due 5/1/06 ............................. 1,406,000
</TABLE>
See Notes to Financial Statements. 11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Telecommunications -- 23.0% (continued)
$5,975,000 B Intermedia Communications, Sr. Discount Notes,
step bond to yield 11.848% due 5/15/06 ......... $ 4,645,563
Iridium LLC Capital Corp., Sr. Notes:
4,125,000 B- 13.000% due 7/15/05 ............................ 4,279,688
4,050,000 B- 14.000% due 7/15/05 ............................ 4,323,375
8,475,000++ NR ITT Promedia BV, Sr. Sub. Notes,
9.125% due 9/15/07 ............................. 4,930,817
1,650,000 B- ITT Publimedia BV, Sr. Sub. Notes,
9.375% due 9/15/07 ............................. 1,732,500
1,200,000 NR Knology Holdings Inc., Sr. Notes,
step bond to yield 11.875% due 10/15/07 ........ 624,000
5,525,000 B Mcleod USA Inc., Sr. Discount Notes,
step bond to yield 10.591% due 3/1/07+ ......... 3,798,438
Metronet Communications Corp., Sr. Notes:
6,050,000 NR 12.000% due 8/15/07+ ........................... 6,881,875
1,200,000 NR Step bond to yield 10.750% due 11/1/07 ......... 714,000
3,050,000 NR Microcell Telecommunications Inc.,
Sr. Discount Notes, step bond to yield
11.832% due 6/1/06 ............................. 1,967,250
5,025,000 B- Millicom International Cellular SA, Sr. Sub.
Discount Notes, step bond to yield
13.500% due 6/1/06+ ............................ 3,856,688
Netia Holdings BV, Sr. Sub. Debentures:
1,850,000 B 10.250% due 11/1/07 ............................ 1,803,750
750,000 B Zero coupon bond to yield
10.260% due 11/1/07 .......................... 450,000
Nextel Communications Inc., Sr. Discount Notes:
11,725,000 B3* Step bond to yield 11.555% due 8/15/04 ......... 10,112,813
2,825,000 B3* Step bond to yield 10.650% due 9/15/07 ......... 1,709,125
8,775,000 B3* Step bond to yield 9.750% due 10/31/07 ......... 5,089,500
5,475,000 B Nextlink Communications, Sr. Discount Notes,
12.500% due 4/15/06+ ........................... 6,214,125
Pagemart Nationwide, Inc., Sr. Discount Notes:
5,100,000 NR Step bond to yield 11.933% due 11/1/03 ......... 4,794,000
2,800,000 NR Step bond to yield 13.297% due 2/1/05 .......... 2,401,000
</TABLE>
12 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Face
Amount Ratings Security Value
<S> <C> <C> <C>
Telecommunications -- 23.0% (continued)
$4,475,000 B- Primus Telecommunications Group, Sr. Notes,
11.750% due 8/1/04 ............................. $ 4,777,063
Qwest Communications International Inc.,
Sr. Notes:
2,125,000 B+ 10.875% due 4/1/07+ .......................... 2,395,928
6,375,000 B+ Step bond to yield 9.470% due 10/15/07 ...... 4,143,750
RCN Corp.:
5,350,000 B3* Sr. Discount Notes, step bond to yield
11.140% due 10/15/07 ......................... 3,103,000
2,350,000 B3* Sr. Notes, 10.000% due 10/15/07 ................ 2,355,875
4,125,000 B- RSL Communications Ltd., Sr. Notes,
12.250% due 11/15/06+ .......................... 4,496,250
Telesystems International Wireless Inc.,
Sr. Discount Notes:
7,575,000 B- Step bond to yield 12.763% due 6/30/07+ ...... 4,545,000
2,050,000 B- Step bond to yield 10.514% due 11/1/07+ ...... 1,114,688
- ------------------------------------------------------------------------------------------
119,458,344
- ------------------------------------------------------------------------------------------
Textiles -- 0.6%
3,062,000 BB+ Pt. Polysindo Eka Perkasa, Sr. Notes,
13.000% due 6/15/01 ............................ 3,253,375
- ------------------------------------------------------------------------------------------
Tobacco -- 0.4%
2,000,000 B Consolidated Cigar Corp., Sr. Sub. Notes,
10.500% due 3/1/03 ............................. 2,085,000
- ------------------------------------------------------------------------------------------
Transportation -- 1.6%
5,000,000 BB GS Superhighways Holdings, Sr. Notes,
10.250% due 8/15/07+ ........................... 4,700,000
3,130,000 BB- Sea Containers Ltd., Sub. Debentures,
Series A, 12.500% due 12/1/04 .................. 3,552,550
- ------------------------------------------------------------------------------------------
8,252,550
- ------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $448,602,608) ........................... 466,785,379
==========================================================================================
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Shares Security Value
- ------------------------------------------------------------------------------------------
STOCKS -- 6.5%
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Automobiles/Trucking -- 1.0%
87,625 Navistar International, Series G,
Preferred, Convertible $6.00 ................... $ 5,279,406
- ------------------------------------------------------------------------------------------
Banking -- 0.4%
63,850 California Federal Capital Corp., Preferred ...... 1,707,988
- ------------------------------------------------------------------------------------------
Broadcasting/Cable -- 4.2%
19,114 Time Warner Inc., Series K, Preferred,
Exchange 0.000%+ ............................... 21,837,745
- ------------------------------------------------------------------------------------------
Publishing -- 0.0%
939 Primedia Inc. Preferred PIK, Series B,
Exchange 11.625% # ............................. 100,240
- ------------------------------------------------------------------------------------------
Telecommunications -- 0.9%
8,000 American Communication Services Inc.,
Preferred ...................................... 792,000
32,175 Clearnet Communications Inc. ..................... 193,050
4,125 Iridium LLC Corp. ................................ 577,500
2,523 IXC Communications Inc., Jr. Preferred ........... 2,889,017
11,580 Nextel Communications Inc., Rights ............... 233,916
- ------------------------------------------------------------------------------------------
4,685,483
- ------------------------------------------------------------------------------------------
TOTAL STOCKS
(Cost -- $31,068,877) ............................ 33,610,862
==========================================================================================
- ------------------------------------------------------------------------------------------
WARRANTS -- 0.2%
- ------------------------------------------------------------------------------------------
Broadcasting/Cable -- 0.0%
3,375 Wireless One Inc., Expire 10/15/03 ............... 844
- ------------------------------------------------------------------------------------------
Paper/Forest Products and Printing -- 0.0%
4,800 SD Warren Co., Expire 12/15/06+ .................. 84,480
- ------------------------------------------------------------------------------------------
Telecommunications -- 0.2%
4,725 Globalstar Telecommunications, Expire 2/15/04 .... 492,581
3,900 Nextel Communications Inc., Expire 4/25/99 39
12,250 Pagemart Inc., Expire 12/31/04+ .................. 128,625
24,840 Pagemart Nationwide Inc., Expire 12/31/03+ ....... 186,300
</TABLE>
14 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
<TABLE>
<CAPTION>
Shares Security Value
<S> <C> <C>
Telecommunications -- 0.2% (continued)
4,475 Primus Telecommunication Group,
Expire 8/1/04 .................................. $ 44,750
4,125 RSL Communications Ltd., Expire 11/15/06 ......... 41,250
- ------------------------------------------------------------------------------------------
893,545
- ------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $439,227) ............................... 978,869
==========================================================================================
<CAPTION>
Face
Amount Security Value
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.4%
- ------------------------------------------------------------------------------------------
<S> <C> <C>
$17,796,000 Chase Securities Inc., 5.643% due 12/1/97; Proceeds
at maturity -- $17,804,369; (Fully collateralized by
U.S. Treasury Notes, 5.250% due 1/31/01;
Market value -- $18,152,612)
(Cost -- $17,796,000) ............................ 17,796,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $497,906,712**) ......................... $519,171,110
==========================================================================================
</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.
++ Represents local currency.
# Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 16 for definition of ratings.
================================================================================
Summary of Bonds by Combined Ratings
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- -------------------------------------------------------------------------------
A A 0.2%
Baa BBB 0.9
Ba BB 28.6
B B 61.7
Caa CCC 0.5
NR NR 8.1
-----
100.0%
=====
================================================================================
See Notes to Financial Statements. 15
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Ratings 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 "A" to "CCC" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated 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.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "A" to "Caa," where 1 is the highest and 3 the lowest ranking within its
generic category.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
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.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)
ASSETS:
Investments, at value (Cost -- $497,906,712)............. $519,171,110
Cash .................................................... 920
Receivable for securities sold........................... 1,963,300
Interest receivable...................................... 9,017,014
Receivable for open forward foreign
currency contracts (Note 5)............................ 640
- --------------------------------------------------------------------------------
Total Assets............................................. 530,152,984
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased......................... 15,075,842
Investment advisory fees payable......................... 350,276
Administration fees payable.............................. 83,673
Payable for open forward foreign
currency contracts (Note 5)............................ 19,838
Accrued expenses......................................... 173,780
- --------------------------------------------------------------------------------
Total Liabilities........................................ 15,703,409
- --------------------------------------------------------------------------------
Total Net Assets............................................. $514,449,575
================================================================================
NET ASSETS:
Par value of capital shares.............................. $ 43,658
Capital paid in excess of par value...................... 520,676,096
Overdistributed net investment income.................... (447,864)
Accumulated net realized loss from
security transactions and futures contracts............ (27,066,954)
Net unrealized appreciation of investments
and foreign currencies................................. 21,244,639
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.78 a share on 43,657,521
shares of $0.001 par value outstanding;
500,000,000 shares authorized)........................... $514,449,575
================================================================================
See Notes to Financial Statements. 17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Nine Months Ended November 30, 1997 (unaudited)
INVESTMENT INCOME:
Interest................................................. $ 36,247,529
Dividends................................................ 3,056,656
- --------------------------------------------------------------------------------
Total Investment Income.................................. 39,304,185
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2)........................ 3,381,872
Administration fees (Note 2)............................. 751,527
Shareholder communications............................... 179,506
Audit and legal.......................................... 43,380
Directors' fees.......................................... 31,414
Registration fees........................................ 27,674
Shareholder and system servicing fees.................... 16,153
Custody.................................................. 15,706
Other.................................................... 18,697
- --------------------------------------------------------------------------------
Total Expenses........................................... 4,465,929
- --------------------------------------------------------------------------------
Net Investment Income........................................ 34,838,256
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
FOREIGN CURRENCIES AND FUTURES CONTRACTS
(NOTES 3, 5 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 9,620,755
Foreign currency transactions.......................... 7,461
Futures contracts...................................... (326,360)
- --------------------------------------------------------------------------------
Net Realized Gain........................................ 9,301,856
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Foreign Currencies:
Beginning of period.................................. 21,798,449
End of period........................................ 21,244,639
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation.................. (553,810)
- --------------------------------------------------------------------------------
Net Gain on Investments, Foreign Currencies
and Futures Contracts...................................... 8,748,046
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations....................... $ 43,586,302
================================================================================
18 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Nine Months Ended November 30, 1997 (unaudited)
and the Year Ended February 28, 1997
November 30 February 28
================================================================================
OPERATIONS:
Net investment income........................... $ 34,838,256 $ 47,001,438
Net realized gain (loss)........................ 9,301,856 (239,118)
Increase (decrease) in net unrealized
appreciation.................................. (553,810) 9,609,068
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations.......... 43,586,302 56,371,388
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (35,293,581) (45,621,623)
Capital......................................... -- (668,631)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders................. (35,293,581) (46,290,254)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends..................... 12,250,858 7,000,597
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions....................... 12,250,858 7,000,597
- --------------------------------------------------------------------------------
Increase in Net Assets............................. 20,543,579 17,081,731
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period............................. 493,905,996 476,824,265
- --------------------------------------------------------------------------------
End of period*.................................. $514,449,575 $493,905,996
================================================================================
*Includes overdistributed net investment
income of:........................................ $ (447,864) --
================================================================================
See Notes to Financial Statements. 19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
November 30, 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
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
November 30, 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.
In addition, the Fund may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), formerly known as Smith Barney Mutual
Funds Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc.
("SSBH"), acts as investment adviser to the Fund. The Fund pays MMC 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.
MMC 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., another subsidiary of SSBH.
3. Investments
For the nine months ended November 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities but
excluding short-term securities) were:
================================================================================
Purchases $340,986,239
- --------------------------------------------------------------------------------
Sales 351,367,857
================================================================================
At November 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 24,635,457
Gross unrealized depreciation (3,371,059)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 21,264,398
================================================================================
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
4. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. government
securities from banks subject to agreements to resell the securities to the
sellers at a future date (generally, the next business day) at an agreed-upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Forward Foreign Currency Contracts
At November 30, 1997, the Fund had open forward foreign currency contracts
as described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Sell:
British Pound 797,040 $1,333,583 5/26/98 $ (1,336)
German Deutschemark 3,466,849 1,965,819 12/1/97 (3,888)
German Deutschemark 4,350,000 2,469,879 12/22/97 (4,032)
German Deutschemark 2,000,000 1,136,143 12/30/97 (2,019)
German Deutschemark 1,375,000 781,099 12/30/97 640
- --------------------------------------------------------------------------------
(10,635)
- --------------------------------------------------------------------------------
To Buy:
German Deutschemark 780,891 443,381 12/22/97 (8,563)
- --------------------------------------------------------------------------------
Net Unrealized Loss on Forward
Foreign Currency Contracts $(19,198)
================================================================================
6. 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.
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
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).
At November 30, 1997, the Fund had no open futures contracts.
7. 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 November 30, 1997, the Fund had no open purchased call or put option
contracts.
When the 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 depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, 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.
23
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
November 30, 1997 (unaudited)(continued)
During the nine months ended November 30, 1997, the Fund did not write any
covered call or put options.
8. 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.
9. 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
================================================================================
10. Capital Shares
During the nine months ended November 30, 1997, capital stock transactions
were as follows:
Shares Amount
================================================================================
Shares issued on reinvestment 1,055,426 $12,250,858
================================================================================
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............................ 0.81 1.12 1.13 1.12 0.98
Net realized and
unrealized gain (loss)......................... 0.20 0.21 0.65 (1.48) 0.51
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................ 1.01 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............................ (0.82) (1.08) (1.27) (1.00) (0.96)
Net realized gains............................... -- -- -- (0.15) (0.12)
Capital.......................................... -- (0.02) (0.03) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions................................ (0.82) (1.10) (1.30) (1.15) (1.08)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period..................... $11.78 $11.59 $11.36 $10.88 $12.39
- -------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value............................ 11.90%++ 15.37% 18.83% 0.14% 6.85%++
- -------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value**....................... 9.05%++ 12.65% 17.80% (2.18)% 12.67%++
- -------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s)................... $514,450 $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............................ 9.27+ 9.89 9.74 9.96 8.74+
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate............................ 71% 61% 73% 62% 108%
- -------------------------------------------------------------------------------------------------------------------
Market Value, End of Period........................ $12.125 $11.625 $11.125 $10.500 $11.750
===================================================================================================================
</TABLE>
(1) For the nine months ended November 30, 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 is based on the Fund's net asset value at the beginning
and end of the period 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 0.29 24,529,348 0.57
November 30,
1997 12,745,541 0.29 11,250,534 0.26 1,329,864 0.03 12,580,398 0.29
=================================================================================================================
</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
September 30, 1997 12.000 11.94 0.091 11.90
October 31, 1997 11.750 11.82 0.091 11.78
November 30, 1997 12.125 11.78 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>
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
President and
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
Mutual Management Corp.
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 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.
FD0882 1/98
