Managed
HIGH INCOME
PORTFOLIO INC.
[GRAPHIC]
Semi-Annual
Report
August 31, 1999
<PAGE>
Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
August 31, 1999
Dear Shareholder:
We are pleased to provide the semi-annual report for the Managed High Income
Portfolio Inc. ("Fund") for the period ended August 31, 1999. During the past
six months, the Fund paid income dividends totaling $0.50 per share. The table
below details the annualized distribution rate and the six-month total return
for the Fund based on its August 31, 1999 net asset value ("NAV") and the New
York Stock Exchange ("NYSE") closing price.
Price Annualized Six-Month
Per Share Distribution Rate* Total Return
------------- ------------------ ------------
$10.21 (NAV) 9.52% (0.02)%
$ 9.25 (NYSE) 10.51% (6.89)%
The Fund generated a total return of a negative 0.02% based on NAV for the past
six months. The six-month results were above the six-month average total return
of a negative 0.42% for unleveraged high yield funds as reported by Lipper, Inc.
(Lipper, Inc. is a major fund-tracking organization.) We were disappointed in
our results over the past six months because our relatively more conservative
credit stance caused us to be more negatively affected by the general rise in
interest rates. Yet we think our general cautiousness was warranted because of
increasing volatility in the financial markets over the past twelve months.
Given our more conservative strategy that emphasized higher quality issues with
less yield, we needed to slightly reduce the dividend payout on the portfolio in
December and modestly in July. However, because of the increase in rates, we
believe there are now numerous opportunities to increase the portfolio's yield
potential and will work diligently on that objective. We believe the high yield
bond market is attractively valued at current levels and, while no guarantees
can be made, we believe we are in a strong position to take advantage of any
economic or market dislocations that may occur over the next six months.
- ----------
* Assumes a current monthly income dividend rate of $0.081 for twelve months.
1
<PAGE>
Market and Economic Overview
During the first eight months of 1999, the high yield bond market deteriorated
along with the rest of the fixed income markets as U.S. Treasury rates continued
to move higher on fears that the Federal Reserve Board ("Fed") would be forced
to raise short-term interest rates to slow U.S. economic growth and contain any
potential increase in inflation. On June 30, 1999, the Fed raised short-term
interest rates by 0.25% and on August 24, 1999, the Fed raised interest rates
again an additional 0.25% to 5.25%.
The high yield bond market and the investment grade corporate bond market were
not only negatively affected by the general increase in interest rates, but also
by the rush on the part of corporations to issue additional debt before interest
rates went higher. This added supply caused the high yield bond market to fall
as many investors retreated from the market.
Given the rise in general interest rates, including those of U.S. Treasury
bonds, compounded by the heavy new issuance of corporate bonds, the better
quality segments of the high yield bond market continued to underperform the
lower quality CCC/Caa rated issues during the past eight months. Although higher
quality issues tend to have a lower risk of default, these issues tend to be
more sensitive to movements of the U.S. Treasury market. At the same time,
movements in the lower quality high yield issues have a higher risk of default
but tend to react more closely to the movements in the stock market. The lower
quality segment of the high yield market clearly benefited from strong domestic
economic growth this year and the strong performance returns generated by U.S.
stocks.
Compared to other segments of the fixed income markets such as U.S. Treasury
bonds and investment grade corporate bonds, the high yield market has modestly
outperformed so far in 1999. Thirty-year U.S. Treasuries have generated the
worst performance with a negative 5.64% total return for the six months ended
August 31, 1999. Ten-year U.S. Treasuries have generated a negative 3.46% total
return for the six months ended August 31, 1999. For the same time period the
domestic high yield market generated a relatively flat total return.
The strongest performing industry sectors were basic materials (i.e., forest
products, metals, mining, etc.) and energy. This was not surprising given the
increasing risk of higher inflation rates caused by stronger than expected
economic growth both domestically and abroad. The weakest industry sectors
included media (i.e., cable TV and broadcasting) and telecommunications. A
number of media and telecommunications companies brought new issues into
2
<PAGE>
the market in the second and third quarters of 1999, putting further pressure on
existing issues.
The Fund's performance lagged the various high yield indices in the second and
third quarters of 1999 with total returns below that of the U.S. high yield bond
market overall. We were held back by being underweighted in basic materials and
overweighted in the telecommunications sector. Yet, despite challenging
short-term market conditions, we are committed to our long-term investment style
to maintain style purity in the funds we manage with a meaningful emphasis on
better quality issues. In fact our higher quality BB/Ba rated issues generated
the weakest results due to the ongoing increase in interest rates so far in
1999.
Portfolio Strategy Update
As mentioned in our last report, the Fund's management team has begun a
multi-pronged strategy of rebalancing the Fund to better reflect strong economic
conditions. We have therefore been slowly increasing the Fund's exposure to the
basic industry sector and eliminating sectors such as healthcare. Also, we have
modestly increased our energy exposure by investing in higher quality energy
credits. In terms of quality, we have been increasing our exposure to the middle
B-rated segment of the market where we have continued to find attractive yields.
Some of our recent additions include AES Corporation, an independent power
producer; Nextlink, a competitive local exchange telecommunications provider;
Allied Waste, one of the largest waste reclamation companies in the United
States; Lyondell Chemical and Huntsman Chemical, two of the largest specialty
chemical companies in the world; and Ames Department Stores, a middle market
retailer. We think the middle B-rated segment of the high yield market
represents the best value given continued economic strength. We believe our
current strategy makes sense in this environment where economic growth continues
to be strong. The Fund's average maturity of approximately six to seven years on
a call-adjusted basis should continue to limit the impact of rising rates on the
portfolio. We remain bullish on the total return prospects of the high yield
market at current valuation levels, especially given the health of the economy.
The Portfolio initiated a program in September 1999 whereby it may repurchase
shares of its common stock in the open market. It is the Fund's intention to
repurchase shares of its stock at such times, prices and amounts as deemed
advisable. There can be no assurance that the Board of Directors will continue
this program.
3
<PAGE>
Conclusion
For the remainder of 1999, we expect a continuation of solid economic growth
with modestly higher inflation. These factors could result in a modest increase
in general interest rates. We believe that both the stock market and the high
yield bond market should do better than U.S. Treasuries and the middle quality
high yield bond funds should outperform other types of high yield bonds.
Moreover, we will continue to focus closely on some of the stronger companies in
select commodity sectors such as paper, energy and steel. And while no
guarantees can be made, we believe the Fund should generate competitive returns
over the near term.
Thank you for your continued confidence in our investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, C.F.A.
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman Vice President and
Investment Officer
September 23, 1999
4
<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvest ment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains, if any, in additional shares of the Fund. A description of
the Fund's Plan begins on page 36. Below is a short summary of how the Plan
works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value ("NAV") per share on the
date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.
If the NAV per share at the time of valuation is greater than the market price
of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Purchasing Agent will buy common stock
for your account in the open market or on the New York Stock Exchange.
If the Purchasing Agent begins to purchase additional shares in the open market
and the market price of the shares subsequently rises above the NAV before the
purchases are completed, the Purchasing Agent will attempt to cancel any
remaining orders and the Fund will issue the remaining dividend or distribution
in shares at the greater of Fund's NAV per share or 95% of the then current
market price. In that case, the number of Fund shares you receive 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.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investors Services Group, Inc. at (800)
331-1710.
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5
<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 97.3%
- -------------------------------------------------------------------------------------------------
Advertising -- 0.1%
450,000 B- Go Outdoor Systems, Sr. Sub. Notes,
10.500% due 7/15/09+............................... $ 476,524
- -------------------------------------------------------------------------------------------------
Aerospace -- 0.9%
1,500,000 B1* BE Aerospace Inc., Sr. Sub. Notes,
9.500% due 11/1/08................................. 1,526,250
1,185,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09+............................... 1,199,813
1,300,000 B- Fairchild Corp., Sr. Sub. Notes,
10.750% due 4/15/09................................ 1,196,000
- -------------------------------------------------------------------------------------------------
3,922,063
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Airlines -- 1.4%
6,375,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation, Series D,
10.875% due 3/15/19................................ 6,087,296
- -------------------------------------------------------------------------------------------------
Aluminum -- 0.7%
Kaiser Aluminum, Sr. Notes:
1,945,000 B2* 12.750% due 12/1/03................................ 1,959,588
500,000 B1* Series B, 10.875% due 10/15/06..................... 512,500
445,000 B1* Series D, 10.875% due 10/15/06..................... 456,125
- -------------------------------------------------------------------------------------------------
2,928,213
- -------------------------------------------------------------------------------------------------
Apparel -- 0.1%
550,000 B- Tropical Sportswear International, Sr. Sub. Notes,
11.000% due 6/15/08+............................... 533,500
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Auto Parts -- 0.9%
2,540,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06................................ 2,565,400
1,485,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09.................................. 1,425,600
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3,991,000
- -------------------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.7%
2,930,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05.......... 2,930,000
- -------------------------------------------------------------------------------------------------
</TABLE>
6
See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 1.5%
525,000 B- Capstar Broadcasting, Sr. Discount Notes,
step bond to yield 12.750% due 2/1/09.............. $ 450,188
3,590,000 B1* Chancellor Media Corp., Sr. Sub. Notes,
9.000% due 10/1/08................................. 3,590,000
Citadel Broadcasting Co., Sr. Sub. Notes:
790,000 B- 10.250% due 7/1/07................................. 849,250
1,565,000 B- 9.250% due 11/15/08................................ 1,557,175
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6,446,613
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Building Materials -- 0.3%
1,190,000 B Atrium Cos. Inc., Sr. Sub. Notes,
10.500% due 5/1/09+................................ 1,163,225
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Building Products -- 1.3%
1,150,000 B Amatek Industries Property, Sr. Sub. Notes,
12.000% due 2/15/08+............................... 1,114,063
600,000 B NCI Building Systems Inc., Sr. Sub. Notes,
Series B, 9.250% due 5/1/09........................ 570,000
Nortek Inc., Sr. Notes:
500,000 B+ 9.250% due 3/15/07................................. 495,000
3,235,000 B+ 9.125% due 9/1/07.................................. 3,186,475
500,000 B+ 8.875% due 8/1/08.................................. 509,375
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5,874,913
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Cable Television -- 12.6%
5,490,000 B+ Adelphia Communications, Sr. Notes,
9.875% due 3/1/07.................................. 5,572,350
2,315,000 BB- Century Communications, Sr. Discount Notes,
zero coupon due 1/15/08+........................... 960,725
2,695,000 B+ Charter Communications Holding LLC,
Sr. Discount Notes, step bond to yield
9.920% due 4/1/11+................................. 1,617,000
CSC Holdings Inc., Sr. Sub. Notes:
7,035,000 BB- 9.875% due 2/15/13................................. 7,210,875
3,250,000 BB- 10.500% due 5/15/16................................ 3,575,000
1,125,000 B- Diamond Holdings PLC, Sr. Notes,
10.000% due 2/1/08................................. 1,822,563
</TABLE>
See Notes to Financial Statements. 7
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<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cable Television -- 12.6% (continued)
2,100,000 B EchoStar DBS Corp., Sr. Notes,
9.375% due 2/1/09+................................. $ 2,100,000
NTL Inc., Sr. Notes:
5,515,000 B- 11.500% due 10/1/08 ............................... 5,901,050
490,000 B- Step bond to yield 12.375% due 10/1/03............. 325,850
4,465,000 BB- Rogers Cablesystems Ltd., Sr. Sub. Notes,
11.000% due 12/1/15................................ 5,045,450
1,250,000 BB- Rogers Communications, Sr. Notes,
9.125% due 1/15/06................................. 1,284,375
Telewest Communications, PLC:
990,000GBP B+ Sr. Discount Notes, zero coupon due 4/15/09+....... 971,066
2,350,000 B+ Sr. Notes, 11.250% due 11/1/08..................... 2,514,500
16,250,000 B United International Holdings Inc.,
Sr. Discount Notes, step bond
to yield 10.750% due 2/15/08....................... 9,425,000
13,600,000 B2* United Pan-Europe Comm. N.V., Sr. Discount
Notes, step bond to yield 12.500% due 8/1/09....... 7,548,000
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55,873,804
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Casinos/Gambling -- 2.3%
415,000 BB+ Circus Circus Enterprises, Sr. Sub. Notes,
7.625% due 7/15/13................................. 353,788
2,200,000 B Harvey Casinos Resort, Sr. Sub. Notes,
10.625% due 6/1/06................................. 2,271,500
Hollywood Casinos, First Mortgage Notes:
500,000 B 13.000% due 8/1/06................................. 515,000
855,000 B 11.250% due 5/1/07................................. 867,825
2,075,000 B Hollywood Park, Sr. Sub. Notes,
9.250% due 2/15/07................................. 2,033,500
1,970,000 B+ Horseshoe Gaming Holdings, Sr. Sub. Notes,
8.625% due 5/15/09+................................ 1,905,975
1,415,000 B Isle Of Capri Casinos, Sr. Sub. Notes,
8.750% due 4/15/09+................................ 1,315,950
Station Casinos, Sr. Sub. Notes:
710,000 B+ 10.125% due 3/15/06................................ 731,300
400,000 B+ 8.875% due 12/1/08................................. 389,000
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10,383,838
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</TABLE>
8 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals - Major -- 1.1%
Huntsman ICI Chemicals:
10,525,000 B+ Sr. Discount Notes, zero coupon due 12/31/09....... $ 2,841,750
Sr. Sub. Notes:
85,000 B2* 9.500% due 5/1/07+ .............................. 80,750
2,005,000 B+ 10.125% due 5/1/07+.............................. 1,999,988
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4,922,488
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Chemicals - Specialty -- 0.8%
Lyondell Chemical Co.:
Sr. Secured Notes:
995,000 NR 9.625% due 5/1/07+............................... 1,009,925
990,000 BB 9.875% due 5/1/07+............................... 997,425
1,360,000 B+ Sr. Sub. Notes, 10.875% due 5/1/09................. 1,377,000
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3,384,350
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Coal Mining -- 0.6%
2,780,000 B AEI Resources Inc., Sr. Sub. Notes,
10.500% due 12/15/05+.............................. 2,502,000
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Construction/Agricultural Equipment/Trucks -- 0.3%
1,490,000 B Columbus McKinnon Corp., Sr. Sub. Notes,
8.500% due 4/1/08.................................. 1,367,075
- -------------------------------------------------------------------------------------------------
Containers/Packaging -- 3.0%
1,965,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07................................ 1,901,138
3,475,000 B1* BSN Financing Co., S.A., Sr. Sub. Notes,
10.250% due 8/1/09+................................ 3,780,765
1,850,000 B Huntsman Packaging Corp., Sr. Notes,
9.125% due 10/1/07................................. 1,771,375
3,300,000 B Stone Container, Sr. Notes,
11.500% due 8/15/06+............................... 3,448,500
Tekni-Plex Inc., Sr. Sub. Notes:
1,005,000 B- 11.250% due 4/1/07................................. 1,065,300
1,180,000 B- 9.250% due 3/1/08.................................. 1,144,600
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13,111,678
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</TABLE>
See Notes to Financial Statements. 9
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<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract Drilling -- 1.6%
3,205,000 BB Pride International Inc., Sr. Notes,
10.000% due 6/1/09................................. $ 3,277,113
RBF Finance Corp.:
1,995,000 Ba3* Sr. Notes, 12.250% due 3/15/06..................... 2,069,813
1,840,000 BB- Sr. Secured Notes, 11.375% due 3/15/09............. 1,955,000
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7,301,926
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Discount Stores -- 1.5%
3,760,000 B+ Ames Department Stores, Sr. Notes,
10.000% due 4/15/06+............................... 3,656,600
965,000 BB+ DR Structured Finance, Pass Through Certificates,
Sr. Notes, 8.375% due 8/15/15...................... 928,060
1,710,000 BB+ KMart Corp., Sr. Notes, 12.500% due 3/1/05........... 2,043,450
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6,628,110
- -------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.6%
2,225,000 BB- Cia Latino Americana, Company Guaranteed
Notes, 11.625% due 6/1/04+......................... 1,257,125
2,900,000 B2* Intertek Finance, Sr. Sub. Notes,
10.250% due 11/1/06 ............................... 2,682,500
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06................................ 3,185,000
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7,124,625
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Diversified Financial Services -- 0.5%
Amresco Inc., Sr. Sub. Notes:
1,500,000 CCC+ 10.000% due 3/15/04................................ 1,260,000
1,275,000 CCC+ 9.875% due 3/15/05................................. 1,077,375
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2,337,375
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Diversified Manufacturing -- 0.9%
1,210,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+..... 1,240,250
2,650,000 B+ Park Ohio Holdings Corp., Sr. Sub. Notes,
9.250% due 12/1/07................................. 2,544,000
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3,784,250
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Drugs - Generic -- 1.2%
5,600,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05................................. 5,488,000
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</TABLE>
10 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electronic Components -- 1.2%
1,995,000 B+ Celestica International, Sr. Sub. Notes,
10.500% due 12/31/06............................... $ 2,114,700
3,830,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07.................................. 3,341,675
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5,456,375
- -------------------------------------------------------------------------------------------------
Electronic Data Processing -- 1.8%
7,070,000 Bal* Unisys Corp., Sr. Notes, 11.750% due 10/15/04........ 7,847,700
- -------------------------------------------------------------------------------------------------
Engineering & Construction -- 1.1%
1,320,000 B- American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08+.............................. 1,244,100
2,260,000 B Group Maintenance America Corp., Sr. Sub.
Notes, 9.750% due 1/15/09+......................... 2,228,925
1,005,000 B+ Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09+................................. 994,950
300,000 B Metromedia Fiber Network, Sr. Notes,
10.000% due 11/15/08............................... 297,000
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4,764,975
- -------------------------------------------------------------------------------------------------
Environmental Services -- 2.9%
10,700,000 B+ Allied Waste Inc., NA, Sr. Sub. Notes,
10.000% due 8/1/09+................................ 10,379,000
985,000 B+ IT Group Inc., Sr. Sub. Notes,
11.250% due 4/1/09+................................ 948,063
1,510,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09+....... 1,510,000
- -------------------------------------------------------------------------------------------------
12,837,063
- -------------------------------------------------------------------------------------------------
Food Distributors -- 2.3%
3,900,000 B2* Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08................................. 3,432,000
4,625,000 B Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07 ............................... 4,347,500
1,010,000 B- Premier International Foods, Sr. Notes,
12.000% due 9/1/09 ................................ 1,020,100
1,335,000 B SC International Services Inc., Sr. Sub. Notes,
9.250% due 9/1/07.................................. 1,321,650
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10,121,250
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</TABLE>
See Notes to Financial Statements. 11
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<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foods - Specialty/Candy -- 1.0%
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07.................................. $ 2,494,438
1,765,000 B+ Chiquita Brands International Inc., Sr. Notes,
10.000% due 6/15/09................................ 1,734,113
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4,228,551
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Forest Products -- 0.7%
2,940,000 B Ainsworth Lumber, Sr. Notes,
12.500% due 7/15/07................................ 3,256,050
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Home Furnishings -- 0.3%
1,260,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09+............................... 1,237,950
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Homebuilding -- 0.5%
2,240,000 BB- US Home Corp., Sr. Sub. Notes,
8.875% due 2/15/09................................. 2,060,800
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Hospital/Nursing Management -- 1.5%
14,400 Ba3* Fresenius Medical Care Preferred Capital Trust,
Notes, 9.000% due 12/1/06.......................... 1,411,200
6,410,000 B- Magellan Health Services Inc., Sr. Sub. Notes,
9.000% due 2/15/08................................. 5,480,550
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6,891,750
- -------------------------------------------------------------------------------------------------
Hotels/Resorts -- 2.3%
3,250,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08................................. 3,250,000
4,990,000 BB HMH Properties, Sr. Notes,
8.450% due 12/1/08................................. 4,678,125
2,490,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08....... 2,440,200
- -------------------------------------------------------------------------------------------------
10,368,325
- -------------------------------------------------------------------------------------------------
Industrial Specialties -- 0.3%
1,100,000 B1* Leica Geosystems Finance, Sr. Sub. Notes,
9.875% due 12/15/08+............................... 1,185,170
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</TABLE>
12 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance - Multi-Line -- 1.0%
3,225,000 BB+ Sig Capital Trust 1, Guaranteed Notes,
9.500% due 8/15/27................................. $ 2,410,688
2,500,000 B Veritas Capital Trust, Sr. Notes,
10.000% due 1/1/28................................. 1,962,500
- -------------------------------------------------------------------------------------------------
4,373,188
- -------------------------------------------------------------------------------------------------
Internet Services -- 3.7%
1,005,000 NR Cybernet Internet Services International,
Sr. Notes, 14.000% due 7/1/09+..................... 1,010,025
PSINet Inc., Sr. Notes:
3,725,000 B- 10.000% due 2/15/05................................ 3,594,625
2,605,000 B- 11.500% due 11/1/08................................ 2,644,075
2,405,000 B- 11.000% due 8/1/09+................................ 2,374,938
775,000EUR B- 11.000% due 8/1/09+................................ 808,400
3,300,000 NR Splitrock Services Inc., Sr. Sub. Notes,
11.750% due 7/15/08................................ 3,019,500
1,685,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08........... 1,714,488
1,690,000 CCC+ WAM!Net Inc., step bond to yield
13.250% due 3/1/05................................. 997,100
- -------------------------------------------------------------------------------------------------
16,163,151
- -------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 0.9%
4,000,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08.................................. 3,790,000
- -------------------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.4%
1,892,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03................................ 1,920,380
- -------------------------------------------------------------------------------------------------
Media Conglomerates -- 0.8%
2,400,000GBP B Polestar Corp., PLC, Sr. Notes,
10.500% due 5/30/08+............................... 3,743,427
- -------------------------------------------------------------------------------------------------
Medical Specialties -- 0.3%
1,205,000 B- Hanger Orthopedic Group, Sr. Notes,
11.250% due 6/15/09+............................... 1,217,050
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metals/Minerals - Other -- 0.4%
1,975,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04................................. $ 1,866,375
- -------------------------------------------------------------------------------------------------
Miscellaneous -- 0.3%
1,230,000 B- Key Plastics, Series B, Sr. Sub. Notes,
10.250% due 3/15/07................................ 1,174,650
- -------------------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.4%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+............................... 1,973,425
- -------------------------------------------------------------------------------------------------
Newspapers -- 0.1%
705,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11+................................. 650,363
- -------------------------------------------------------------------------------------------------
Oil & Gas Production -- 4.4%
Belco Oil & Gas, Sr. Sub. Notes:
700,000 B1* 10.500% due 4/1/06................................. 721,000
1,330,000 B1* 8.875% due 9/15/07................................. 1,283,450
Canadian Forest Oil Ltd., Sr. Sub. Notes:
1,070,000 B 10.500% due 1/15/06................................ 1,107,450
2,125,000 B 8.750% due 9/15/07................................. 2,045,313
450,000 B Chesapeake Energy Corp., Sr. Notes,
9.625% due 5/1/05.................................. 427,500
4,350,000 B+ Clark USA, Sr. Notes, 10.875% due 12/1/05............ 3,730,125
720,000 B+ Nuevo Energy Corp., Sr. Notes,
9.500% due 6/1/08+................................. 720,000
Ocean Energy Inc., Sr. Sub. Notes:
2,625,000 BB- 10.375% due 10/15/05............................... 2,756,250
2,750,000 BB- 9.750% due 10/1/06................................. 2,839,375
1,800,000 B+ Parker Drilling Corp., Sr. Notes,
9.750% due 11/15/06................................ 1,723,500
1,765,000 B2* Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07................................. 1,747,350
320,000 B+ Vintage Petroleum, Sr. Sub. Notes,
9.750% due 6/30/09................................. 328,000
- -------------------------------------------------------------------------------------------------
19,429,313
- -------------------------------------------------------------------------------------------------
</TABLE>
14 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil/Gas Transmission -- 0.3%
1,285,000 BB- Leviathan Gas Pipeline Partners, Sr. Sub. Notes,
10.375% due 6/1/09+................................ $ 1,304,275
- -------------------------------------------------------------------------------------------------
Package Goods/Cosmetics -- 0.4%
2,300,000 B- Revlon Consumer Products, Sr. Sub. Notes,
8.625% due 2/1/08.................................. 1,920,500
- -------------------------------------------------------------------------------------------------
Paper -- 2.8%
1,715,000 BB Doman Industries Ltd., Sr. Notes,
8.750% due 3/15/04 ................................ 1,191,925
2,515,000 B Kapa Beheer BV, Sr. Sub. Notes,
10.625% due 7/15/09+ .............................. 2,726,332
2,465,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05................................ 2,144,550
Riverwood International:
1,525,000 B- Sr. Notes, 10.625% due 8/1/07...................... 1,540,250
2,685,000 CCC+ Sr. Sub. Notes, 10.875% due 4/1/08................. 2,617,875
2,240,000 BB+ Tembec Industries, Sr. Notes,
9.875% due 9/30/05................................. 2,329,600
- -------------------------------------------------------------------------------------------------
12,550,532
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - Other -- 0.3%
1,215,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09................................ 1,233,225
- -------------------------------------------------------------------------------------------------
Photographic Products -- 0.5%
2,255,000 BB- Polaroid Corp., Sr. Notes,
11.500% due 2/15/06................................ 2,379,025
- -------------------------------------------------------------------------------------------------
Printing/Forms -- 0.1%
605,000 BB- World Color Press, Sr. Sub. Notes,
7.750% due 2/15/09................................. 579,288
- -------------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.7%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05................................. 1,912,500
1,250,000 Baa3* Trizac Finance, Sr. Notes,
10.875% due 10/15/05............................... 1,360,938
- -------------------------------------------------------------------------------------------------
3,273,438
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Recreational Products/Toys -- 0.2%
1,000,000 B2* Head Holding, Sr. Notes, 10.750% due 7/15/06+........ $ 1,037,816
- -------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 1.3%
2,130,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09+................................ 2,193,900
1,015,000 B Nationsrent Inc., Sr. Sub. Notes,
10.375% due 12/15/08............................... 1,012,463
2,415,000 BB- United Rentals Inc., Sr. Sub. Notes,
9.250% due 1/15/09................................. 2,366,700
- -------------------------------------------------------------------------------------------------
5,573,063
- -------------------------------------------------------------------------------------------------
Restaurants -- 0.6%
2,735,000 B Advantica Restaurant Group, Sr. Notes,
11.250% due 1/15/08................................ 2,529,875
- -------------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.3%
375,000 CCC+ Pathmark Stores, Sr. Sub. Notes,
12.625% due 6/15/02................................ 383,906
805,000 B+ Stater Brothers, Sr. Notes,
10.750% due 8/15/06+............................... 821,100
- -------------------------------------------------------------------------------------------------
1,205,006
- -------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.7%
3,100,000 B- Advance Stores Co., Inc., Sr. Sub. Notes,
10.250% due 4/15/08................................ 2,929,500
- -------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.9%
Ocwen Capital Trust:
3,200,000 B2* Jr. Sub. Notes, 10.875% due 8/1/27................. 2,128,000
2,100,000 B+ Sr. Notes, 11.875% due 10/1/03..................... 2,026,500
- -------------------------------------------------------------------------------------------------
4,154,500
- -------------------------------------------------------------------------------------------------
Semiconductors -- 0.9%
4,260,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07................................ 4,132,200
- -------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.5%
1,005,000 Ba3* National Steel Corp., First Mortgage Notes,
9.875% due 3/1/09.................................. 1,015,050
</TABLE>
16 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Steel/Iron Ore -- 1.5% (continued)
2,060,000 B+ Russel Metals Inc., Sr. Notes,
10.000% due 6/1/09................................. $ 2,018,800
1,690,000 B+ WCI Steel Inc., Sr. Notes,
10.000% due 12/1/04................................ 1,706,900
1,940,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05............ 1,847,850
- -------------------------------------------------------------------------------------------------
6,588,600
- -------------------------------------------------------------------------------------------------
Telecommunications - Other -- 12.3%
800,000GBP B1* COLT Telecom Group PLC, Sr. Notes,
10.125% due 11/30/07............................... 1,305,697
6,050,000 NR E. Spire Communications Inc.,
Sr. Discount Notes, step bond
to yield 10.625% due 7/1/08........................ 2,420,000
Esprit Telecom Group PLC, Sr. Notes:
2,300,000 B- 11.500% due 12/15/07............................... 2,392,000
2,000,000DEM B- 11.500% due 12/15/07............................... 1,139,493
1,300,000 B- 10.875% due 6/15/08................................ 1,322,750
4,615,000 NR Facilicom International, Sr. Notes,
10.500% due 1/15/08 ............................... 3,922,750
Hermes Europe Railtel Inc., Sr. Notes:
3,900,000 B 11.500% due 8/15/07................................ 4,036,500
1,225,000 B 10.375% due 1/15/09................................ 1,225,000
ICG Holdings Inc., Sr. Discount Notes:
1,050,000 B- Step bond to yield 13.500% due 9/15/05............. 924,000
1,730,000 B- Step bond to yield 12.500% due 5/1/06.............. 1,388,325
Intermedia Communications of Florida:
Sr. Discount Notes:
1,210,000 B Step bond to yield 12.500% due 5/15/06........... 998,250
1,105,000 B Step bond to yield 11.250% due 7/15/06........... 773,500
1,175,000 B Sr. Notes, 9.500% due 3/1/09....................... 1,101,563
905,000 B3* IXC Communications Inc., Sr. Sub. Notes,
9.000% due 4/15/08................................. 893,688
2,590,000 B- KMC Telecom Holdings Inc., Sr. Notes,
13.500% due 5/15/09+............................... 2,538,200
4,530,000 B Level 3 Communications, step bond to yield
10.500% due 12/1/08................................ 2,616,075
</TABLE>
See Notes to Financial Statements. 17
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 12.3% (continued)
Microcell Telecommunications, Sr. Discount Notes:
950,000 B3* Step bond to yield 14.000% due 6/1/06.............. $ 781,375
1,835,000 B Step bond to yield 12.000% due 6/1/09+............. 1,105,588
Nextlink Communications:
4,125,000 B Sr. Discount Notes, step bond to yield
12.250% due 6/1/09............................... 2,402,813
Sr. Notes:
3,260,000 B 12.500% due 4/15/06.............................. 3,553,400
2,580,000 B 10.750% due 6/1/09............................... 2,605,800
2,515,000 BB- Orange PLC, Sr. Notes, 9.000% due 6/1/09+............ 2,527,575
3,515,000 B- Primus Telecom Group, Sr. Notes,
11.750% due 8/1/04................................. 3,453,488
Tele1 Europe B.V., Sr. Notes:
1,005,000 B- 13.000% due 5/15/09+............................... 1,065,300
1,000,000EUR B- 13.000% due 5/15/09+............................... 1,119,678
2,600,000 NR Versatel Telecom, Sr. Notes,
13.250% due 5/15/08................................ 2,629,250
2,135,000 B- Viatel Inc., Sr. Notes, 11.250% due 4/15/08.......... 2,108,313
1,500,000 B Worldwide Fiber Inc., Sr. Notes,
12.000% due 8/1/09+................................ 1,503,750
- -------------------------------------------------------------------------------------------------
53,854,121
- -------------------------------------------------------------------------------------------------
Telephone - Cellular -- 5.4%
1,470,000 CCC+ Centennial Cellular, Sr. Sub. Notes,
10.750% due 12/15/08............................... 1,532,475
Crown Castle International Corp.,
Sr. Discount Notes:
1,400,000 B Step bond to yield 10.375% due 5/15/11........... 794,500
885,000 B Step bond to yield 11.250% due 8/1/11+........... 504,450
880,000 NR Dobson/Sygnet Communications, Sr. Notes,
12.250% due 12/15/08............................... 928,400
Dolphin Telecom PLC, Sr. Discount Notes:
4,325,000 CCC+ Step bond to yield 11.419% due 6/1/08.............. 2,011,125
4,525,000EUR Caa* Step bond to yield 10.570% due 6/1/08+............. 2,079,196
5,325,000 B- Millicom International Cellular S.A.,
Sr. Discount Notes, step bond to yield
13.500% due 6/1/06................................. 3,887,250
</TABLE>
18 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 5.4% (continued)
Nextel Communications Inc., Sr. Discount Notes:
3,530,000 B2* Step bond to yield 10.650% due 9/15/07............. $ 2,585,725
3,100,000 B2* Step bond to yield 9.950% due 2/15/08.............. 2,146,750
2,455,000 NR Spectrasite Holdings, Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09+............ 1,264,325
1,655,000 B3* Telecorp PCS Inc., Sr. Discount Notes,
step bond to yield 11.625% due 4/15/09+............ 976,450
Telesystems International, Sr. Discount Notes:
5,860,000 CCC+ Step bond to yield 13.250% due 6/30/07............. 2,930,000
2,500,000 CCC+ Step bond to yield 10.500% due 11/1/07............. 1,050,000
1,355,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.000% due 5/1/08.............. 928,175
- -------------------------------------------------------------------------------------------------
23,618,821
- -------------------------------------------------------------------------------------------------
Textiles -- 0.5%
4,400,000DEM B Texon International PLC, Sr. Notes,
10.000% due 2/1/08................................. 2,120,754
- -------------------------------------------------------------------------------------------------
Transportation - Marine -- 0.3%
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09+................................ 1,229,900
107,000 BB- Sea Containers Ltd., Series A, Sr. Sub. Debentures,
12.500% due 12/1/04................................ 115,426
- -------------------------------------------------------------------------------------------------
1,345,326
- -------------------------------------------------------------------------------------------------
Unregulated Power Generation -- 2.4%
AES Corp.:
4,610,000 Ba1* Sr. Notes, 9.500% due 6/1/09....................... 4,656,100
2,350,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06................ 2,373,500
3,550,000 BB Calpine Corp., Sr. Notes, 10.500% due 5/15/06........ 3,700,875
- -------------------------------------------------------------------------------------------------
10,730,475
- -------------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.4%
1,615,000 B- Fisher Scientific, Sr. Sub. Notes,
9.000% due 2/1/08.................................. 1,526,811
- -------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $449,715,799)............................... 429,707,298
=================================================================================================
</TABLE>
See Notes to Financial Statements. 19
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
COMMON STOCK - 0.0%
- -------------------------------------------------------------------------------------------------
Telecommunications - Other -- 0.0%
12,250 Pagemart Nationwide Inc. (Cost -- $0)................ $ 85,750
=================================================================================================
- -------------------------------------------------------------------------------------------------
PREFERRED STOCK - 0.8%
- -------------------------------------------------------------------------------------------------
Broadcasting -- 0.5%
18,766 Capstar Broadcasting, Series E,
Exchangeable 12.625%............................... 2,298,835
- -------------------------------------------------------------------------------------------------
Electronic Components -- 0.0%
816 Viasystems Inc., Series B ........................... 8,982
- -------------------------------------------------------------------------------------------------
Savings & Loan Association -- 0.3%
63,850 California Federal Preferred Capital Corp.,
Series A, 9.125%................................... 1,588,269
- -------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $5,292,101)................................. 3,896,086
=================================================================================================
- -------------------------------------------------------------------------------------------------
WARRANTS # - 0.4%
- -------------------------------------------------------------------------------------------------
Broadcasting -- 0.1%
5,425 Australis Media, Expire 10/30/01+.................... 0
8,625 UIH Australia Inc., Expire 5/15/06................... 258,750
- -------------------------------------------------------------------------------------------------
258,750
- -------------------------------------------------------------------------------------------------
Cable Television -- 0.0%
3,375 Wireless One Inc., Expire 10/19/00................... 844
- -------------------------------------------------------------------------------------------------
Internet Services -- 0.1%
4,050 Splitrock Services, Expire 7/15/08................... 182,250
8,700 WAM!Net Inc., Expire 3/1/05.......................... 197,925
- -------------------------------------------------------------------------------------------------
380,175
- -------------------------------------------------------------------------------------------------
Paper -- 0.0%
4,800 SD Warren Co., Expire 12/15/06....................... 84,480
- -------------------------------------------------------------------------------------------------
</TABLE>
20 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications - Other -- 0.2%
24,840 Pagemart Nationwide Inc., Expire 12/31/03............ $ 74,520
4,125 RSL Communications Ltd., Expire 11/15/06............. 165,000
2,600 Versatel Telecom, Expire 5/15/08+.................... 416,000
- -------------------------------------------------------------------------------------------------
655,520
- -------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.0%
4,125 Iridium World Communications Ltd.,
Expire 7/15/05..................................... 41
- -------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $595,263)................................... 1,379,810
=================================================================================================
Face
Amount Security Value
- -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.5%
- -------------------------------------------------------------------------------------------------
$6,368,000 Morgan Stanley Dean Witter & Co.,
5.400% due 9/1/99; Proceeds at maturity --
$6,368,955; (Fully collateralized by U.S.
Treasury Notes and Bonds, 5.625% to 7.500%
due 6/30/99 to 8/15/22; Market value --
$8,009,040) (Cost -- $6,368,000)..................... 6,368,000
=================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $461,971,163** )............................ $441,436,944
=================================================================================================
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service except that those
identified by an asterisk(*) are rated by Moody's Investors Service, Inc.
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
# Non-income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
DEM -- German Mark
EUR -- Euro
GBP -- British Pound
See page 23 for definition of ratings.
See Notes to Financial Statements. 21
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Baa BBB 0.3%
Ba BB 21.7
B B 69.6
Caa CCC 4.2
NR NR 4.2
-----
100.0%
=====
22
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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 para meters, 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, CCC, -- Bonds rated "BB", "B", "CCC","CC" and "C" are regarded, on
CC and C balance, as predominantly speculative with respect to capacity
to pay interest and repay prin cipal in accordance with the
terms of the obligation. "BB" represents the lowest degree of
speculation and "C" the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncer tainties
or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Baa" to "Ca," 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 rated "Ba" are judged to have speculative elements;
their future cannot be con sidered as well assured. Often the
protection of interest and principal pay ments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position charac
terizes bonds in this class.
B -- Bonds 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 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 rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $461,971,163) ............... $441,436,944
Cash ....................................................... 57
Interest and dividends receivable .......................... 9,377,150
Receivable for securities sold ............................. 2,664,070
Receivable for open forward foreign currency contracts ..... 140,994
- -------------------------------------------------------------------------------
Total Assets ............................................... 453,619,215
- -------------------------------------------------------------------------------
LIABILITIES:
Dividends payable .......................................... 969,006
Investment advisory fee payable ............................ 541,941
Administration fee payable ................................. 79,539
Payable for open forward foreign currency contracts ........ 78,492
Payable for foreign currency, at value (Cost-- $82) ........ 82
Accrued expenses ........................................... 197,753
- -------------------------------------------------------------------------------
Total Liabilities .......................................... 1,866,813
- -------------------------------------------------------------------------------
Total Net Assets .............................................. $451,752,402
===============================================================================
NET ASSETS:
Par value of capital shares ................................ $ 44,236
Capital paid in excess of par value ........................ 526,857,719
Overdistributed net investment income ...................... (182,109)
Accumulated net realized loss from
security transactions ................................... (54,506,385)
Net unrealized depreciation on investments
and foreign currencies ................................... (20,461,059)
- -------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.21 per share on 44,236,103
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ............................. $451,752,402
===============================================================================
24 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended August 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .................................................... $ 24,371,021
Dividends ................................................... 237,630
- -------------------------------------------------------------------------------
Total Investment Income ..................................... 24,608,651
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) ........................... 2,149,559
Administration fees (Note 2) ................................ 477,680
Shareholder communications .................................. 76,439
Audit and legal ............................................. 23,951
Registration fees ........................................... 18,855
Directors' fees ............................................. 17,836
Custody ..................................................... 10,701
Shareholder and system servicing fees ....................... 6,726
Other ....................................................... 12,945
- -------------------------------------------------------------------------------
Total Expenses .............................................. 2,794,692
Less: Investment advisory fee waiver ........................ (167,472)
- -------------------------------------------------------------------------------
Net Expenses ................................................ 2,627,220
- -------------------------------------------------------------------------------
Net Investment Income .......................................... 21,981,431
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) ... (23,893,771)
Foreign currency transactions ............................. 859,975
- -------------------------------------------------------------------------------
Net Realized Loss ........................................... (23,033,796)
- -------------------------------------------------------------------------------
Change in Net Unrealized Depreciation
of Investments and Foreign Currencies:
Beginning of period ....................................... (20,663,994)
End of period ............................................. (20,461,059)
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation ..................... 202,935
- -------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................. (22,830,861)
- -------------------------------------------------------------------------------
Decrease in Net Assets from Operations ......................... $ (849,430)
===============================================================================
See Notes to Financial Statements. 25
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Six Months Ended August 31, 1999 (unaudited)
and the Year Ended February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31 February 28
---------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income ................................. $ 21,981,431 $ 44,952,453
Net realized loss ..................................... (23,033,796) (645,006)
(Increase) decrease in net unrealized depreciation .... 202,935 (49,320,029)
- ------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations ................ (849,430) (5,012,582)
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (22,029,579) (45,242,459)
- ------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders ....................... (22,029,579) (45,242,459)
- ------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends ........................... -- 2,326,095
- ------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions ............................. -- 2,326,095
- ------------------------------------------------------------------------------------------
Decrease in Net Assets ................................... (22,879,009) (47,928,946)
NET ASSETS:
Beginning of period ................................... 474,631,411 522,560,357
- ------------------------------------------------------------------------------------------
End of period* ........................................ $451,752,402 $474,631,411
==========================================================================================
*Includes overdistributed net investment income of: ...... $ (182,109) $ (755,015)
==========================================================================================
</TABLE>
26 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 indepen dent 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
substan tially 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, 1999, 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. Net investment income, net realized
gains and net assets were not affected by this adjustment; (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic
27
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ; and (k) certain prior year
numbers have been restated to reflect current year's presentation. Current net
investment income, net realized gains, and net assets were not affected by this
change.
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
SSB Citi Fund Management LLC, ("SSBC"), formerly known as SSBC Fund
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
acts as investment adviser to the Fund. The Fund pays SSBC 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. For the six months ended August 31, 1999,
SSBC waived investment advisory fees of $167,472.
SSBC 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 Salomon Smith
Barney Inc., another subsidiary of SSBH.
3. Investments
For the six months ended August 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $216,041,354
- --------------------------------------------------------------------------------
Sales 221,682,843
================================================================================
At August 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 679,032
Gross unrealized depreciation (21,213,251)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(20,534,219)
================================================================================
28
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 August 31, 1999, 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 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 878,200 $1,412,496 9/22/99 $18,854
British Pound 2,526,400 4,063,461 9/22/99 54,242
British Pound 611,404 983,382 9/22/99 (3,730)
British Pound 1,219,687 1,961,745 9/22/99 (6,220)
Euro 1,042,391 1,102,437 9/15/99 13,672
Euro 8,437,983 8,924,043 9/15/99 (27,877)
Euro 1,108,928 1,172,807 9/15/99 (39,482)
Euro 1,491,798 1,577,731 9/15/99 12,197
Euro 236,487 250,110 9/15/99 (1,183)
- --------------------------------------------------------------------------------
20,473
- --------------------------------------------------------------------------------
To Buy:
Euro 367,812 388,999 9/15/99 42,029
- --------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Foreign Currency Contracts $62,502
================================================================================
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.
29
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 August 31, 1999, 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 August 31, 1999, 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.
During the six months ended August 31, 1999, the Fund did not write any
covered call or put options.
30
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 securities 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 security defaults,
the Fund may obtain no return at all on its investment.
9. Capital Loss Carryforward
At February 28, 1999, the Fund had, for Federal income tax purposes,
approximately $30,374,000 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 2007
================================================================================
Carryforward Amounts $9,404,000 $18,115,000 $239,000 $2,616,000
================================================================================
10. Capital Shares
Capital stock transactions were as follows:
Six Months Ended Year Ended
August 31, 1999 February 28, 1999
-------------------- --------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment -- -- 221,114 $2,326,095
================================================================================
31
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999(1) 1999 1998 1997 1996(2) 1995
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.73 $11.87 $11.59 $11.36 $10.88 $12.39
- ---------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.49 1.01 1.09 1.12 1.13 1.12
Net realized and
unrealized gain (loss) (0.51) (1.12) 0.28 0.21 0.65 (1.48)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.02) (0.11) 1.37 1.33 1.78 (0.36)
- ---------------------------------------------------------------------------------------------------
Offering Costs Credited (charged)
to Paid-In Capital -- -- -- -- -- 0.00*
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.50) (1.03) (1.09) (1.08) (1.27) (1.00)
Net realized gains -- -- -- -- -- (0.15)
Capital -- -- -- (0.02) (0.03) --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.50) (1.03) (1.09) (1.10) (1.30) (1.15)
- ---------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.21 $10.73 $11.87 $11.59 $11.36 $10.88
- ---------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value (4) (6.89)%++ (2.44)% 10.96% 15.37% 18.83% 0.14%
- ---------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value (4) (0.02)%++ (0.72)% 12.43% 12.65% 17.80% (2.18)%
- ---------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $452 $475 $523 $494 $477 $457
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.11%+ 1.17% 1.18% 1.20% 1.24% 1.24%
Net investment income 9.31+ 9.03 9.19 9.89 9.74 9.96
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 47% 84% 94% 61% 73% 62%
- ---------------------------------------------------------------------------------------------------
Market Value, End of Period $9.250 $10.438 $11.750 $11.625 $11.125 $10.500
===================================================================================================
</TABLE>
(1) For the six months ended August 31, 1999 (unaudited).
(2) For the year ended February 29, 1996.
(3) The Manager has waived a portion of its fees for the six months ended
August 31, 1999. If such fees were not waived, the per share decrease in
net investment income and acutal expense ratio would have been $0.00* and
1.18%+, respectively.
(4) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
32
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
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,
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 1,354,794 0.03 12,605,328 0.29
February 28,
1998 13,288,741 0.30 11,752,363 0.27 4,080,801 0.09 15,833,164 0.36
May 31,
1998 12,823,273 0.29 11,293,219 0.26 (2,829,443) (0.06) 8,463,776 0.19
August 31,
1998 13,413,896 0.30 11,864,494 0.27 (36,436,763) (0.83) (24,572,269) (0.56)
November 30,
1998 12,226,853 0.28 10,852,489 0.25 (336,494) (0.01) 10,515,995 0.24
February 28,
1999 12,298,897 0.28 10,942,251 0.25 (10,362,335) (0.23) 579,916 0.01
May 31,
1999 12,214,442 0.28 10,822,682 0.24 (6,708,610) (0.15) 4,114,072 0.09
August 31,
1999 12,394,209 0.28 11,158,749 0.25 (16,122,251) (0.36) (4,963,502) (0.11)
========================================================================================================
</TABLE>
33
- --------------------------------------------------------------------------------
<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
================================================================================
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
December 31, 1997 12.313 11.82 0.091 11.80
January 31, 1998 12.500 11.89 0.091 11.82
February 28, 1998 11.750 11.87 0.091 11.87
March 31, 1998 11.563 11.90 0.086 11.62
April 30, 1998 11.375 11.84 0.086 11.51
May 31, 1998 11.438 11.81 0.086 11.53
June 30, 1998 11.625 11.74 0.086 11.55
July 31, 1998 11.438 11.76 0.086 11.50
August 31, 1998 9.750 10.99 0.086 10.58
September 30, 1998 11.000 10.83 0.086 10.73
October 31, 1998 10.688 10.42 0.086 10.34
November 30, 1998 10.750 10.97 0.086 10.79
December 31, 1998 10.250 10.85 0.084 10.34
January 29, 1999 10.250 10.94 0.084 10.26
February 28, 1999 10.438 10.73 0.084 10.40
March 31, 1999 10.438 10.77 0.084 10.34
April 30, 1999 10.313 10.88 0.084 10.35
May 31, 1999 10.188 10.57 0.084 10.35
June 30, 1999 10.188 10.41 0.084 10.23
July 31, 1999 9.813 10.36 0.081 9.66
August 31, 1999 9.250 10.21 0.081 9.28
================================================================================
34
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On June 15, 1999, the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
1. To approve or disapprove for the Fund the election of Paul R. Hardin
and George M. Pavia as Directors for a three-year period; and
2. Ratification of the selection of KPMG LLP as the independent auditors
of the Fund for the current fiscal year.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors Votes For Shares Voted Against Shares Voted
================================================================================
Paul R. Hardin 41,714,321.538 98.82% 495,020.651 1.18%
George M. Pavia 41,705,900.031 98.80 503,442.158 1.20
================================================================================
The results of the vote on Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
41,717,710.000 98.83% 190,168.089 0.45% 301,464.100 0.72%
================================================================================
The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Paolo M. Cucchi, Andrea Farace and
Heath B. McLendon.
35
- --------------------------------------------------------------------------------
<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
36
- --------------------------------------------------------------------------------
<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
reinvest ment of dividends and capital gains distributions will not relieve Plan
partici pants 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 propor tionate
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 9699, Providence, Rhode Island 02940-9699 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.
37
- --------------------------------------------------------------------------------
<PAGE>
Managed
HIGH INCOME
PORTFOLIO INC.
- --------------------------------------------------------------------------------
Directors
Paolo M. Cucchi
Andrea Farace
Paul R. Hardin
Heath B. McLendon, Chairman
George M. Pavia
James J. Crisona, Emeritus
Alessandro C. di Montezemolo, 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
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Transfer Agent
First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
Custodian
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
38
- --------------------------------------------------------------------------------
<PAGE>
This report is intended only for the shareholders of Managed High Income
Portfolio Inc. It is not a prospectus, circular or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
FD0777 10/99
