Managed
HIGH INCOME
PORTFOLIO INC.
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[GRAPHIC OMITTED]
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Annual
Report
February 28, 1999
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Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
February 28, 1999
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Dear Shareholder:
We are pleased to provide the annual report for the Managed High Income
Portfolio Inc. ("Fund") for the year ended February 28, 1999. During the past
year, the Fund distributed income dividends totaling $1.03 per share. The table
below shows the annualized distribution rate and the twelve-month total return
for the Fund based on its February 28, 1999 net asset value ("NAV") per share
and New York Stock Exchange ("NYSE") closing price.
Price Annualized Twelve-Month
Per Share Distribution Rate Total Return
------------- ----------------- ------------
$10.73 (NAV) 9.39% (0.72)%
$10.438 (NYSE) 9.66% (2.44)%
Even though the Fund generated a modestly negative total return of 0.72% for the
past year, its performance is still well above the twelve-month average total
return of a negative 6.63% for closed-end high-yield bond funds as reported by
Lipper Inc. (Lipper is an independent mutual-fund performance tracking
organization.) We believe that we have been able to generate consistent
performance returns in the Fund through prudent asset selection with a heavy
focus on companies with improving fundamentals. We think that our general
cautiousness during the reporting period was warranted given the increased
volatility in the financial markets during the period under review.
Market and Economic Overview
After beginning 1998 on a rather strong footing, the high-yield bond market
generated relatively weak results throughout 1998, underperforming all other
domestic bond market sectors. At the beginning of 1998, the high-yield bond
market could be categorized as being fully to overvalued in price with overall
yields not very attractive relative to U.S. Treasuries. A considerable amount of
1
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liquidity from investors chasing yield had moved the market to these overvalued
levels. In addition, there was also excessive speculation beginning in the
financial markets, especially by hedge funds. (Hedge funds are private
investment partnerships that can use aggressive investment strategies such as
buying securities with borrowed money to enhance returns.)
By the middle of 1998, these more speculative investors were making aggressive
bets in a number of financial markets, particularly in the emerging bond markets
of Russia and Brazil, as well as the U.S. high-yield bond market. Unfortunately,
with the default of Russia and the significant price declines across the
emerging bond markets, these more aggressive hedge funds were forced to sell
their investments to pay off their margin loans. This caused a sympathetic
decline not only in the foreign bond markets, but also the U.S. corporate bond
market. Moreover, the high-yield bond market declined by a meaningful margin.
Fortunately, the hedge funds did not have large holdings of high-yield bonds.
At the same time the hedge funds were selling, various Wall Street firms that
trade these securities began to reduce their overall exposure to the bond
markets in order to limit their losses. These actions created even more market
volatility during the second half of 1998.
By the end of September, the Federal Reserve Board ("Fed") began taking
aggressive actions to restore investor confidence in the financial markets. The
Fed realized that the financial markets were beginning to freeze up with overall
liquidity disappearing. Many companies were finding it increasingly more
difficult to borrow money through the fixed-income capital markets. Investors
had become increasingly reluctant to invest in new bond issues, especially from
companies that issue high-yield bonds. One of their greatest fears was than an
economic recession was becoming more likely given the increased turmoil in the
emerging economies such as Korea, Russia and Indonesia. In addition, many
investors were concerned that a worldwide credit crunch in the financial markets
could throw the U.S. economy into a protracted recession. By acting swiftly and
lowering short-term interest rates three times in the latter part of 1998, the
Fed was able to stabilize the domestic financial markets and restore investor
confidence.
In the fourth quarter of 1998, as investors slowly became more comfortable with
the economic outlook and the Fed's resolve to keep the economy out of a
recession, the high-yield bond market stabilized and outperformed the other
sectors of the domestic fixed income markets.
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Portfolio Strategy and Market Outlook
The Managed High Income Portfolio remains cautiously positioned with a heavy
emphasis in better quality, intermediate maturity "B" and "BB" rated high yield
bonds. As of February 1999, the Fund's average maturity was approximately 8.5
years. In addition, the Fund continued to emphasize telecommunications issues as
well as cable and media issues.
We viewed the third quarter 1998 correction in the high-yield bond market as a
buying opportunity and carefully invested cash reserves into the market during
that time. However, given the continued problems in Asia and Latin America, we
remained underweighted in basic commodity industries such as steel, forest
products, energy and petrochemicals, industries that continue to be negatively
affected by worldwide deflationary trends. (Deflation is when prices actually
fall. Deflation should not be confused with disinflation, which is the slowing
down of the rate at which prices increase).
Going forward, we are beginning to take a closer look at some of the harder hit
sectors such as paper, energy and steel. We may decide to selectively add some
of the stronger companies in those industries to the Fund. We believe that
supply and demand conditions in some of the basic industries may stabilize and
improve from current levels, and that development would be extremely positive
for the better-positioned companies. Overall, we believe the U.S. economy, while
experiencing some slowdown in growth in 1999, should stay reasonably strong. We
also expect that worldwide economic conditions should stabilize in the coming
months.
Conclusion
During the first two months of 1999, the high yield bond market traded in a
narrow range. The increase in general interest rates, particularly in the U.S.
Treasury market, has temporarily held back the high-yield bond market. Investors
are acting cautiously to see what, if any, impact the increase in interest rates
may have on the U.S. economy. In addition, because of lingering uncertainty on
the part of many investors over the worldwide economic outlook, we think that
the high-yield bond market is still trading at undervalued levels. As more
investors become convinced that the U.S. economy is still fundamentally sound
and that foreign markets are slowly reviving, the high-yield bond market's
performance should improve.
In the near term, the financial markets should remain volatile as
investors continue to sort out the potential negative impact on world economic
growth from the large declines in both currencies and financial assets in the
emerging markets of Asia and Latin America. We will continue to be more
selective in
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our investment process and maintain a meaningful percentage of stronger "BB"
rated issues. We remain focused on companies that should be less vulnerable to
the crisis in Asia as well as other emerging markets that are having financial
difficulties. In that environment, we expect that the better quality high-yield
bonds should perform better than lower rated issues
In closing, thank you for investing in the Managed High Income Portfolio Inc. We
look forward to continuing to help you pursue your investment goals. If you have
any questions about the Fund, please call the First Data Investor Services Group
Inc. at (800) 331-1710.
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
April 19, 1999
4
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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
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SCHEDULE OF INVESTMENTS
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February 28, 1999
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
CORPORATE BONDS AND NOTES - 96.8%
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<S> <C> <C> <C>
Aerospace -- 0.3%
1,500,000 B* BE Aerospace Inc., Sr. Sub. Notes,
9.500% due 11/1/08+.......................... $ 1,593,750
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Airlines -- 1.6%
6,375,000 BB Airplanes-Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19.......................... 6,454,687
1,215,000 BB- Continental Airlines, Notes,
8.000% due 12/15/05.......................... 1,210,444
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7,665,131
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Auto Parts -- 0.5%
4,500,000 B- Breed Technologies Inc., Sr. Sub. Notes,
9.250% due 4/15/08+.......................... 2,295,000
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Automobile Aftermarket -- 0.7%
3,230,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05.... 3,205,775
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Broadcasting -- 3.3%
525,000 B- Capstar Broadcasting Corp., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09........ 444,281
6,775,000 B Chancellor Media Corp., Sr. Sub. Notes,
9.000% due 10/1/08........................... 7,317,000
Citadel Broadcasting Co., Sr. Sub. Notes:
790,000 B- 10.250% due 7/1/07........................... 869,000
1,565,000 B- 9.250% due 11/15/08+......................... 1,672,594
1,535,000 B- Emmis Communications Corp., Sr. Sub. Notes,
8.125% due 3/15/09+.......................... 1,538,838
2,185,000 CCC+ Telemundo Holdings Inc., Sr. Discount Notes,
step bond to yield 11.360% due 8/15/08....... 1,283,688
TV Azteca SA, Guaranteed Sr. Notes:
2,085,000 B+ Series A, 10.125% due 2/15/04................ 1,730,550
550,000 B+ Series B, 10.500% due 2/15/07................ 445,500
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15,301,451
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</TABLE>
6 See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Building Materials Chain -- 0.5%
Building Materials Corp., Sr. Notes:
500,000 BB 7.750% due 7/15/05........................... $ 495,000
1,570,000 BB 8.000% due 12/1/08+.......................... 1,575,887
500,000 BB Step bond to yield 10.015% due 7/1/04........ 515,000
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2,585,887
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Building Products -- 0.8%
1,150,000 B Amatek Industries, Sr. Sub. Notes,
12.000% due 2/15/08+......................... 1,096,812
Nortek Inc., Sr. Notes:
500,000 B+ 9.250% due 3/15/07........................... 519,375
1,750,000 B+ 9.125% due 9/1/07............................ 1,820,000
500,000 B+ 8.875% due 8/1/08............................ 513,750
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3,949,937
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Cable Television -- 12.1%
2,300,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/07........................... 2,581,750
3,925,000 B- Comcast UKCable, Debentures, step bond to
yield 11.574% due 11/15/07................... 3,463,812
CSC Holdings Inc., Sr. Sub. Debentures:
7,560,000 BB- 9.875% due 2/15/13........................... 8,410,500
3,250,000 BB- 10.500% due 5/15/16.......................... 3,965,000
660,000 BB+ 7.875% due 2/15/18........................... 685,575
1,100,000 BB- 9.875% due 4/1/23............................ 1,236,125
NTL Inc., Sr. Notes:
3,525,000 B- 11.500% due 10/1/08+......................... 3,948,000
795,000 B- Step bond to yield 12.040% due 10/1/08+...... 545,569
Rogers Cablesystems, Inc.:
2,275,000 BB+ Sr. Notes, Series B, 10.000% due 3/15/05..... 2,610,562
2,575,000 BB+ Sr. Sub. Debentures, 10.000% due 12/1/07..... 2,932,281
6,475,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15..... 7,656,687
1,250,000 BB- Rogers Communications, Sr. Notes,
9.125% due 1/15/06........................... 1,309,375
2,350,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08+......................... 2,778,875
</TABLE>
See Notes to Financial Statements. 7
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Cable Television -- 12.1% (continued)
21,870,000 B United International Holdings Inc.,
Sr. Discount Notes, step bond to yield
11.047% due 2/15/08.......................... $14,270,175
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56,394,286
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Casinos/Gambling -- 2.9%
2,405,000 BB+ Harrahs Operating Co. Inc., Company
Guaranteed, 7.875% due 12/15/05.............. 2,405,000
2,200,000 B Harvey Casinos Resorts, Sr. Sub. Notes,
10.625% due 6/1/06........................... 2,332,000
2,075,000 B Hollywood Park Inc., Sr. Sub. Notes,
9.250% due 2/15/07+.......................... 2,072,406
3,025,000 NR Mohegan Tribal Gaming Authority,
Sr. Secured Notes, 13.500% due 11/15/02...... 3,667,813
2,000,000 BB+ Park Place Entertainment, Sr. Sub. Notes,
7.875% due 12/15/05+......................... 1,965,000
Station Casinos, Sr. Sub. Notes:
505,000 B+ 10.125% due 3/15/06.......................... 532,775
400,000 B+ 8.875% due 12/1/08+.......................... 408,000
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13,382,994
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Chemicals-Major -- 0.1%
80,000 NR Huntsman Corp., Sr. Sub. Notes,
9.500% due 7/1/07+........................... 689,350
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Construction/AG Equipment/Trucks -- 0.3%
1,490,000 B Columbus McKinnon Corp., Sr. Sub. Notes,
8.500% due 4/1/08............................ 1,452,750
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Containers/Packaging -- 1.2%
200,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07.......................... 200,500
1,850,000 B Huntsman Packaging Corp., Sr. Notes,
9.125% due 10/1/07........................... 1,875,438
3,000,000DEM B Impress Metal Packaging Holdings,
Sr. Sub. Notes, 9.875% due 5/29/07........... 1,869,001
</TABLE>
8 See Notes to Financial Statements.
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Containers/Packaging -- 1.2% (continued)
1,555,000 B- Tekni-Plex Inc., Company Guaranteed,
9.250% due 3/1/08............................ $ 1,609,425
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5,554,364
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Department Stores -- 0.4%
1,725,000 BB DR Structured Finance, Pass Through Certificates,
8.375% due 8/15/15........................... 1,705,301
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Diversified Commercial Services -- 1.5%
2,225,000 BB- Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04+.......................... 1,390,625
2,900,000 B- Intertek Finance PLC, Sr. Sub. Notes, Series B,
10.250% due 11/1/06.......................... 2,700,625
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06.......................... 3,201,250
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7,292,500
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Diversified Financial Services -- 0.5%
Amresco Inc., Sr. Sub. Notes, Series A:
1,500,000 CCC+ 10.000% due 3/15/04.......................... 1,215,000
1,275,000 CCC+ 9.875% due 3/15/05........................... 1,032,750
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2,247,750
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Diversified Manufacturing -- 1.0%
600,000 B- Eagle-Picher Industries Inc., Sr. Sub. Notes,
9.375% due 3/1/08............................ 580,500
4,650,000 B Outboard Marine Corp., Sr. Notes,
10.750% due 6/1/08+.......................... 3,946,687
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4,527,187
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Drugs-Generic -- 1.2%
5,600,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05........................... 5,656,000
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Electric Utilities -- 0.5%
2,285,000 BB CMS Energy, Sr. Notes,
7.500% due 1/15/09........................... 2,285,000
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</TABLE>
See Notes to Financial Statements. 9
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Electronic Data Processing -- 3.8%
Unisys Corp., Sr. Notes:
6,200,000 BB- 12.000% due 4/15/03.......................... $ 6,913,000
9,175,000 BB- 11.750% due 10/15/04......................... 10,631,531
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17,544,531
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Electronics - Computers -- 1.6%
1,995,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06......................... 2,189,512
5,650,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07............................ 5,226,250
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7,415,762
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Engineering & Construction -- 1.6%
2,260,000 B Group Maintenance America Corp., Sr. Sub.
Notes, 9.750% due 1/15/09.................... 2,322,150
1,005,000 B+ Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09+........................... 1,022,587
3,760,000 B Metromedia Fiber Network, Sr. Notes,
10.000% due 11/15/08+........................ 3,948,000
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7,292,737
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Environmental Services -- 0.3%
1,605,000 BB Allied Waste North America Inc., Sr. Notes,
7.875% due 1/1/09+........................... 1,625,063
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Food Distributors -- 2.4%
3,900,000 B- Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08+.......................... 3,978,000
4,625,000 B Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07.......................... 4,694,375
2,600,000 B SC International Services Inc., Sr. Sub. Notes,
9.250% due 9/1/07............................ 2,632,500
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11,304,875
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Foods-Specialty/Candy -- 0.5%
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07............................ 2,581,375
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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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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Forest Products -- 0.6%
2,600,000 B Ainsworth Lumber, Sr. Notes,
12.500% due 7/15/07.......................... $ 2,593,500
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Homebuilding -- 0.3%
1,200,000 BB DR Horton Inc., Company Guaranteed,
8.000% due 2/1/09............................ 1,195,500
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Hospital/Nursing Management -- 5.1%
Columbia/HCA Healthcare Corp., Notes:
1,690,000 BB+ 7.000% due 7/1/07............................ 1,554,800
500,000 BB+ 7.250% due 5/20/08........................... 464,375
750,000 BB+ 8.700% due 2/10/10........................... 761,250
1,000,000 BB+ 6.630% due 7/15/45........................... 962,500
2,775,000 B+ Fresenius Medical Capital Trust, Notes,
7.875% due 2/1/08............................ 2,775,000
Integrated Health Services Inc., Sr. Sub. Notes:
2,575,000 CCC 9.500% due 9/15/07........................... 1,957,000
915,000 CCC 9.250% due 1/15/08........................... 695,400
12,000,000 B- Magellan Health Services Inc., Sr. Sub. Notes,
9.000% due 2/15/08........................... 10,380,000
4,500,000 CCC Mariner Post-Acute Network, Sr. Sub. Notes,
9.500% due 11/1/07........................... 2,497,500
Sun Healthcare Group Inc., Sr. Sub. Notes:
3,250,000 CCC 9.500% due 7/1/07............................ 877,500
2,775,000 CCC 9.375% due 5/1/08+........................... 749,250
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23,674,575
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Hotels/Resorts -- 2.4%
3,250,000 B- Courtyard By Marriott, Sr. Secured Notes,
10.750% due 2/1/08........................... 3,347,500
HMH Properties:
930,000 BB Company Guaranteed, 7.875% due 8/1/05........ 902,100
2,420,000 BB Sr. Notes, 7.875% due 8/1/08................. 2,323,200
3,705,000 BB Sr. Notes, 8.450% due 12/1/08................ 3,677,212
760,000 B+ Intrawest Corp., Sr. Notes,
9.750% due 8/15/08........................... 774,250
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11,024,262
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</TABLE>
See Notes to Financial Statements. 11
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<PAGE>
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Insurance-Multi-Line -- 1.1%
3,225,000 BB+ SIG Capital Trust, Guaranteed Notes,
9.500% due 8/15/27........................... $ 2,668,688
2,500,000 BB- Veritas Capital Trust, Guaranteed Notes,
10.000% due 1/1/28........................... 2,271,875
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4,940,563
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Internet Services -- 3.0%
PSINet Inc., Sr. Notes:
3,725,000 B- 10.000% due 2/15/05.......................... 3,874,000
2,605,000 B- 11.500% due 11/1/08+......................... 2,917,600
4,050,000 NR Splitrock Services Inc., 11.750% due 7/15/08... 3,715,875
1,685,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08+.... 1,819,800
2,900,000 NR WAM!Net Inc., step bond to yield
13.299% due 3/1/05 .......................... 1,446,375
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13,773,650
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Leisure/Movies/Entertainment -- 1.6%
3,590,000 B Regal Cinemas Inc., Sr. Sub. Notes,
9.500% due 6/1/08............................ 3,590,000
4,000,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08............................ 4,050,000
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7,640,000
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Machinery-Industrial/Components -- 0.5%
1,892,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03.......................... 1,922,745
550,000 B+ Westinghouse Air, Sr. Notes,
9.375% due 6/15/05+.......................... 572,000
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2,494,745
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Media Conglomerates -- 0.8%
2,400,000GBP B Polestar Corp. PLC, Sr. Notes,
10.500% due 5/30/08.......................... 3,806,350
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Metal Fabrications -- 0.6%
2,650,000 B+ Park-Ohio Industries, Sr. Sub. Notes,
9.250% due 12/1/07 .......................... 2,742,750
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</TABLE>
12 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
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February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Metals/Minerals-Other -- 0.4%
2,425,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04........................... $ 2,058,219
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Multi-Sector Companies -- 0.4%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+......................... 2,009,212
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Office Equipment Supplies -- 0.4%
1,800,000 B- Axiohm Transaction Solutions Inc., Sr. Sub. Notes,
9.750% due 10/1/07........................... 1,665,000
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Oil & Gas Production -- 2.9%
2,125,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes,
8.750% due 9/15/07........................... 1,891,250
4,350,000 B+ Clark USA Inc., Sr. Notes,
10.875% due 12/1/05.......................... 3,909,562
Ocean Energy Inc.:
2,750,000 BB- Sr. Sub. Debentures, 9.750% due 10/1/06...... 2,822,188
2,625,000 BB- Sr. Sub. Notes, 10.375% due 10/15/05......... 2,736,563
2,150,000 B- Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07........................... 2,098,938
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13,458,501
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Oilfield Services/Equipment -- 0.6%
2,150,000 B+ ICO Inc., Sr. Notes, 10.375% due 6/1/07........ 1,652,813
900,000 BB+ J. Ray McDermott SA, Sr. Sub. Notes,
9.375% due 7/15/06........................... 1,022,625
- -------------------------------------------------------------------------------------
2,675,438
- -------------------------------------------------------------------------------------
Package Goods/Services -- 0.6%
3,225,000 B- Revlon Consumer Products, Sr. Sub. Notes,
8.625% due 2/1/08............................ 2,870,250
- -------------------------------------------------------------------------------------
Paper -- 1.4%
2,500,000 BB Malette Inc., Sr. Secured Notes,
12.250% due 7/15/04.......................... 2,709,375
</TABLE>
See Notes to Financial Statements. 13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Paper -- 1.4% (continued)
Riverwood International, Company Guaranteed:
1,110,000 B- 10.625% due 8/1/07........................... $1,139,138
625,000 CCC+ 10.875% due 4/1/08........................... 580,469
1,890,000 B+ S.D. Warren Co., Sr. Sub. Notes,
12.000% due 12/15/04......................... 2,053,013
- -------------------------------------------------------------------------------------
6,481,995
- -------------------------------------------------------------------------------------
Photographic Products -- 0.5%
2,255,000 BB- Polaroid Corp., Sr. Notes,
11.500% due 2/15/06.......................... 2,291,644
- -------------------------------------------------------------------------------------
Printing/Forms -- 0.7%
1,100,000 B+ Mail-Well Corp., Sr. Sub. Notes,
8.750% due 12/15/08+......................... 1,127,500
2,105,000 BB- World Color Press Inc., Sr. Sub. Notes,
7.750% due 2/15/09+.......................... 2,073,425
- -------------------------------------------------------------------------------------
3,200,925
- -------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.7%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05+.......................... 1,822,500
1,250,000 BB+ Trizec Finance Ltd., Sr. Notes,
10.875% due 10/15/05......................... 1,373,438
- -------------------------------------------------------------------------------------
3,195,938
- -------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.8%
1,015,000 B Nationsrent Inc., Company Guaranteed,
10.375% due 12/15/08......................... 1,067,019
2,415,000 BB- United Rentals Inc., Sr. Sub. Notes,
9.250% due 1/15/09+.......................... 2,508,581
- -------------------------------------------------------------------------------------
3,575,600
- -------------------------------------------------------------------------------------
Retail-Other Specialty Stores -- 0.7%
3,100,000 B- Advance Stores Co., Inc., Sr. Sub. Notes,
10.250% due 4/15/08+......................... 3,185,250
- -------------------------------------------------------------------------------------
</TABLE>
14 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Savings & Loan Associations -- 0.9%
3,200,000 B- Ocwen Capital Trust, Guaranteed Notes,
10.875% due 8/1/27........................... $ 2,512,000
2,100,000 BB- Ocwen Financial Corp., Notes,
11.875% due 10/1/03.......................... 1,900,500
- -------------------------------------------------------------------------------------
4,412,500
- -------------------------------------------------------------------------------------
Semiconductors -- 0.9%
4,260,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07.......................... 4,228,050
- -------------------------------------------------------------------------------------
Steel/Iron Ore -- 0.8%
1,860,000 B Algoma Steel Inc., First Mortgage,
12.375% due 7/15/05.......................... 1,769,325
1,940,000 B WHX Corp., Sr. Notes, 10.500% due 4/15/05...... 1,847,850
- -------------------------------------------------------------------------------------
3,617,175
- -------------------------------------------------------------------------------------
Telecommunications-Other -- 15.5%
Colt Telecommunications Group PLC, Sr. Notes:
660,000DEM B 8.875% due 11/30/07......................... 388,954
800,000GBP B 10.125% due 11/30/07........................ 1,384,127
6,920,000DEM B 7.625% due 7/31/08.......................... 4,000,448
8,250,000 NR E. Spire Communications, Sr. Discount Notes,
step bond to yield 11.032% due 7/1/08........ 3,135,000
Esprit Telecom Group PLC, Sr. Notes:
2,300,000 B- 11.500% due 12/15/07......................... 2,458,125
2,000,000DEM B- 11.500% due 12/15/07......................... 1,195,487
1,300,000 B- 10.875% due 6/15/08.......................... 1,366,625
4,615,000 NR Facilicom International Inc., Sr. Notes,
10.500% due 1/15/08.......................... 3,593,931
Hermes Europe Railtel Inc., Sr. Notes:
3,900,000 B 11.500% due 8/15/07.......................... 4,231,500
1,225,000 B 10.375% due 1/15/09+......................... 1,295,438
Impsat Corp:
950,000 BB- Company Guaranteed, 12.125% due 7/15/03...... 764,750
1,200,000 B+ Sr. Notes, 12.375% due 6/15/08............... 976,500
Intermedia Communications Co.:
5,975,000 B Sr. Discount Notes, step bond to yield
11.945% due 5/15/06........................ 4,899,500
</TABLE>
See Notes to Financial Statements. 15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Telecommunications-Other -- 15.5% (continued)
1,000,000 B Sr. Notes, 9.500% due 3/1/09+................ $ 995,000
1,050,000 B Level 3 Communications Inc., Sr. Notes,
9.125% due 5/1/08............................ 1,023,750
Metronet Communications Inc.:
11,400,000 B Sr. Discount Notes, step bond to yield
10.036% due 6/15/08........................ 7,866,000
5,475,000 B Sr. Notes, 12.000% due 8/15/07............... 6,186,750
1,785,000 B Sr. Notes, 10.625% due 11/1/08+.............. 2,003,663
5,010,000 B Nextlink Communications, Sr. Notes,
12.500% due 4/15/06.......................... 5,473,425
2,800,000 B3* Pagemart Nationwide, Sr. Discount Notes,
step bond to yield 13.297% due 2/1/05........ 2,376,500
6,550,000 NR Pagemart Wireless Inc., Sr. Discount Notes,
step bond to yield 11.250% due 2/1/08........ 2,652,750
5,025,000 B- Primus Telecommunications Group, Sr. Notes,
11.750% due 8/1/04........................... 5,144,344
RCN Corp.:
3,600,000 B3* Sr. Discount Notes, step bond to yield
11.147% due 10/15/07....................... 2,115,000
1,850,000 B3* Sr. Notes, 10.000% due 10/15/07.............. 1,780,625
2,600,000 NR Versatel Telecommunications,
13.250% due 5/15/08+......................... 2,765,750
2,135,000 NR Viatel Inc., Sr. Notes, 11.250% due 4/15/08.... 2,199,050
- -------------------------------------------------------------------------------------
72,272,992
- -------------------------------------------------------------------------------------
Telephone-Cellular -- 7.8%
2,040,000 CCC+ Centennial Cellular, Sr. Sub. Notes,
10.750% due 12/15/08+........................ 2,193,000
6,185,000 B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 12.367% due 12/15/05...... 5,512,381
Dolphin Telecom PLC, Sr. Discount Notes:
4,525,000ECU B- Step bond to yield 11.010% due 6/1/08+ 1,937,348
5,100,000 B- Step bond to yield 11.410% due 6/1/08+....... 2,263,125
6,815,000 CCC+ Iridium LLC Capital Corp., Guaranteed Notes,
14.000% due 7/15/05.......................... 5,622,375
</TABLE>
16 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Telephone-Cellular -- 7.8% (continued)
8,375,000 B- Millicom International Cellular SA,
Sr. Discount Notes, step bond to yield
13.486% due 6/1/06........................... $ 6,009,062
Nextel Communications, Sr. Discount Notes:
2,310,000 CCC+ Step bond to yield 10.945% due 9/15/07....... 1,570,800
1,960,000 CCC+ Step bond to yield 10.659% due 2/15/08....... 1,254,400
4,525,000 B+ Orange PLC, Sr. Notes, 8.000% due 8/1/08....... 4,660,750
Telesystems International Wireless Inc.,
Sr. Discount Notes:
9,575,000 CCC+ Step bond to yield 12.395% due 6/30/07..... 4,368,594
2,500,000 CCC+ Step bond to yield 11.152% due 11/1/07..... 959,375
- -------------------------------------------------------------------------------------
36,351,210
- -------------------------------------------------------------------------------------
Textiles -- 0.4%
4,400,000DEM B Texon International, Sr. Notes,
10.000% due 2/1/08........................... 2,173,205
- -------------------------------------------------------------------------------------
Transportation-Marine -- 1.3%
1,000,000 B+ American Reefer Co., Ltd., First Mortgage,
10.250% due 3/1/08........................... 598,750
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09........................... 1,222,056
1,730,000 BB- Sea Containers Ltd., Sr. Sub. Debentures,
12.500% due 12/1/04.......................... 1,892,188
2,300,000 B+ Stena Line AB, Sr. Notes,
10.625% due 6/1/08........................... 1,952,125
1,425,000 CCC+ TBS Shipping International Ltd., First Mortgage,
10.000% due 5/1/05........................... 541,500
- -------------------------------------------------------------------------------------
6,206,619
- -------------------------------------------------------------------------------------
Unregulated Power Generation -- 2.9%
AES Corp., Sr. Sub. Notes:
1,340,000 B+ 10.250% due 7/15/06.......................... 1,433,800
6,660,000 B+ 8.500% due 11/1/07........................... 6,693,300
Calpine Corp., Sr. Notes:
3,550,000 BB 10.500% due 5/15/06.......................... 3,905,000
860,000 BB 8.750% due 7/15/07........................... 894,400
</TABLE>
See Notes to Financial Statements. 17
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=====================================================================================
<S> <C> <C> <C>
Unregulated Power Generation -- 2.9% (continued)
509,807 BBB- Midland Cogeneration Venture Limited
Partnership, Midland Funding, Sr. Secured
Lease Obligation Bond, Series C,
10.330% due 7/23/02.......................... $ 543,582
- -------------------------------------------------------------------------------------
13,470,082
- -------------------------------------------------------------------------------------
Wholesale Distributors -- 0.6%
Fisher Scientific International Inc., Sr. Sub. Notes:
675,000 B- 9.000% due 2/1/08............................ 685,969
1,940,000 B- 9.000% due 2/1/08+........................... 1,971,525
- -------------------------------------------------------------------------------------
2,657,494
- -------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $475,218,829)......................... 451,491,950
=====================================================================================
<CAPTION>
Shares Security Value
=====================================================================================
<S> <C> <C>
- -------------------------------------------------------------------------------------
COMMON STOCK - 0.0%
- -------------------------------------------------------------------------------------
Telecommunications -- 0.0%
12,250 Pagemart Nationwide Inc.+ (Cost -- $0)......... 85,750
=====================================================================================
- -------------------------------------------------------------------------------------
PREFERRED STOCK - 1.0%
- -------------------------------------------------------------------------------------
Broadcasting -- 0.5%
17,653 Capstar Broadcasting, Series E,
Exchangeable 12.625%, Payment-in-kind........ 2,153,560
- -------------------------------------------------------------------------------------
Electronics - Computers -- 0.1%
45,047 Viasystems Inc., Series B, Payment-in-kind..... 630,651
- -------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.4%
63,850 California Federal Preferred Capital Corp.,
Series A, Exchangeable 9.125%................ 1,684,044
- -------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $4,555,492)........................... 4,468,255
=====================================================================================
</TABLE>
18 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Shares Security Value
=====================================================================================
<S> <C> <C>
- -------------------------------------------------------------------------------------
WARRANTS # - 0.9%
- -------------------------------------------------------------------------------------
Broadcasting -- 0.0%
8,625 UIH Australia Inc., Expire 5/15/06............. $ 8,625
- -------------------------------------------------------------------------------------
Cable Television -- 0.0%
3,375 Wireless One Inc., Expire 10/19/00............. 844
- -------------------------------------------------------------------------------------
Internet Services -- 0.0%
4,050 Splitrock Service, Expire 7/15/08.............. 60,750
8,700 WAM!Net Inc., Expire 3/1/05.................... 69,600
- -------------------------------------------------------------------------------------
130,350
- -------------------------------------------------------------------------------------
Paper -- 0.0%
4,800 SD Warren Co., Expire 12/15/06................. 84,480
- -------------------------------------------------------------------------------------
Telecommunications-Other -- 0.7%
3,650 Allegiance Telecom Inc., Expire 2/3/08......... 40,150
5,000 Colt Telecom, Expire 12/31/06.................. 2,500,000
60,500 Metronet Communications, Expire 8/15/07........ 211,750
3,900 Nextel Communications, Expire 4/25/99.......... 39
24,840 Pagemart Inc., Expire 12/31/03+................ 124,200
4,475 Primus Telecommunications Group,
Expire 8/1/04................................ 38,038
4,125 RSL Communications Ltd., Expire 11/15/06....... 160,875
2,600 Versatel Telecommunications, Expire 5/15/08.... 104,000
- -------------------------------------------------------------------------------------
3,179,052
- -------------------------------------------------------------------------------------
Telephone-Cellular -- 0.2%
32,175 Clearnet Communications Inc., Expire 9/15/05... 128,700
4,725 Globalstart Telecommunications,
Expire 2/15/04............................... 259,875
4,125 Iridium World Communications Ltd.,
Expire 7/15/05............................... 573,293
- -------------------------------------------------------------------------------------
961,868
- -------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,645,228)........................... 4,365,219
=====================================================================================
</TABLE>
See Notes to Financial Statements. 19
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
February 28, 1999 (continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
=====================================================================================
<S> <C> <C>
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.3%
- -------------------------------------------------------------------------------------
$5,912,000 Morgan Stanley Dean Witter & Co., 4.730%
due 3/1/99; Proceeds at maturity -- $5,914,330;
(Fully collateralized by U.S. Treasury Notes
and Bonds, 5.500% to 14.000% due 4/30/99 to
2/15/26; Market value -- $6,009,216)
(Cost -- $5,912,000)........................... $ 5,912,000
=====================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $487,331,549** )...................... $466,323,174
=====================================================================================
</TABLE>
(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.
++ Face amount denominated in U.S. dollars unless otherwise indicated.
# Non-income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency Abbreviations:
DEM -- German Mark
GBP -- British Pound
ECU -- European Currency Unit
See page 22 for definition of ratings.
20 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
- --------------------------------------------------------------------------------
February 28, 1999 (unaudited)
- --------------------------------------------------------------------------------
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Baa BBB 0.1%
Ba BB 26.5
B B 61.6
Caa CCC 6.1
NR NR 5.7
-----
100.0%
=====
21
- --------------------------------------------------------------------------------
<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 pre-dominantly specula tive 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.
22
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 28, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $487,331,549) ............. $ 466,323,174
Cash .................................................... 67
Receivable for securities sold .......................... 1,747,168
Receivable for open forward
foreign currency contracts (Note 5) ................... 362,592
Receivable for closed forward
foreign currency contracts ............................ 97,264
Interest and dividends receivable ....................... 9,018,070
- -------------------------------------------------------------------------------
Total Assets ............................................ 477,548,335
===============================================================================
LIABILITIES:
Dividends payable ....................................... 1,203,193
Payable for securities purchased ........................ 1,046,681
Investment advisory fees payable ........................ 328,223
Administration fees payable ............................. 78,772
Accrued expenses ........................................ 260,055
- -------------------------------------------------------------------------------
Total Liabilities ....................................... 2,916,924
- -------------------------------------------------------------------------------
Total Net Assets ........................................... $ 474,631,411
===============================================================================
NET ASSETS:
Par value of capital shares ............................. $ 44,236
Capital paid in excess of par value ..................... 526,857,719
Overdistributed net investment income ................... (755,015)
Accumulated net realized loss from
security transactions ................................. (30,851,535)
Net unrealized depreciation on investments
and foreign currencies ................................ (20,663,994)
- -------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.73 per share on 44,236,103
shares of $0.001 par value outstanding;
500,000,000 shares authorized) .......................... $ 474,631,411
===============================================================================
See Notes to Financial Statements. 23
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended February 28, 1999
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ................................................... $ 49,337,406
Dividends .................................................. 1,425,513
- -------------------------------------------------------------------------------
Total Investment Income .................................... 50,762,919
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) .......................... 4,469,951
Administration fees (Note 2) ............................... 993,322
Shareholder communications ................................. 161,753
Audit and legal ............................................ 51,030
Directors' fees ............................................ 37,551
Registration fees .......................................... 36,899
Shareholder and system servicing fees ...................... 21,538
Custody .................................................... 20,941
Other ...................................................... 17,481
- -------------------------------------------------------------------------------
Total Expenses ............................................. 5,810,466
- -------------------------------------------------------------------------------
Net Investment Income ......................................... 44,952,453
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Loss From:
Security transactions (excluding short-term securities) .. (201,356)
Foreign currency transactions ............................ (443,650)
- -------------------------------------------------------------------------------
Net Realized Loss .......................................... (645,006)
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments and Foreign Currencies:
Beginning of year ........................................ 28,656,035
End of year .............................................. (20,663,994)
- -------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation .................... (49,320,029)
- -------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................ (49,965,035)
- -------------------------------------------------------------------------------
Decrease in Net Assets from Operations ........................ $ (5,012,582)
===============================================================================
24 See Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Years Ended February 28,
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999 1998
========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income .............................. $ 44,952,453 $ 46,590,619
Net realized gain (loss) ........................... (645,006) 5,971,261
(Increase) decrease in net unrealized depreciation . (49,320,029) 6,857,586
- ----------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations .. (5,012,582) 59,419,466
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (45,242,459) (47,244,754)
- ----------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .................... (45,242,459) (47,244,754)
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends ........................ 2,326,095 16,479,649
- ----------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions .......................... 2,326,095 16,479,649
- ----------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets ..................... (47,928,946) 28,654,361
NET ASSETS:
Beginning of year .................................. 522,560,357 493,905,996
- ----------------------------------------------------------------------------------------
End of year* ....................................... $ 474,631,411 $ 522,560,357
========================================================================================
*Includes overdistributed net investment income of: ... $ (755,015) $ (157,691)
========================================================================================
</TABLE>
See Notes to Financial Statements. 25
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
26
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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
SSBC Fund Management Inc., ("SSBC"), formerly known as Mutual Management
Corp., 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.
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 year ended February 28, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities but excluding
short-term securities) were:
===============================================================================
Purchases $405,671,064
- -------------------------------------------------------------------------------
Sales 412,101,797
===============================================================================
At February 28, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $ 15,526,543
Gross unrealized depreciation (36,534,918)
- -------------------------------------------------------------------------------
Net unrealized depreciation $ (21,008,375)
===============================================================================
27
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 February 28, 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
===============================================================================
To Sell:
German Mark 9,149,299 $5,136,446 3/3/99 $ 362,592
===============================================================================
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.
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 February 28, 1999, the Fund had no open futures contracts.
28
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 February 28, 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 year ended February 28, 1999, the Fund did not write any
covered call or put options.
29
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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:
Year Ended Year Ended
February 28, 1999 February 28, 1998
-------------------- --------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment 221,114 $2,326,095 1,412,894 $16,479,649
================================================================================
30
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of Year ............. $ 11.87 $ 11.59 $ 11.36 $ 10.88 $ 12.39
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income ......... 1.01 1.09 1.12 1.13 1.12
Net realized and
unrealized gain (loss) ...... (1.12) 0.28 0.21 0.65 (1.48)
- -------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations ............... (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 ......... (1.03) (1.09) (1.08) (1.27) (1.00)
Net realized gains ............ -- -- -- -- (0.15)
Capital ....................... -- -- (0.02) (0.03) --
- -------------------------------------------------------------------------------------------------------
Total Distributions ............. (1.03) (1.09) (1.10) (1.30) (1.15)
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of Year ................... $ 10.73 $ 11.87 $ 11.59 $ 11.36 $ 10.88
- -------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value (2) ..... (2.44)% 10.96% 15.37% 18.83% 0.14%
- -------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value (2) .. (0.72)% 12.43% 12.65% 17.80% (2.18)%
- -------------------------------------------------------------------------------------------------------
Net assets,
end of Year (millions) ........ $ 475 $ 523 $ 494 $ 477 $ 457
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses ...................... 1.17% 1.18% 1.20% 1.24% 1.24%
Net investment income ......... 9.03 9.19 9.89 9.74 9.96
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate ......... 84% 94% 61% 73% 62%
- -------------------------------------------------------------------------------------------------------
Market value, End of Year ....... $ 10.438 $ 11.750 $ 11.625 $ 11.125 $ 10.500
=======================================================================================================
</TABLE>
(1) For the year ended February 29, 1996.
(2) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01.
31
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of the
Managed High Income Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Managed High Income Portfolio Inc.
as of February 28, 1999, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the four-year period then ended. These finan cial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended February 28,
1995 were audited by other auditors whose report thereon, dated April 10, 1995,
expressed an unqualified opinion of those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Managed High Income Portfolio Inc. as of February 28, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and financial highlights for each of
the years in the four-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
April 12, 1999
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,
1996 $13,001,508 $ 0.31 $ 11,542,616 $ 0.27 $ (7,102,523) $ (0.17) $ 4,440,093 $ 0.10
August 31,
1996 13,247,484 0.31 11,804,210 0.29 (7,860,018) (0.19) 3,944,192 0.10
November 30,
1996 13,267,331 0.31 11,856,227 0.28 15,505,326 0.37 27,361,553 0.65
February 28,
1997 13,188,573 0.31 11,798,385 0.28 8,827,165 0.20 20,625,550 0.48
May 31,
1997 13,200,189 0.31 11,741,167 0.27 (5,289,541) (0.12) 6,451,626 0.15
August 31,
1997 13,358,455 0.31 11,846,555 0.28 12,682,793 0.29 24,529,348 0.57
November 30,
1997 12,745,541 0.29 11,250,534 0.26 1,354,794 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
================================================================================================================
</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, 1996 $10.875 $11.18 $0.093 $10.79
April 30, 1996 10.750 11.20 0.093 10.74
May 31, 1996 10.625 11.18 0.093 10.56
June 30, 1996 10.625 11.07 0.091 10.71
July 31, 1996 10.875 10.98 0.091 10.97
August 31, 1996 11.000 11.01 0.091 11.01
September 30, 1996 11.125 11.27 0.091 11.13
October 31, 1996 11.125 11.21 0.091 11.19
November 30, 1996 11.250 11.38 0.091 11.16
December 31, 1996 11.250 11.46 0.091 11.27
January 31, 1997 11.625 11.50 0.091 11.48
February 28, 1997 11.625 11.59 0.091 11.62
March 31, 1997 11.375 11.29 0.091 11.35
April 30, 1997 11.500 11.26 0.091 11.22
May 31, 1997 11.625 11.47 0.091 11.45
June 30, 1997 11.750 11.62 0.091 11.65
July 31, 1997 12.000 11.84 0.091 11.69
August 31, 1997 11.875 11.77 0.091 11.76
September 30, 1997 12.000 11.94 0.091 11.90
October 31, 1997 11.750 11.82 0.091 11.78
November 30, 1997 12.125 11.78 0.091 11.76
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
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
On June 11, 1998, the Annual Meeting of shareholders of the Fund was held
for the purpose of voting on the following matters:
1. The election of Alessandro C. di Montezemolo and Heath B.
Mclendon as Directors of the Fund 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:
<TABLE>
<CAPTION>
Percentage Percentage
Shares Voted of Shares Shares Voted of Shares
Name of Director* For Voted Against Voted
==========================================================================================
<S> <C> <C> <C> <C>
Alessandro C. di Montezemolo 41,495,592.552 98.60% 582,513.591 1.40%
Heath B. Mclendon 41,590,679.317 98.80% 487,426.826 1.20%
==========================================================================================
</TABLE>
* The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Paolo M. Cucchi, Andrea Farace,
Paul R. Hardin, and George M. Pavia.
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Voted
==========================================================================================
<S> <C> <C> <C> <C> <C>
41,574,862.088 98.80% 167,491.100 0.40% 335,752.955 0.80%
==========================================================================================
</TABLE>
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 8030, Boston, Massachusetts 02266 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>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year
ended February 28, 1999:
o A corporate dividends received deduction of 3.20%.
38
- --------------------------------------------------------------------------------
<PAGE>
Managed
HIGH INCOME
PORTFOLIO INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Directors
Paolo M. Cucchi
Andrea Farace
Paul R. Hardin
Heath B. McLendon, Chairman
Alessandro C. di Montezemolo
George M. Pavia
James J. Crisona, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
Transfer Agent
First Data Investor Services Group, Inc.
P.O. Box 8030
Boston, Massachusetts 02266
Custodian
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
<PAGE>
(This page intentionally left blank.)
<PAGE>
This report is intended only for the shareholders of Managed High Income
Portfolio Inc. It is not a prospectus, circular or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
FD0882 4/99
