Managed
HIGH INCOME
PORTFOLIO INC.
[GRAPHIC OMITTED]
Quarterly
Report
May 31, 1999
<PAGE>
Managed
HIGH INCOME [GRAPHIC OMITTED]
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
May 31, 1999
Dear Shareholder:
We are pleased to provide the first quarter report for the Managed High
Income Portfolio Inc. ("Fund") for the three months ended May 31, 1999. We hope
you find this report to be useful and informative. During the past three months,
the Fund paid income dividends totaling $0.25 per share. The table below details
the annualized distribution rate and the three-month total return for the Fund
based on its May 31, 1999 net asset value ("NAV") per share and the New York
Stock Exchange ("NYSE") closing price.
Price Annualized Three-Month
Per Share Distribution Rate Total Return
------------- ----------------- -------------
$10.57 (NAV) 9.54% 0.93%
$10.188 (NYSE) 9.89% 0.02%
In comparison the three-month average total return for closed-end high
yield bond funds as reported by Lipper Inc. was 1.82% over the same period.
(Lipper is an independent mutual fund performance tracking organization).
Market And Economic Overview
The high yield bond market deteriorated along with the rest of the fixed
income markets in May 1999 as U.S. Treasury rates continued to move higher on
fears that the Federal Reserve Board ("Fed") would be forced to raise short-term
interest rates to cool U.S. economic growth and contain any increase in
inflation. The continuation of strong U.S. economic growth along with the
strongest Consumer Price Index ("CPI") report since 1990 caused the Fed to shift
its monetary policy to a tightening bias. The bond market quickly reacted and
has now discounted a 50 basis point tightening (or increase) in short-term
interest rates.
The high yield bond market, as well as the corporate bond market, was not
only negatively affected by the increase in general interest rates, but also by
the rush on the part of corporations to issue additional debt before interest
rates moved even higher. This added supply caused the high yield bond market to
1
<PAGE>
labor as investors began pulling back from the market. Consequently, the high
yield bond market performed poorly and generated negative returns.
Given the heavy issuance of B/B rated and BB/Ba rated issues during the
reporting period, the better quality segments of the high yield bond market
continued to underperform weaker CCC/Caa rated issues. Even the domestic equity
markets began to be negatively affected by the rise in general interest rates
with the S&P 500 Index declining in May 1999. (Credit ratings are given by major
national rating agencies such as Standard & Poor's Ratings Service and Moody's
Investors Service.) The emerging bond markets were also negatively affected by
the increase in interest rates and posted losses.
Since the beginning of this year, 30-year U.S. Treasuries have generated
the worst performance in the bond market. The best performing fixed income
sector during the first quarter of 1999 was emerging market debt.
The strongest performing industry sectors in the high yield bond market
during the reporting period were basic materials (i.e., forest products, metals,
mining etc.), consumer cyclicals, energy and finance. The worst performing
sectors included media, (i.e., cable TV, and broadcasting), and
telecommunications because there was a significant amount of new issuance from
companies in these sectors.
Portfolio Strategy and Market Outlook
The Managed High Income Portfolio seeks high current income. Capital
appreciation is a secondary objective. The Fund's performance continued to lag
somewhat in the first five months of 1999 with total returns modestly below the
domestic high yield bond market. We were held back by our lower weightings in
basic materials companies and our heavier weightings in telecommunications,
media and healthcare companies. We especially lagged our high yield bond peer
group since a number of our competitors have continued to emphasize a
combination of lower quality issues, emerging market debt as well as common and
preferred stock.
On the other hand, we remain committed to maintaining style purity in the
Portfolio with a meaningful emphasis on better quality issues. This clearly did
not help the Fund's performance in the first five months of 1999. In fact, our
higher quality BB/Ba rated issues generated the weakest results given the
increase in interest rates.
During the period under review, we have started on a multi-pronged
strategy of eliminating underperforming companies such as some of our
deteriorating high yield issues in healthcare and selectively raising our
exposure to basic
2
<PAGE>
materials. We have also modestly increased our energy exposure by investing in
some of the higher quality energy credits.
We believe that in these market conditions, a more neutral sector strategy
should work more effectively over time. In terms of quality, we have been
increasing our exposure to the middle-B rated segment of the market where we
continue to find attractive yields. Some of our recent additions include AES
Corporation, an independent power producer; Nextlink, a competitive local
exchange telecommunications provider; and Ames Department Stores, a middle
market retailer. We believe the middle-B rated segment of the high yield bond
market represents good value given continued U.S. economic strength.
While we are obviously disappointed in our results, we are confident we
can pick up ground in the short-term as we continue to fine tune the Portfolio.
We will continue to focus on what we believe are better quality names in each
sector and look to pick up additional yield wherever possible.
In closing, thank you for investing in the Managed High Income Portfolio
Inc. We look forward to continuing to help you achieve your investment goals.
Should you have any questions about your investment in the Fund, please call the
First Data Investor Services Group, Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman Vice President and
Investment Officer
June 24, 1999
3
<PAGE>
- --------------------------------------------------------------------------------
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 35. 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.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 95.8%
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aerospace -- 0.9%
1,500,000 B1* BE Aerospace Inc., Sr. Sub. Notes,
9.500% due 11/1/08+.......................... $1,565,625
1,185,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09.......................... 1,183,519
1,300,000 B- Fairchild Corp., Sr. Sub. Notes,
10.750% due 4/15/09.......................... 1,298,375
- -------------------------------------------------------------------------------------
4,047,519
- -------------------------------------------------------------------------------------
Airlines -- 1.6%
6,375,000 BB Airplanes-Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
10.875% due 3/15/19.......................... 6,401,711
1,215,000 Ba2* Continental Airlines, Sr. Notes,
8.000% due 12/15/05.......................... 1,210,444
- -------------------------------------------------------------------------------------
7,612,155
- -------------------------------------------------------------------------------------
Aluminium -- 0.1%
445,000 B1* Kaiser Aluminium, Sr. Notes,
10.875% due 10/15/06......................... 461,131
- -------------------------------------------------------------------------------------
Auto Parts -- 0.7%
2,540,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06.......................... 2,613,025
790,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09+........................... 781,113
- -------------------------------------------------------------------------------------
3,394,138
- -------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.6%
2,930,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05.... 2,937,325
- -------------------------------------------------------------------------------------
Broadcasting -- 2.0%
525,000 B- Capstar Broadcasting Corp., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09........ 442,969
3,590,000 B1* Chancellor Media Corp., Sr. Sub. Notes,
9.000% due 10/1/08........................... 3,733,600
Citadel Broadcasting Co., Sr. Sub. Notes:
790,000 B- 10.250% due 7/1/07........................... 866,038
1,565,000 B- 9.250% due 11/15/08.......................... 1,662,813
</TABLE>
See Notes to Financial Statements. 5
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 2.0% (continued)
1,160,000 CCC+ Telemundo Holdings Inc., Sr. Discount Notes,
step bond to yield 11.450% due 8/15/08....... $ 627,850
TV Azteca SA, Guaranteed Sr. Notes:
2,085,000 B+ Series A, 10.125% due 2/15/04................ 1,647,150
550,000 B+ Series B, 10.500% due 2/15/07................ 398,750
- -------------------------------------------------------------------------------------
9,379,170
- -------------------------------------------------------------------------------------
Building Materials -- 0.2%
1,190,000 B Atrium Companies Inc., Sr. Sub. Notes,
10.500% due 5/1/09........................... 1,172,150
- -------------------------------------------------------------------------------------
Building Materials Chain -- 0.4%
Building Materials Corp., Sr. Notes:
1,570,000 BB 8.000% due 12/1/08........................... 1,497,387
500,000 BB Step bond to yield 10.015% due 7/1/04........ 523,750
- -------------------------------------------------------------------------------------
2,021,137
- -------------------------------------------------------------------------------------
Building Products -- 1.3%
1,150,000 B Amatek Industries, Sr. Sub. Notes,
12.000% due 2/15/08.......................... 1,099,687
600,000 B NCI Building Systems, Sr. Sub. Notes,
9.250% due 5/1/09............................ 606,000
Nortek Inc., Sr. Notes:
500,000 B+ 9.250% due 3/15/07........................... 509,375
3,235,000 B+ 9.125% due 9/1/07............................ 3,287,569
500,000 B+ 8.875% due 8/1/08............................ 513,750
- -------------------------------------------------------------------------------------
6,016,381
- -------------------------------------------------------------------------------------
Cable Television -- 11.3%
1,510,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/07........................... 1,526,987
Charter Communications:
2,695,000 B+ Sr. Discount Notes, zero coupon bond to
yield 9.650% due 4/1/11.................... 1,670,900
2,325,000 B+ Sr. Notes, 8.625% due 4/1/09................. 2,290,125
915,000 B- Comcast UK Cable, Debentures, step bond
to yield 11.957% due 11/15/07................ 828,075
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cable Television -- 11.3% (continued)
CSC Holdings Inc., Sr. Sub. Debentures:
7,560,000 BB- 9.875% due 2/15/13........................... $ 8,306,550
3,250,000 BB- 10.500% due 5/15/16.......................... 3,765,937
1,125,000 B- Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08........................... 1,834,258
2,100,000 B Echostar Dbs. Corp., Sr. Notes,
9.375% due 2/1/09............................ 2,110,500
NTL Inc., Sr. Notes:
3,525,000 B- 11.500% due 10/1/08.......................... 3,899,531
795,000 B- Step bond to yield 11.980% due 10/1/03....... 536,625
Rogers Cablesystems:
2,575,000 BB+ Sr. Notes, 10.000% due 12/1/07............... 2,855,031
5,475,000 BB- Sr. Sub. Notes, 11.000% due 12/1/15.......... 6,398,906
1,250,000 BB- Rogers Communications, Sr. Notes,
9.125% due 1/15/06........................... 1,304,687
Telewest Communications PLC:
Sr. Discount Notes:
985,000 B+ Step bond to yield 9.020% due 4/15/09...... 647,637
990,000 B+ Step bond to yield 9.570% due 4/15/09...... 1,039,082
2,350,000 NR Sr. Notes, 11.250% due 11/1/08............... 2,684,875
16,250,000 B United International Holdings Inc., Sr. Discount
Notes, step bond to yield 11.149% due 2/15/08 10,684,375
- -------------------------------------------------------------------------------------
52,384,081
- -------------------------------------------------------------------------------------
Casinos/Gambling -- 2.7%
Circus Circus:
1,005,000 BBB- Sr. Notes, 6.700% due 11/15/2096............. 971,081
415,000 BB+ Sr. Sub. Notes, 7.625% due 7/15/13........... 389,581
2,405,000 BB+ Harrahs Operating Co. Inc., Company
Guaranteed, 7.875% due 12/15/05.............. 2,332,850
2,200,000 B Harvey Casinos Resorts, Sr. Sub. Notes,
10.625% due 6/1/06........................... 2,296,250
2,075,000 B Hollywood Park Inc., Sr. Sub. Notes,
9.250% due 2/15/07........................... 2,095,750
1,970,000 B+ Horseshoe Gaming Holding, Sr. Sub. Notes,
8.625% due 5/15/09........................... 1,923,212
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Casinos/Gambling -- 2.7% (continued)
1,415,000 B Isle Of Capri Casinos, Sr. Sub. Notes,
8.750% due 4/15/09........................... $ 1,330,100
Station Casinos, Sr. Sub. Notes:
710,000 B+ 10.125% due 3/15/06.......................... 741,062
400,000 B+ 8.875% due 12/1/08+.......................... 397,500
- -------------------------------------------------------------------------------------
12,477,386
- -------------------------------------------------------------------------------------
Chemicals - Major -- 0.1%
680,000 NR Huntsman Corp., Sr. Sub. Notes,
9.500% due 7/1/07+........................... 660,450
- -------------------------------------------------------------------------------------
Chemicals - Specialty -- 0.6%
Lyondell Chemical Company, Sr. Secured Notes:
995,000 BB 9.625% due 5/1/07............................ 1,011,169
990,000 BB 9.875% due 5/1/07............................ 1,003,612
1,010,000 B+ Sterling Chemicals Inc., Sr. Sub. Notes,
11.750% due 8/15/06.......................... 959,500
- -------------------------------------------------------------------------------------
2,974,281
- -------------------------------------------------------------------------------------
Coal Mining -- 0.6%
2,780,000 B AEI Resources, Sr. Sub. Notes,
10.500% due 12/15/05......................... 2,762,625
- -------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.3%
1,490,000 B Columbus McKinnon Corp., Sr. Sub. Notes,
8.500% due 4/1/08............................ 1,469,512
- -------------------------------------------------------------------------------------
Containers/Packaging -- 2.0%
995,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07.......................... 1,013,656
1,850,000 B Huntsman Packaging Corp., Sr. Notes,
9.125% due 10/1/07........................... 1,852,312
3,000,000(DEM) B Impress Metal Packaging Holdings, Sr. Sub. Notes,
9.875% due 5/29/07........................... 1,764,234
1,280,000 B Packaging Corp. of America, Sr. Sub. Notes,
9.625% due 4/1/09............................ 1,318,400
1,140,000 B Stone Container, Sr. Notes,
11.500% due 8/15/06.......................... 1,225,500
</TABLE>
8 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Containers/Packaging -- 2.0% (continued)
Tekni-Plex Inc., Sr. Sub. Notes:
250,000 B- 11.250% due 4/1/07........................... $ 267,812
1,555,000 B- 9.250% due 3/1/08............................ 1,560,831
- -------------------------------------------------------------------------------------
9,002,745
- -------------------------------------------------------------------------------------
Contract Drilling -- 1.5%
2,795,000 BB Pride International Inc., Sr. Notes,
10.000% due 6/1/09........................... 2,801,987
200,000 BB Pride Petroleum Services Inc., Sr. Notes,
9.375% due 5/1/07............................ 196,750
RBF Finance Corp.:
1,995,000 Ba3* Sr. Notes, 12.250% due 3/15/06............... 2,012,456
1,840,000 BB- Sr. Secured Notes, 11.375% due 3/15/09....... 1,856,100
- -------------------------------------------------------------------------------------
6,867,293
- -------------------------------------------------------------------------------------
Discount Stores -- 1.1%
1,490,000 B+ Ames Department Stores, Sr. Notes,
10.000% due 4/15/06.......................... 1,471,375
1,725,000 BB+ DR Structured Finance, Pass Through Certificates,
8.375% due 8/15/15........................... 1,695,123
1,710,000 BB+ KMart Corp., Sr. Notes, 12.500% due 3/1/05..... 2,099,025
- -------------------------------------------------------------------------------------
5,265,523
- -------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.6%
2,225,000 BB- Clisa SA, Guaranteed Sr. Notes,
11.625% due 6/1/04........................... 1,346,125
2,900,000 B2* Intertek Finance PLC, Sr. Sub. Notes, Series B,
10.250% due 11/1/06.......................... 2,831,125
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06.......................... 3,221,562
- -------------------------------------------------------------------------------------
7,398,812
- -------------------------------------------------------------------------------------
Diversified Financial Services -- 0.5%
Amresco Inc., Sr. Sub. Notes, Series A:
1,500,000 CCC+ 10.000% due 3/15/04.......................... 1,248,750
1,275,000 CCC+ 9.875% due 3/15/05........................... 1,071,000
- -------------------------------------------------------------------------------------
2,319,750
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Manufacturing -- 0.6%
2,650,000 B+ Park Ohio Industries, Sr. Sub. Notes,
9.250% due 12/1/07........................... $ 2,659,937
- -------------------------------------------------------------------------------------
Drugs - Generic -- 1.3%
5,600,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05........................... 5,831,000
- -------------------------------------------------------------------------------------
Electronic Components -- 1.3%
1,995,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06......................... 2,204,475
4,130,000 B- Viasystems Inc., Sr. Sub. Notes,
9.750% due 6/1/07............................ 3,644,725
- -------------------------------------------------------------------------------------
5,849,200
- -------------------------------------------------------------------------------------
Electronic Data Processing -- 3.4%
Unisys Corp., Sr. Notes:
4,795,000 BB- 12.000% due 4/15/03.......................... 5,256,519
9,175,000 BB- 11.750% due 10/15/04......................... 10,298,937
- -------------------------------------------------------------------------------------
15,555,456
- -------------------------------------------------------------------------------------
Engineering & Construction -- 1.6%
1,320,000 B- American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08......................... 1,291,950
2,260,000 B Group Maintenance America Corp.,
Sr. Sub. Notes, 9.750% due 1/15/09........... 2,291,075
1,005,000 B+ Integrated Electrical Services, Sr. Sub. Notes,
9.375% due 2/1/09............................ 1,015,050
2,840,000 B Metromedia Fiber Network, Sr. Notes,
10.000% due 11/15/08......................... 2,967,800
- -------------------------------------------------------------------------------------
7,565,875
- -------------------------------------------------------------------------------------
Environmental Services -- 0.2%
985,000 B+ It Group Inc., Sr. Sub. Notes,
11.250% due 4/1/09........................... 978,844
- -------------------------------------------------------------------------------------
Food Distributors -- 2.7%
3,900,000 B2* Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08........................... 3,865,875
</TABLE>
10 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food Distributors -- 2.7% (continued)
4,625,000 B Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07.......................... $ 4,619,219
1,415,000 B- Purina Mills Inc., Sr. Sub. Notes,
9.000% due 3/15/10........................... 1,130,231
2,600,000 B SC International Services Inc., Sr. Sub. Notes,
9.250% due 9/1/07............................ 2,765,750
- -------------------------------------------------------------------------------------
12,381,075
- -------------------------------------------------------------------------------------
Foods - Specialty/Candy -- 0.6%
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07............................ 2,644,906
- -------------------------------------------------------------------------------------
Forest Products -- 0.7%
2,940,000 B Ainsworth Lumber, Sr. Notes,
12.500% due 7/15/07.......................... 3,289,125
- -------------------------------------------------------------------------------------
Home Furnishings -- 0.1%
425,000 B- Simmons Co., Sr. Sub. Notes,
10.250% due 3/15/09.......................... 437,219
- -------------------------------------------------------------------------------------
Homebuilding -- 0.9%
1,860,000 Ba1* DR Horton Inc., Company Guaranteed,
8.000% due 2/1/09............................ 1,787,925
2,240,000 BB- US Home Corp., Sr. Sub. Notes,
8.875% due 2/15/09........................... 2,198,000
- -------------------------------------------------------------------------------------
3,985,925
- -------------------------------------------------------------------------------------
Hospital/Nursing Management -- 2.5%
Fresenius Medical Cap Trust, Notes:
1,440,000 Ba3* 9.000% due 12/1/06........................... 1,454,400
2,775,000 Ba3* 7.875% due 2/1/08............................ 2,664,000
415,000 B2* Integrated Health Services Inc., Sr. Sub. Notes,
9.250% due 1/15/08........................... 270,787
8,385,000 B- Magellan Health Services Inc., Sr. Sub. Notes,
9.000% due 2/15/08........................... 7,116,769
- -------------------------------------------------------------------------------------
11,505,956
- -------------------------------------------------------------------------------------
Hotels/Resorts -- 2.2%
3,250,000 B- Courtyard By Marriott, Sr. Secured Notes,
10.750% due 2/1/08........................... 3,327,188
</TABLE>
See Notes to Financial Statements. 11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotels/Resorts -- 2.2% (continued)
HMH Properties:
3,705,000 BB Sr. Notes, 8.450% due 12/1/08................ $ 3,552,169
2,420,000 BB Sr. Secured Notes, 7.875% due 8/1/08......... 2,247,575
1,155,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08. 1,201,200
- -------------------------------------------------------------------------------------
10,328,132
- -------------------------------------------------------------------------------------
Insurance - Multi-Line -- 1.0%
3,225,000 BB+ SIG Capital Trust, Guaranteed Notes,
9.500% due 8/15/27........................... 2,350,219
2,500,000 B Veritas Capital Trust, Guaranteed Notes,
10.000% due 1/1/28........................... 2,237,500
- -------------------------------------------------------------------------------------
4,587,719
- -------------------------------------------------------------------------------------
Internet Services -- 2.9%
PSINet Inc., Sr. Notes:
3,725,000 B- 10.000% due 2/15/05.......................... 3,725,000
2,605,000 B- 11.500% due 11/1/08.......................... 2,735,250
3,300,000 NR Splitrock Services Inc., Sr. Sub. Notes,
11.750% due 7/15/08.......................... 3,168,000
1,685,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08..... 1,792,419
2,900,000 NR WAM!Net Inc., step bond to yield
13.229% due 3/1/05........................... 1,783,500
- -------------------------------------------------------------------------------------
13,204,169
- -------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 1.3%
1,855,000 B Regal Cinemas Inc., Sr. Sub. Notes,
9.500% due 6/1/08............................ 1,776,163
4,000,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08............................ 4,000,000
- -------------------------------------------------------------------------------------
5,776,163
- -------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.5%
1,892,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03.......................... 1,929,840
550,000 Ba3* Westinghouse Air, Sr. Notes,
9.375% due 6/15/05........................... 560,313
- -------------------------------------------------------------------------------------
2,490,153
- -------------------------------------------------------------------------------------
</TABLE>
12 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Media Conglomerates -- 0.8%
2,400,000 B Polestar Corp. PLC, Sr. Notes,
10.500% due 5/30/08.......................... $ 3,845,784
- -------------------------------------------------------------------------------------
Metal Fabrications -- 0.2%
785,000 BB California Steel Industries, Sr. Notes,
8.500% due 4/1/09............................ 781,075
- -------------------------------------------------------------------------------------
Metals/Minerals - Other -- 0.7%
2,425,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04........................... 2,227,969
1,000,000 B2* Kaiser Aluminium, Sr. Sub. Notes,
12.750% due 2/1/03........................... 1,017,500
- -------------------------------------------------------------------------------------
3,245,469
- -------------------------------------------------------------------------------------
Miscellaneous -- 0.3%
1,230,000 B- Key Plastics, Series B, Sr. Sub. Notes,
10.250% due 3/15/07.......................... 1,219,238
- -------------------------------------------------------------------------------------
Multi - Sector Companies -- 0.4%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09.......................... 2,034,775
- -------------------------------------------------------------------------------------
Newspapers -- 0.2%
705,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11............................ 686,494
- -------------------------------------------------------------------------------------
Office Equipment/Supplies -- 0.4%
1,800,000 B3* Axiohm Transaction Solutions, Sr. Sub. Notes,
9.750% due 10/1/07........................... 1,608,750
- -------------------------------------------------------------------------------------
OIL & GAS PRODUCTION -- 3.8%
1,330,000 B1* Belco Oil & Gas, Sr. Sub. Notes,
8.875% due 9/15/07........................... 1,303,400
2,125,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes,
8.750% due 9/15/07........................... 2,037,344
4,350,000 B+ Clark USA Inc., Sr. Notes, 10.875% due 12/1/05. 3,724,688
700,000 B1* Coda Energy, Sr. Sub. Notes,
10.500% due 4/1/06........................... 718,375
Ocean Energy Inc., Sr. Sub. Notes:
2,625,000 BB- 10.375% due 10/15/05......................... 2,766,094
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil & Gas Production -- 3.8% (continued)
2,750,000 BB- 9.750% due 10/1/06........................... $ 2,835,938
2,025,000 B+ Parker Drilling, Sr. Notes,
9.750% due 11/15/06.......................... 1,799,719
2,150,000 B2* Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07........................... 2,141,938
- -------------------------------------------------------------------------------------
17,327,496
- -------------------------------------------------------------------------------------
Oil/Gas Transmission -- 0.3%
1,135,000 Ba2* Leviathan Gas Pipeline Partners, Sr. Sub. Notes,
10.375% due 6/1/09........................... 1,146,350
- -------------------------------------------------------------------------------------
Package Goods/Cosmetics -- 0.5%
2,300,000 B- Revlon Consumer Products, Sr. Sub. Notes,
8.625% due 2/1/08............................ 2,205,125
- -------------------------------------------------------------------------------------
Paper -- 2.6%
2,500,000 BB Malette Inc., Sr. Secured Notes,
12.250% due 7/15/04.......................... 2,659,375
2,465,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05.......................... 2,101,413
Riverwood International, Company Guaranteed:
1,110,000 B- 10.625% due 8/1/07........................... 1,144,688
2,485,000 CCC+ 10.875% due 4/1/08........................... 2,438,406
Tembec Industries, Sr. Notes:
2,240,000 BB+ 9.875% due 9/30/05........................... 2,354,800
1,405,000 BB+ 8.625% due 6/30/09........................... 1,419,050
- -------------------------------------------------------------------------------------
12,117,732
- -------------------------------------------------------------------------------------
Pharmaceuticals - Other -- 0.0%
165,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09.......................... 169,744
- -------------------------------------------------------------------------------------
Photographic Products -- 0.5%
2,255,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06. 2,339,563
- -------------------------------------------------------------------------------------
Printing/Forms -- 0.3%
720,000 B Cadmus Communications Corp., Sr. Sub. Notes,
9.750% due 6/1/09............................ 720,900
</TABLE>
14 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing/Forms -- 0.3% (continued)
605,000 BB- World Color Press Inc., Sr. Sub. Notes,
7.750% due 2/15/09........................... $ 573,238
- -------------------------------------------------------------------------------------
1,294,138
- -------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.7%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05........................... 1,935,000
1,250,000 Baa3* Trizec Finance Ltd., Sr. Notes,
10.875% due 10/15/05......................... 1,379,688
- -------------------------------------------------------------------------------------
3,314,688
- -------------------------------------------------------------------------------------
Recreational Products/Toys -- 0.6%
2,855,000 BB+ International Game Technology, Sr. Notes,
7.875% due 5/15/04........................... 2,826,450
- -------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.7%
1,015,000 B Nationsrent Inc., Company Guaranteed,
10.375% due 12/15/08......................... 1,026,419
2,415,000 BB- United Rentals Inc., Sr. Sub. Notes,
9.250% due 1/15/09........................... 2,411,981
- -------------------------------------------------------------------------------------
3,438,400
- -------------------------------------------------------------------------------------
Restaurants -- 0.1%
515,000 B Advantica Restaurant Group, Sr. Notes,
11.250% due 1/15/08.......................... 507,919
- -------------------------------------------------------------------------------------
Retail - Food Chains -- 0.1%
375,000 CCC+ Pathmark Stores, Sr. Sub. Notes,
12.625% due 6/15/02.......................... 384,844
- -------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.7%
3,100,000 B- Advance Stores Co., Inc., Sr. Sub. Notes,
10.250% due 4/15/08.......................... 3,115,500
- -------------------------------------------------------------------------------------
Savings & Loan Associations -- 1.0%
Ocwen Capital Trust:
3,200,000 B2* Jr. Sub. Notes, 10.875% due 8/1/27........... 2,480,000
2,100,000 BB- Sr. Notes, 11.875% due 10/1/03............... 2,005,500
- -------------------------------------------------------------------------------------
4,485,500
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Semiconductors -- 0.9%
4,260,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07.......................... $ 4,217,400
- -------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.2%
1,005,000 Ba3* National Steel Corp., First Mortgage Notes,
9.875% due 3/1/09............................ 1,028,869
2,060,000 B+ Russel Metals Inc., Sr. Notes,
10.000% due 6/1/09........................... 2,072,875
575,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04. 590,094
1,940,000 B WHX Corp., Sr. Notes, 10.500% due 4/15/05...... 1,920,600
- -------------------------------------------------------------------------------------
5,612,438
- -------------------------------------------------------------------------------------
Telecommunications - Other -- 14.7%
Colt Telecommunications Group PLC, Sr. Notes:
660,000(DEM) B1* 8.875% due 11/30/07 ......................... 354,611
800,000 B1* 10.125% due 11/30/07......................... 1,339,614
3,835,000(DEM) B1* 7.625% due 7/31/08 .......................... 2,070,756
7,760,000 NR E. Spire Communications, Sr. Discount Notes,
step bond to yield 11.075% due 7/1/08........ 3,404,700
Esprit Telecom Group PLC, Sr. Notes:
2,300,000 B- 11.500% due 12/15/07......................... 2,458,125
2,000,000(DEM) B- 11.500% due 12/15/07 ........................ 1,154,771
1,300,000 B- 10.875% due 6/15/08.......................... 1,363,375
4,615,000 NR Facilicom International Inc., Sr. Notes,
10.500% due 1/15/08.......................... 3,576,625
Hermes Europe Railtel Inc., Sr. Notes:
3,900,000 B 11.500% due 8/15/07.......................... 4,104,750
1,225,000 B 10.375% due 1/15/09.......................... 1,255,625
950,000 BB- Impsat Corp., Sr. Notes, 12.125% due 7/15/03... 907,250
Intermedia Communications Co.:
1,210,000 B Sr. Discount Notes, step bond to yield
11.289% due 5/15/06...................... 1,010,350
Sr. Notes:
505,000 B 8.500% due 1/15/08....................... 475,331
1,270,000 B 8.600% due 6/1/08........................ 1,193,800
1,600,000 B 9.500% due 3/01/09....................... 1,580,000
</TABLE>
16 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 14.7% (continued)
905,000 CCC+ IXC Communications Inc., Sr. Sub. Notes,
9.000% due 4/15/08........................... $ 873,325
2,590,000 B- KMC Telecom Holdings Inc., Sr. Notes,
13.500% due 5/15/09.......................... 2,593,238
Metronet Communications Inc.:
11,400,000 B Sr. Discount Notes, step bond to yield
10.036% due 6/15/08...................... 8,450,250
5,475,000 B Sr. Notes, 12.000% due 8/15/07............... 6,474,188
1,785,000 B Sr. Notes, 10.625% due 11/1/08............... 2,059,444
Nextlink Communications:
1,855,000 B Sr. Discount Notes, step bond to yield
12.250% due 6/1/09....................... 1,024,888
3,260,000 B Sr. Notes, 12.500% due 4/15/06............... 3,598,225
2,580,000 B Sr. Notes, 10.750% due 6/1/09................ 2,586,450
5,025,000 B- Primus Telecommunications Group, Sr. Notes,
11.750% due 8/1/04........................... 5,213,438
1,850,000 B3* RCN Corp., Sr. Notes, 10.000% due 10/15/07..... 1,854,625
Tele1 Europe B.V., Sr. Notes:
1,005,000 NR 13.000% due 5/15/09.......................... 1,022,588
1,000,000(ECU) NR 13.000% due 5/15/09.......................... 1,045,696
2,600,000 NR Versatel Telecommunications, Sr. Notes,
13.250% due 5/15/08.......................... 2,733,250
2,135,000 Caa* Viatel Inc., Sr. Notes, 11.250% due 4/15/08.... 2,169,694
- -------------------------------------------------------------------------------------
67,948,982
- -------------------------------------------------------------------------------------
Telephone - Cellular -- 5.7%
2,040,000 CCC+ Centennial Cellular, Sr. Sub. Notes,
10.750% due 12/15/08......................... 2,134,350
2,480,000 B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 12.754% due 12/15/05...... 2,253,700
695,000 B Crown Castle International Corp., Sr. Notes,
9.000% due 5/15/11........................... 683,706
Dolphin Telecom PLC, Sr. Discount Notes:
4,525,000(ECU) Caa* Step bond to yield 10.570% due 6/1/08+....... 2,401,377
4,325,000 CCC+ Step bond to yield 11.419% due 6/1/08........ 2,286,844
5,325,000 B- Millicom International Cellular SA, Sr. Discount
Notes, step bond to yield 13.479% due 6/1/06. 4,160,156
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 5.7% (Continued)
Nextel Communications, Sr. Discount Notes:
2,310,000 B2* Step bond to yield 10.945% due 9/15/02....... $ 1,622,775
2,460,000 B2* Step bond to yield 10.682% due 2/15/03....... 1,697,400
2,080,000 Ba3* Orange PLC, Sr. Notes, 8.000% due 8/1/08....... 2,038,400
2,455,000 NR Spectrasite Holdings, Sr. Discount Notes,
step bond to yield 11.218% due 4/15/09....... 1,426,969
255,000 B3* Telecorp PCS Inc., Sr. Discount Notes,
step bond to yield 12.911% due 4/15/09....... 132,281
Telesystems International Wireless Inc.,
Sr. Discount Notes:
5,860,000 CCC+ Step bond to yield 11.982% due 6/30/07... 3,457,400
2,500,000 CCC+ Step bond to yield 11.152% due 11/1/07... 1,275,000
1,505,000 B3* Triton PCS Inc., Sr. Sub. Discount Notes,
step bond to yield 11.612% due 5/1/08........ 908,644
- -------------------------------------------------------------------------------------
26,479,002
- -------------------------------------------------------------------------------------
Textiles -- 0.5%
4,400,000(DEM) B Texon International, Sr. Notes,
10.000% due 2/1/08........................... 2,128,842
- -------------------------------------------------------------------------------------
Transportation - Marine -- 0.7%
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09........................... 1,234,606
107,000 BB- Sea Containers, Series A, Sr. Sub. Notes,
12.500% due 12/1/04.......................... 115,560
2,300,000 B+ Stena Line AB, Sr. Notes, 10.625% due 6/1/08... 1,756,625
- -------------------------------------------------------------------------------------
3,106,791
- -------------------------------------------------------------------------------------
Unregulated Power Generation -- 2.7%
AES Corp., Sr. Sub. Notes:
1,840,000 Ba1* 10.250% due 7/15/06.......................... 1,934,300
4,130,000 Ba1* 8.500% due 11/1/07........................... 4,052,563
1,545,000 BB Caithness Coso Fund Corp., Sr. Notes,
9.050% due 12/15/09.......................... 1,554,656
Calpine Corp., Sr. Notes:
3,550,000 BB 10.500% due 5/15/06.......................... 3,891,688
860,000 BB 8.750% due 7/15/07........................... 893,325
- -------------------------------------------------------------------------------------
12,326,532
- -------------------------------------------------------------------------------------
</TABLE>
18 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale Distributors -- 0.6%
2,615,000 B- Fisher Scientific International Inc., Sr. Sub. Notes,
9.000% due 2/1/08............................ $ 2,536,550
- -------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $451,183,557)......................... 442,145,989
=====================================================================================
Shares Security Value
=====================================================================================
- -------------------------------------------------------------------------------------
COMMON STOCK - 0.0%
- -------------------------------------------------------------------------------------
Telecommunications - Other -- 0.0%
12,250 Pagemart Nationwide Inc. (Cost -- $0).......... 61,250
=====================================================================================
- -------------------------------------------------------------------------------------
Preferred Stock - 1.3%
- -------------------------------------------------------------------------------------
Broadcasting -- 0.5%
17,652 Capstar Broadcasting, Series E,
Exchangeable 12.625%, Payment-in-kind........ 2,118,255
- -------------------------------------------------------------------------------------
Electronic Components -- 0.1%
45,046 Viasystems Inc., Series B, Payment-in-kind..... 630,651
- -------------------------------------------------------------------------------------
Savings & Loan Association -- 0.4%
63,850 California Federal Preferred Capital Corp.,
Series A, Exchangeable 9.125%................ 1,715,969
- -------------------------------------------------------------------------------------
Telephone - Cellular -- 0.3%
14,750 Dobson Communications, Payment-in-kind......... 1,489,750
- -------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $6,033,112)........................... 5,954,625
=====================================================================================
</TABLE>
See Notes to Financial Statements. 19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------
WARRANTS # - 1.2%
- -------------------------------------------------------------------------------------
Broadcasting -- 0.0%
5,425 Australis Media, Expire 5/15/00................ $ 0
8,625 UIH Australia Inc., Expire 5/15/06............. 8,625
- -------------------------------------------------------------------------------------
8,625
- -------------------------------------------------------------------------------------
Cable Television -- 0.0%
3,375 Wireless One Inc., Expire 10/19/00............. 844
- -------------------------------------------------------------------------------------
Internet Services -- 0.1%
4,050 Splitrock Service, Expire 7/15/08.............. 324,000
8,700 WAM!Net Inc., Expire 3/1/05.................... 197,925
- -------------------------------------------------------------------------------------
521,925
- -------------------------------------------------------------------------------------
Paper -- 0.0%
4,800 SD Warren Co., Expire 12/15/06................. 84,480
- -------------------------------------------------------------------------------------
Telecommunications - Other -- 0.9%
3,650 Allegiance Telecom Inc., Expire 2/3/08......... 156,950
5,000 Colt Telecom, Expire 12/31/06.................. 2,900,000
60,500 Metronet Communications, Expire 8/15/07........ 302,500
9,207 Nextel Communications, Expire 4/25/99.......... 339,508
24,840 Pagemart Inc., Expire 12/31/03+................ 49,680
4,475 Primus Telecommunications Group,
Expire 8/1/04................................ 46,988
4,125 RSL Communications Ltd., Expire 11/15/06....... 160,875
2,600 Versatel Telecommunications, Expire 5/15/08.... 130,000
- -------------------------------------------------------------------------------------
4,086,501
- -------------------------------------------------------------------------------------
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 -- $1,873,429)........................... 5,664,243
=====================================================================================
</TABLE>
20 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.7%
- -------------------------------------------------------------------------------------
$7,852,000 Morgan Stanley Dean Witter & Co., 4.800%
due 6/1/99; Proceeds at maturity-- $7,856,188;
(Fully collateralized by U.S. Treasury Notes
and Bonds, 5.625% to 7.500% due 6/30/99 to
8/15/22; Market value-- $8,009,040)
(Cost -- $7,852,000)........................... $ 7,852,000
=====================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $466,942,098** )...................... $461,678,107
=====================================================================================
</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.
++ Face amount denominated in U.S. dollars unless otherwise indicated.
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
# Non-income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency Abbreviations:
-----------------------
DEM -- German Mark
ECU -- European Currency Unit
See page 23 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS. 21
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited)
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Baa BBB 0.5%
Ba BB 29.2
B B 59.9
Caa CCC 5.1
NR NR 5.3
-----
100.0%
=====
22
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard &Poor's") -- Ratings from "BBB" to
"C" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, -- Bonds rated "BB", "B", "CCC","CC" and "C" are regarded, on
CC and C balance, as pre-dominantly speculative with respect to capacity
to pay interest and repay principal 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 uncertainties 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 considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period
of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with respect
to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
23
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
May 31, 1999 (unaudited)
ASSETS:
Investments, at value (Cost-- $466,942,098) ............... $ 461,678,107
Cash ...................................................... 531
Receivable for securities sold ............................ 2,009,121
Receivable for open forward foreign currency contracts .... 644,660
Interest and dividends receivable ......................... 9,844,695
- -------------------------------------------------------------------------------
Total Assets .............................................. 474,177,114
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased .......................... 4,757,559
Dividends payable ......................................... 1,181,859
Investment advisory fees payable .......................... 323,894
Administration fees payable ............................... 77,810
Accrued expenses .......................................... 238,007
- -------------------------------------------------------------------------------
Total Liabilities ......................................... 6,579,129
- -------------------------------------------------------------------------------
Total Net Assets ............................................. $ 467,597,985
===============================================================================
NET ASSETS:
Par value of capital shares ............................... $ 44,236
Capital paid in excess of par value ....................... 526,857,719
Overdistributed net investment income ..................... (765,646)
Accumulated net realized loss from
security transactions ................................... (53,891,940)
Net unrealized depreciation on investments
and foreign currencies .................................. (4,646,384)
- -------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.57 per share on 44,236,103
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ............................ $ 467,597,985
===============================================================================
24 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1999 (unaudited)
INVESTMENT INCOME:
Interest ................................................... $ 12,175,407
Dividends .................................................. 39,035
- -------------------------------------------------------------------------------
Total Investment Income .................................... 12,214,442
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) .......................... 1,071,684
Administration fees (Note 2) ............................... 238,152
Shareholder communications ................................. 37,397
Audit and legal ............................................ 11,718
Registration fees .......................................... 9,225
Directors' fees ............................................ 8,726
Shareholder and system servicing fees ...................... 5,384
Custody .................................................... 5,235
Other ...................................................... 4,239
- -------------------------------------------------------------------------------
Total Expenses ............................................. 1,391,760
- -------------------------------------------------------------------------------
Net Investment Income ......................................... 10,822,682
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) .. (23,040,405)
Foreign currency transactions ............................ 314,185
- -------------------------------------------------------------------------------
Net Realized Loss .......................................... (22,726,220)
- -------------------------------------------------------------------------------
Change in Net Unrealized Depreciation
of Investments and Foreign Currencies:
Beginning of period ...................................... (20,663,994)
End of period ............................................ (4,646,384)
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation .................... 16,017,610
- -------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................ (6,708,610)
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations ........................ $ 4,114,072
===============================================================================
See Notes to Financial Statements. 25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Three Months Ended May 31, 1999 (unaudited)
and the Year Ended February 28, 1999
<TABLE>
<CAPTION>
May 31 February 28
===========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income ................................. $ 10,822,682 $ 44,952,453
Net realized loss ..................................... (22,726,220) (645,006)
(Increase) decrease in net unrealized depreciation .... 16,017,610 (49,320,029)
- -------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations ..... 4,114,072 (5,012,582)
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (11,147,498) (45,242,459)
- -------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders ....................... (11,147,498) (45,242,459)
- -------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends ........................... -- 2,326,095
- -------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions ............................. -- 2,326,095
- -------------------------------------------------------------------------------------------
Decrease in Net Assets ................................... (7,033,426) (47,928,946)
NET ASSETS:
Beginning of period ................................... 474,631,411 522,560,357
- -------------------------------------------------------------------------------------------
End of period* ........................................ $ 467,597,985 $ 474,631,411
===========================================================================================
*Includes overdistributed net investment income of: ...... $ (765,646) $ (755,015)
===========================================================================================
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Managed High Income Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The following are significant accounting policies consistently followed by
the Fund: (a) security transactions are accounted for on trade date; (b)
securities are valued at the mean between the quoted bid and ask prices provided
by an indepen dent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) gains or losses on the
sale of securities are calculated by using the specific identification method;
(e) interest income, adjusted for accretion of original issue discount, is
recorded on an accrual basis; (f) dividend income is recorded by the Fund on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) the accounting
records of the Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (h)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substan tially all Federal income and excise taxes; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
February 28, 1999, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this adjustment; (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic
27
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ; and (k) certain prior year
numbers have been restated to reflect current year's presentation. Current net
investment income, net realized gains, and net assets were not affected by this
change.
In addition, the Fund may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
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 three months ended May 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $109,221,460
- --------------------------------------------------------------------------------
Sales 110,415,570
================================================================================
At May 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 11,206,505
Gross unrealized depreciation (16,470,496)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (5,263,991)
================================================================================
28
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
4. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. government
securities from banks subject to agreements to resell the securities to the
sellers at a future date (generally, the next business day) at an agreed-upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Forward Foreign Currency Contracts
At May 31, 1999, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain on the contracts reflected
in the accompanying financial statements were as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain
================================================================================
To Sell:
British Pound 5,235,692 $8,379,118 9/22/99 $105,116
European Currency Unit 1,840,544 1,926,287 6/10/99 87,268
European Currency Unit 1,042,391 1,092,230 9/15/99 23,879
German Mark 17,199,771 9,203,211 6/10/99 428,397
- --------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Foreign Currency Contracts $644,660
================================================================================
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 May 31, 1999, the Fund had no open futures contracts.
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 May 31, 1999, the Fund had no open purchased call or put option
contracts.
When the Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of loss if the market price of the underlying security declines.
During the three months ended May 31, 1999, the Fund did not write any
covered call or put options.
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
8. Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIK securities
pay interest through the issuance of additional securities. PIK securities carry
a risk in that, unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment dates unless a
portion of such securities are sold. If the issuer of a PIK security defaults,
the Fund may obtain no return at all on its investment.
9. Capital Loss Carryforward
At February 28, 1999, the Fund had, for Federal income tax purposes,
approximately $30,374,000 of loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on the last day in February of the year indicated:
2003 2004 2005 2007
================================================================================
Carryforward Amounts $9,404,000 $18,115,000 $239,000 $2,616,000
================================================================================
10. Capital Shares
Capital stock transactions were as follows:
Three Months Ended Year Ended
May 31, 1999 February 28, 1999
------------------ ------------------
Shares Amount Shares Amount
================================================================================
Shares issued on reinvestment -- -- 221,114 $2,326,095
================================================================================
31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
<TABLE>
<CAPTION>
1999(1) 1999 1998 1997 1996(2) 1995
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.73 $11.87 $11.59 $11.36 $10.88 $12.39
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.25 1.01 1.09 1.12 1.13 1.12
Net realized and
unrealized gain (loss) (0.16) (1.12) 0.28 0.21 0.65 (1.48)
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.09 (0.11) 1.37 1.33 1.78 (0.36)
- ----------------------------------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
to Paid-In Capital -- -- -- -- -- 0.00*
- ----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.25) (1.03) (1.09) (1.08) (1.27) (1.00)
Net realized gains -- -- -- -- -- (0.15)
Capital -- -- -- (0.02) (0.03) --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (1.03) (1.09) (1.10) (1.30) (1.15)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value,
end of Period $10.57 $10.73 $11.87 $11.59 $11.36 $10.88
- ----------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value (3) 0.02%++ (2.44)% 10.96% 15.37% 18.83% 0.14%
- ----------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value (3) 0.93%++ (0.72)% 12.43% 12.65% 17.80% (2.18)%
- ----------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $468 $475 $523 $494 $477 $457
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.20%+ 1.17% 1.18% 1.20% 1.24% 1.24%
Net investment income 9.30+ 9.03 9.19 9.89 9.74 9.96
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 84% 94% 61% 73% 62%
- ----------------------------------------------------------------------------------------------------------------------
Market value, End of Period $10.188 $10.438 $11.750 $11.625 $11.125 $10.500
======================================================================================================================
</TABLE>
(1) For the three months ended May 31, 1999 (unaudited).
(2) For the year ended February 29, 1996.
(3) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
32
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments Operations
----------------------------------------------------------------------------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31,
1997 $13,200,189 $0.31 $11,741,167 $0.27 $(5,289,541) $(0.12) $6,451,626 $0.15
August 31,
1997 13,358,455 0.31 11,846,555 0.28 12,682,793 0.29 24,529,348 0.57
November 30,
1997 12,745,541 0.29 11,250,534 0.26 1,354,794 0.03 12,605,328 0.29
February 28,
1998 13,288,741 0.30 11,752,363 0.27 4,080,801 0.09 15,833,164 0.36
May 31,
1998 12,823,273 0.29 11,293,219 0.26 (2,829,443) (0.06) 8,463,776 0.19
August 31,
1998 13,413,896 0.30 11,864,494 0.27 (36,436,763) (0.83) (24,572,269) (0.56)
November 30,
1998 12,226,853 0.28 10,852,489 0.25 (336,494) (0.01) 10,515,995 0.24
February 28,
1999 12,298,897 0.28 10,942,251 0.25 (10,362,335) (0.23) 579,916 0.01
May 31,
1999 12,214,442 0.28 10,822,682 0.24 (6,708,610) (0.15) 4,114,072 0.09
=======================================================================================================
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
Dividend
Nyse Net Asset Dividend Reinvestment
Closing Price Value Paid Price
==========================================================================
March 31, 1997 $11.375 $11.29 $0.091 $11.35
April 30, 1997 11.500 11.26 0.091 11.22
May 31, 1997 11.625 11.47 0.091 11.45
June 30, 1997 11.750 11.62 0.091 11.65
July 31, 1997 12.000 11.84 0.091 11.69
August 31, 1997 11.875 11.77 0.091 11.76
September 30, 1997 12.000 11.94 0.091 11.90
October 31, 1997 11.750 11.82 0.091 11.78
November 30, 1997 12.125 11.78 0.091 11.76
December 31, 1997 12.313 11.82 0.091 11.80
January 31, 1998 12.500 11.89 0.091 11.82
February 28, 1998 11.750 11.87 0.091 11.87
March 31, 1998 11.563 11.90 0.086 11.62
April 30, 1998 11.375 11.84 0.086 11.51
May 31, 1998 11.438 11.81 0.086 11.53
June 30, 1998 11.625 11.74 0.086 11.55
July 31, 1998 11.438 11.76 0.086 11.50
August 31, 1998 9.750 10.99 0.086 10.58
September 30, 1998 11.000 10.83 0.086 10.73
October 31, 1998 10.688 10.42 0.086 10.34
November 30, 1998 10.750 10.97 0.086 10.79
December 31, 1998 10.250 10.85 0.084 10.34
January 29, 1999 10.250 10.94 0.084 10.26
February 28, 1999 10.438 10.73 0.084 10.40
March 31, 1999 10.438 10.77 0.084 10.34
April 30, 1999 10.313 10.88 0.084 10.35
May 31, 1999 10.188 10.57 0.084 10.35
==========================================================================
34
<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
35
<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.
36
<PAGE>
Managed
HIGH INCOME [GRAPHIC]
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 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.
FD0839 7/99
