Managed
HIGH INCOME
PORTFOLIO INC.
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[GRAPHIC OMITTED]
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Semi-Annual
Report
August 31, 2000
<PAGE>
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Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
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Dear Shareholder:
We are pleased to provide the semi-annual report for the Managed High
Income Portfolio Inc. ("Fund") for the period ended August 31, 2000. During the
past six months, the Fund paid income dividends totaling $0.49 per share. The
table below details the annualized distribution rate and the six-month total
return for the Fund based on its August 31, 2000 net asset value ("NAV") and the
New York Stock Exchange ("NYSE") closing price.(1)
Price Annualized Six-Month
Per Share Distribution Rate(2) Total Return(2)
------------- -------------------- ---------------
$9.44 (NAV) 10.30% (0.31)%
$8.938 (NYSE) 10.88% 16.43%
----------
(1) The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the value of the
securities in which the Fund has invested. However, the price at which an
investor may buy or sell shares of the Fund is at their market (NYSE)
price as determined by supply and demand.
(2) Total returns are based on changes in NAV or the market value,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. The annualized
distribution rate is the Fund's current monthly income dividend rate,
annualized, and then divided by the NAV or the market value noted in this
report. The annualized distribution rate assumes a current monthly income
dividend rate of $0.081 for 12 months. This rate is as of September 30,
2000 and is subject to change. The important difference between a total
return and an annualized distribution rate is that the total return takes
into consideration a number of factors including the fluctuation of the
NAV or the market value during the period reported. The NAV fluctuation
includes the effects of unrealized appreciation or depreciation in the
Fund. Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as
the sole indicator to judge the return you receive from your Fund
investment. Past performance is not indicative of future results.
1
<PAGE>
Special Shareholder Notice
The Fund continued to repurchase and retire shares during the period. We
believe that the share repurchase program which started on November 16, 1999, is
an opportunity to take advantage of market price fluctuations with the objective
of offering increased value to the Fund's shareholders. The Fund intends to
continue to purchase (and then retire) shares of its stock in the open market at
such times, prices and amounts deemed advisable.
The Fund's share repurchase program has added liquidity to the market for
the benefit of investors who wish to sell their shares, while also benefiting
current shareholders by increasing the Fund's shares' NAV. Since the inception
of the program, the Fund has repurchased (and retired) 1,213,500 shares with an
average buyback price of $8.39. As of August 31, 2000, this repurchase program
has increased the Fund's shares' NAV by over $0.04 and increased the Fund's
shares' total return by approximately 0.43% when measured by NAV.
Market and Economic Overview(3)
The performance of the high-yield bond market began to modestly improve by
the end of the period. However, given the apparent moderation in economic growth
in the last two months, the highest-quality sectors of the bond market such as
U.S. Treasuries, investment-grade(4) corporate bonds and U.S. agency securities
generated the strongest results, with 30-Year U.S. Treasuries performing better
than all other sectors.
Since the beginning of 2000, 30-Year U.S. Treasuries are up approximately
14%, 10-Year U.S. Treasuries are up approximately 7.50% and investment grade
corporate bonds are up approximately 5.00%. Given the greater uncertainty over
future economic growth and corporate profits, the stock market has generated
mixed results during the period. Taking its cue from the stock market, the
high-yield bond market has generated slightly positive total returns for the
period, as measured by the 1.66% return of the Bear Stearns High Yield Market
Index.(5)
----------
(3) Please note that the statistical performance information that appears in
the following section of this report is compiled from SSB Citi Fund
Management LLC internal research. It is not intended to be used as a
forecast of future events, a guarantee of future results nor investment
advice.
(4) Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Service, or that have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by the portfolio
manager to be of equivalent quality.
(5) The Bear Stearns High Yield Market Index is an unmanaged broad-based index
of high-yield bonds. Please note that an investor cannot invest directly
in an index.
2
<PAGE>
Given the disparate performance between the U.S. high-yield bond market
and the remainder of the bond market, high-yield bond spreads now stand at over
700 basis points(6) above U.S. Treasuries. These extremely high levels were last
reached during the 1998 emerging market crisis. The high-yield bond market now
yields more than 100% more than the U.S. Treasury market.
There is no doubt that the high-yield bond market has reflected the
tighter Federal Reserve Board's ("Fed") monetary policy instituted on June 30,
1999 and the increase in default rates in the past year. We believe the
high-yield bond market is heavily discounting the negative fundamental risks of
potentially tighter monetary policy, softer economic growth, weaker corporate
profits and potentially higher default rates.
In our opinion, investors have overreacted about the recent performance of
high-yield bonds. After a modestly positive month in June, high-yield bond
mutual funds again experienced net redemptions in July totaling over $1 billion.
Since the beginning of this year, there has been a total of over $7 billion of
net redemptions out of high-yield bond mutual funds. As a direct result of
flagging demand, new issue supply has decreased dramatically with only $42
billion of new issues priced in the past eight months, over 50% below last
years' levels.
In addition, a large proportion of the new issues have been from the more
liquid better-quality companies. A majority of the new issues have been
purchased by longer-term institutional investors such as insurance companies and
pension plans that can discern the attractive long-term value of the high-yield
bond market relative to other areas of the bond market.
The best-performing segment of the high-yield bond market during the
period were BB rated bonds. By far, the worst-performing segment of the
high-yield bond market were CCC rated issues, which delivered negative total
returns for the period. It is our view that the high-yield bond market may be
discounting the economic slowdown in the second half of this year given the
Fed's multiple increases in short term interest rates. In addition, the
lower-quality end of the high-yield bond market has continued to be hurt by
meaningfully higher default rates.
----------
(6) A basis point is 0.01% or one one-hundredth of a percent.
3
<PAGE>
The best performing industry sectors of the high-yield bond market during
the period were energy (oil and natural gas), technology, cable, media and
operating utilities, which historically have fared better during an economic
slowdown. The worst performing sectors included the telecommunications, basic
materials, capital goods manufacturing, consumer-related industries and
transportation.
The telecommunications sector, which accounts for about 25% of the
high-yield bond market, has underperformed in large part due to the recent
weakness in the stock market as well as the increased new issue supply of
telecommunications issues over the past year. Many companies in this sector are
aggressive consumers of external capital as they seek to build out their
infrastructure.
Any credit tightening either in the form of lower liquidity in the banking
system or greater stock market volatility may cause these issues to underperform
in the near future. Yet we remain convinced that companies in this sector may
ultimately succeed and outperform. (Of course, no guarantees can be given that
our expectations will be met.)
Conclusion
We remain confident that the high-yield bond market may be capable of
conservatively generating competitive total annual returns over the next three
to five years, especially if the Fed successfully engineers its moderation in
economic growth and inflation. We believe the Fed is probably finished with its
interest rate increases for the remainder of this year given the continued
anecdotal evidence of a deceleration in economic growth. (Of course, no
guarantees can be given that this will occur.)
The recent economic statistics have indicated a slowdown in employment
growth, retail sales, industrial production and inflation. If and when we reach
the point where the Fed starts to lean towards actually lowering interest rates,
we believe the high-yield bond market should generate much stronger total
returns. Any future decrease in interest rates by the Fed would likely inject
more liquidity into the banking system, which may positively impact the
performance of the high-yield bond market.
4
<PAGE>
In summary, we believe the high-yield bond market has discounted most of
the negative sentiment concerning the slowdown in economic growth and represents
compelling value for long-term investors seeking attractive income as well as
total return potential. Our goal over the near term in the Fund is to continue
to redeploy cash reserves into the liquid issues that offer the most upside
price potential.
Thank you for your continued confidence in our investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, C.F.A.
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman and Vice President and
Chief Executive Officer Investment Officer
September 15, 2000
5
<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend
Reinvestment 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 37. 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 PFPCGlobal Fund Services at (800) 331-1710.
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6
<PAGE>
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SCHEDULE OF INVESTMENTS
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August 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES-- 94.2%
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<C> <C> <S> <C>
Aerospace & Defense -- 0.9%
BE Aerospace, Inc., Sr. Sub. Notes:
1,940,000 B 8.000% due 3/1/08..................................... $ 1,736,300
810,000 B 9.500% due 11/1/08.................................... 789,750
1,185,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09................................... 1,196,850
----------------------------------------------------------------------------------------------
3,722,900
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Airlines -- 1.3%
6,296,587 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
Series D, 10.875% due 3/15/19......................... 5,136,756
----------------------------------------------------------------------------------------------
Alternative Power Generation -- 3.4%
AES Corp.:
5,850,000 Ba1* Sr. Notes, 9.500% due 6/1/09.......................... 5,974,313
2,880,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06................... 2,952,000
920,000 Ba2* AES Drax Energy Ltd., Secured Notes,
11.500% due 8/30/10 (b)............................... 966,000
3,550,000 BB+ Calpine Corp., Sr. Notes,
10.500% due 5/15/06................................... 3,700,875
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13,593,188
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Aluminum -- 1.5%
Kaiser Aluminum & Chemical:
500,000 B1* Series B, Sr. Notes,
10.875% due 10/15/06................................ 488,750
445,000 B1* Series D, Sr. Notes,
10.875% due 10/15/06................................ 434,988
5,395,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03.................... 4,990,375
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5,914,113
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Apparel -- 0.6%
1,420,000 BB- Levi Strauss Co., Sub. Notes,
7.000% due 11/1/06.................................... 1,093,400
Tommy Hilfiger USA Inc.:
675,000 BBB- Sr. Notes, 6.850% due 6/1/08.......................... 469,125
490,000 BBB- Sub. Notes, 6.500% due 6/2/03......................... 394,450
550,000 B- Tropical Sportswear International Corp.,
Sr. Sub. Notes, 11.000% due 6/15/08................... 529,375
----------------------------------------------------------------------------------------------
2,486,350
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 7
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<PAGE>
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SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Apparel - Retail -- 0.1%
375,000 CCC+ J. Crew Operating Group, Sr. Sub. Notes,
10.375% due 10/15/07.................................. $ 333,750
----------------------------------------------------------------------------------------------
Auto Parts: O.E.M. -- 0.9%
780,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06................................... 770,250
Hayes Lemmerz International Inc.,
Sr. Sub. Notes:
685,000 B 11.000% due 7/15/06................................. 686,713
2,325,000 B 8.250% due 12/15/08................................. 2,040,188
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3,497,151
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Beverages: Non-Alcoholic -- 0.5%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09 .................................. 2,019,438
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Broadcasting -- 0.7%
525,000 B Capstar Broadcasting, Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09................. 490,875
Young Broadcasting Corp., Sr. Sub. Notes:
685,000 B 11.750% due 11/15/04.................................. 705,550
1,705,000 B 10.125% due 2/15/05................................... 1,713,525
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2,909,950
----------------------------------------------------------------------------------------------
Building Products -- 0.5%
990,000 B Amatek Industries Property, Sr. Sub. Notes,
12.000% due 2/15/08 .................................. 866,250
1,190,000 B- Atrium Cos., Sr. Sub. Notes,
10.500% due 5/1/09.................................... 1,097,775
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1,964,025
----------------------------------------------------------------------------------------------
Cable/Satellite Television -- 10.8%
Adelphia Communications Corp.:
6,115,000 BB- Sr. Discount Notes, zero coupon
due 1/15/08......................................... 2,560,656
410,000 BB- Sr. Notes, 9.750% due 2/15/02......................... 412,563
2,515,000 B+ Sr. Notes, 8.375% due 2/1/08.......................... 2,232,063
535,000 CCC+ Cable Satisfaction International, Sr. Notes,
12.750% due 3/1/10.................................... 478,825
1,790,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/10.................................... 1,619,950
</TABLE>
8 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Cable/Satellite Television -- 10.8% (continued)
Charter Communications Holdings, LLC:
5,085,000 B+ Sr. Discount Notes, step bond to yield
11.713% due 1/15/10................................. $ 3,070,069
1,990,000 B+ Sr. Notes, 8.625% due 4/1/09.......................... 1,825,825
2,105,000 BB- CSC Holdings Inc., Sr. Sub. Notes,
10.500% due 5/15/16................................... 2,273,400
1,125,000(GBP) B- Diamond Holdings PLC, Sr. Notes,
10.000% due 2/1/08.................................... 1,459,763
850,000 B Echostar DBS Corp., Sr. Notes,
9.375% due 2/1/09..................................... 846,813
3,570,000 B- NTL Inc., Sr. Notes, 11.500% due 10/1/08................ 3,659,250
4,465,000 BB- Rogers Cablesystems Ltd., Sr. Sub. Notes,
11.000% due 12/1/15................................... 4,933,825
1,535,000(GBP) NR Telewest Communications PLC, Sr. Discount
Notes, step bond to yield
9.875% due 4/15/09.................................... 1,185,717
13,600,000 B- United International Holdings Inc.,
Sr. Discount Notes, step bond to yield
11.259% due 2/15/08................................... 9,588,000
13,600,000 B United Pan-Europe Communications N.V.,
Sr. Discount Notes, step bond to yield
12.500% due 8/1/09.................................... 6,527,980
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42,674,699
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Casinos/Gaming -- 2.9%
415,000 BB- Circus Circus Enterprises Inc., Sr. Sub. Notes,
7.625% due 7/15/13.................................... 344,450
2,845,000 B Hollywood Casino Corp., Sr. Secured Notes,
11.250% due 5/1/07.................................... 2,951,688
1,295,000 B+ Horseshoe Gaming Holding, Sr. Sub. Notes,
8.625% due 5/15/09 ................................... 1,265,863
25,594 NR Jazz Casino Co., Sr. Sub. Notes,
Payment-in-kind, 5.927% due 11/15/09.................. 5,247
635,000 BB- Mandalay Resort Group, Sr. Sub. Notes,
10.250% due 8/1/07 (b)................................ 660,400
1,155,000 B+ Station Casinos Inc., Sr. Sub. Notes,
9.875% due 7/1/10 (b)................................. 1,155,000
Sun International Hotels Ltd., Sr. Sub. Notes:
1,675,000 Ba3* 9.000% due 3/15/07...................................... 1,591,250
1,745,000 Ba3* 8.625% due 12/15/07..................................... 1,640,300
</TABLE>
See Notes to Financial Statements. 9
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<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Casinos/Gaming -- 2.9% (continued)
1,715,000 B- Venetian Casino Resort LLC, Secured Notes,
12.250% due 11/15/04.................................. $ 1,749,300
----------------------------------------------------------------------------------------------
11,363,498
----------------------------------------------------------------------------------------------
Chemicals - Major Diversified -- 1.0%
Huntsman Corp.:
10,525,000 B+ Sr. Discount Notes, zero coupon
due 12/31/09 ....................................... 3,683,750
440,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09 ................... 449,900
----------------------------------------------------------------------------------------------
4,133,650
----------------------------------------------------------------------------------------------
Chemicals - Specialty -- 0.5%
815,000 B Avecia Group PLC, Sr. Notes,
11.000% due 7/1/09.................................... 827,225
1,355,000 B+ Lyondell Chemical Co., Sr. Sub. Notes,
10.875% due 5/1/09.................................... 1,385,488
----------------------------------------------------------------------------------------------
2,212,713
----------------------------------------------------------------------------------------------
Coal Mining -- 0.1%
2,780,000 Caa* AEI Resources Inc., Sr. Sub. Notes,
10.500% due 12/15/05 (b)(c)........................... 521,250
----------------------------------------------------------------------------------------------
Commercial Printing/Forms -- 0.0%
85,000(GBP) B Polestar Corp. PLC, Sr. Notes,
10.500% due 5/30/08................................... 116,254
----------------------------------------------------------------------------------------------
Commercial Services -- 1.4%
2,900,000 B2* Intertek Finance, Sr. Sub. Notes,
10.250% due 11/1/06 .................................. 2,537,500
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06................................... 2,843,750
----------------------------------------------------------------------------------------------
5,381,250
----------------------------------------------------------------------------------------------
Construction Materials -- 0.6%
Nortek Inc.:
1,425,000 B+ Sr. Notes, 9.125% due 9/1/07.......................... 1,360,875
965,000 B- Sr. Sub. Notes, 9.875% due 3/1/04..................... 940,875
----------------------------------------------------------------------------------------------
2,301,750
----------------------------------------------------------------------------------------------
</TABLE>
10 See Notes to Financial Statements.
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<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Consumer Specialties -- 0.3%
1,410,000 B Jostens Inc., Sr. Sub. Notes,
12.750% due 5/1/10 (b)................................ $ 1,447,013
----------------------------------------------------------------------------------------------
Containers/Packaging -- 2.0%
705,000 B BWAY Corp., Sr. Sub. Notes,
10.250% due 4/15/07................................... 701,475
1,035,000 B- SF Holdings Group Inc., Sr. Discount Notes,
step bond to yield 18.085% due 3/15/08................ 553,725
3,565,000 B Stone Container Corp., Sr. Notes,
11.500% due 8/15/06 (b)............................... 3,680,863
1,900,000 B- Sweetheart Cup Co., Sr. Sub. Notes,
10.500% due 9/1/03.................................... 1,795,500
1,250,000 B- Tekni-Plex Inc., Sr. Sub. Notes,
12.750% due 6/15/10 (b)............................... 1,262,500
----------------------------------------------------------------------------------------------
7,994,063
----------------------------------------------------------------------------------------------
Contract Drilling -- 2.9%
Parker Drilling Co., Sr. Notes:
350,000 B- 5.500% due 8/1/04..................................... 290,063
2,580,000 B+ 9.750% due 11/15/06................................... 2,599,350
Pride International Inc.:
3,205,000 BB Sr. Notes, 10.000% due 6/1/09......................... 3,389,288
1,840,000 BB- Sr. Secured Notes, 11.375% due 3/15/09................ 2,106,800
2,545,000 Ba3* RBF Finance Corp., Sr. Notes,
12.250% due 3/15/06................................... 3,015,825
----------------------------------------------------------------------------------------------
11,401,326
----------------------------------------------------------------------------------------------
Discount Stores -- 0.8%
2,755,000 B+ Ames Department Stores, Inc., Sr. Notes,
10.000% due 4/15/06................................... 1,281,075
1,710,000 Baa3* Kmart Corp., Sr. Notes,
12.500% due 3/1/05.................................... 1,829,700
----------------------------------------------------------------------------------------------
3,110,775
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 11
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Electronic Components -- 1.1%
1,995,000 BB- Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06.................................. $ 2,064,825
2,075,000 Ba3* Flextronics International Ltd., Sr. Sub. Notes,
9.875% due 7/1/10 (b)................................. 2,158,000
----------------------------------------------------------------------------------------------
4,222,825
----------------------------------------------------------------------------------------------
Electronic Production Equipment -- 0.2%
670,000 B1* Amkor Technologies Inc., Sr. Sub. Notes,
10.500% due 5/1/09.................................... 686,750
----------------------------------------------------------------------------------------------
Electronics/Appliances -- 0.6%
2,255,000 BB- Polaroid Corp., Sr. Notes,
11.500% due 2/15/06................................... 2,339,563
----------------------------------------------------------------------------------------------
Engineering & Construction -- 0.7%
1,005,000 BB- Integrated Electrical Services Inc.,
Sr. Sub. Notes, 9.375% due 2/1/09..................... 891,938
300,000 B+ Metromedia Fiber Network,
Sr. Notes, 10.000% due 11/15/08....................... 297,000
1,295,000 B- Orius Capital Corp., Sr. Sub. Notes,
12.750% due 2/1/10 (b)................................ 1,346,800
----------------------------------------------------------------------------------------------
2,535,738
----------------------------------------------------------------------------------------------
Environmental Services -- 3.3%
Allied Waste Industries, Inc., N.A.:
Sr. Notes:
1,390,000 BB- 7.875% due 1/1/09................................... 1,259,688
490,000 Ba3* Zero coupon due 7/21/06............................. 469,175
588,000 Ba3* Zero coupon due 7/21/07............................. 563,010
8,935,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09.................... 8,019,163
150,000 B+ IT Group Inc., Sr. Sub. Notes,
11.250% due 4/1/09 (b)................................ 132,750
2,285,000 B+ URS Corp., Sr. Sub. Notes,
12.250% due 5/1/09.................................... 2,319,275
----------------------------------------------------------------------------------------------
12,763,061
----------------------------------------------------------------------------------------------
Financial Conglomerates -- 0.3%
Amresco Inc., Sr. Sub. Notes:
1,500,000 Caa* 10.000% due 3/15/04................................... 547,500
1,275,000 Caa* 9.875% due 3/15/05.................................... 465,375
----------------------------------------------------------------------------------------------
1,012,875
----------------------------------------------------------------------------------------------
</TABLE>
12 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Food Distributors -- 2.4%
385,000 B- Agrilink Foods Inc., Sr. Notes,
11.875% due 11/1/08 .................................. $ 298,375
2,190,000 CCC+ Aurora Foods Inc., Sub. Notes,
9.875% due 2/15/07.................................... 1,719,150
2,765,000 B2* Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08.................................... 2,384,813
1,335,000 B International Home Foods Inc.,
Sr. Sub. Notes, 10.375% due 11/1/06................... 1,431,788
1,265,000 B- Premier International Foods PLC,
Sr. Notes, 12.000% due 9/1/09 ........................ 1,068,925
2,660,000 B SC International Services Inc.,
Sr. Sub. Notes, 9.250% due 9/1/07..................... 2,566,900
----------------------------------------------------------------------------------------------
9,469,951
----------------------------------------------------------------------------------------------
Foods - Specialty/Candy -- 0.4%
1,560,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07..................................... 1,084,200
2,285,000 CCC+ Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07 (c)............................... 434,150
----------------------------------------------------------------------------------------------
1,518,350
----------------------------------------------------------------------------------------------
Forest Products -- 0.9%
2,470,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07................................... 2,365,025
1,210,000 B+ Millar Western Forest Products,
Sr. Notes, 9.875% due 5/15/08......................... 1,203,950
----------------------------------------------------------------------------------------------
3,568,975
----------------------------------------------------------------------------------------------
Home Building -- 0.9%
1,060,000 Ba1* DR Horton Inc., Sr. Notes,
8.000% due 2/1/09..................................... 985,800
2,300,000 BB+ Lennar Corp., Sr. Notes,
9.950% due 5/1/10 (b)................................. 2,369,000
----------------------------------------------------------------------------------------------
3,354,800
----------------------------------------------------------------------------------------------
Home Furnishings -- 0.3%
1,260,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09................................... 1,203,300
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 13
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Hospital/Nursing Management -- 0.6%
24,500 Ba3* Fresenius Medical Care Preferred Capital
Trust, 9.000% due 12/1/06............................. $ 2,443,875
Hotels/Resorts -- 1.9%
1,355,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08.................................... 1,356,694
2,185,000 BB HMH Properties Inc., Sr. Notes,
8.450% due 12/1/08.................................... 2,127,644
Intrawest Corp., Sr. Notes:
1,850,000 B+ 9.750% due 8/15/08.................................... 1,863,875
2,085,000 B+ 10.500% due 2/1/10.................................... 2,184,038
----------------------------------------------------------------------------------------------
7,532,251
----------------------------------------------------------------------------------------------
Industrial Machinery -- 0.3%
1,055,000 B Flowserve Corp., Sr. Sub. Notes,
12.250% due 8/15/10 (b)............................... 1,076,100
----------------------------------------------------------------------------------------------
Internet Software/Services -- 4.0%
555,000 NR Colo.com, 13.875% due 3/15/10 (b)(d).................... 574,425
1,005,000 Caa* Cybernet Internet Services International,
Sr. Notes, 14.000% due 7/1/09......................... 439,688
Exodus Communications, Inc., Sr. Notes:
350,000 B 10.750% due 12/15/09 (b).............................. 345,188
5,760,000 B 11.625% due 7/15/10 (b)............................... 5,889,600
PSINet, Sr. Notes:
575,000 B- 11.500% due 11/1/08................................... 507,438
6,285,000 B- 11.000% due 8/1/09.................................... 5,460,094
2,150,000 B3* Rhythms NetConnections Inc., Sr. Notes,
14.000% due 2/15/10 .................................. 1,386,750
1,690,000 CCC+ WAM!Net Inc., Sr. Discount Notes,
step bond to yield 13.214% due 3/1/05................. 904,150
----------------------------------------------------------------------------------------------
15,507,333
----------------------------------------------------------------------------------------------
Manufacturing -- 0.8%
2,650,000 B+ Park Ohio Holdings Corp., Sr. Sub. Notes,
9.250% due 12/1/07.................................... 2,438,000
925,000 B Polymer Group Inc., Unsecured
Sr. Sub. Notes, 9.000% due 7/1/07..................... 749,250
----------------------------------------------------------------------------------------------
3,187,250
----------------------------------------------------------------------------------------------
</TABLE>
14 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Marine Shipping -- 0.3%
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09.................................... $ 1,192,250
----------------------------------------------------------------------------------------------
Medical/Nursing Services -- 0.5%
2,190,000 BBB HEALTHSOUTH Corp., Sr. Notes,
6.875% due 6/15/05.................................... 1,842,338
----------------------------------------------------------------------------------------------
Medical Specialties -- 0.5%
1,980,000 B- Hanger Orthopedic Group Inc.,
Sr. Sub. Notes, 11.250% due 6/15/09 .................. 1,712,700
530,000 B- Total Renal Care Holdings, Sub. Notes,
7.000% due 5/15/09 ................................... 375,638
----------------------------------------------------------------------------------------------
2,088,338
----------------------------------------------------------------------------------------------
Movies/Entertainment -- 0.8%
4,050,000 B- Premier Parks Operations Inc.,
Sr. Discount Notes, step bond to yield
11.440% due 4/1/08 ................................... 2,743,875
330,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08..................................... 346,913
----------------------------------------------------------------------------------------------
3,090,788
----------------------------------------------------------------------------------------------
Oil & Gas Pipelines -- 0.2%
750,000 BB- Leviathan Gas Pipeline Partners L.P.,
Sr. Sub. Notes, 10.375% due 6/1/09.................... 787,500
----------------------------------------------------------------------------------------------
Oil & Gas Production -- 4.5%
1,876,600 NR AM/FM Operating Inc., Debentures,
Payment-in-kind,
12.625% due 10/31/06.................................. 2,153,399
Belco Oil and Gas Corp., Sr. Sub. Notes:
700,000 B1* 10.500% due 4/1/06.................................... 710,500
1,330,000 B1* 8.875% due 9/15/07.................................... 1,263,500
1,170,000 Caa* Belden & Blake Corp.,
9.875% due 6/15/07.................................... 982,800
2,245,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes,
10.500% due 1/15/06................................... 2,354,444
2,310,000 B Chesapeake Energy Corp., Sr. Notes,
9.625% due 5/1/05..................................... 2,335,988
</TABLE>
See Notes to Financial Statements. 15
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Oil & Gas Production -- 4.5% (continued)
750,000 B Houston Exploration Corp., Sr. Sub. Notes,
8.625% due 1/1/08..................................... $ 742,500
2,680,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08..................................... 2,706,800
Plain Resources, Sr. Sub. Notes:
360,000 B2* 10.250% due 3/15/06 .................................. 372,600
720,000 B2* 10.250% due 3/15/06 (b)............................... 745,200
600,000 B- Range Resources Corp., Sr. Sub. Notes,
8.750% due 1/15/07.................................... 561,000
1,765,000 B Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07.................................... 1,738,525
890,000 BB- Vintage Petroleum, Inc., Sr. Sub. Notes,
9.750% due 6/30/09.................................... 936,725
----------------------------------------------------------------------------------------------
17,603,981
----------------------------------------------------------------------------------------------
Oil Refining/Marketing -- 0.6%
Clark Refining and Marketing Inc., Sr. Notes:
1,230,000 BB- 9.500% due 9/15/04.................................... 1,103,925
210,000 BB- 8.375% due 11/15/07................................... 169,050
1,970,000 B Clark USA, Sr. Notes,
10.875% due 12/1/05................................... 1,132,750
----------------------------------------------------------------------------------------------
2,405,725
----------------------------------------------------------------------------------------------
Pharmaceuticals - Genetic -- 1.3%
5,085,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05.................................... 5,085,000
----------------------------------------------------------------------------------------------
Pharmaceuticals - Other -- 0.6%
2,060,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09................................... 2,193,900
----------------------------------------------------------------------------------------------
Publishing: Books/Magazines -- 0.5%
1,585,000 B2* Ziff Davis Media Inc., Sr. Sub. Notes,
12.000% due 7/15/10 (b)............................... 1,650,381
----------------------------------------------------------------------------------------------
Publishing: Newspapers -- 0.2%
580,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11..................................... 539,400
----------------------------------------------------------------------------------------------
</TABLE>
16 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Pulp & Paper -- 1.7%
2,155,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05................................... $ 2,230,425
Riverwood International Corp.:
1,005,000 B- Sr. Notes, 10.625% due 8/1/07......................... 1,027,613
3,405,000 CCC+ Sr. Sub. Notes, 10.875% due 4/1/08.................... 3,234,750
----------------------------------------------------------------------------------------------
6,492,788
----------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.5%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05.................................... 1,732,500
----------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.6%
690,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09.................................... 755,550
195,000 B NationsRent Inc., Sr. Sub. Notes,
10.375% due 12/15/08.................................. 149,175
1,250,000 BB- United Rentals, Sr. Sub. Notes,
9.250% due 1/15/09.................................... 1,168,750
----------------------------------------------------------------------------------------------
2,073,475
----------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.8%
3,200,000 B2* Ocwen Capital Trust, Jr. Sub. Notes,
10.875% due 8/1/27.................................... 1,728,000
1,630,000 B+ Ocwen Financial Corp., Sr. Notes,
11.875% due 10/1/03................................... 1,491,450
----------------------------------------------------------------------------------------------
3,219,450
----------------------------------------------------------------------------------------------
Semiconductors -- 1.4%
4,260,000 B Fairchild Semiconductor Inc.,
Sr. Sub. Notes, 10.125% due 3/15/07................... 4,366,500
1,080,000 B SCG Holding & Semiconductor Co.,
Sr. Notes, 12.000% due 8/1/09 ........................ 1,171,800
----------------------------------------------------------------------------------------------
5,538,300
----------------------------------------------------------------------------------------------
Specialty Stores -- 0.3%
1,575,000 B- Advance Stores Co., Sr. Sub. Notes,
10.250% due 4/15/08................................... 1,299,375
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 17
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Steel -- 0.4%
1,110,000 BB- LTV Corp., Sr. Notes,
11.750% due 11/15/09 ................................. $ 838,050
420,000 B+ WCI Steel Inc., Sr. Notes,
10.000% due 12/1/04................................... 407,925
610,000 B- WHX Corp., Sr. Notes,
10.500% due 4/15/05................................... 423,950
----------------------------------------------------------------------------------------------
1,669,925
----------------------------------------------------------------------------------------------
Telecommunications - Equipment -- 1.0%
4,615,000 B- World Access Inc., Sr. Notes,
13.250% due 1/15/08................................... 3,968,900
----------------------------------------------------------------------------------------------
Telecommunications - Other -- 13.4%
1,460,000 B+ Call-Net Enterprises, Inc., Sr. Notes,
9.375% due 5/15/09.................................... 868,700
600,000(EUR) A Esat Telecom Group PLC, Sr. Notes,
11.875% due 11/1/09................................... 660,585
Espirit Telecom Group PLC, Sr. Notes:
2,000,000(DEM) B- 11.500% due 12/15/07.................................. 536,388
2,300,000 B- 11.500% due 12/15/07.................................. 1,230,500
1,300,000 B- 10.875% due 6/15/08................................... 643,500
1,500,000(BEF) B Flag Telecom Holding Ltd., Sr. Notes,
11.625% due 3/30/10 (b)............................... 1,220,293
Focal Communications Corp.:
2,500,000 B Sr. Discount Notes, step bond to yield
13.370% due 2/15/08................................. 1,575,000
1,295,000 B Sr. Notes, 11.875% due 1/15/10........................ 1,184,925
2,465,000 BB Global Crossing Holdings Ltd., Sr. Notes,
9.500% due 11/1/09.................................... 2,483,488
940,000 CCC+ GT Group Telecom, Sr. Discount Notes,
step bond to yield 13.250% due 2/1/10 (b)............. 488,800
Hermes Europe Railtel, Sr. Notes:
1,130,000 B 11.500% due 8/15/07................................... 762,750
4,220,000 B 10.375% due 1/15/09................................... 2,721,900
Jazztel PLC, Sr. Notes:
1,225,000(EUR) CCC+ 13.250% due 12/15/09 (b).............................. 936,669
1,750,000(EUR) CCC+ 14.000% due 7/15/10 (b)............................... 1,517,031
</TABLE>
18 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Telecommunications - Other -- 13.4% (continued)
KMC Telecom Holdings Inc.:
2,440,000 CCC+ Sr. Discount Notes, step bond to yield
15.899% due 2/15/08................................. $ 939,400
1,200,000 CCC+ Sr. Notes, 13.500% due 5/15/09........................ 906,000
Level 3 Communications:
7,270,000 B Sr. Discount Notes, step bond to yield
12.846% due 3/15/10................................. 4,162,075
4,125,000(EUR) B Sr. Notes, 11.250% due 3/15/10 (b).................... 3,447,494
1,060,000 CCC+ Madison River Capital, Sr. Notes,
13.250% due 3/1/10.................................... 885,100
1,510,000 B+ McLeod USA Inc, Sr. Notes,
8.125% due 2/15/09.................................... 1,377,875
2,260,000 B- MGC Communications, Inc., Sr. Notes,
13.000% due 4/1/10 (b)................................ 1,892,750
1,700,000(CAD) B- Microcell Telecommunications Inc.,
Sr. Discount Notes, step bond to yield
11.125% due 10/15/07.................................. 867,465
NEXTLINK Communications Inc.:
4,125,000 B Sr. Discount Notes, step bond to yield
12.051% due 6/1/09.................................. 2,495,625
Sr. Notes:
3,260,000 B 12.500% due 4/15/06................................. 3,382,250
810,000 B 10.750% due 6/1/09 ................................. 787,725
4,595,000 B Step bond to yield
12.545% due 12/1/09............................... 2,584,688
3,515,000 B- Primus Telecom Group, Sr. Notes,
11.750% due 8/1/04.................................... 2,302,325
2,570,000 B- Tele1 Europe B.V., Sr. Notes,
13.000% due 5/15/09................................... 2,570,000
Versatel Telecom, Sr. Notes:
2,600,000 B- 13.250% due 5/15/08................................... 2,457,000
2,300,000(NLG) B- 11.250% due 3/10/10 (b)............................... 1,819,992
3,975,000 B- Viatel Inc., Sr. Notes, 11.500% due 3/15/09............. 2,126,625
1,055,000 B+ Williams Communication Group Inc.,
Sr. Notes, 11.875% due 8/1/10 (b)..................... 1,057,638
----------------------------------------------------------------------------------------------
52,892,556
----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 19
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Textiles -- 0.3%
225,000(DEM) B3* Texon International PLC, Sr. Notes,
10.000% due 2/1/08.................................... $ 95,629
1,295,000 BB Westpoint Stevens Inc., Sr. Notes,
7.875% due 6/15/05.................................... 1,126,650
----------------------------------------------------------------------------------------------
1,222,279
----------------------------------------------------------------------------------------------
Tobacco -- 0.1%
580,000 BB- Standard Commercial Tobacco,
8.875% due 8/1/05..................................... 496,625
----------------------------------------------------------------------------------------------
Trucks/Construction/Farm Machinery -- 0.3%
1,490,000 B Columbus McKinnon Corp.,
Sr. Sub. Notes, 8.500% due 4/1/08..................... 1,303,750
----------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.3%
1,045,000 B Buhrman US Inc., Sr. Sub. Notes,
12.250% due 11/1/09 .................................. 1,084,188
----------------------------------------------------------------------------------------------
Wireless Telecommunications -- 10.7%
2,130,000 CCC Airgate PCS Inc., Sr. Sub. Discount Notes,
step bond to yield 13.236% due 10/1/09................ 1,336,575
4,165,000 CCC+ Alamosa PCS Holdings, Sr. Discount Notes,
step bond to yield 13.406% due 2/15/10................ 2,394,875
1,470,000 B- Centennial Cellular Operating Co.,
Sr. Sub. Notes, 10.750% due 12/15/08.................. 1,447,950
Clearnet Communications Inc.:
2,500,000(CAD) B Sr. Discount Notes,
zero coupon due 5/15/08............................ 1,322,303
2,000,000 B1* Sr. Secured Notes, 10.125% due 7/7/07................. 2,088,050
Crown Castle International Corp.:
2,880,000 B Sr. Discount Notes, step bond to yield
11.302% due 5/15/11................................ 1,893,600
580,000 B Sr. Notes, 10.750% due 8/1/11......................... 606,100
655,000 NR Dobson Communications,
Sr. Notes, 10.875% due 7/1/10 (b)..................... 654,181
1,320,000 NR Dobson/Sygnet Communications Corp.,
Sr. Notes, 12.250% due 12/15/08....................... 1,376,100
</TABLE>
20 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Wireless Telecommunications -- 10.7% (continued)
4,785,000 B- Millicom International Cellular S.A.,
Sr. Discount Notes, step bond to yield
14.635% due 6/1/06.................................... $ 4,258,650
Nextel Communications Inc.:
4,495,000 B1* Sr. Discount Notes, step bond to yield
11.015% due 9/15/07................................. 3,685,900
9,600,000 B1* Sr. Discount Notes, step bond to yield
10.941% due 2/15/08................................. 7,297,023
1,370,000 B1* Sr. Notes, 9.375% due 11/15/09........................ 1,349,450
2,455,000 B- Spectrasite Holdings Inc.,
Sr. Discount Notes, step bond to yield
11.218% due 4/15/09................................... 1,485,275
545,000 B3* Telecorp PCS Inc., Sr. Sub. Notes,
10.625% due 7/15/10 (b)............................... 569,525
Telesystems International Wireless Inc.,
Sr. Discount Notes:
5,125,000 CCC+ Step bond to yield
12.298% due 6/30/07............................... 3,356,875
2,190,000 CCC+ Step bond to yield
12.580% due 11/1/07............................... 1,237,350
770,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 10.854% due 5/1/08................. 589,050
VoiceStream Wireless Corp.:
555,000 B2* 11.500% due 9/15/09................................... 620,213
1,117,573 B2* 10.375% due 11/15/09.................................. 1,212,567
1,485,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09 ............................... 1,091,475
Winstar Communications, Inc.:
2,600,000 B- Sr. Discount Notes, step bond to yield
15.312% due 4/15/10 (b)............................. 1,027,000
1,565,000 B- Sr. Notes, 12.750% due 4/15/10 (b).................... 1,361,550
----------------------------------------------------------------------------------------------
42,261,637
----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND
NOTES (Cost -- $398,303,078) ........................... 370,394,208
==============================================================================================
</TABLE>
See Notes to Financial Statements. 21
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
----------------------------------------------------------------------------------------------
<C> <S> <C>
----------------------------------------------------------------------------------------------
PREFERRED STOCK -- 0.0%
----------------------------------------------------------------------------------------------
Telecommunications -- 0.0%
48 Dobson Communications, 13.000%,
Payment-in-kind....................................... $ 4,728
1,926 Viasystems, Inc., Series B.............................. 34,675
----------------------------------------------------------------------------------------------
39,403
----------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $30,966)....................................... 39,403
==============================================================================================
----------------------------------------------------------------------------------------------
COMMON STOCK -- 0.1%
----------------------------------------------------------------------------------------------
Telecommunications - Other -- 0.1%
12,250 Pagemart Nationwide Inc. (b)............................ 122,500
207 SF Holdings Group, Class C Shares (b)................... 6
1 Tele1 Europe Holding AB ADR............................. 16
14,500 World Access Inc........................................ 131,406
----------------------------------------------------------------------------------------------
253,928
----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $261,809)...................................... 253,928
==============================================================================================
----------------------------------------------------------------------------------------------
WARRANTS (c) -- 0.5%
----------------------------------------------------------------------------------------------
Broadcasting -- 0.1%
5,425 Australis Holdings, Expire 10/30/01..................... 0
8,625 UIH Australia Inc., Expire 5/15/06 ..................... 258,750
----------------------------------------------------------------------------------------------
258,750
----------------------------------------------------------------------------------------------
Cable Television -- 0.0%
535 Cable Satisfaction, Expire 3/1/10....................... 5,618
----------------------------------------------------------------------------------------------
Commercial Printing/Forms -- 0.0%
1,040 Merrill Corp., Expire 5/1/09............................ 104
----------------------------------------------------------------------------------------------
Internet Services -- 0.2%
1,005 Cybernet Internet Services International,
Sr. Notes, Expire 7/1/09 (b).......................... 7,538
4,050 Splitrock Services, Expire 7/15/08 ..................... 595,351
8,700 WAM!Net Inc., Expire 3/1/05 (b)......................... 101,138
----------------------------------------------------------------------------------------------
704,027
----------------------------------------------------------------------------------------------
</TABLE>
22 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
----------------------------------------------------------------------------------------------
<C> <S> <C>
Telecommunications -- 0.1%
4,125 RSL Communications Ltd.,
Expire 11/15/06 (b)................................... $ 66,000
24,840 Weblink Wireless Inc., Expire 12/31/03 (b).............. 198,720
----------------------------------------------------------------------------------------------
264,720
----------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.1%
2,060 Airgate PCS Inc., Expire 10/1/09........................ 288,400
4,127 Iridium World Communications Ltd.,
Expire 7/15/05 ....................................... 41
----------------------------------------------------------------------------------------------
288,441
----------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $884,760)...................................... 1,521,660
==============================================================================================
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------
<C> <S> <C>
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.2%
----------------------------------------------------------------------------------------------
$20,317,000 J.P. Morgan Securities Inc., 6.600% due 9/1/00;
Proceeds at maturity -- $20,320,725;
(Fully collateralized by U.S. Treasury Notes
4.250% to 13.375% due 3/31/01 to 8/15/26;
Market value -- $21,509,326)
(Cost -- $20,317,000)................................. 20,317,000
==============================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $419,797,613**)................................ $392,526,199
==============================================================================================
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except for those
which are identified by an asterisk(*) are rated by Moody's Investors
Service, Inc.
(b) 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.
(c) Non-income producing security.
(d) Security is issued with attached warrants and bonds.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
BEF -- Belgium Franc EUR -- Euro
CAD -- Canadian Dollar GBP -- British Pound
DEM -- German Mark NLG -- Dutch Guilder
See page 25 for definition of ratings.
See Notes to Financial Statements. 23
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
--------------------------------------------------------------------------------
August 31, 2000 (unaudited)
--------------------------------------------------------------------------------
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
--------------------------------------------------------------------------------
A A 0.2%
Baa BBB 1.2
Ba BB 20.8
B B 68.6
Caa CCC 7.1
NR NR 2.1
-----
100.0%
=====
24
--------------------------------------------------------------------------------
<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 "A" to
"C" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B, -- Bonds rated "BB", "B", "CCC","CC" and "C" are regarded, on balance, as
CCC, predominantly speculative with respect to capacity to pay interest and
CC, C 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 "A" to "Caa," where 1 is the highest
and 3 the lowest ranking within its generic category.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that
is, they are neither highly protected nor poorly secured. Interest
payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds 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.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
25
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
August 31, 2000 (unaudited)
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $419,797,613) ................. $ 392,526,199
Cash ......................................................... 4,559,774
Receivable for securities sold ............................... 1,616,353
Dividends and interest receivable ............................ 8,594,386
Receivable for open forward foreign currency contracts(Note 5) 634,049
--------------------------------------------------------------------------------
Total Assets ................................................. 407,930,761
--------------------------------------------------------------------------------
LIABILITIES:
Dividends payable ............................................ 722,157
Payable for securities purchased ............................. 388,961
Management fees payable ...................................... 326,420
Payable for open forward foreign currency contracts (Note 5) . 74,290
Administration fees payable .................................. 69,109
Payable to bank, foreign currency (Cost -- $10,508) .......... 26
Accrued expenses ............................................. 83,264
--------------------------------------------------------------------------------
Total Liabilities ............................................ 1,664,227
--------------------------------------------------------------------------------
Total Net Assets ............................................... $ 406,266,534
================================================================================
NET ASSETS:
Par value of capital shares .................................. $ 43,023
Capital paid in excess of par value .......................... 516,647,972
Undistributed net investment income .......................... 1,437,786
Accumulated net realized loss from security transactions ..... (85,109,183)
Net unrealized depreciation of investments and
foreign currencies ......................................... (26,753,064)
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $9.44 per share on 43,022,603
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ............................... $ 406,266,534
================================================================================
26 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Six Months Ended August 31, 2000 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ................................................... $ 23,921,954
Dividends .................................................. 139,942
--------------------------------------------------------------------------------
Total Investment Income .................................... 24,061,896
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) ................................... 1,883,565
Administration fees (Note 2) ............................... 418,570
Shareholder communications ................................. 45,522
Audit and legal ............................................ 28,281
Shareholder and system servicing fees ...................... 24,248
Registration fees .......................................... 20,674
Directors' fees ............................................ 20,266
Custody .................................................... 14,418
Other ...................................................... 14,619
--------------------------------------------------------------------------------
Total Expenses ............................................. 2,470,163
--------------------------------------------------------------------------------
Net Investment Income ......................................... 21,591,733
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) .. (16,642,338)
Foreign currency transactions ............................ 1,401,918
--------------------------------------------------------------------------------
Net Realized Loss .......................................... (15,240,420)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period ...................................... (15,969,770)
End of period ............................................ (26,753,064)
--------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation .................... (10,783,294)
--------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................ (26,023,714)
--------------------------------------------------------------------------------
Decrease in Net Assets from Operations ........................ $ (4,431,981)
================================================================================
See Notes to Financial Statements. 27
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Six Months Ended August 31, 2000 (unaudited)
and the Year Ended February 29, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
August 31 February 29
--------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income ............................ $ 21,591,733 $ 43,924,366
Net realized loss ................................ (15,240,420) (37,972,107)
(Increase) decrease in net unrealized depreciation (10,783,294) 4,694,224
--------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (4,431,981) 10,646,483
--------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (20,958,435) (43,409,984)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .................. (20,958,435) (43,409,984)
--------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Treasury stock acquired .......................... (3,364,409) (6,846,551)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions ........................ (3,364,409) (6,846,551)
--------------------------------------------------------------------------------------
Decrease in Net Assets ............................. (28,754,825) (39,610,052)
NET ASSETS:
Beginning of period .............................. 435,021,359 474,631,411
--------------------------------------------------------------------------------------
End of period* ................................... $ 406,266,534 $ 435,021,359
======================================================================================
* Includes undistributed net investment income of: . $ 1,437,786 $ 229,710
======================================================================================
</TABLE>
28 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 independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) gains or losses on the
sale of securities are calculated by using the specific identification method;
(e) interest income, adjusted for accretion of original issue discount, is
recorded on an accrual basis; (f) dividend income is recorded by the Fund on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) the accounting
records of the Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (h)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
February 29, 2000, 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
29
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ; and (k) certain prior year
numbers have been restated to reflect current year's presentation. Current net
investment income, net realized gains, and net assets were not affected by this
change.
In addition, the Fund may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith
Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup
Inc., 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 six months ended August 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $125,035,386
--------------------------------------------------------------------------------
Sales 140,185,399
================================================================================
At August 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 4,828,268
Gross unrealized depreciation (32,099,682)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (27,271,414)
================================================================================
30
--------------------------------------------------------------------------------
<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 (plus accrued interest) of the collateral in amounts at least equal to the
repurchase price.
5. Forward Foreign Currency Contracts
At August 31, 2000, the Fund had open forward foreign currency contracts
as described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Sell:
British Pound 102,086 $ 148,547 9/5/00 $ 192
British Pound 2,180,625 3,177,921 12/22/00 101,087
British Pound 287,563 419,078 12/22/00 14,595
British Pound 545,000 794,253 12/22/00 23,301
Canadian Dollar 1,575,000 1,070,509 12/8/00 227
Canadian Dollar 170,000 115,546 12/8/00 (398)
Canadian Dollar 256,875 174,595 12/8/00 (654)
Canadian Dollar 348,750 237,041 12/8/00 (992)
Canadian Dollar 435,563 296,047 12/8/00 (1,634)
Euro 4,827,804 4,314,800 12/15/00 375,894
Euro 237,500 212,263 12/15/00 12,744
Euro 690,469 617,099 12/15/00 36,360
Euro 625,000 558,587 12/15/00 36,162
Euro 238,125 212,822 12/15/00 16,111
Euro 251,250 224,552 12/15/00 17,376
--------------------------------------------------------------------------------
630,371
--------------------------------------------------------------------------------
To Buy:
British Pound 970,000 1,413,365 12/8/00 (45,806)
British Pound 111,550 162,567 12/22/00 (229)
Euro 250,980 224,311 12/15/00 (12,363)
Euro 274,883 245,674 12/15/00 (3,947)
Euro 156,000 139,423 12/15/00 (3,909)
Euro 169,000 151,042 12/15/00 (4,358)
--------------------------------------------------------------------------------
(70,612)
--------------------------------------------------------------------------------
Total Unrealized Gain on Forward
Foreign Currency Contracts $559,759
================================================================================
31
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 August 31, 2000, the Fund had no open futures contracts.
7. Options Contracts
Premiums paid when put or call options are purchased by the Fund,
represent investments, which are marked-to-market daily. When a purchased option
expires, the Fund will realize a loss in the amount of the premium paid. When
the Fund enters into closing sales transaction, the Fund will realize a gain or
loss depending on whether the sales proceeds from the closing sales transaction
are greater or less than the premium paid for the option. When the Fund
exercises a put option, it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the premium
originally paid.
At August 31, 2000, 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.
32
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
When a written call option is exercised, the proceeds of the security sold
will be increased by the premium originally received. When a written put option
is exercised, the amount of the premium received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of loss if the market price of the underlying security declines.
During the six months ended August 31, 2000, the Fund did not write any
covered call or put option contracts.
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 29, 2000, the Fund had, for Federal income tax purposes,
approximately $57,559,000 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 2008
================================================================================
Carryforward Amounts $9,404,000 $18,115,000 $239,000 $2,616,000 $27,185,000
================================================================================
10. Capital Shares
On November 16, 1999, the Fund commenced a share repurchase plan. Since
the inception of the repurchase plan, the Fund repurchased (and retired)
1,213,500 shares with a total cost of $10,210,960. For the six months ended
August 31, 2000, the Fund repurchased (and retired) 409,500 shares for a total
cost of $3,364,409.
33
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
2000(1) 2000(2) 1999 1998 1997 1996(3)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.02 $ 10.73 $ 11.87 $ 11.59 $ 11.36 $ 10.88
---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.50 1.00 1.01 1.09 1.12 1.13
Net realized and
unrealized gain (loss) (0.60) (0.76) (1.12) 0.28 0.21 0.65
---------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.10) 0.24 (0.11) 1.37 1.33 1.78
---------------------------------------------------------------------------------------------------------------------
Gain From Repurchase
of Treasury Stock 0.01 0.03 -- -- -- --
---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.49) (0.98) (1.03) (1.09) (1.08) (1.27)
Net realized gains -- -- -- -- -- --
Capital -- -- -- -- (0.02) (0.03)
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.98) (1.03) (1.09) (1.10) (1.30)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.44 $ 10.02 $ 10.73 $ 11.87 $ 11.59 $ 11.36
---------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(5) 16.43%++ (13.40)% (2.44)% 10.96% 15.37% 18.83%
---------------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(5) (0.31)%++ 3.89% (0.72)% 12.43% 12.65% 17.80%
---------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $ 406 $ 435 $ 475 $ 523 $ 494 $ 477
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.18%+ 1.15% 1.17% 1.18% 1.20% 1.24%
Net investment income 10.32+ 9.62 9.03 9.19 9.89 9.74
---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 80% 84% 94% 61% 73%
---------------------------------------------------------------------------------------------------------------------
Market Value, End of Period $ 8.938 $ 8.125 $ 10.438 $ 11.750 $ 11.625 $ 11.125
=====================================================================================================================
</TABLE>
(1) For the six months ended August 31, 2000 (unaudited).
(2) For the year ended February 29, 2000.
(3) For the year ended February 29, 1996.
(4) The Investment Adviser has waived a portion of its fees for the year ended
February 29, 2000. If such fees were not waived, the per share decrease in
net investment income and actual expense ratio would have been $0.00* and
1.18%, respectively.
(5) 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.
34
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment 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,
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 0.25 (6,708,610) (0.15) 4,114,072 0.09
August 31,
1999 12,394,209 0.28 11,158,749 0.25 (16,122,251) (0.36) (4,963,502) (0.11)
November 30,
1999 12,460,713 0.28 11,152,594 0.25 (4,771,670) (0.11) 6,380,924 0.14
February 29,
2000 12,087,369 0.28 10,790,341 0.25 (5,675,352) (0.13) 5,114,989 0.12
May 31,
2000 11,812,492 0.27 10,559,669 0.24 (27,280,228) (0.63) (16,720,559) (0.39)
August 31,
2000 12,249,404 0.28 11,032,064 0.26 1,256,514 0.03 12,288,578 0.29
=====================================================================================================================
</TABLE>
35
--------------------------------------------------------------------------------
<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, 1998 $11.563 $11.90 $0.086 $11.62
April 30, 1998 11.375 11.84 0.086 11.51
May 31, 1998 11.438 11.81 0.086 11.53
June 30, 1998 11.625 11.74 0.086 11.55
July 31, 1998 11.438 11.76 0.086 11.50
August 31, 1998 9.750 10.99 0.086 10.58
September 30, 1998 11.000 10.83 0.086 10.73
October 31, 1998 10.688 10.42 0.086 10.34
November 30, 1998 10.750 10.97 0.086 10.79
December 31, 1998 10.250 10.85 0.084 10.34
January 29, 1999 10.250 10.94 0.084 10.26
February 28, 1999 10.438 10.73 0.084 10.40
March 31, 1999 10.438 10.77 0.084 10.34
April 30, 1999 10.313 10.88 0.084 10.35
May 31, 1999 10.188 10.57 0.084 10.35
June 30, 1999 10.188 10.41 0.084 10.23
July 31, 1999 9.813 10.36 0.081 9.66
August 31, 1999 9.250 10.21 0.081 9.28
September 30, 1999 8.875 10.10 0.081 8.77
October 31, 1999 8.688 10.01 0.081 8.87
November 30, 1999 8.313 10.12 0.081 8.31
December 31, 1999 8.125 10.13 0.081 8.11
January 31, 2000 8.625 10.05 0.081 8.61
February 29, 2000 8.125 10.02 0.081 8.18
March 31, 2000 8.250 9.74 0.081 8.21
April 30, 2000 8.188 9.65 0.081 8.18
May 31, 2000 8.375 9.40 0.081 8.49
June 30, 2000 8.625 9.54 0.081 8.70
July 31, 2000 8.813 9.47 0.081 8.90
August 31, 2000 8.938 9.44 0.081 8.95
================================================================================
36
--------------------------------------------------------------------------------
<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 PFPC Global Fund
Services ("PFPC"), 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
PFPC 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
37
--------------------------------------------------------------------------------
<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. PFPC 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.
PFPC will maintain all shareholder accounts in the Plan and will furnish
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by First Data on behalf of the Plan participant, and each shareholder's proxy
will include those shares purchased pursuant to the Plan.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. PFPC's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. No brokerage
charges apply with respect to shares of Common Stock issued directly by the Fund
as a result of dividends or capital gains distributions payable either in Common
Stock or in cash. Each Plan participant will, however, bear a proportionate
share of brokerage commissions incurred with respect to open market purchases
made in connection with the reinvestment of dividends or capital gains
distributions.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by PFPC, 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 PFPC Global Fund Services, P.O. Box 8030, Boston
Massachusetts 02266-8030 or by telephone at (800) 331-1710.
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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.
38
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Managed
HIGH INCOME
PORTFOLIO INC.
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Directors
Paolo M. Cucchi
Robert A. Frankel
Paul R. Hardin
Heath B. McLendon, Chairman
George M. Pavia
James J. Crisona, Emeritus
Alessandro C. di Montezemolo, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
PFPC Trust Company
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
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This report is intended only for the shareholders of Managed High Income
Portfolio Inc. It is not a prospectus, circular or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
FD0777 10/00
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