Managed
HIGH INCOME
PORTFOLIO INC.
[GRAPHIC OMITTED]
Quarterly
Report
November 30, 1999
<PAGE>
Managed
HIGH INCOME [GRAPHIC OMITTED]
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
November 30, 1999
Dear Shareholder:
We are pleased to provide the quarterly report for the Managed High Income
Portfolio Inc. ("Fund") for the nine months ended November 30, 1999. During the
past nine months, the Fund paid income dividends totaling $0.74 per share. The
table below details the annualized distribution rate and the nine-month total
return for the Fund based on its November 30, 1999 net asset value ("NAV") and
the New York Stock Exchange ("NYSE") closing price.(1)
Price Annualized Nine-Month
Per Share Distribution Rate(2) Total Return
--------- -------------------- ------------
$10.12 (NAV) 9.60% 1.91%
$8.313 (NYSE) 11.69% (13.94)%
The Fund generated a total return of 1.91% based on NAV for the past nine
months. The market price of the shares decreased during the reporting period
largely due to concerns regarding the direction of interest rates and heavy tax
loss swapping.
We were encouraged by our results over the past quarter because our
relatively more conservative credit stance contributed to the Fund's
outperformance in a difficult market for bonds. (Of course, past performance is
not indicative of future results.) We think our general cautiousness was
warranted because of the higher volatility in the financial markets over the
past
- ----------
(1) The NAV is calculated by taking the closing value of all securities held
by the Fund plus all other assets less total liabilities and dividing the
result (total net assets) by the total number of shares outstanding. The
NAV fluctuates with the changes in the market price of the securities in
which the Fund has invested. However, the price at which an investor buys
or sells shares of the Fund is its market (NYSE) price as determined by
supply and demand.
(2) The distribution rate assumes a current monthly income dividend rate of
$0.081 per share for twelve months.
1
<PAGE>
year. We believe that the high yield bond market is competitively valued at
current levels and while no guarantees can be made, we feel we are in a good
position to take advantage of any economic or market dislocations that may occur
over the near term.
Special Shareholder Notice
In an effort to reduce the Fund's market discount to NAV, the Board of
Directors authorized a stock repurchase program. The Fund intends to purchase
shares of its stock in the open market at such times, prices and amounts deemed
advisable.
As of November 30, 1999, the Fund repurchased 111,000 shares in the open
market with an average price of $8.50.
The Board of Directors believes that this share repurchase program is an
opportunity to take advantage of market price fluctuations with the objective of
offering long-term value to the Fund's shareholders. However, there can be no
assurance that the Board of Directors will continue this program.
Market and Economic Overview
During the period, the bond markets began to stabilize with modestly
positive returns across most sectors, despite the fact that the Federal Reserve
Board ("Fed") raised short-term interest rates by 25 basis points on November
16, 1999. (A basis point is equal to 1/100 of one percent or 0.01%.) This was
the third interest rate increase by the Fed in 1999. On June 30, 1999, the Fed
raised short-term interest rates by 25 basis points and on August 24, 1999, the
Fed raised interest rates again by an additional 25 basis points to 5.25%. Given
the continuing strength of the U.S. economy and several economies worldwide, we
would not be surprised if the Fed raises short-term interest rates again in
early 2000. However, we think that the bond market's recent decline may be over
and we anticipate better bond market performance in 2000.
Since our last report, the high yield bond market also appeared to have
steadied. However, lower-quality issues were negatively affected by a rising
rate of default that we cannot attribute to a deteriorating economy. We believe
the rising trend in defaults has been caused by the significant amount of new
issuance during the past three years resulting from a great deal of merger and
acquisition activity. These high yield bond defaults are occurring primarily
among less viable companies that have been unable to compete effectively in
today's more challenging global economy.
2
<PAGE>
Portfolio Strategy
As mentioned in our last report, the Fund's management team has begun to
implement a multi-pronged strategy of rebalancing the portfolio to better take
advantage of strong economic conditions. We have therefore been slowly
increasing the Fund's exposure to the basic industry sector and eliminating
sectors such as health care. Also, we have modestly increased our energy
exposure by investing in higher-quality energy credits. In terms of quality, we
have been increasing our exposure to the B and BB rated segments of the market
as judge by Standard & Poor's Rating's Service, where we have continued to find
competitive yields.
Conclusion
For the remainder of 1999 and for the beginning of 2000, we anticipate a
continuation of solid economic growth with modestly higher inflation. These
factors could result in a modest increase in general interest rates. We also
believe that both the stock market and the high yield bond market should do
better than U.S. Treasuries and the middle-quality high yield bond funds should
outperform other types of high yield bonds. Moreover, we will continue to focus
closely on some of the stronger companies in select commodity sectors such as
paper, energy and steel. And while no guarantees can be made, we believe the
Fund should generate competitive returns over the near term.
Thank you for your continued confidence in our investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, C.F.A.
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman Vice President and Investment Officer
December 16, 1999
3
<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 36. Below is a short summary of
how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your
dividends in the form of a cash payment, then your dividend and capital gain
distributions will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of
a cash dividend is determined in the following manner. If the market price of
the common stock is equal to or exceeds the net asset value ("NAV") per share on
the date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.
If the NAV per share at the time of valuation is greater than the market
price of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Purchasing Agent will buy common stock
for your account in the open market or on the New York Stock Exchange.
If the Purchasing Agent begins to purchase additional shares in the open
market and the market price of the shares subsequently rises above the NAV
before the purchases are completed, the Purchasing Agent will attempt to cancel
any remaining orders and the Fund will issue the remaining dividend or
distribution in shares at the greater of Fund's NAV per share or 95% of the then
current market price. In that case, the number of Fund shares you receive will
be based on the weighted average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining shares.
To find out more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
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4
<PAGE>
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SCHEDULE OF INVESTMENTS
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November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 97.2%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising -- 0.1%
450,000(EUR) B- Go Outdoor Systems, Sr. Sub. Notes,
10.500% due 7/15/09+ ................................... $ 475,758
- -------------------------------------------------------------------------------------------------------
Aerospace -- 0.3%
1,185,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09 .................................... 1,199,813
- -------------------------------------------------------------------------------------------------------
Airlines -- 1.3%
6,375,000 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation, Series D,
10.875% due 3/15/19 .................................... 5,631,420
- -------------------------------------------------------------------------------------------------------
Aluminum -- 1.0%
Kaiser Aluminum & Chemical Corp.:
500,000 B1* Series B, Sr. Notes, 10.875% due 10/15/06 .............. 506,250
445,000 B1* Series D, Sr. Notes, 10.875% due 10/15/06 .............. 450,563
3,655,000 B2* Sr. Sub. Notes, 12.750% due 2/1/03 ..................... 3,627,589
- -------------------------------------------------------------------------------------------------------
4,584,402
- -------------------------------------------------------------------------------------------------------
Apparel -- 0.1%
550,000 B- Tropical Sportswear International, Sr. Sub. Notes,
11.000% due 6/15/08 .................................... 508,750
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Auto Parts -- 1.9%
2,540,000 B Collins & Aikman Corp., Sr. Sub. Notes,
11.500% due 4/15/06 .................................... 2,425,701
1,485,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09 ...................................... 1,381,050
Hayes Lemmerz International Inc., Sr. Sub. Notes:
685,000 B 11.000% due 7/15/06 .................................... 717,539
705,000 B 8.250% due 12/15/08 .................................... 645,075
1,230,000 B3* Key Plastics Holdings, Inc., Series B, Sr. Sub.
Notes, 10.250% due 3/15/07 ............................. 873,300
2,415,000 B+ Tenneco Inc., 11.625% due 10/15/09+ ...................... 2,415,000
- -------------------------------------------------------------------------------------------------------
8,457,665
- -------------------------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.6%
2,930,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05 .............. 2,805,475
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</TABLE>
See Notes to Financial Statements. 5
<PAGE>
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SCHEDULE OF INVESTMENTS
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November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 0.1%
525,000 B Capstar Broadcasting, Sr. Discount Notes,
step bond to yield 12.750% due 2/1/09 .................. $ 458,063
- -------------------------------------------------------------------------------------------------------
Building Products -- 1.1%
1,150,000 B Amatek Industries Property Ltd., Sr. Sub. Notes,
12.000% due 2/15/08+ ................................... 1,092,500
1,190,000 B Atrium Cos. Inc., Sr. Sub. Notes,
10.500% due 5/1/09 ..................................... 1,154,300
600,000 B NCI Building Systems Inc., Sr. Sub. Notes,
Series B, 9.250% due 5/1/09 ............................ 568,500
Nortek Inc., Sr. Notes:
275,000 B+ 9.250% due 3/15/07 ..................................... 268,813
1,630,000 B+ 9.125% due 9/1/07 ...................................... 1,581,100
- -------------------------------------------------------------------------------------------------------
4,665,213
- -------------------------------------------------------------------------------------------------------
Cable Television -- 13.9%
Adelphia Communications Corp., Sr. Notes:
5,770,000 B+ 9.875% due 3/1/07 ...................................... 5,885,400
1,055,000 BB- 8.375% due 11/15/17 .................................... 931,038
Century Communications Corp.:
5,535,000 BB- Sr. Discount Notes, zero coupon due 1/15/08 ............ 2,449,874
410,000 BB- Sr. Notes, 9.750% due 2/15/02 .......................... 414,100
CSC Holdings Inc., Sr. Sub. Notes:
7,035,000 BB- 9.875% due 2/15/13 ..................................... 7,333,989
3,250,000 BB- 10.500% due 5/15/16 .................................... 3,599,375
2,695,000 B+ Charter Communications Holding LLC,
Sr. Discount Notes, step bond to yield
9.920% due 4/1/11 .................................... 1,630,475
2,100,000 B EchoStar DBS Corp., Sr. Notes,
9.375% due 2/1/09 .................................... 2,118,375
1,285,000 B+ Insight Midwest, Sr. Sub. Notes,
9.750% due 10/1/09+ .................................. 1,329,975
3,000,000 B- NTL Communications Corp., Sr. Discount Notes,
zero coupon due 11/15/09+ ............................ 1,759,550
NTL Inc., Sr. Notes:
1,125,000 B- 10.000% due 2/1/08 ..................................... 1,787,321
4,225,000 B- 11.500% due 10/1/08 .................................... 4,563,000
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
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November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cable Television -- 13.9% (continued)
1,480,000 B- RCN Corp., Sr. Discount Notes, step bond
to yield 11.125% due 10/15/02 .......................... $ 1,050,800
4,465,000 BB- Rogers Cablesystems Ltd., Sr. Sub. Notes,
11.000% due 12/1/15 .................................... 5,000,800
2,350,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08 .................................... 2,561,500
16,250,000 B United International Holdings Inc., Sr. Discount
Notes, step bond to yield
10.750% due 2/15/08 .................................... 10,318,752
13,600,000 B2* United Pan-Europe Communications N.V.,
Sr. Discount Notes, step bond to yield
12.500% due 8/1/09+ .................................... 7,820,000
- -------------------------------------------------------------------------------------------------------
60,554,324
- -------------------------------------------------------------------------------------------------------
Casinos/Gambling -- 2.0%
415,000 BB+ Circus Circus Enterprises, Sr. Sub. Notes,
7.625% due 7/15/13 ..................................... 357,938
2,200,000 B Harveys Casino Resorts, Sr. Sub. Notes,
10.625% due 6/1/06 ..................................... 2,255,000
Hollywood Casinos, 1st Mortgage Notes:
500,000 B 13.000% due 8/1/06+ .................................... 532,500
2,340,000 B 11.250% due 5/1/07 ..................................... 2,421,900
710,000 B+ Station Casinos, Inc., Sr. Sub. Notes,
10.125% due 3/15/06 .................................... 731,300
Sun International Hotels Ltd., Sr. Sub. Notes:
875,000 Ba3* 9.000% due 3/15/07 ..................................... 831,250
1,185,000 Ba3* 8.625% due 12/15/07 .................................... 1,113,900
520,000 B- Venetian Casino Resort LLC, Secured Notes,
12.250% due 11/15/04 ................................... 436,800
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8,680,588
- -------------------------------------------------------------------------------------------------------
Chemicals - Major -- 1.2%
Huntsman Corp.:
10,525,000 B+ Sr. Discount Notes, zero coupon due 12/31/09+ .......... 3,078,563
2,005,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09+ .................... 2,055,125
- -------------------------------------------------------------------------------------------------------
5,133,688
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals - Specialty -- 0.8%
520,000 BB- Georgia Gulf Corp., Sr. Sub. Notes,
10.375% due 11/1/07+ ................................... $ 542,750
Lyondell Chemical Co., Sr. Secured Notes:
995,000 BB 9.625% due 5/1/07 ...................................... 1,027,338
650,000 BB 9.875% due 5/1/07 ...................................... 669,500
1,135,000 B Zeneca Specialty Chemical PLC, Sr. Secured
Notes, 11.000% due 7/1/09+ ............................. 1,166,212
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3,405,800
- -------------------------------------------------------------------------------------------------------
Coal Mining -- 0.7%
2,780,000 Caa* AEI Resources Inc., Sr. Sub. Notes,
10.500% due 12/15/05+ .................................. 2,335,200
590,000 B P & L Coal Holdings Corp., Sr. Sub. Notes,
9.625% due 5/15/08 ..................................... 582,625
- -------------------------------------------------------------------------------------------------------
2,917,825
- -------------------------------------------------------------------------------------------------------
Construction/Agricultural Equipment/Trucks -- 0.3%
1,490,000 B Columbus McKinnon Corp., Sr. Sub. Notes,
8.500% due 4/1/08 ...................................... 1,292,575
- -------------------------------------------------------------------------------------------------------
Containers/Packaging -- 3.1%
1,575,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07 .................................... 1,527,750
3,475,000(EUR) B1* BSN Financing Co., S.A., Sr. Sub. Notes,
10.250% due 8/1/09+ .................................... 3,568,947
705,000 B BWAY Corp., Sr. Sub. Notes,
10.250% due 4/15/07 .................................... 706,763
1,850,000 B Huntsman Packaging Corp., Sr. Sub. Notes,
9.125% due 10/1/07 ..................................... 1,752,875
3,565,000 B Stone Container Corp., Sr. Notes,
11.500% due 8/15/06+ ................................... 3,796,725
Tekni-Plex Inc., Sr. Sub. Notes:
1,005,000 B- 11.250% due 4/1/07 ..................................... 1,085,400
1,180,000 B- 9.250% due 3/1/08 ...................................... 1,180,000
- -------------------------------------------------------------------------------------------------------
13,618,460
- -------------------------------------------------------------------------------------------------------
</TABLE>
8 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract Drilling -- 2.3%
Parker Drilling Corp., Sr. Notes:
350,000 B- 5.500% due 8/1/04 ...................................... $ 256,813
1,800,000 B+ 9.750% due 11/15/06 .................................... 1,770,750
3,205,000 BB Pride International Inc., Sr. Notes,
10.000% due 6/1/09 ..................................... 3,269,100
RBF Finance Corp.:
2,545,000 Ba3* Sr. Notes, 12.250% due 3/15/06 ......................... 2,774,050
1,840,000 BB- Sr. Secured Notes, 11.375% due 3/15/09 ................. 1,975,700
- -------------------------------------------------------------------------------------------------------
10,046,413
- -------------------------------------------------------------------------------------------------------
Discount Stores -- 1.3%
3,760,000 B+ Ames Department Stores, Inc., Sr. Notes,
10.000% due 4/15/06 .................................... 3,703,600
1,710,000 BB+ KMart Corp., Sr. Notes, 12.500% due 3/1/05 ............... 1,951,538
- -------------------------------------------------------------------------------------------------------
5,655,138
- -------------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.3%
2,900,000 B2* Intertek Finance, Sr. Sub. Notes,
10.250% due 11/1/06 .................................... 2,689,750
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06 .................................... 3,152,500
- -------------------------------------------------------------------------------------------------------
5,842,250
- -------------------------------------------------------------------------------------------------------
Diversified Financial Services -- 0.4%
Amresco Inc., Sr. Sub. Notes:
1,500,000 Caa* 10.000% due 3/15/04 .................................... 810,000
1,275,000 Caa* 9.875% due 3/15/05 ..................................... 701,250
- -------------------------------------------------------------------------------------------------------
1,511,250
- -------------------------------------------------------------------------------------------------------
Diversified Manufacturing -- 0.9%
1,210,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+ ......... 1,261,425
2,650,000 B+ Park Ohio Industries Holdings Corp., Sr. Sub.
Notes, 9.250% due 12/1/07 .............................. 2,550,625
- -------------------------------------------------------------------------------------------------------
3,812,050
- -------------------------------------------------------------------------------------------------------
Drugs - Generic -- 1.3%
5,950,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05 ..................................... 5,697,126
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 9
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electronic Components -- 0.5%
1,995,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 ................................... $ 2,109,713
- -------------------------------------------------------------------------------------------------------
Electronic Production Equipment -- 0.3%
1,285,000 B Amkor Technologies Inc., Sr. Sub. Notes,
10.500% due 5/1/09+ .................................... 1,265,725
- -------------------------------------------------------------------------------------------------------
Engineering & Construction -- 0.9%
760,000 B- American Plumbing & Mechanic, Sr. Sub. Notes,
11.625% due 10/15/08+ .................................. 697,300
2,260,000 B Group Maintenance America Corp., Sr. Sub.
Notes, 9.750% due 1/15/09 .............................. 2,248,700
1,005,000 BB- Integrated Electrical Services, Inc., Sr. Sub. Notes,
9.375% due 2/1/09 ...................................... 982,388
- -------------------------------------------------------------------------------------------------------
3,928,388
- -------------------------------------------------------------------------------------------------------
Environmental Services -- 2.7%
10,180,000 B+ Allied Waste Inc., NA, Sr. Sub. Notes,
10.000% due 8/1/09 ..................................... 9,289,252
985,000 B+ IT Group Inc., Sr. Sub. Notes,
11.250% due 4/1/09+ .................................... 943,138
1,510,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09 . .......... 1,540,200
- -------------------------------------------------------------------------------------------------------
11,772,590
- -------------------------------------------------------------------------------------------------------
Food Distributors -- 1.6%
385,000 B- Agrilink Foods Inc., Sr. Notes,
11.875% due 11/1/08+ ................................... 366,713
3,900,000 B2* Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08 ..................................... 3,373,500
1,845,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09+ .................................... 1,863,450
1,335,000 B SC International Services Inc., Sr. Sub. Notes,
9.250% due 9/1/07 ...................................... 1,204,837
- -------------------------------------------------------------------------------------------------------
6,808,500
- -------------------------------------------------------------------------------------------------------
</TABLE>
10 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foods - Specialty/Candy -- 1.2%
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07 ...................................... $ 2,394,125
3,285,000 B Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07 .................................... 2,825,100
- -------------------------------------------------------------------------------------------------------
5,219,225
- -------------------------------------------------------------------------------------------------------
Forest Products -- 1.0%
2,940,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07 .................................... 3,241,350
1,210,000 B+ Millar Western Forest Products, Sr. Notes,
9.875% due 5/15/08 ..................................... 1,203,950
- -------------------------------------------------------------------------------------------------------
4,445,300
- -------------------------------------------------------------------------------------------------------
Home Furnishings -- 0.3%
1,260,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09 .................................... 1,190,700
- -------------------------------------------------------------------------------------------------------
Homebuilding -- 0.4%
2,240,000 BB- US Home Corp., Sr. Sub. Notes,
8.875% due 2/15/09 ..................................... 1,976,800
- -------------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 1.4%
1,230,000 Ba3* Fresenius Medical Care Capital Trust,
7.875% due 12/1/08 ..................................... 1,122,375
6,410,000 B- Magellan Health Services Inc., Sr. Sub. Notes,
9.000% due 2/15/08 ..................................... 5,192,100
- -------------------------------------------------------------------------------------------------------
6,314,475
- -------------------------------------------------------------------------------------------------------
Hotels/Resorts -- 2.1%
3,250,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08 ..................................... 3,144,375
3,535,000 BB HMH Properties Inc., Sr. Notes,
8.450% due 12/1/08 ..................................... 3,261,038
2,890,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08 ........... 2,832,200
- -------------------------------------------------------------------------------------------------------
9,237,613
- -------------------------------------------------------------------------------------------------------
Industrial Specialties -- 0.3%
1,100,000(EUR) B1* Leica Geosystems Finance, Sr. Sub. Notes,
9.875% due 12/15/08 .................................... 1,140,814
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance - Multi-Line -- 0.4%
2,500,000 B Veritas Capital Trust, Sr. Notes,
10.000% due 1/1/28 ..................................... $ 1,875,000
- -------------------------------------------------------------------------------------------------------
Insurance - Specialty -- 0.5%
3,225,000 B3* SIG Capital Trust 1, Guaranteed Notes,
9.500% due 8/15/27 ..................................... 2,193,000
- -------------------------------------------------------------------------------------------------------
Internet Services -- 3.8%
1,005,000 NR Cybernet Internet Services International,
Sr. Notes, 14.000% due 7/1/09 .......................... 874,350
PSINet, Sr. Notes:
1,210,000 B- 10.000% due 2/15/05 .................................... 1,203,950
2,605,000 B- 11.500% due 11/1/08 .................................... 2,715,713
2,655,000 B- 11.000% due 8/1/09 ..................................... 2,721,375
775,000 B- 11.000% due 8/1/09+ .................................... 795,952
3,300,000 NR Splitrock Services Inc., Sr. Sub. Notes,
11.750% due 7/15/08 .................................... 3,102,000
Verio Inc., Sr. Notes:
1,685,000 B- 11.250% due 12/1/08 .................................... 1,760,825
2,085,000 B- 10.625% due 11/15/09+ .................................. 2,126,700
1,690,000 CCC+ WAM!Net Inc., Sr. Discount Notes, step bond
to yield 13.250% due 3/1/05 ............................ 1,047,800
- -------------------------------------------------------------------------------------------------------
16,348,665
- -------------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 1.3%
1,200,000 B- AMC Entertainment Inc., Sr. Sub. Notes,
9.500% due 2/1/11 ...................................... 1,101,000
1,140,000 B- Premier Parks, Sr. Discount Notes,
step bond to yield 10.000% due 4/1/08+ ................. 778,050
4,000,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08 ...................................... 3,780,000
- -------------------------------------------------------------------------------------------------------
5,659,050
- -------------------------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.4%
1,892,000 B- Alvey Systems Inc., Sr, Sub. Notes,
11.375% due 1/31/03 .................................... 1,927,475
- -------------------------------------------------------------------------------------------------------
</TABLE>
12 See Notes to Financial Statements.
<PAGE>
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical Specialties -- 0.3%
1,205,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes,
11.250% due 6/15/09+ ................................... $ 1,186,925
- -------------------------------------------------------------------------------------------------------
Metals/Minerals - Other -- 0.4%
1,975,000 B- Haynes International Inc., Sr. Notes,
11.625% due 9/1/04 ..................................... 1,738,000
- -------------------------------------------------------------------------------------------------------
Multi - Sector Companies -- 0.4%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+ ................................... 1,922,300
- -------------------------------------------------------------------------------------------------------
Newspapers -- 0.6%
2,740,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes,
8.625% due 7/1/11 ...................................... 2,493,400
- -------------------------------------------------------------------------------------------------------
Oil & Gas Production -- 4.9%
Belco Oil and Gas, Sr. Sub. Notes:
700,000 B1* 10.500% due 4/1/06 ..................................... 717,500
1,330,000 B1* 8.875% due 9/15/07 ..................................... 1,266,825
Canadian Forest Oil Ltd., Sr. Sub. Notes:
1,070,000 B 10.500% due 1/15/06 .................................... 1,110,125
2,125,000 B 8.750% due 9/15/07 ..................................... 2,040,000
450,000 B Chesapeake Energy Corp., Sr. Notes,
9.625% due 5/1/05 ...................................... 434,813
4,350,000 B+ Clark USA, Sr. Notes, 10.875% due 12/1/05 ................ 2,610,000
1,725,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08+ ..................................... 1,725,000
Ocean Energy Inc., Sr. Sub. Notes:
2,875,000 BB- 10.375% due 10/15/05 ................................... 3,119,375
3,000,000 BB- 9.750% due 10/1/06 ..................................... 3,300,000
Plains Resources Inc., Sr. Sub. Notes:
435,000 B 10.250% due 3/15/06 .................................... 408,900
2,750,000 B 10.250% due 3/15/06+ ................................... 2,585,000
1,765,000 B Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07 ..................................... 1,747,350
320,000 B+ Vintage Petroleum, Sr. Sub. Notes,
9.750% due 6/30/09 ..................................... 330,400
- -------------------------------------------------------------------------------------------------------
21,395,288
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil/Gas Transmission -- 0.3%
1,285,000 BB- Leviathan Gas Pipeline Partners L.P., Sr. Sub.
Notes, 10.375% due 6/1/09 .............................. $ 1,333,188
- -------------------------------------------------------------------------------------------------------
Paper -- 3.1%
2,750,000 B Doman Industries Ltd., Sr. Notes,
8.750% due 3/15/04 ..................................... 2,337,500
2,515,000(EUR) B Kapa Beheer BV, Sr. Sub. Notes,
10.625% due 7/15/09+ ................................... 2,636,932
1,270,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05 .................................... 1,184,275
Riverwood International Corp.:
1,525,000 B- Sr. Notes, 10.625% due 8/1/07 .......................... 1,586,000
3,435,000 CCC+ Sr. Sub. Notes, 10.875% due 4/1/08 ..................... 3,435,000
2,240,000 BB+ Tembec Industries Inc., Sr. Notes,
9.875% due 9/30/05 ..................................... 2,312,800
- -------------------------------------------------------------------------------------------------------
13,492,507
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals - Other -- 0.4%
1,605,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09 .................................... 1,689,263
- -------------------------------------------------------------------------------------------------------
Photographic Products -- 0.5%
2,255,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 ........... 2,198,625
- -------------------------------------------------------------------------------------------------------
Printing/Forms -- 1.1%
1,040,000 B Merrill Corp., Sr. Sub Notes,
12.000% due 5/1/09+ .................................... 1,012,700
2,400,000(GBP) B Polestar Corp., PLC, Sr. Notes,
10.500% due 5/30/08 .................................... 3,707,832
- -------------------------------------------------------------------------------------------------------
4,720,532
- -------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.7%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
1.500% due 7/1/05 1 ............................... 1,912,500
1,250,000 Baa3* Trizec Finance, Sr. Notes,
10.875% due 10/15/05 ................................... 1,300,000
- -------------------------------------------------------------------------------------------------------
3,212,500
- -------------------------------------------------------------------------------------------------------
</TABLE>
14 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Recreational Products/Toys -- 0.2%
1,000,000(EUR) B2* Head Holding, Sr. Notes, 10.750% due 7/15/06+. ........... $ 1,052,207
- -------------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.6%
2,130,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09 ..................................... 2,236,500
195,000 B NationsRent Inc., Sr. Sub. Notes,
10.375% due 12/15/08 ................................... 190,125
- -------------------------------------------------------------------------------------------------------
2,426,625
- -------------------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.4%
715,000 CCC+ Pathmark Stores Inc., Sub. Notes,
12.625% due 6/15/02 .................................... 700,700
805,000 B+ Stater Bros. Holdings Inc., Sr. Notes,
10.750% due 8/15/06 .................................... 827,138
- -------------------------------------------------------------------------------------------------------
1,527,838
- -------------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.4%
2,125,000 B- Advance Stores Co., Sr. Sub. Notes,
10.250% due 4/15/08 .................................... 1,848,750
- -------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.8%
Ocwen Capital Trust:
3,200,000 B2* Jr. Sub. Notes, 10.875% due 8/1/27 ..................... 2,096,000
1,630,000 B+ Sr. Notes, 11.875% due 10/1/03 ......................... 1,515,900
- -------------------------------------------------------------------------------------------------------
3,611,900
- -------------------------------------------------------------------------------------------------------
Semiconductors -- 1.0%
4,260,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07 .................................... 4,270,650
- -------------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.5%
1,110,000 BB- LTV Corp., Sr. Notes, 11.750% due 11/15/09+ .............. 1,148,850
2,060,000 B+ Russel Metals Inc., Sr. Notes,
10.000% due 6/1/09 ..................................... 2,018,800
1,350,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04 . ......... 1,370,250
1,940,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 ................ 1,862,400
- -------------------------------------------------------------------------------------------------------
6,400,300
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 11.5%
Call-Net Enterprises Inc.:
520,000 B+ Sr. Discount Notes, step bond to yield
8.940% due 8/15/03+ .................................. $ 265,200
940,000 B+ Sr. Notes, 9.375% due 5/15/09 .......................... 723,800
600,000(EUR) B+ Esat Telecom, Sr. Notes, 11.875% due 11/1/09 ............. 650,294
Esprit Telecom Group PLC, Sr. Notes:
2,300,000 B- 11.500% due 12/15/07 ................................... 2,311,500
2,000,000(DEM) B- 11.500% due 12/15/07 ................................... 1,039,950
1,300,000 B- 10.875% due 6/15/08 .................................... 1,280,500
4,615,000 NR FaciliCom International, Sr. Notes,
10.500% due 1/15/08 .................................... 4,141,963
Hermes Europe Railtel Inc., Sr. Notes:
3,900,000 B 11.500% due 8/15/07 .................................... 4,017,000
705,000 B 10.375% due 1/15/09 .................................... 694,425
ICG Holdings Inc., Sr. Discount Notes:
1,050,000 B- Step bond to yield 13.500% due 9/15/05 ................. 913,500
2,110,000 B- Step bond to yield 12.500% due 5/1/06 .................. 1,635,250
1,105,000 B Intermedia Communications of Florida,
Sr. Discount Notes, step bond to yield
11.250% due 7/15/07 .................................... 795,600
2,590,000 B- KMC Telecom Holdings Inc., Sr. Notes,
13.500% due 5/15/09+ ................................... 2,564,100
5,515,000 B Level 3 Communications, step bond to yield
10.500% due 12/1/08 .................................... 3,336,575
Metromedia Fiber Network, Sr. Notes:
300,000 B+ 10.000% due 11/15/08 ................................... 304,500
1,565,000 B+ 10.000% due 12/15/09 ................................... 1,588,475
NEXTLINK Communications, Inc.:
4,125,000 B Sr. Discount Notes, step bond to yield
12.250% due 6/1/09 ................................... 2,485,313
Sr. Notes:
3,260,000 B 12.500% due 4/15/06 .................................. 3,471,900
2,580,000 B 10.750% due 6/1/09+ .................................. 2,638,050
2,845,000 B Step bond to yield12.125% due 12/1/09+ ............... 1,600,313
</TABLE>
16 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 11.5% (continued)
3,515,000 B- Primus Telecom Group, Sr. Notes,
11.750% due 8/1/04 ..................................... $ 3,462,275
Tele1 Europe B.V., Sr. Notes:
1,570,000 B- 13.000% due 5/15/09 .................................... 1,593,550
1,000,000 B- 13.000% due 5/15/09+ ................................... 1,062,276
2,600,000 Caa* Versatel Telecom, Sr. Notes,
13.250% due 5/15/08 .................................... 2,736,500
2,135,000 B- Viatel Inc., Sr. Notes, 11.250% due 4/15/08 .............. 2,097,638
2,575,000 BB- Williams Communications Group Inc., Sr. Notes,
10.875% due 10/1/09 .................................... 2,697,313
- -------------------------------------------------------------------------------------------------------
50,107,760
- -------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 9.1%
Airgate PCS Inc., Sr. Sub. Discount Notes:
660,000 CCC Step bond to yield 13.500% due 10/1/09 ................. 351,450
2,060,000 NR Step bond to yield 13.500% due 10/1/09@ ................ 1,220,550
1,470,000 Caa* Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08 ................................... 1,569,225
2,500,000 B Clearnet Communications Inc., Sr. Discount
Notes, zero coupon due 5/15/08 ......................... 1,060,688
2,285,000 B Crown Castle International Corp.,
Sr. Discount Notes, step bond to yield
10.375% due 5/15/11 .................................... 1,405,275
1,090,000 NR Dobson/Sygnet Communications, Sr. Notes,
12.250% due 12/15/08 ................................... 1,207,175
Dolphin Telecom PLC, Sr. Discount Notes:
3,285,000 CCC+ Step bond to yield 11.500% due 6/1/08 .................. 1,585,013
4,525,000 Caa* Zero coupon due 6/1/08 ................................. 2,118,637
Microcell Telecommunications Inc.,
Sr. Discount Notes:
950,000 B3* Step bond to yield 14.000% due 6/1/06 ................ 807,500
3,575,000 B- Step bond to yield 12.000% due 6/1/09 ................ 2,216,500
6,665,000 B- Millicom International Cellular S.A.,
Sr. Discount Notes, step bond to yield
13.500% due 6/1/06 ..................................... 5,248,688
Nextel Communications Inc., Sr. Discount Notes:
3,530,000 B1* Step bond to yield 10.650% due 9/15/07 ................. 2,647,500
3,100,000 B2* Step bond to yield 9.950% due 2/15/08 .................. 2,201,000
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 9.1% (continued)
Omnipoint Corp., Sr. Notes:
555,000 B2* 11.500% due 9/15/09+ ................................... $ 600,788
1,040,000 B2* Series A, 11.625% due 8/15/06 .......................... 1,110,200
2,455,000 NR Spectrasite Holdings, Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09 ................. 1,264,325
Telesystems International Wireless Inc.,
Sr. Discount Notes:
6,380,000 CCC+ Step bond to yield 13.250% due 6/30/07 ............... 3,684,450
3,020,000 CCC+ Step bond to yield 10.500% due 11/1/07 ............... 1,479,800
3,475,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.000% due 5/1/08 .................. 2,454,217
1,780,000 CCC+ US Unwired Inc., Sr. Discount Notes,
step bond to yield 13.375% due 11/1/09 ................. 996,800
Voicestream Wireless Corp.:
1,485,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09+ ................................ 894,713
3,200,000 B2* Sr. Notes, 10.375% due 11/15/09+ ....................... 3,328,000
- -------------------------------------------------------------------------------------------------------
39,452,494
- -------------------------------------------------------------------------------------------------------
Textiles -- 0.5%
4,400,000(DEM) B3* Texon International PLC, Sr. Notes,
10.000% due 2/1/08 ..................................... 1,993,400
- -------------------------------------------------------------------------------------------------------
Transportation - Marine -- 0.3%
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09 ..................................... 1,211,075
107,000 BB- Sea Containers Ltd., Series A, Sr. Sub.
Debentures, 12.500% due 12/1/04 ........................ 110,611
- -------------------------------------------------------------------------------------------------------
1,321,686
- -------------------------------------------------------------------------------------------------------
Unregulated Power Generation -- 2.5%
AES Corp.:
4,955,000 Ba1* Sr. Notes, 9.500% due 6/1/09 ........................... 5,004,550
2,350,000 BB Sr. Sub. Notes, 10.250% due 7/15/06 .................... 2,385,250
3,550,000 BB+ Calpine Corp., Sr. Notes,
10.500% due 5/15/06 .................................... 3,683,125
- -------------------------------------------------------------------------------------------------------
11,072,925
- -------------------------------------------------------------------------------------------------------
</TABLE>
18 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale Distributors -- 0.6%
1,045,000 B Buhrman US Inc., Sr. Sub. Notes,
12.250% due 11/1/09+ ................................... $ 1,071,125
1,615,000 B- Fisher Scientific, Sr. Sub. Notes,
9.000% due 2/1/08 ...................................... 1,534,250
- -------------------------------------------------------------------------------------------------------
2,605,375
- -------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $442,937,097) ................................... 423,441,517
=======================================================================================================
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------------------------
COMMON STOCK - 0.0%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 0.0%
12,250 Pagemart Nationwide Inc.+ (Cost -- $0) ................... 78,092
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 1.1%
- -------------------------------------------------------------------------------------------------------
Broadcasting -- 0.5%
18,766 Capstar Broadcasting, Series E,
Exchangable 12.625% .................................... 2,176,856
- -------------------------------------------------------------------------------------------------------
Electronic Components -- 0.0%
816 Viasystems Inc., Series B, Payment-in-kind ............... 6,124
- -------------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 0.3%
14,400 Fresenius Medical Care Preferred Capital Trust ........... 1,386,000
- -------------------------------------------------------------------------------------------------------
Savings & Loan Association -- 0.3%
63,850 California Federal Preferred Capital Corp.,
Series A, 9.125% ....................................... 1,460,569
- -------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $5,292,101) ..................................... 5,029,549
=======================================================================================================
</TABLE>
See Notes to Financial Statements. 19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
- -------------------------------------------------------------------------------------------------------
WARRANTS # - 0.5%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Broadcasting -- 0.1%
5,425 Australis Media, Expire 10/30/01 ......................... $ 0
8,625 UIH Australia, Expire 5/15/06 ............................ 258,750
- -------------------------------------------------------------------------------------------------------
258,750
- -------------------------------------------------------------------------------------------------------
Cable Television -- 0.0%
3,375 Wireless One Inc., Expire 10/19/00 ....................... 844
- -------------------------------------------------------------------------------------------------------
Internet Services -- 0.1%
1,005 Cybernet Internet Services International,
Sr. Notes, Expire 7/1/09+ .............................. 80,400
4,050 Splitrock Services, Expire 7/15/08 ....................... 324,000
8,700 WAM!Net Inc., Expire 3/1/05+ ............................. 197,925
- -------------------------------------------------------------------------------------------------------
602,325
- -------------------------------------------------------------------------------------------------------
Paper -- 0.0%
4,800 SD Warren Co., Expire 12/15/06+ .......................... 84,480
- -------------------------------------------------------------------------------------------------------
Telecommunications -- 0.3%
24,840 Pagemart Nationwide Inc., Expire 12/31/03+ ............... 68,310
4,125 RSL Communications Ltd., Expire 11/15/06+ ................ 165,000
1,000(EUR) Tele1 Europe B.V., Expire 5/15/09 ........................ 85,586
1,005 Tele1 Europe B.V., Expire 5/15/09+ ....................... 85,425
2,600 Versatel, Expire 5/15/08+ ................................ 754,000
- -------------------------------------------------------------------------------------------------------
1,158,321
- -------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.0%
4,125 Iridium World Communications Ltd.,
Expire 7/15/05 ......................................... 40
- -------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $595,263) ....................................... 2,104,760
=======================================================================================================
</TABLE>
20 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
- -------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.2%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
$5,114,000 Morgan Stanley, Dean Witter & Co., 5.650%
due 12/1/99; Proceeds at maturity -- $5,114,803;
(Fully collateralized by U.S. Treasury Notes
and Bonds, 5.000% to 5.375% due 2/15/01 to
2/28/01; Market value -- $5,238,665)
(Cost -- $5,114,000 ) .................................. $ 5,114,000
=======================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $453,938,461** ) ................................ $435,767,918
=======================================================================================================
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service except those
identified by an asterisk(*) which are rated by Moody's Investors Service,
Inc.
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
@ Security is issued with attached warrants.
# Non-income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
DEM -- German Mark
EUR -- Euro
GBP -- British Pound
See page 23 for definition of ratings.
See Notes to Financial Statements. 21
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited)
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
- --------------------------------------------------------------------------------
Baa BBB 0.3%
Ba BB 19.8
B B 70.9
Caa CCC 5.8
NR NR 3.2
-----
100.0%
=====
22
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "BBB" to
"C" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher
rated categories.
BB, B, CCC, -- Bonds rated "BB", "B", "CCC","CC" and "C" are regarded, on
CC and C balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the
terms of the obligation. "BB" represents the lowest degree of
speculation and "C" the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Baa" to "Ca," where 1 is the highest
and 3 the lowest ranking within its generic category.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment
characteristics and may have speculative characteristics as
well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be
in default, or present elements of danger may exist with
respect to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
23
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
November 30, 1999 (unaudited)
ASSETS:
Investments, at value (Cost -- $453,938,461) .............. $ 435,767,918
Cash ...................................................... 553
Foreign currency, at value (Cost -- $1,770,310) ........... 1,731,775
Interest and dividends receivable ......................... 11,110,294
Receivable for securities sold ............................ 905,868
Recievable for open foward foreign currency contracts ..... 886,980
- -------------------------------------------------------------------------------
Total Assets .............................................. 450,403,388
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased .......................... 1,731,853
Investment advisory fee payable ........................... 1,029,382
Administration fee payable ................................ 78,218
Dividends payable ......................................... 948,801
Payable for open foward foreign currency contracts ........ 30,224
Accrued expenses .......................................... 178,490
- -------------------------------------------------------------------------------
Total Liabilities ......................................... 3,996,968
- -------------------------------------------------------------------------------
Total Net Assets ............................................ $ 446,406,420
===============================================================================
NET ASSETS:
Par value of capital shares ............................... 44,125
Capital paid in excess of par value ....................... 526,857,830
Treasury stock, at cost (Note 10) ......................... (977,533)
Undistributed net investment income ....................... 308,324
Accumulated net realized loss on investments .............. (62,478,750)
Net unrealized depreciation of investments and
foreign currencies ...................................... (17,347,576)
- -------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.12 per share on 44,125,103
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ............................ $ 446,406,420
===============================================================================
24 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Nine Months Ended November 30, 1999 (unaudited)
INVESTMENT INCOME:
Interest .................................................... $ 36,762,920
Dividends ................................................... 306,444
- --------------------------------------------------------------------------------
Total Investment Income ..................................... 37,069,364
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) ........................... 3,152,811
Administration fees (Note 2) ................................ 700,625
Shareholder communications .................................. 113,836
Audit and legal ............................................. 35,669
Registration fees ........................................... 28,079
Directors' fees ............................................. 26,562
Custody ..................................................... 15,936
Shareholder and system servicing fees ....................... 10,016
Other ....................................................... 19,277
- --------------------------------------------------------------------------------
Total Expenses .............................................. 4,102,811
Less: Investment advisory fee waiver (Note 2) .............. (167,472)
- --------------------------------------------------------------------------------
Net Expenses ................................................ 3,935,339
- --------------------------------------------------------------------------------
Net Investment Income ......................................... 33,134,025
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) ... (31,627,215)
Foreign currency transactions ............................. 708,266
- --------------------------------------------------------------------------------
Net Realized Loss ........................................... (30,918,949)
- --------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period ....................................... (20,663,994)
End of period ............................................. (17,347,576)
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation ..................... 3,316,418
- --------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................ (27,602,531)
- --------------------------------------------------------------------------------
Increase in Net Assets from Operations ........................ $ 5,531,494
================================================================================
See Notes to Financial Statements. 25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Nine Months Ended November 30, 1999 (unaudited)
and the Year Ended February 28, 1999
<TABLE>
<CAPTION>
November 30 February 28
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ............................ $ 33,134,025 $ 44,952,453
Net realized loss ................................ (30,918,949) (645,006)
(Increase) decrease in net unrealized depreciation 3,316,418 (49,320,029)
- -------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 5,531,494 (5,012,582)
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (32,778,952) (45,242,459)
- -------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .................. (32,778,952) (45,242,459)
- -------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends ...................... -- 2,326,095
Treasury stock acquired .......................... (977,533) --
- -------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions ........................ (977,533) 2,326,095
- -------------------------------------------------------------------------------------
Decrease in Net Assets ............................. (28,224,991) (47,928,946)
NET ASSETS:
Beginning of period .............................. 474,631,411 522,560,357
- -------------------------------------------------------------------------------------
End of period* ................................... $ 446,406,420 $ 474,631,411
=====================================================================================
*Includes undistributed (overdistributed) net
investment income of: ............................ $ 308,324 $ (755,015)
=====================================================================================
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Managed High Income Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The following are significant accounting policies consistently followed by
the Fund: (a) security transactions are accounted for on trade date; (b)
securities are valued at the mean between the quoted bid and ask prices provided
by an independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) gains or losses on the
sale of securities are calculated by using the specific identification method;
(e) interest income, adjusted for accretion of original issue discount, is
recorded on an accrual basis; (f) dividend income is recorded by the Fund on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) the accounting
records of the Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (h)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
February 28, 1999, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this adjustment; (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic
27
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ; and (k) certain prior year
numbers have been restated to reflect current year's presentation. Current net
investment income, net realized gains, and net assets were not affected by this
change.
In addition, the Fund may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC, ("SSBC"), formerly known as SSBC Fund
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
acts as investment adviser to the Fund. The Fund pays SSBC an advisory fee
calculated at an annual rate of 0.90% of the average daily net assets. This fee
is calculated daily and paid monthly. For the nine months ended November 30,
1999, SSBC waived investment advisory fees of $167,472.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
3. Investments
For the nine months ended November 30, 1999, the aggregate cost of
purchases and proceeds from sales of investments (including maturities but
excluding short-term securities) were:
===============================================================================
Purchases $285,968,315
- -------------------------------------------------------------------------------
Sales 292,665,890
===============================================================================
At November 30, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $ 3,818,688
Gross unrealized depreciation (21,989,231)
- -------------------------------------------------------------------------------
Net unrealized depreciation $(18,170,543)
===============================================================================
28
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
4. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. government
securities from banks subject to agreements to resell the securities to the
sellers at a future date (generally, the next business day) at an agreed-upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Forward Foreign Currency Contracts
At November 30, 1999, the Fund had open forward foreign currency contracts
as described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain on the contracts reflected
in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
========================================================================================
<S> <C> <C> <C> <C>
To Sell:
British Pound 4,109,275 6,547,507 12/22/99 $161,090
Canadian Dollar 1,080,625 733,864 12/8/99 2,828
Canadian Dollar 465,000 315,787 12/8/99 1,144
Euro 15,882,941 16,013,331 12/15/99 636,121
Euro 609,500 614,504 12/15/99 45,707
Euro 1,719,990 1,759,149 6/15/00 40,090
- ----------------------------------------------------------------------------------------
886,980
- ----------------------------------------------------------------------------------------
To Buy:
British Pound 594,000 946,449 12/22/99 (30,224)
- ----------------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Foreign Currency Contracts $856,756
========================================================================================
</TABLE>
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by marking to market on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Fund's basis in the contract.
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At November 30, 1999, the Fund had no open futures contracts.
7. Options Contracts
Premiums paid when put or call options are purchased by the Fund,
represent investments, which are marked-to-market daily. When a purchased option
expires, the Fund will realize a loss in the amount of the premium paid. When
the Fund enters into closing sales transaction, the Fund will realize a gain or
loss depending on whether the sales proceeds from the closing sales transaction
are greater or less than the premium paid for the option. When the Fund
exercises a put option, it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the premium
originally paid.
At November 30, 1999, the Fund had no open purchased call or put option
contracts.
When the Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of loss if the market price of the underlying security declines.
During the nine months ended November 30, 1999, the Fund did not write any
covered call or put options.
30
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
8. Payment-in-Kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIK securities
pay interest through the issuance of additional securities. PIK securities carry
a risk in that, unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment dates unless a
portion of such securities are sold. If the issuer of a PIK security defaults,
the Fund may obtain no return at all on its investment.
9. Capital Loss Carryforward
At February 28, 1999, the Fund had, for Federal income tax purposes,
approximately $30,374,000 of loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on the last day in February of the year indicated:
2003 2004 2005 2007
===============================================================================
Carryforward Amounts $9,404,000 $18,115,000 $239,000 $2,616,000
===============================================================================
10. Capital Shares
Capital stock transactions were as follows:
Nine Months Ended Year Ended
November 30, 1999 February 28, 1999
----------------- -----------------
Share Amount Shares Amount
===============================================================================
Shares issued on reinvestment -- -- 221,114 $2,326,095
===============================================================================
On November 16, 1999, the Fund commenced a share repurchase plan. As of
November 30, 1999, repurchased shares totaled 111,000.
31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
<TABLE>
<CAPTION>
1999(1) 1999 1998 1997 1996(2) 1995
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.73 $ 11.87 $ 11.59 $ 11.36 $ 10.88 $ 12.39
- -----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.75 1.01 1.09 1.12 1.13 1.12
Net realized and
unrealized gain (loss) (0.62) (1.12) 0.28 0.21 0.65 (1.48)
- -----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.13 (0.11) 1.37 1.33 1.78 (0.36)
- -----------------------------------------------------------------------------------------------------------
Offering Costs Credited (Charged)
to Paid-in Capital -- -- -- -- -- 0.00*
- -----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.74) (1.03) (1.09) (1.08) (1.27) (1.00)
Net realized gains -- -- -- -- -- (0.15)
Capital -- -- -- (0.02) (0.03) --
- -----------------------------------------------------------------------------------------------------------
Total Distributions (0.74) (1.03) (1.09) (1.10) (1.30) (1.15)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 10.12 $ 10.73 $ 11.87 $ 11.59 $ 11.36 $ 10.88
- -----------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(4) (13.94)%++ (2.44)% 10.96% 15.37% 18.83% 0.14%
- -----------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(4) 1.11.91 %++ (0.72)% 12.43% 12.65% 17.80% (2.18)%
- -----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (Millions) $ 446 $ 475 $ 523 $ 494 $ 477 $ 457
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.13%+ 1.17% 1.18% 1.20% 1.24% 1.24%
Net investment income 9.53+ 9.03 9.19 9.89 9.74 9.96
- -----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 64% 84% 94% 61% 73% 62%
- -----------------------------------------------------------------------------------------------------------
Market value, End of Period $ 8.313 $10.438 $11.750 $11.625 $11.125 $10.500
===========================================================================================================
</TABLE>
(1) For the nine months ended November 30, 1999 (unaudited).
(2) For the year ended February 29, 1996.
(3) The Manager has waived a portion of its fees for the nine months ended
November 30, 1999. If such fees were not waived, the per share decrease in
net investment income and acutal expense ratio would have been $0.00* and
1.18%+, respectively.
(4) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
32
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment Gain (Loss) From
Income Income on Investments Operations
-------------------------------------------------------------------------------------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31,
1997 $13,200,189 $0.31 $11,741,167 $0.27 $(5,289,541) $(0.12) $6,451,626 $0.15
August 31,
1997 13,358,455 0.31 11,846,555 0.28 12,682,793 0.29 24,529,348 0.57
November 30,
1997 12,745,541 0.29 11,250,534 0.26 1,354,794 0.03 12,605,328 0.29
February 28,
1998 13,288,741 0.30 11,752,363 0.27 4,080,801 0.09 15,833,164 0.36
May 31,
1998 12,823,273 0.29 11,293,219 0.26 (2,829,443) (0.06) 8,463,776 0.19
August 31,
1998 13,413,896 0.30 11,864,494 0.27 (36,436,763) (0.83) (24,572,269) (0.56)
November 30,
1998 12,226,853 0.28 10,852,489 0.25 (336,494) (0.01) 10,515,995 0.24
February 28,
1999 12,298,897 0.28 10,942,251 0.25 (10,362,335) (0.23) 579,916 0.01
May 31,
1999 12,214,442 0.28 10,822,682 0.25 (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
=================================================================================================================
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
================================================================================
March 31, 1997 $11.375 $11.29 $0.091 $11.35
April 30, 1997 11.500 11.26 0.091 11.22
May 31, 1997 11.625 11.47 0.091 11.45
June 30, 1997 11.750 11.62 0.091 11.65
July 31, 1997 12.000 11.84 0.091 11.69
August 31, 1997 11.875 11.77 0.091 11.76
September 30, 1997 12.000 11.94 0.091 11.90
October 31, 1997 11.750 11.82 0.091 11.78
November 30, 1997 12.125 11.78 0.091 11.76
December 31, 1997 12.313 11.82 0.091 11.80
January 31, 1998 12.500 11.89 0.091 11.82
February 28, 1998 11.750 11.87 0.091 11.87
March 31, 1998 11.563 11.90 0.086 11.62
April 30, 1998 11.375 11.84 0.086 11.51
May 31, 1998 11.438 11.81 0.086 11.53
June 30, 1998 11.625 11.74 0.086 11.55
July 31, 1998 11.438 11.76 0.086 11.50
August 31, 1998 9.750 10.99 0.086 10.58
September 30, 1998 11.000 10.83 0.086 10.73
October 31, 1998 10.688 10.42 0.086 10.34
November 30, 1998 10.750 10.97 0.086 10.79
December 31, 1998 10.250 10.85 0.084 10.34
January 29, 1999 10.250 10.94 0.084 10.26
February 28, 1999 10.438 10.73 0.084 10.40
March 31, 1999 10.438 10.77 0.084 10.34
April 30, 1999 10.313 10.88 0.084 10.35
May 31, 1999 10.188 10.57 0.084 10.35
June 30, 1999 10.188 10.41 0.084 10.23
July 31, 1999 9.813 10.36 0.081 9.66
August 31, 1999 9.250 10.21 0.081 9.28
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
================================================================================
34
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
On June 15, 1999, the annual meeting of the shareholders of the Fund was
held for the purpose of voting on the following matters:
1. To approve or disapprove for the Fund the election of Paul R. Hardin
and George M. Pavia as Directors for a three-year period; and
2. Ratification of the selection of KPMG LLP as the independent
auditors of the Fund for the current fiscal year.
The results of the vote on Proposal 1 were as follows:
% of Votes % of
Directors Votes For Shares Voted Against Shares Voted
================================================================================
Paul R. Hardin 41,714,321.538 98.82% 495,020.651 1.18%
George M. Pavia 41,705,900.031 98.80 503,442.158 1.20
================================================================================
The results of the vote on Proposal 2 were as follows:
% of Votes % of Votes % of
Votes For Shares Voted Against Shares Voted Abstained Shares Voted
================================================================================
41,717,710.000 98.83% 190,168.089 0.45% 301,464.100 0.72%
================================================================================
The following Directors, representing the balance of the Board of Directors,
continue to serve as Directors: Paolo M. Cucchi and Heath B. McLendon.
35
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
- --------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), formerly known as First Data Investor Services Group Inc., 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
36
<PAGE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
has terminated open market purchases and the Fund has issued the remaining
shares, the number of shares received by the participant in respect of the cash
dividend or distribution will be based on the weighted average of prices paid
for shares purchased in the open market and the price at which the Fund issues
the remaining shares. 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.
--------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
37
<PAGE>
Managed
HIGH INCOME [GRAPHIC OMITTED]
PORTFOLIO INC.
Directors
Paolo M. Cucchi
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
PNC Bank, N.A.
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
38
<PAGE>
(This page intentionally left blank.)
<PAGE>
This report is intended only for the shareholders of Managed High Income
Portfolio Inc. It is not a prospectus, circular or representation intended for
use in the purchase or sale of shares of the Fund or of any securities mentioned
in the report.
FD0839 1/00
