Managed
HIGH INCOME
PORTFOLIO INC.
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[GRAPHIC OMITTED]
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Quarterly
Report
May 31, 2000
<PAGE>
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Managed
HIGH INCOME
PORTFOLIO INC.
LETTER TO
SHAREHOLDERS
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Dear Shareholder:
We are pleased to provide the quarterly report for the Managed High Income
Portfolio Inc. ("Fund") for the three months ended May 31, 2000. During the past
three months, the Fund paid income dividends totaling $0.24 per share. The table
below details the annualized distribution rate and the three-month total return
for the Fund based on its May 31, 2000, net asset value ("NAV") and the New York
Stock Exchange ("NYSE") closing price.(1)
Price Annualized Three-Month
Per Share Distribution Rate(2) Total Return(2)
------------- -------------------- ---------------
$9.40 (NAV) 10.34% (3.41)%
$8.375 (NYSE) 11.61% 6.13%
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(1) The NAV is calculated by subtracting the total liabilities from the
closing value of all securities held by the Fund (plus all other assets)
and dividing the results (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 may buy or sell shares of the Fund is at their market price
(NYSE) as determined by supply and demand.
(2) Total returns are based on changes in NAV or the market value,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. The annualized
distribution rate is the Fund's current monthly income dividend rate,
annualized, and then divided by the NAV or the market value noted in this
report. This annualized distribution rate assumes a current monthly income
dividend rate of $0.081 for twelve months. This rate is as of June 30,
2000 and is subject to change. The important difference between a total
return and an annualized distribution rate is that the total return takes
into consideration a number of factors including the fluctuation of the
NAV or the market value during the period reported. The NAV fluctuation
includes the effects of unrealized appreciation or depreciation in the
Fund. Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as
the sole indicator to judge the return you receive from your Fund
investment. Past performance is not indicative of future results.
1
<PAGE>
Special Shareholder Notice
In an effort to reduce the Fund's discount to NAV, the Board of Directors
("Board") previously authorized and the Fund implemented a stock repurchase
program. This share repurchase program has added liquidity to the market for the
benefit of investors who wish to sell their shares, while also seeking to
benefit continuing shareholders by increasing the share's net asset value. Since
the inception of the program, the Fund has repurchased and retired 1,190,500
shares at an average buyback price of $8.33 per share. As of May 31, 2000, this
program has increased the Fund's shares' NAV by over $0.04 and increased the
Fund's shares' total return by approximately 0.42% when measured by NAV.
The Fund intends to continue to purchase shares of its stock in the open
market at such times, prices and amounts deemed advisable and subsequently
retire them. The Board believes that this share repurchase program is an
opportunity to take advantage of market price fluctuations with the objective of
increasing the Fund's NAV. However, there can be no assurance that the Board
will continue this program.
Market and Economic Overview
For the three months ended May 31, 2000, the overall high-yield bond
market generated total returns in the negative 3.00% to negative 3.50% range
while 10-Year U.S. Treasuries generated total returns in the 2.50% to 3.00%
range. Given the potential for a slowdown in economic growth, due in large part
to rising short term interest rates by the Federal Reserve Board ("Fed"),
investors have been emphasizing higher quality instruments such as U.S. Treasury
notes in their portfolios. Not surprisingly, the high-yield bond market
generated weaker results in the past three months given the potential economic
slowdown in the second half of this year. The U.S. Treasury market generated
stronger total returns in the past three months in anticipation of slower U.S.
economic growth and potentially lower inflation rates in the second half of
2000.
2
<PAGE>
During the period, the Fed raised short-term interest rates two times
during the reporting period for a total of 75 basis points(3) to 6.50%. Given
the recent anecdotal evidence of some slowing in economic growth especially in
the domestic economy, we would not be surprised if the Fed does not raise
short-term interest rates in the near term. We are beginning to think that the
bond market's recent decline may be over. Moreover, we anticipate better bond
market performance later this year. (Of course, no guarantees can be given that
our expectations will be met.)
Performance Update & Portfolio Strategy(4)
The Fund generated a total return of a negative 3.41% for the past three
months based on NAV. In comparison, the Lipper, Inc. peer group of high current
yield funds returned a negative 5.38% based on NAV, for the same period. (Lipper
is a major fund-tracking organization.) The market price of the shares decreased
during the reporting period largely due to concerns regarding the potential
slowing of domestic economic growth and the potential impact on the high-yield
bond market.
While the last three months were challenging for most bond investors, we
believe the worst is over and remain optimistic on the outlook for the
high-yield bond market in the longer run. Our relatively more conservative
credit stance contributed to the Fund's outperformance versus its peer group in
the past three months. (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 year. We believe that the high
yield market is attractively 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 conditions that may occur over the near term.
----------
(3) A basis point is 0.01% or one one-hundredth of a percent.
(4) Please note that the Fund's holdings are subject to change and any
discussion of holdings is as of May 31, 2000. Please refer to pages 7
through 23 for a complete list and percentage breakdown of the Fund's
holdings.
3
<PAGE>
During the period, we began to reduce our basic industry positions on the
assumption that weaker U.S. economic growth could hurt some of the more cyclical
industries. We also maintained healthy weightings in the fast-growing
telecommunications, cable and media sectors. The strongest performing industry
sectors in the high-yield market in the past six months were in basic materials
(i.e., forest products, metals, mining, etc.), chemicals, cable and media, and
telecommunications. We believe the more defensive industries (i.e., bonds of
those companies deemed to be more stable than average) such as
telecommunications, technology, health care, cable and media will outperform in
the second half of this year. We will continue to emphasize those sectors in the
portfolio going forward.
Some of our better-performing investments included Celestica, a major
technology outsourcing company, Verio, major Internet telecommunications
company, Nextel, a fast-growing wireless communications company, Nextlink, a
fast-growing telecommunications company, and PSInet, a major Internet
telecommunications company.
We have continued to eliminate underperforming companies and selectively
raised our exposure to improving credits during the period. In terms of quality,
we have been increasing our exposure during the period to the middle B-rated
segment of the market where we have continued to find attractive yields.
Conclusion
We anticipate a continuation of solid economic growth with only a modest
slowing in economic growth over the next few months. We do not expect a
meaningful economic slowdown at this time but will remain watchful for any major
changes in economic trends as we enter the second half of 2000. We anticipate
both the stock market and the high-yield bond market to do better than U.S.
Treasuries. In this environment, we believe the middle-quality high-yield issues
should outperform as they offer the most attractive yields with more limited
default risk than lower-quality issues. Longer term, we remain positive on the
high-yield market and seek to generate relatively strong total return
performance over the near term.
4
<PAGE>
Thank you for your continued confidence in our investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman Vice President and
Investment Officer
June 26, 2000
5
<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend
Reinvestment Plan ("Plan"), a convenient, simple and efficient way to reinvest
your dividends and capital gains, if any, in additional shares of the Fund. A
description of the Fund's Plan begins on page 37. Below is a short summary of
how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your
dividends in the form of a cash payment, then your dividend and capital gain
distributions will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of
a cash dividend is determined in the following manner. If the market price of
the common stock is equal to or exceeds the net asset value ("NAV") per share on
the date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.
If the NAV per share at the time of valuation is greater than the market
price of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Purchasing Agent will buy common stock
for your account in the open market or on the New York Stock Exchange.
If the Purchasing Agent begins to purchase additional shares in the open
market and the market price of the shares subsequently rises above the NAV
before the purchases are completed, the Purchasing Agent will attempt to cancel
any remaining orders and the Fund will issue the remaining dividend or
distribution in shares at the greater of Fund's NAV per share or 95% of the then
current market price. In that case, the number of Fund shares you receive will
be based on the weighted average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining shares.
To find out more detailed information about the Plan and about how you can
participate, please call PFPCGlobal Fund Services at (800) 331-1710.
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6
<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
CORPORATE BONDS AND NOTES - 94.1%
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<S> <C> <C> <C>
Aerospace -- 0.9%
BE Aerospace, Inc., Sr. Sub. Notes:
1,475,000 B 8.000% due 3/1/08............................ $ 1,194,750
1,310,000 B 9.500% due 11/1/08........................... 1,147,888
1,185,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09.......................... 1,161,300
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3,503,938
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Airlines -- 1.4%
6,296,587 BB Airplanes Pass Through Trust, Corporate
Collateralized Mortgage Obligation,
Series D, 10.875% due 3/15/19................ 5,630,346
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Aluminum -- 1.5%
Kaiser Aluminum & Chemical:
500,000 B1* Series B, Sr. Notes,
10.875% due 10/15/06....................... 475,000
445,000 B1* Series D, Sr. Notes,
10.875% due 10/15/06....................... 422,750
5,395,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03........... 4,909,450
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5,807,200
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Apparel -- 0.5%
1,875,000 BB- Levi Strauss Co., Sub. Notes,
7.000% due 11/1/06........................... 1,284,375
550,000 B- Tropical Sportswear International Corp.,
Sr. Sub. Notes, 11.000% due 6/15/08.......... 525,250
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1,809,625
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Auto Parts: O.E.M. -- 1.7%
1,950,000 B Collins & Aikman Products, Sr. Sub. Notes,
11.500% due 4/15/06.......................... 1,891,500
1,065,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09............................ 937,200
Hayes Lemmerz International Inc.,
Sr. Sub. Notes:
685,000 B 11.000% due 7/15/06........................ 685,000
1,700,000 B 8.250% due 12/15/08........................ 1,445,000
1,900,000 B+ Tenneco Inc., Sr. Sub. Notes,
11.625% due 10/15/09 (b)..................... 1,786,000
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6,744,700
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</TABLE>
See Notes to Financial Statements. 7
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<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Broadcasting -- 0.6%
1,876,600 NR AMFM Operating Inc., Debentures,
Payment-in-Kind, 12.625% due 10/31/06........ $ 2,167,473
525,000 B Capstar Broadcasting Partners, Inc.,
Sr. Discount Notes, step bond to yield
11.002% due 2/1/09........................... 479,719
Young Broadcasting Corp., Sr. Sub. Notes:
685,000 B 11.750% due 11/15/04......................... 691,850
1,385,000 B 10.125% due 2/15/05.......................... 1,336,525
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4,675,567
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Building Products -- 0.7%
990,000 B Amatek Industries Property, Sr. Sub. Notes,
12.000% due 2/15/08 (b)...................... 930,600
1,190,000 B- Atrium Cos., Sr. Sub. Notes,
10.500% due 5/1/09........................... 1,005,550
965,000 B+ Nortek Inc., Sr. Notes, 9.125% due 9/1/07....... 887,800
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2,823,950
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Cable Television -- 11.1%
Adelphia Communications Corp.:
5,010,000 BB- Sr. Discount Notes, zero coupon
due 1/15/08................................ 2,016,525
Sr. Notes:
410,000 BB- 9.750% due 2/15/02......................... 406,925
3,145,000 B+ 9.875% due 3/1/07.......................... 2,972,025
2,595,000 B+ 8.375% due 2/1/08.......................... 2,244,675
535,000 CCC+ Cable Satisfaction International Sr. Notes,
12.750% due 3/1/10........................... 529,650
2,215,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/10........................... 1,965,812
Charter Communications Holdings, LLC:
5,085,000 B+ Sr. Discount Notes, step bond to yield
11.713% due 1/15/05........................ 2,650,556
1,070,000 B+ Sr. Notes, 8.625% due 4/1/09................. 898,800
680,000 B+ Sr. Notes, 10.000% due 4/1/09................ 632,400
2,105,000 BB- CSC Holdings Inc., Sr. Sub. Notes,
10.500% due 5/15/16.......................... 2,241,825
1,125,000(GBP) B- Diamond Holdings PLC, Sr. Notes,
10.000% due 2/1/08........................... 1,555,423
4,225,000 B- NTL Inc., Sr. Notes, 11.500% due 10/1/08........ 4,235,563
</TABLE>
8 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Cable Television -- 11.1% (continued)
4,465,000 BB- Rogers Cablesystems Ltd., Sr. Sub. Notes,
11.000% due 12/1/15.......................... $ 4,889,175
2,350,000 B+ Telewest Communications PLC, Sr. Notes,
11.250% due 11/1/08.......................... 2,367,625
13,600,000 B- United International Holdings Inc.,
Sr. Discount Notes, step bond to yield
11.259% due 2/15/08 (b)...................... 8,229,024
13,600,000 B United Pan-Europe Communications N.V.,
Sr. Discount Notes, step bond to yield
12.500% due 8/1/09........................... 6,188,000
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44,024,003
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Casinos/Gambling -- 1.8%
415,000 BB- Circus Circus Enterprises Inc.,
Sr. Sub. Notes, 7.625% due 7/15/13........... 324,737
1,035,000 B Harvey Casino Resorts, Sr. Sub. Notes,
10.625% due 6/1/06........................... 1,046,644
2,845,000 B Hollywood Casino Corp., Sr. Secured Notes,
11.250% due 5/1/07........................... 2,887,675
Sun International Hotels Ltd., Sr. Sub. Notes:
875,000 Ba3* 9.000% due 3/15/07........................... 774,375
1,185,000 Ba3* 8.625% due 12/15/07.......................... 1,022,063
1,155,000 B- Venetian Casino Resort LLC, Secured Notes,
12.250% due 11/15/04......................... 1,126,125
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7,181,619
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Chemicals - Major -- 1.6%
Huntsman Corp.:
10,525,000 B+ Sr. Discount Notes, zero coupon
due 12/31/09 (b) .......................... 3,262,750
2,005,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09 (b)....... 1,964,900
1,355,000 B+ Terra Industries Inc., Sr. Notes,
10.500% due 6/15/05.......................... 995,925
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6,223,575
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Chemicals - Specialty -- 0.6%
1,965,000 B Avecia Group PLC, Sr. Notes,
11.000% due 7/1/09........................... 1,950,263
625,000EUR B+ Ineos Acrylics Finance, Sr. Notes,
10.250% due 5/15/10.......................... 591,219
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2,541,482
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 9
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<PAGE>
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SCHEDULE OF INVESTMENTS
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May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Coal Mining -- 0.1%
2,780,000 Caa* AEI Resources Inc., Sr. Sub. Notes,
10.500% due 12/15/05 (b)..................... $ 427,425
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Construction/Agricultural Equipment/Trucks -- 0.3%
1,490,000 B Columbus McKinnon Corp., Sr. Sub. Notes,
8.500% due 4/1/08............................ 1,311,200
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Consumer Specialties -- 0.4%
1,410,000 B Jostens Inc., Sr. Sub. Notes,
12.750% due 5/1/10........................... 1,388,850
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Containers/Packaging -- 2.5%
705,000 B BWAY Corp., Sr. Sub. Notes,
10.250% due 4/15/07.......................... 660,056
1,850,000 B Huntsman Packaging Corp., Sr. Sub. Notes,
9.125% due 10/1/07........................... 1,979,500
3,565,000 B Stone Container Corp., Sr. Notes,
11.500% due 8/15/06 (b)...................... 3,707,600
1,900,000 B- Sweetheart Cup Co., Sr. Sub. Notes,
10.500% due 9/1/03........................... 1,738,500
Tekni-Plex Inc., Sr. Sub. Notes:
1,005,000 B- 11.250% due 4/1/07........................... 1,040,175
620,000 B- 9.250% due 3/1/08............................ 599,850
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9,725,681
---------------------------------------------------------------------------------------
Contract Drilling -- 2.7%
Parker Drilling Co., Sr. Notes:
350,000 B- 5.500% due 8/1/04............................ 269,063
2,580,000 B+ 9.750% due 11/15/06.......................... 2,405,850
3,205,000 BB Pride International Inc., Sr. Notes,
10.000% due 6/1/09........................... 3,221,025
RBF Finance Corp.:
2,545,000 Ba3* Sr. Notes, 12.250% due 3/15/06............... 2,748,600
1,840,000 BB- Sr. Secured Notes, 11.375% due 3/15/09....... 1,959,600
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10,604,138
---------------------------------------------------------------------------------------
</TABLE>
10 See Notes to Financial Statements.
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<PAGE>
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SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Discount Stores -- 1.0%
2,755,000 B+ Ames Department Stores, Inc., Sr. Notes,
10.000% due 4/15/06.......................... $ 2,162,675
1,710,000 Baa3* Kmart Corp., Sr. Notes,
12.500% due 3/1/05........................... 1,861,763
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4,024,438
---------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.3%
2,900,000 B2* Intertek Finance, Sr. Sub. Notes,
10.250% due 11/1/06 ......................... 2,421,500
3,250,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes,
11.000% due 11/1/06.......................... 2,876,250
---------------------------------------------------------------------------------------
5,297,750
---------------------------------------------------------------------------------------
Diversified Financial Services -- 0.3%
Amresco Inc., Sr. Sub. Notes:
1,500,000 Caa* 10.000% due 3/15/04.......................... 712,500
1,275,000 Caa* 9.875% due 3/15/05........................... 605,625
---------------------------------------------------------------------------------------
1,318,125
---------------------------------------------------------------------------------------
Diversified Manufacturer -- 1.0%
1,210,000 B- Blount Inc., Sr. Sub. Notes,
13.000% due 8/1/09 (b)....................... 1,182,775
2,650,000 B+ Park Ohio Holdings Corp., Sr. Sub. Notes,
9.250% due 12/1/07........................... 2,345,250
705,000 B Polymer Group Inc., Unsecured
Sr. Sub Notes, 9.000% due 7/1/07............. 574,575
---------------------------------------------------------------------------------------
4,102,600
---------------------------------------------------------------------------------------
Drugs - Generic -- 1.0%
3,855,000 BB ICN Pharmaceuticals Inc., Sr. Notes,
9.250% due 8/15/05........................... 3,768,263
---------------------------------------------------------------------------------------
Electronic Components -- 0.5%
1,995,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 ........................ 2,069,813
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 11
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<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Engineering & Construction -- 0.7%
760,000 B- American Plumbing & Mechanic,
Sr. Sub. Notes, 11.625% due 10/15/08......... $ 689,700
1,005,000 BB- Integrated Electrical Services Inc.,
Sr. Sub. Notes, 9.375% due 2/1/09............ 791,438
1,295,000 B- Orius Capital Corp., Sr. Sub. Notes,
12.750% due 2/1/10........................... 1,320,900
---------------------------------------------------------------------------------------
2,802,038
---------------------------------------------------------------------------------------
Environmental Services -- 2.6%
Allied Waste Industries, Inc., NA.:
1,390,000 BB- Sr. Notes, 7.875% due 1/1/09................. 1,174,550
6,355,000 B+ Sr. Sub. Notes 10.000% due 8/1/09............ 5,052,225
985,000 B+ IT Group Inc., Sr. Sub. Notes,
11.250% due 4/1/09 (b)....................... 891,425
1,375,000 CCC+ Metal Management Inc., Unsecured
Sr. Notes, 10.000% due 5/15/08............... 914,375
2,285,000 B+ URS Corp., Sr. Sub. Notes,
12.250% due 5/1/09........................... 2,273,575
---------------------------------------------------------------------------------------
10,306,150
---------------------------------------------------------------------------------------
Finance Companies -- 0.2%
1,060,000 CCC+ Madison River Capital, Sr. Notes,
13.250% due 3/1/10........................... 959,300
---------------------------------------------------------------------------------------
Food Distributors -- 2.3%
385,000 B- Agrilink Foods Inc., Sr. Notes,
11.875% due 11/1/08 (b)...................... 323,400
3,900,000 B2* Carrols Corp., Sr. Sub. Notes,
9.500% due 12/1/08........................... 3,305,250
1,335,000 B2* International Home Foods Inc.,
Sr. Sub. Notes, 10.375% due 11/1/06.......... 1,321,650
1,845,000 B- Premier International Foods PLC,
Sr. Notes, 12.000% due 9/1/09 (b)............ 1,780,425
2,660,000 B SC International Services Inc.,
Sr. Sub. Notes, 9.250% due 9/1/07............ 2,473,800
---------------------------------------------------------------------------------------
9,204,525
---------------------------------------------------------------------------------------
</TABLE>
12 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Foods - Specialty/Candy -- 0.6%
2,675,000 B- B&G Foods Inc., Sr. Sub. Notes,
9.625% due 8/1/07............................ $ 1,832,375
2,285,000 B2* Imperial Holly Corp., Sr. Sub. Notes,
9.750% due 12/15/07 ......................... 377,025
---------------------------------------------------------------------------------------
2,209,400
---------------------------------------------------------------------------------------
Forest Products -- 1.1%
2,940,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07.......................... 3,035,550
1,210,000 B+ Millar Western Forest Products, Sr. Notes,
9.875% due 5/15/08........................... 1,158,575
---------------------------------------------------------------------------------------
4,194,125
---------------------------------------------------------------------------------------
Home Building -- 0.6%
2,300,000 BB+ Lennar Corp., Sr. Notes,
9.950% due 5/1/10............................ 2,190,750
---------------------------------------------------------------------------------------
Home Furnishings -- 0.3%
1,260,000 B Falcon Products Inc., Sr. Sub. Notes,
11.375% due 6/15/09.......................... 1,165,500
---------------------------------------------------------------------------------------
Hospital/Nursing Management -- 0.6%
24,500 Ba3* Fresenius Medical Care Preferred
Capital Trust, 9.000% due 12/1/06............ 2,284,625
---------------------------------------------------------------------------------------
Hotels/Resorts -- 1.8%
1,355,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08........................... 1,321,125
2,185,000 BB HMH Properties Inc., Sr. Notes,
8.450% due 12/1/08........................... 1,944,650
Intrawest Corp., Sr. Notes:
1,850,000 B+ 9.750% due 8/15/08........................... 1,785,250
2,085,000 NR 10.500% due 2/1/10........................... 2,116,275
---------------------------------------------------------------------------------------
7,167,300
---------------------------------------------------------------------------------------
Insurance - Multi-Line -- 0.3%
2,500,000 B Veritas Capital Trust, Sr. Notes,
10.000% due 1/1/28........................... 993,750
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 13
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<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Internet Services -- 4.8%
555,000 NR Colo.com, 13.875% due 3/15/10 (c)............... $ 560,550
1,005,000 Caa* Cybernet Internet Services International,
Sr. Notes, 14.000% due 7/1/09................ 711,038
2,435,000 B- Exodus Communications, Inc., Sr. Notes,
10.750% due 12/15/09......................... 2,416,738
PSINet, Sr. Notes:
2,605,000 B- 11.500% due 11/1/08.......................... 2,383,575
775,000(EUR) B- 11.000% due 8/1/09........................... 625,301
5,445,000 B- 11.000% due 8/1/09........................... 4,927,725
2,675,000 B3* Rhythms NetConnections Inc., Sr. Notes,
14.000% due 2/15/10 (b)...................... 2,233,625
Verio Inc., Sr. Notes:
1,685,000 B- 11.250% due 12/1/08.......................... 1,878,775
2,085,000 B- 10.625% due 11/15/09......................... 2,303,925
1,690,000 CCC+ WAM!Net Inc., Sr. Discount Notes,
step bond to yield 13.214% due 3/1/05........ 950,625
---------------------------------------------------------------------------------------
18,991,877
---------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 0.7%
3,550,000 B- Premier Parks Operations Inc., Sr. Discount
Notes, step bond to yield
11.361% due 4/1/08 (b)....................... 2,360,750
330,000 B- SFX Entertainment Inc., Sr. Sub. Notes,
9.125% due 2/1/08............................ 333,300
---------------------------------------------------------------------------------------
2,694,050
---------------------------------------------------------------------------------------
Medical Specialties -- 0.6%
2,610,000 B- Hanger Orthopedic Group Inc.,
Sr. Sub Notes, 11.250% due 6/15/09 (b)....... 2,270,700
---------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.5%
2,045,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09 (b)...................... 1,922,300
---------------------------------------------------------------------------------------
Newspapers -- 0.1%
580,000 B+ Garden State Newspapers, Sr. Sub. Notes,
8.625% due 7/1/11............................ 504,600
---------------------------------------------------------------------------------------
</TABLE>
14 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Oil & Gas Production -- 3.5%
Belco Oil and Gas Corp., Sr. Sub. Notes:
700,000 B1* 10.500% due 4/1/06........................... $ 707,000
1,330,000 B1* 8.875% due 9/15/07........................... 1,210,300
Canadian Forest Oil Ltd., Sr. Sub. Notes:
2,245,000 B 10.500% due 1/15/06.......................... 2,256,225
1,220,000 B 8.750% due 9/15/07........................... 1,146,800
2,310,000 B Chesapeake Energy Corp., Sr. Notes,
9.625% due 5/1/05............................ 2,214,713
750,000 B Houston Exploration Corp., Sr. Sub. Notes,
8.625% due 1/1/08............................ 690,000
2,255,000 B+ Nuevo Energy Co., Sr. Sub. Notes,
9.500% due 6/1/08............................ 2,181,713
1,080,000 B Plain Resources, Sr. Sub. Notes,
10.250% due 3/15/06 (b)...................... 1,074,600
600,000 B- Range Resources Corp., Sr. Sub. Notes,
8.750% due 1/15/07........................... 516,000
1,765,000 B Stone Energy Corp., Sr. Sub. Notes,
8.750% due 9/15/07........................... 1,672,338
320,000 BB- Vintage Petroleum, Inc., Sr. Sub. Notes,
9.750% due 6/30/09........................... 320,800
---------------------------------------------------------------------------------------
13,990,489
---------------------------------------------------------------------------------------
Oil Refining/Marketing -- 0.4%
2,990,000 B Clark USA, Sr. Notes, 10.875% due 12/1/05....... 1,480,050
---------------------------------------------------------------------------------------
Oil/Gas Transmission -- 0.2%
750,000 BB- Leviathan Gas Pipeline Partners L.P.,
Sr. Sub. Notes, 10.375% due 6/1/09........... 768,750
---------------------------------------------------------------------------------------
Paper -- 2.8%
4,475,000 B Doman Industries Ltd., Sr. Notes,
8.750% due 3/15/04........................... 3,624,750
2,155,000 CCC+ Repap New Brunswick, Sr. Secured Notes,
10.625% due 4/15/05.......................... 1,939,500
Riverwood International Corp.:
1,005,000 B- Sr. Notes, 10.625% due 8/1/07................ 987,413
4,820,000 CCC+ Sr. Sub. Notes, 10.875% due 4/1/08........... 4,494,650
---------------------------------------------------------------------------------------
11,046,313
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 15
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Pharmaceuticals - Other -- 0.6%
2,060,000 B King Pharmaceutical Inc., Sr. Sub. Notes,
10.750% due 2/15/09.......................... $ 2,163,000
---------------------------------------------------------------------------------------
Photographic Products -- 0.6%
2,255,000 BB- Polaroid Corp., Sr. Notes,
11.500% due 2/15/06.......................... 2,288,825
---------------------------------------------------------------------------------------
Printing/Forms -- 1.1%
1,040,000 B Merrill Corp., Sr. Sub. Notes,
12.000% due 5/1/09 (b)....................... 889,200
2,400,000(GBP) B Polestar Corp. PLC, Sr. Notes,
10.500% due 5/30/08.......................... 3,336,173
---------------------------------------------------------------------------------------
4,225,373
---------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.5%
2,250,000 NR Ocwen Asset Investment, Sr. Notes,
11.500% due 7/1/05........................... 1,766,250
---------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.6%
690,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes,
11.000% due 5/1/09........................... 703,800
195,000 B NationsRent Inc., Sr. Sub. Notes,
10.375% due 12/15/08......................... 133,575
United Rentals, Sr. Sub. Notes:
1,250,000 BB- 9.250% due 1/15/09........................... 1,043,750
650,000 BB- 9.000% due 4/1/09............................ 536,250
---------------------------------------------------------------------------------------
2,417,375
---------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.3%
1,575,000 B- Advance Stores Co., Sr. Sub. Notes,
10.250% due 4/15/08.......................... 1,271,813
---------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.9%
3,200,000 B2* Ocwen Capital Trust, Jr. Sub. Notes,
10.875% due 8/1/27........................... 1,920,000
1,630,000 B+ Ocwen Financial Corp.,
11.875% due 10/1/03.......................... 1,491,450
---------------------------------------------------------------------------------------
3,411,450
---------------------------------------------------------------------------------------
</TABLE>
16 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Semiconductors -- 1.1%
4,260,000 B Fairchild Semiconductor Inc., Sr. Sub. Notes,
10.125% due 3/15/07.......................... $ 4,185,450
---------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.0%
1,110,000 BB- LTV Corp., Sr. Notes,
11.750% due 11/15/09 (b)..................... 993,450
1,265,000 B+ Russel Metals Inc., Sr. Notes,
10.000% due 6/1/09........................... 1,246,025
1,350,000 B+ WCI Steel Inc., Sr. Notes,
10.000% due 12/1/04.......................... 1,282,500
610,000 B- WHX Corp., Sr. Notes,
10.500% due 4/15/05.......................... 497,150
---------------------------------------------------------------------------------------
4,019,125
---------------------------------------------------------------------------------------
Telecommunications - Other -- 13.5%
940,000 B+ Call-Net Enterprises, Inc., Sr. Notes,
9.375% due 5/15/09........................... 540,500
600,000(EUR) Aa1* Esat Telecom Group PLC, Sr. Notes,
11.875% due 11/1/09.......................... 694,336
Espirit Telecom Group PLC, Sr. Notes:
2,000,000(DEM) B- 11.500% due 12/15/07......................... 749,170
2,300,000 B- 11.500% due 12/15/07......................... 1,828,500
1,300,000 B- 10.875% due 6/15/08.......................... 1,033,500
Focal Communications Corp.:
1,340,000 B Sr. Discount Notes, step bond to yield
13.098% due 2/15/08........................ 857,600
1,295,000 B Sr. Notes, 11.875% due 1/15/10............... 1,256,150
2,465,000 BB Global Crossing Holdings Ltd., Sr. Notes,
9.500% due 11/1/09........................... 2,347,913
1,500,000 CCC+ GT Group Telecom, Sr. Discount Notes,
step bond to yield 13.250% due 2/1/10........ 787,500
Hermes Europe Railtel, Sr. Notes:
2,265,000 B 11.500% due 8/15/07.......................... 1,834,650
2,845,000 B 10.375% due 1/15/09.......................... 2,190,650
1,150,000 B- ICG Holdings Inc., Sr. Discount Notes,
step bond to yield 13.155% due 9/15/00....... 1,109,750
1,225,000(EUR) CCC+ Jazztel PLC, Sr. Notes,
13.250% due 12/15/09......................... 1,056,543
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 17
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Telecommunications - Other -- 13.5% (continued)
KMC Telecom Holdings Inc.:
2,440,000 B- Sr. Discount Notes, step bond to yield
15.899% due 2/15/08........................ $ 1,183,400
1,200,000 B- Sr. Notes, 13.500% due 5/15/09 (b)........... 1,098,000
Level 3 Communications:
7,270,000 B Sr. Discount Notes, step bond to yield
12.846% due 3/15/10........................ 3,816,750
4,125,000(EUR) B Sr. Notes, 11.250% due 3/15/10............... 3,490,795
985,000 B+ McLeod USA Inc, Sr. Notes,
8.125% due 2/15/09........................... 876,650
300,000 B+ Metromedia Fiber Network, Sr. Notes,
10.000% due 11/15/08......................... 286,500
1,680,000 B- MGC Communications, Inc., Sr. Notes,
13.000% due 4/1/10.......................... 1,596,000
NEXTLINK Communications Inc.:
4,125,000 B Sr. Discount Notes, step bond to yield
12.051% due 6/1/09......................... 2,382,188
Sr. Notes:
3,260,000 B 12.051% due 4/15/06........................ 3,325,200
3,290,000 B 10.750% due 6/1/09 (b)..................... 3,166,625
4,595,000 B Step bond to yield
12.545% due 12/1/09...................... 2,492,788
3,515,000 B- Primus Telecom Group, Sr. Notes,
11.750% due 8/1/04........................... 3,005,325
2,570,000 B- Tele1 Europe B.V., Sr. Notes,
13.000% due 5/15/09.......................... 2,570,000
2,600,000 B- Versatel Telecom, Sr. Notes,
13.250% due 5/15/08.......................... 2,483,000
4,500,000 B- Viatel Inc., Sr. Notes,
11.500% due 3/15/09.......................... 3,555,000
4,615,000 B- World Access Inc., Sr. Notes,
13.250% due 1/15/08.......................... 4,061,200
---------------------------------------------------------------------------------------
55,676,183
---------------------------------------------------------------------------------------
Telecommunications Equipment -- 0.3%
1,085,000 B Flag Telecom Holding Ltd., Sr. Notes,
11.625% due 3/30/10.......................... 1,003,625
</TABLE>
18 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Telephone - Cellular -- 11.5%
2,130,000 CCC Airgate PCS Inc., Sr. Sub. Discount Notes,
step bond to yield 13.236% due 10/1/04....... $ 1,198,125
4,165,000 CCC+ Alamosa PCS Holdings, Sr. Discount Notes,
step bond to yield 13.406% due 2/15/05....... 2,144,975
1,470,000 B- Centennial Cellular Operating Co.,
Sr. Sub. Notes, 10.750% due 12/15/08......... 1,440,600
Clearnet Communications Inc.:
2,500,000(CAD) B Sr. Discount Notes,
zero coupon due 5/15/03.................... 1,034,920
2,000,000 B- Sr. Secured Notes, 10.125% due 7/7/07........ 1,980,000
2,880,000 B Crown Castle International Corp.,
Sr. Discount Notes, step bond to yield
11.302% due 5/15/11.......................... 1,713,600
1,320,000 NR Dobson/Sygnet Communications Corp.,
Sr. Notes, 12.250% due 12/15/08.............. 1,412,400
Microcell Telecommunications Inc.,
Sr. Discount Notes:
950,000 B3* Step bond to yield 11.843% due 6/1/06...... 871,625
3,575,000 B- Step bond to yield 11.737% due 6/1/09...... 2,243,312
5,215,000 B- Millicom International Cellular S.A.,
Sr. Discount Notes, step bond to yield
14.400% due 6/1/06........................... 4,354,525
Nextel Communications Inc.,
Sr. Discount Notes:
4,495,000 B1* Step bond to yield 11.015% due 9/15/02..... 3,416,200
9,355,000 B1* Step bond to yield 10.943% due 2/15/03..... 6,618,661
1,370,000 B1* Sr. Notes, 9.375% due 11/15/09............... 1,294,650
Omnipoint Corp., Series A, Sr. Notes:
1,040,000 B2* 11.625% due 8/15/06.......................... 1,102,400
555,000 B2* 11.500% due 9/15/09.......................... 592,463
2,455,000 B- Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.218% due 4/15/04...... 1,337,975
Telesystems International Wireless Inc.,
Sr. Discount Notes:
5,125,000 CCC+ Step bond to yield
12.298% due 6/30/02...................... 3,356,875
2,190,000 CCC+ Step bond to yield
12.580% due 11/1/07...................... 1,237,350
</TABLE>
See Notes to Financial Statements. 19
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount++ Rating(a) Security Value
=======================================================================================
<S> <C> <C> <C>
Telephone - Cellular -- 11.5% (continued)
2,500,000 B3* Triton PCS Inc., Sr. Discount Notes,
step bond to yield 11.075% due 5/1/08........ $ 1,825,000
1,485,000 B2* Voicestream Wireless, Sr. Discount Notes,
step bond to yield
11.875% due 11/15/09 (b)..................... 955,969
Winstar Communications, Inc.:
2,600,000 B- Sr. Discount Notes, step bond to yield
15.312% due 4/15/10 (b).................... 1,137,500
1,565,000 B- Sr. Notes, 12.750% due 4/15/10............... 1,447,625
---------------------------------------------------------------------------------------
42,716,750
---------------------------------------------------------------------------------------
Textiles -- 0.2%
1,900,000(DEM) B3* Texon International PLC, Sr. Notes,
10.000% due 2/1/08........................... 842,342
---------------------------------------------------------------------------------------
Transportation - Marine -- 0.3%
1,255,000 B- Oglebay Norton Co., Sr. Sub. Notes,
10.000% due 2/1/09........................... 1,148,325
107,000 BB- Sea Containers Ltd., Series A, Sr. Sub.
Debentures, 12.500% due 12/1/04.............. 74,365
---------------------------------------------------------------------------------------
1,222,690
---------------------------------------------------------------------------------------
Unregulated Power Generation -- 3.1%
AES Corp.:
5,850,000 Ba1* Sr. Notes, 9.500% due 6/1/09................. 5,586,750
2,880,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06.......... 2,815,200
3,550,000 BB+ Calpine Corp., Sr. Notes,
10.500% due 5/15/06.......................... 3,683,127
---------------------------------------------------------------------------------------
12,085,077
---------------------------------------------------------------------------------------
Wholesale Distributors -- 0.3%
1,045,000 B Buhrman US Inc., Sr. Sub. Notes,
12.250% due 11/1/09 (b)...................... 1,084,188
---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $408,918,661)........................... 372,530,396
=======================================================================================
</TABLE>
20 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
=======================================================================================
<S> <C> <C>
PREFERRED STOCK - 0.4%
---------------------------------------------------------------------------------------
Savings & Loan Association -- 0.4%
63,850 California Federal Preferred Capital Corp.,
Series A, 9.125%............................. $ 1,376,766
---------------------------------------------------------------------------------------
Telecommunications -- 0.0%
48 Dobson Communications,
13.000%, Payment-in-kind..................... 5,148
1,717 Viasystems, Inc., Series B...................... 30,914
---------------------------------------------------------------------------------------
36,062
---------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $1,624,902)............................. 1,412,828
=======================================================================================
COMMON STOCK - 0.1%
---------------------------------------------------------------------------------------
Telecommunications - Other -- 0.1%
12,250 Pagemart Nationwide Inc......................... 122,500
1 Tele1 Europe Holding AB ADR..................... 15
14,500 World Access Inc................................ 152,250
---------------------------------------------------------------------------------------
274,765
---------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $261,807)............................... 274,765
=======================================================================================
WARRANTS (D) - 0.4%
---------------------------------------------------------------------------------------
Broadcasting -- 0.1%
5,425 Australis Holdings, Expire 10/30/01............. 0
8,625 UIH Australia Inc., Expire 5/15/06 ............. 258,750
---------------------------------------------------------------------------------------
258,750
---------------------------------------------------------------------------------------
Cable Television -- 0.0%
3,375 Wireless One Inc., Expire 10/19/00.............. 34
---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 21
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Shares Security Value
=======================================================================================
<S> <C> <C>
Internet Services -- 0.2%
1,005 Cybernet Internet Services International,
Sr. Notes, Expire 7/1/09 (b)................. $ 25,125
4,050 Splitrock Services, Expire 7/15/08 ............. 739,228
8,700 WAM!Net Inc., Expire 3/1/05 (b)................. 101,138
---------------------------------------------------------------------------------------
865,491
---------------------------------------------------------------------------------------
Paper -- 0.0%
4,800 SD Warren Co., Expire 12/15/06 ................. 84,480
---------------------------------------------------------------------------------------
Telecommunications -- 0.1%
4,125 RSL Communications Ltd.,
Expire 11/15/06 (b).......................... 214,500
24,840 Weblink Wireless Inc., Expire 12/31/03 (b)...... 198,720
---------------------------------------------------------------------------------------
413,220
---------------------------------------------------------------------------------------
Telephone Cellular -- 0.0%
2,060 Airgate PCS Inc., Expire 10/1/09................ 128,750
4,125 Iridium World Communications Ltd.,
Expire 7/15/05 .............................. 41
---------------------------------------------------------------------------------------
128,791
---------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $898,935)............................... 1,750,766
=======================================================================================
</TABLE>
22 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Face
Amount Security Value
=======================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 5.0%
---------------------------------------------------------------------------------------
$19,864,000 Goldman, Sachs & Co., 6.330% due 6/1/00;
Proceeds at maturity -- $19,867,493;
(Fully collateralized by U.S. Treasury Notes
and Bonds, 3.625% to 12.375% due 8/15/00
to 4/15/28; Market value -- $21,509,326)
(Cost -- $19,864,000)................................ $ 19,864,000
========================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $431,568,305**)............................... $ 395,832,755
========================================================================================
</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.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(c) Security is issued with attached warrants and bonds.
(d) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
CAD -- Canadian Dollar
DEM -- German Mark
EUR -- Euro
GBP -- British Pound
See page 25 for definition of ratings.
See Notes to Financial Statements. 23
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SUMMARY OF BONDS BY COMBINED RATINGS
--------------------------------------------------------------------------------
May 31, 2000 (unaudited)
--------------------------------------------------------------------------------
% of
Total Corporate
Moody's and/or Standard & Poor's Bonds and Notes
================================================================================
Aa AA 0.2%
Ba BB 17.1
B B 74.7
Caa CCC 5.9
NR NR 2.1
-----
100.0%
=====
24
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard &Poor's") -- Ratings from "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,
C on CC and 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.
Aa -- Bonds rated "Aa" are judged to be high quality by all
standards. Together with the"Aaa" group they comprise
what are generally known as high grade bonds. They are
rated lower that the best bonds because margins of
protection may not be as large in "Aaa" securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
"Aaa" securities.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected
nor poorly secured. Interest payment and principal
security appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great length of
time. These bonds lack outstanding investment
characteristics and may have speculative characteristics
as well.
Ba -- Bonds rated "Ba" are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B -- Bonds rated "B" generally lack characteristics of
desirable investments. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may
be in default, or present elements of danger may exist
with respect to principal or interest.
NR -- Indicates that the bond is not rated by Standard &
Poor's or Moody's.
25
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
May 31, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $431,568,305) ................. $ 395,832,755
Foreign currency, at value (Cost -- $557,250) ................ 579,627
Cash ......................................................... 719
Receivable for securities sold ............................... 857,581
Dividends and interest receivable ............................ 9,482,955
Receivable for open forward foreign currency contracts (Note 5) 2,660,109
---------------------------------------------------------------------------------
Total Assets ................................................. 409,413,746
---------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased ............................. 2,573,364
Dividends payable ............................................ 855,926
Payable for open forward foreign currency contracts (Note 5) . 850,142
Management fees payable ...................................... 351,550
Administration fees payable .................................. 74,473
Accrued expenses ............................................. 83,871
---------------------------------------------------------------------------------
Total Liabilities ............................................ 4,789,326
---------------------------------------------------------------------------------
Total Net Assets ................................................ $ 404,624,420
=================================================================================
NET ASSETS:
Par value of capital shares .................................. $ 43,046
Capital paid in excess of par value .......................... 516,848,222
Overdistributed net investment income ........................ (114,931)
Accumulated net realized loss on security transactions ....... (78,210,610)
Net unrealized depreciation of investments and
foreign currencies ......................................... (33,941,307)
---------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $9.40 per share on 43,045,603
shares of $0.001 par value outstanding;
500,000,000 shares authorized) ............................... $ 404,624,420
=================================================================================
</TABLE>
26 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Three Months Ended May 31, 2000 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ................................................... $ 11,743,678
Dividends .................................................. 68,814
--------------------------------------------------------------------------------
Total Investment Income .................................... 11,812,492
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) ................................... 956,298
Administration fees (Note 2) ............................... 212,511
Shareholder communications ................................. 22,761
Audit and legal ............................................ 14,141
Shareholder and system servicing fees ...................... 12,124
Registration fees .......................................... 10,337
Directors' fees ............................................ 10,133
Custody .................................................... 7,209
Other ...................................................... 7,309
--------------------------------------------------------------------------------
Total Expenses ............................................. 1,252,823
--------------------------------------------------------------------------------
Net Investment Income ......................................... 10,559,669
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Loss From:
Security transactions (excluding short-term securities) .. (8,916,625)
Foreign currency transactions ............................ (392,066)
--------------------------------------------------------------------------------
Net Realized Loss .......................................... (9,308,691)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period ...................................... (15,969,770)
End of period ............................................ (33,941,307)
--------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation .................... (17,971,537)
--------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies ................ (27,280,228)
--------------------------------------------------------------------------------
Decrease in Net Assets from Operations ........................ $(16,720,559)
================================================================================
See Notes to Financial Statements. 27
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Three Months Ended May 31, 2000 (unaudited)
and the Year Ended February 29, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31 February 29
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income ............................ $ 10,559,669 $ 43,924,366
Net realized loss ................................ (9,308,691) (37,972,107)
(Increase) decrease in net unrealized depreciation (17,971,537) 4,694,224
--------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (16,720,559) 10,646,483
--------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (10,512,244) (43,409,984)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders .................. (10,512,244) (43,409,984)
--------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net asset value of shares issued for
reinvestment of dividends ...................... -- --
Treasury stock acquired .......................... (3,164,136) (6,846,551)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions ........................ (3,164,136) (6,846,551)
--------------------------------------------------------------------------------------
Decrease in Net Assets .............................. (30,396,939) (39,610,052)
NET ASSETS:
Beginning of period .............................. 435,021,359 474,631,411
--------------------------------------------------------------------------------------
End of period* ................................... $ 404,624,420 $ 435,021,359
======================================================================================
* Includes undistributed (overdistributed) net
investment income of: ............................. $ (114,931) $ 229,710
======================================================================================
</TABLE>
28 See Notes to Financial Statements.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Managed High Income Portfolio Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The following are significant accounting policies consistently followed by
the Fund: (a) security transactions are accounted for on trade date; (b)
securities are valued at the mean between the quoted bid and ask prices provided
by an independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) gains or losses on the
sale of securities are calculated by using the specific identification method;
(e) interest income, adjusted for accretion of original issue discount, is
recorded on an accrual basis; (f) dividend income is recorded by the Fund on the
ex-dividend date; foreign dividends are recorded on the ex-dividend date or as
soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (g) the accounting
records of the Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian; (h)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
February 29, 2000, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this adjustment; (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic
29
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ; and (k) certain prior year
numbers have been restated to reflect current year's presentation. Current net
investment income, net realized gains, and net assets were not affected by this
change.
In addition, the Fund may enter into forward exchange contracts in order
to hedge against foreign currency risk. These contracts are marked to market
daily by recognizing the difference between the contract exchange rate and the
current market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith
Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup
Inc., acts as investment adviser to the Fund. The Fund pays SSBC an advisory fee
calculated at an annual rate of 0.90% of the average daily net assets. This fee
is calculated daily and paid monthly.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
3. Investments
For the three months ended May 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities but excluding
short-term securities) were:
================================================================================
Purchases $ 61,892,947
--------------------------------------------------------------------------------
Sales 69,439,926
================================================================================
At May 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 6,433,305
Gross unrealized depreciation (42,168,855)
--------------------------------------------------------------------------------
Net unrealized depreciation $(35,735,550)
================================================================================
30
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. government
securities from banks subject to agreements to resell the securities to the
sellers at a future date (generally, the next business day) at an agreed-upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Forward Foreign Currency Contracts
At May 31, 2000, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain on the contracts reflected
in the accompanying financial statements were as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Sell:
British Pound 3,441,750 $ 5,146,366 6/22/00 $ 404,557
Canadian Dollar 1,575,000 1,051,828 6/8/00 20,695
Euro 1,719,990 1,596,754 6/15/00 202,485
Euro 775,000 719,472 6/15/00 67,099
Euro 1,225,000 1,137,229 6/15/00 130,523
Euro 16,834,163 15,628,003 6/15/00 1,544,520
Euro 4,130,250 3,834,320 6/15/00 290,230
Euro 625,000 580,219 6/15/00 (9,825)
--------------------------------------------------------------------------------
2,650,284
--------------------------------------------------------------------------------
To Buy:
Euro 1,135,750 1,054,374 6/15/00 (104,318)
Euro 475,875 441,779 6/15/00 (44,874)
Euro 1,262,500 1,172,042 6/15/00 (119,368)
Euro 573,330 532,251 6/15/00 (52,660)
Euro 1,146,660 1,064,502 6/15/00 (66,677)
Euro 775,000 719,472 6/15/00 (41,500)
Euro 1,131,250 1,050,196 6/15/00 (72,342)
Euro 1,065,000 988,693 6/15/00 (48,989)
Euro 1,050,000 974,768 6/15/00 (51,344)
Euro 1,052,500 977,098 6/15/00 (51,414)
Euro 1,594,538 1,480,290 6/15/00 (68,325)
Euro 1,022,625 949,354 6/15/00 (39,600)
Euro 1,045,000 970,126 6/15/00 (39,134)
Euro 522,500 485,063 6/15/00 (11,395)
Euro 2,063,875 1,915,999 6/15/00 (28,377)
--------------------------------------------------------------------------------
(840,317)
--------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Foreign Currency Contracts $1,809,967
================================================================================
31
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by marking to market on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At May 31, 2000, the Fund had no open futures contracts.
7. Options Contracts
Premiums paid when put or call options are purchased by the Fund,
represent investments, which are marked-to-market daily. When a purchased option
expires, the Fund will realize a loss in the amount of the premium paid. When
the Fund enters into closing sales transaction, the Fund will realize a gain or
loss depending on whether the sales proceeds from the closing sales transaction
are greater or less than the premium paid for the option. When the Fund
exercises a put option, it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When the Fund exercises a call option, the cost of the
security which the Fund purchases upon exercise will be increased by the premium
originally paid.
At May 31, 2000, the Fund had no open purchased call or put option
contracts.
When the Fund writes a covered call or put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received, without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
32
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
When a written call option is exercised, the proceeds of the security sold will
be increased by the premium originally received. When a written put option is
exercised, the amount of the premium received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Fund enters into options for hedging purposes. The risk in
writing a call option is that the Fund gives up the opportunity to participate
in any increase in the price of the underlying security beyond the exercise
price. The risk in writing a put option is that the Fund is exposed to the risk
of loss if the market price of the underlying security declines.
During the three months ended May 31, 2000, the Fund did not write any
covered call or put options.
8. Payment-in-Kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIK securities
pay interest through the issuance of additional securities. PIK securities carry
a risk in that, unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment dates unless a
portion of such securities are sold. If the issuer of a PIK security defaults,
the Fund may obtain no return at all on its investment.
9. Capital Loss Carryforward
At February 29, 2000, the Fund had, for Federal income tax purposes,
approximately $57,559,000 of loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on the last day in February of the year indicated:
2003 2004 2005 2007 2008
================================================================================
Carryforward Amounts $9,404,000 $18,115,000 $239,000 $2,616,000 $27,185,000
================================================================================
10. Capital Shares
On November 16, 1999, the Fund commenced a share repurchase plan. As of May 31,
2000, repurchased shares totaled 1,190,500 for a total cost of $3,164,136.
33
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended February 28,
except where noted:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000(1) 2000(2) 1999 1998 1997 1996(3)
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of Period $ 10.02 $ 10.73 $ 11.87 $ 11.59 $ 11.36 $ 10.88
---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.24 1.00 1.01 1.09 1.12 1.13
Net realized and
unrealized gain (loss) (0.63) (0.76) (1.12) 0.28 0.21 0.65
---------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.39) 0.24 (0.11) 1.37 1.33 1.78
---------------------------------------------------------------------------------------------------------------
Gain From Repurchase
of Treasury Stock 0.01 0.03 -- -- -- --
---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.98) (1.03) (1.09) (1.08) (1.27)
Net realized gains -- -- -- -- -- --
Capital -- -- -- -- (0.02) (0.03)
---------------------------------------------------------------------------------------------------------------
Total Distributions (0.24) (0.98) (1.03) (1.09) (1.10) (1.30)
---------------------------------------------------------------------------------------------------------------
Net asset value,
end of Period $ 9.40 $ 10.02 $ 10.73 $ 11.87 $ 11.59 $ 11.36
---------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(5) 6.13%++ (13.40)% (2.44)% 10.96% 15.37% 18.83%
---------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(5) (3.41)%++ 3.89% (0.72)% 12.43% 12.65% 17.80%
---------------------------------------------------------------------------------------------------------------
Net assets,
end of Period (millions) $ 405 $ 435 $ 475 $ 523 $ 494 $ 477
---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(4) 1.18%+ 1.15% 1.17% 1.18% 1.20% 1.24%
Net investment income 9.95+ 9.62 9.03 9.19 9.89 9.74
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 16% 80% 84% 94% 61% 73%
---------------------------------------------------------------------------------------------------------------
Market value, End of Period $ 8.375 $ 8.125 $ 10.438 $ 11.750 $ 11.625 $ 11.125
===============================================================================================================
</TABLE>
(1) For the three months ended May 31, 2000 (unaudited).
(2) For the year ended February 29, 2000.
(3) For the year ended February 29, 1996.
(4) The Investment Adviser has waived a portion of its fees for the year ended
February 29, 2000. If such fees were not waived, the per share decrease in
net investment income and actual expense ratio would have been $0.00* and
1.18%, respectively.
(5) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for year.
+ Annualized.
34
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Increase
Net Realized (Decrease)
and Unrealized in Net Assets
Investment Net Investment Loss From
Income Income on Investments Operations
----------------------------------------------------------------------------------------------------
Quarter Per Per Per Per
Ended Total Share Total Share Total Share Total Share
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 31,
1998 $12,823,273 $0.29 $11,293,219 $0.26 $(2,829,443) $(0.06) $8,463,776 $0.19
August 31,
1998 13,413,896 0.30 11,864,494 0.27 (36,436,763) (0.83) (24,572,269) (0.56)
November 30,
1998 12,226,853 0.28 10,852,489 0.25 (336,494) (0.01) 10,515,995 0.24
February 28,
1999 12,298,897 0.28 10,942,251 0.25 (10,362,335) (0.23) 579,916 0.01
May 31,
1999 12,214,442 0.28 10,822,682 0.25 (6,708,610) (0.15) 4,114,072 0.09
August 31,
1999 12,394,209 0.28 11,158,749 0.25 (16,122,251) (0.36) (4,963,502) (0.11)
November 30,
1999 12,460,713 0.28 11,152,594 0.25 (4,771,670) (0.11) 6,380,924 0.14
February 29,
2000 12,087,369 0.28 10,790,341 0.25 (5,675,352) (0.13) 5,114,989 0.12
May 31,
2000 11,812,492 0.27 10,559,669 0.24 (27,280,228) (0.63) (16,720,559) (0.39)
=====================================================================================================================
</TABLE>
35
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
--------------------------------------------------------------------------------
Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
================================================================================
March 31, 1998 $11.563 $11.90 $0.086 $11.62
April 30, 1998 11.375 11.84 0.086 11.51
May 31, 1998 11.438 11.81 0.086 11.53
June 30, 1998 11.625 11.74 0.086 11.55
July 31, 1998 11.438 11.76 0.086 11.50
August 31, 1998 9.750 10.99 0.086 10.58
September 30, 1998 11.000 10.83 0.086 10.73
October 31, 1998 10.688 10.42 0.086 10.34
November 30, 1998 10.750 10.97 0.086 10.79
December 31, 1998 10.250 10.85 0.084 10.34
January 29, 1999 10.250 10.94 0.084 10.26
February 28, 1999 10.438 10.73 0.084 10.40
March 31, 1999 10.438 10.77 0.084 10.34
April 30, 1999 10.313 10.88 0.084 10.35
May 31, 1999 10.188 10.57 0.084 10.35
June 30, 1999 10.188 10.41 0.084 10.23
July 31, 1999 9.813 10.36 0.081 9.66
August 31, 1999 9.250 10.21 0.081 9.28
September 30, 1999 8.875 10.10 0.081 8.77
October 31, 1999 8.688 10.01 0.081 8.87
November 30, 1999 8.313 10.12 0.081 8.31
December 31, 1999 8.125 10.13 0.081 8.11
January 31, 2000 8.625 10.05 0.081 8.61
February 29, 2000 8.125 10.02 0.081 8.18
March 31, 2000 8.250 9.74 0.081 8.21
April 30, 2000 8.188 9.65 0.081 8.18
May 31, 2000 8.375 9.40 0.081 8.49
================================================================================
36
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as agent under the Plan, unless the shareholder elects to
receive cash. Distributions with respect to shares registered in the name of a
broker-dealer or other nominee (that is, in "street name") will be reinvested by
the broker or nominee in additional shares under the Plan, unless the service is
not provided by the broker or nominee or the shareholder elects to receive
distributions in cash. Investors who own Common Stock registered in street name
should consult their broker-dealers for details regarding reinvestment. All
distributions to Fund shareholders who do not participate in the Plan will be
paid by check mailed directly to the record holder by or under the direction of
PFPC as dividend-paying agent.
If the Fund declares a dividend or capital gains distribution payable
either in shares of Common Stock or in cash, shareholders who are not Plan
participants will receive cash, and Plan participants will receive the
equivalent amount in shares of Common Stock. When the market price of the Common
Stock is equal to or exceeds the net asset value per share of the Common Stock
on the Valuation Date (as defined below), Plan participants will be issued
shares of Common Stock valued at the net asset value most recently determined
or, if net asset value is less than 95% of the then current market price of the
Common Stock, then at 95% of the market value. The Valuation Date is the
dividend or capital gains distribution payment date or, if that date is not a
New York Stock Exchange ("NYSE") trading day, the immediately preceding trading
day.
If the market price of the Common Stock is less than the net asset value
of the Common Stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, a broker-dealer not affiliated with Smith
Barney, as purchasing agent for Plan participants ("Purchasing Agent"), will buy
Common Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts (effective June 1, 1996, the Plan's Valuation Date changed from the
payable date to the record date). If, following the commencement of the
purchases and before the Purchasing Agent has completed its purchases, the
market price exceeds the net asset value of the Common Stock, the average per
share purchase price paid by the Purchasing Agent may exceed the net asset value
of the Common Stock, resulting in the acquisition of fewer shares than if the
dividend or capital gains distribution had been paid in Common Stock issued by
the Fund at net asset value. Additionally, if the market price exceeds the net
asset value of shares before the Purchasing Agent has completed its purchases,
the Purchasing Agent is permitted to cease purchasing shares and the Fund may
issue the remaining shares at a price equal to the greater of (a) net asset
value or (b) 95% of the then current market price. In a case where the
Purchasing Agent
37
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
has terminated open market purchases and the Fund has issued the remaining
shares, the number of shares received by the participant in respect of the cash
dividend or distribution will be based on the weighted average of prices paid
for shares purchased in the open market and the price at which the Fund issues
the remaining shares. PFPC will apply all cash received as a dividend or capital
gains distribution to purchase Common Stock on the open market as soon as
practicable after the payable date of the dividend or capital gains
distribution, but in no event later than 30 days after that date, except when
necessary to comply with applicable provisions of the federal securities laws.
PFPC will maintain all shareholder accounts in the Plan and will furnish
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by First Data on behalf of the Plan participant, and each shareholder's proxy
will include those shares purchased pursuant to the Plan.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. PFPC's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. No brokerage
charges apply with respect to shares of Common Stock issued directly by the Fund
as a result of dividends or capital gains distributions payable either in Common
Stock or in cash. Each Plan participant will, however, bear a proportionate
share of brokerage commissions incurred with respect to open market purchases
made in connection with the reinvestment of dividends or capital gains
distributions.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by PFPC, with the Fund's prior written consent, on at least 30 days'
written notice to Plan participants. All correspondence concerning the Plan
should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston
Massachusetts 02266-8030 or by telephone at (800) 331-1710.
-------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
38
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Managed
HIGH INCOME
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
PFPC Trust Company
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
39
--------------------------------------------------------------------------------
<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 7/00
