SENIOR HIGH
INCOME
PORTFOLIO, INC.
FUND LOGO
Semi-Annual Report
August 31, 1995
This report, including the financial information herein, is
transmitted to the shareholders of Senior High Income Portfolio,
Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock to provide Common Stock shareholders with a potentially
higher rate of return. Leverage creates risk for Common Stock
shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk
that fluctuations in short-term interest rates may reduce the Common
Stock's yield.
<PAGE>
Senior High Income
Portfolio, Inc.
Box 9011
Princeton, NJ
08543-9011
SENIOR HIGH INCOME PORTFOLIO, INC.
The Benefits and
Risks of
Leveraging
Senior High Income Portfolio, Inc. has the ability to utilize
leverage through borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging
is based on the premise that the cost of assets to be obtained from
leverage will be based on short-term interest rates, which normally
will be lower than the return earned by the fund on its longer-term
portfolio investments. Since the total assets of the fund (including
the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the fund's Common Stock shareholders are the
beneficiaries of the incremental yield. Should the differential
between the underlying interest rates narrow, the incremental yield
"pick up" will be reduced. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect the full
decline in the entire portfolio holdings resulting therefrom since
the assets obtained from leverage do not fluctuate.
<PAGE>
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility.
In addition, there is the risk that fluctuations in interest rates
on borrowings (or in the dividend rates on any Preferred Stock, if
the fund were to issue the preferred stock) may reduce the Common
Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage
exceeds the cost of leverage, the fund's net income will be greater
than if leverage had not been used. Conversely, if the income from
the securities purchased is not sufficient to cover the cost of
leverage, the fund's net income will be less than if leverage had
not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced. In this case, the fund
may nevertheless decide to maintain its leveraged position in order
to avoid capital losses on securities purchased with leverage.
However, the fund will not generally utilize leverage if it
anticipates that its leveraged capital structure would result in a
lower rate of return for its Common Stock than would be obtained if
the Common Stock were unleveraged for any significant amount of
time.
DEAR SHAREHOLDER
Senior High Income Portfolio, Inc. seeks to provide shareholders
with high current income by investing primarily in senior debt
obligations of companies, including portions of corporate loans made
by banks and other financial institutions and both privately placed
and publicly offered corporate bonds and notes. These securities by
and large are rated in the lower rating categories of the
established agencies or are unrated, as is commonly the case with
bank loans.
For the six-month period ended August 31, 1995, Senior High Income
Portfolio, Inc.'s total investment return was +6.69%, based on a
change in per share net asset value from $8.94 to $9.06, and
assuming reinvestment of $0.454 per share income dividends. During
the same period, the net annualized yield of the Portfolio's Common
Stock was 10.21%. Since inception (April 30, 1993) through August
31, 1995, the total investment return on the Portfolio's Common
Stock was +18.63%, based on a change in per share net asset value
from $9.50 to $9.06, and assuming reinvestment of $1.995 pershare
income dividends. At the end of the August period the Portfolio was
22.6% leveraged, having borrowed $67 million of its $120 million
line of credit available at an average borrowing cost of 5.28%. (For
a complete explanation of the benefits and risks of leveraging, see
page 1 of this report to shareholders.)
As of August 31, 1995, the Portfolio paid out a regular monthly
dividend at an annualized rate of 9.25% so that the Portfolio could
maintain a more stable level of distributions. Monthly dividends are
limited to the lesser of the targeted monthly dividend rate in
effect and the amount of previously undistributed net investment
income held by the Portfolio. For Federal income tax purposes, the
Portfolio is required to distribute substantially all of its net
investment income for each calendar year. All net realized long-term
and short-term capital gains, if any, will be distributed to the
Portfolio's shareholders annually. The targeted monthly dividend
rate has increased from 8.0% since September 1993.
<PAGE>
The Environment
The six months ended August 31, 1995 were characterized by an
interest-rate environment that proved a mixed blessing for the
Portfolio's investments. The steady rise in interest rates, which
ended with the Federal Reserve Board's monetary policy tightening in
February, had a positive effect on the floating rate portion of the
Portfolio while further eroding the values in the fixed-rate high-
yield market in line with intermediate-term and long-term US
Treasury securities. However, economic data released during the
second quarter of 1995 showed evidence of a slowing economy. Gross
domestic product growth for the first three months of 1995 was 2.7%,
the weakest showing in the prior 18 months. Other signs of a
sluggish economy included slowing growth in the manufacturing sector
in May and June as well as three consecutive months of declines in
the Index of Leading Economic Indicators, an occurrence that has
often, but not always, forecast recessions. Therefore, by the end of
the June quarter concerns had arisen that the economic soft landing
could turn into an actual recession. With the financial markets
trading for most of the second quarter on the assumption that
interest rates were heading down, the Federal Reserve Board finally
reduced the target Federal Funds rate by 25 basis points (0.25%) to
5.75% on July 6. This caused short-term interest rates, such as
London Interbank Offered Rate (LIBOR), to fall.
Portfolio Strategy
In light of the current market environment, we continue to weigh the
Portfolio just slightly toward senior secured floating-rate bank
loans. Currently, 93% of the Portfolio's investments in corporate
loans are currently accruing interest at a yield spread above LIBOR.
LIBOR has historically tracked very closely with other short-term
interest rates in the United States, particularly the Federal Funds
rate. Since the average reset on the Portfolio's floating-rate
investment is currently 51 days, the potential impact of any
sustained increase or decrease on the yield of the Portfolio's
floating-rate investments will not be fully realized for at least a
comparable time period following any rate change. At August 31,
1995, floating-rate securities made up 51.0% of the market value of
the Portfolio's investments, with an additional 47.1% invested in
fixed-rate high-yield bonds.
Liquidity in the loan market continued to be extremely strong
throughout the reporting period. Demand for bank loans was strong,
as banks competed for the fees and high spreads and agenting and
investing in leveraged credits. Loan funds continued to see
substantial inflows, enhancing already solid demand for funded term
loans. In the loan market, both new and secondary issues continued
to be well bid, providing strong liquidity at attractive prices.
With the continued strength in stock prices and the amount of equity
sponsor money presently being raised or sitting on the sidelines, it
is likely that more buyout activity will be seen in the remainder of
1995 and into 1996.
<PAGE>
The August period, and July in particular, were good for the capital
markets, including high-yield bonds. During July, the Federal
Reserve Board eased monetary policy, recession fears disappeared
because of stronger economic data releases, yield spreads tightened,
and the Standard & Poor's 500 stock index gained more than 3.2%,
boosted by another quarter of solid corporate earning results. Most
sectors reported earnings strength, with technology and banking
particularly strong.
High-yield bonds rallied along with Treasury securities to close out
the August period well above first-quarter levels. The Merrill Lynch
Master High Yield Index has posted consecutive positive weekly
returns thus far in 1995. With 14 consecutive weeks of inflows of at
least $100 million per week into high-yield mutual funds and the
absence of any real forward calendar until late in the August
period, secondary market prices were bid up during the six months
ending August 31, 1995. As more new issues were registered in May,
secondary activity stalled and the rallying Treasury market left the
high-yield bond market behind. The spread between the Merrill Lynch
High Yield Master Index and ten-year Treasury securities widened to
as much as 362 basis points by the end of August. Intramarket risk
premiums also widened, with the BB/B spread increasing because of
crossover buyers' interest in higher-quality issues and uncertainty
about the direction of the economy. This tiering occurred as high-
yield investors increasingly focused on credit quality. Defensive or
solidly capitalized BB-rated credits were often several times
oversubscribed at new issue and traded well in the secondary market.
Cyclical and less well-capitalized B-rated credits often offered
premium coupons, equity "kickers" and tighter covenants to attract
some of the more aggressive buyers to new issues.
There was some flight to less cyclical industries that are perceived
to have healthier and more stable cash flows in a downturn. As a
result, the cable, super-market and healthcare sectors all
experienced tightening of spreads. Carrying over a common theme from
1994, investors treated issuers reporting disappointing performance
harshly. This was particularly true of the retail segment where
disappointing numbers for companies such as Color Tile Inc. sent
their bonds down sharply.
We continue to focus on buying higher-yielding, improving-quality
cyclical credits. Fundamental support for these bonds should
continue to be strong as long as there are signs of moderate growth
and little inflation. Our investments in the building products com-
panies reflect this philosophy as well as our emphasis on the
retail, shipping, steel, chemicals and paper industries. These
strategies benefited the total return of the Portfolio for the
August period. We continue to focus on those issues with a maturity
of 10 years or fewer that generally have five-year call protection.
<PAGE>
At August 31, 1995, cash equivalents totaled 1.7% of total assets.
The Portfolio's average stated maturity was 6.7 years, but was
expected to have a much shorter real average life because of the
typically shorter average life of bank loans which are freely
prepayable without call protection. The Portfolio is diversified in
the floating-rate portion in 29 investments across 18 industries,
and in the fixed-rate portion with 63 investments across 33
industries. The largest industry concentrations are in paper (12.4%
of total assets), broadcast/media (8.1%), retail specialty (8.1%),
metals (6.6%), and aerospace (4.8%).
Stronger companies are taking advantage of attractive public debt
and equity markets to improve their balance sheets. These trends
translated into continued low default rates in both the bank loan
and bond markets, although default rates have been higher than in
1994. Therefore, our primary strategy for the Portfolio was and will
continue to be focusing on those companies that we believe are
undervalued by the market or are generating improved earnings
trends. The industry focus is on companies that have leading market
shares, strong management and good cash flows. This strategy is
reflected in our holdings of such cyclicals as Jefferson
Smurfit/Container Corp. of America, Stone Container Corp., Algoma
Steel, Inc., Bruno's Supermarkets, Continental Cablevision, Inc.,
and Host Marriott Corp. Instead of looking for yield in the bank
loan market, we will consider lower-coupon issues that could become
investment grade in a relatively short time frame and provide
liquidity in the interim. When neither attractive bank loan nor high-
yield bond investment opportunities are available, the excess cash
was and will continue to be used to reduce the Portfolio's leverage
facility.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
October 17, 1995
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations Cost (Note 1b)
<S> <S> <S> <C> <S> <C> <C>
Advertising--2.2% B+ B1 $ 5,000,000 Lamar Advertising Co., Senior Secured
Notes, 11% due 5/15/2003 $ 5,056,250 $ 5,050,000
Aerospace--6.2% Aviall, Inc., Term Loan, Tranche B, due
11/30/2000:*
NR++ NR++ 176,471 9.13% to 9/07/1995 176,471 176,471
NR++ NR++ 1,266,653 9.75% to 9/07/1995 1,266,653 1,266,653
NR++ NR++ 3,529,412 9.25% to 10/10/1995 3,529,412 3,529,412
NR++ NR++ 4,500,000 Gulfstream Delaware Corp., Term Loan,
due 3/31/1998, 9% to 9/08/1995* 4,500,000 4,500,000
B B2 2,000,000 Talley Manufacturing & Technology, Inc.,
Senior Discount Debentures, 10.75% due
10/15/2003 2,030,000 2,020,000
BB- B1 3,000,000 UNC, Inc., Senior Notes, 9.125% due
7/15/2003 3,000,000 2,868,750
------------ ------------
14,502,536 14,361,286
Agricultural B B3 2,000,000 Fresh Del Monte Produce N.V., Series A,
Products--0.7% Senior Notes, 10% due 5/01/2003 2,025,000 1,600,000
Airlines--1.9% NR++ NR++ 4,463,919 Northwest Airlines, Term Loan, due
6/15/1997, 9.125% to 10/20/1995* 4,463,919 4,463,919
Automotive Harvard Industries, Inc., Senior Notes:
Products--2.0% B B2 1,500,000 12% due 7/15/2004 1,500,000 1,578,750
B+ B3 1,000,000 11.125% due 8/01/2005*** 1,000,000 1,012,500
NR++ Ba3 2,000,000 Walbro Corp., Senior Notes, 9.875%
due 7/15/2005*** 1,996,520 1,990,000
------------ ------------
4,496,520 4,581,250
<PAGE>
Broadcast/ American Media, Term Loan B, due
Media--9.6% 9/30/2002:*
NR++ Ba2 25,000 10.25% to 9/30/1995 25,000 25,000
NR++ Ba2 4,950,000 8.44% to 11/22/1995 4,950,000 4,950,000
NR++ B2 1,500,000 Benedek Broadcasting, 11.875% due
3/01/2005*** 1,500,000 1,567,500
Continental Cablevision, Inc., Senior
Notes:
BB+ Ba2 2,500,000 8.625% due 8/15/2003 2,500,000 2,500,000
BB- B1 2,500,000 9.125% due 11/01/2004*** 2,500,000 2,500,000
NR++ B3 2,000,000 Granite Broadcasting Corp., 10.375%
due 5/15/2005*** 2,000,000 2,027,500
NR++ NR++ 2,500,000 Marcus Cable Co., Term Loan B, due
4/30/2004, 10.25% to 9/30/1995* 2,500,000 2,500,000
U.S. Radio Inc., Term Loan A, due
12/31/2001:*
NR++ NR++ 865,477 9.4375% to 9/29/1995 865,477 865,477
NR++ NR++ 822,203 8.875% to 10/30/1995 822,203 822,203
U.S. Radio Inc., Term Loan B, due
9/23/2003:*
NR++ NR++ 1,130,109 10.4375% to 9/29/1995 1,130,109 1,130,109
NR++ NR++ 1,138,937 9.875% to 10/30/1995 1,138,937 1,138,937
B B2 2,000,000 Young Broadcasting Corp., 10.125%
due 2/15/2005*** 2,000,000 2,080,000
------------ ------------
21,931,726 22,106,726
Building & B+ Ba3 2,250,000 US Homes Corp., Senior Notes, 9.75%
Construction due 6/15/2003 2,250,000 2,216,250
- --0.9%
Building BB- Ba3 1,000,000 Schuller International Group, 10.875%
Products--0.5% due 12/15/2004 1,000,000 1,097,500
Carbon & NR++ NR++ 2,436,892 UCAR International Inc., Term Loan B,
Graphite due 1/31/2003, 8.875% to 9/08/1995* 2,436,892 2,436,892
Products--2.2% NR++ NR++ 1,275,601 UCAR International Inc., Term Loan C,
due 7/31/2003, 9.375% to 9/08/1995* 1,275,601 1,275,601
NR++ NR++ 1,275,601 UCAR International Inc., Term Loan D,
due 2/02/2004, 10.0625% to 11/08/1995* 1,275,601 1,275,601
------------ ------------
4,988,094 4,988,094
<PAGE>
Casinos-- 5.0% B+ B2 4,500,000 GB Property Funding Corp., First
Mortgage Notes, 10.875% due 1/15/2004 4,500,000 3,915,000
Harrah's Jazz Co., Term Loan B, due
9/30/1999:*
NR++ NR++ 2,500,000 9.125% to 10/23/1995 2,500,000 2,500,000
NR++ NR++ 5,000,000 9.1875% to 12/21/1995 5,000,000 5,000,000
------------ ------------
12,000,000 11,415,000
Chemicals--2.8% BB+ Ba2 1,000,000 Borden Chemicals and Plastic, L.P.,
9.50% due 5/01/2005 1,000,000 1,005,000
BB- B1 1,000,000 Huntsman Chemical Corp., Senior
Notes, 11% due 4/15/2004 1,015,000 1,082,500
NR++ NR++ 4,311,326 Inspec Chemical Corp., Term Loan B,
due 12/02/2000, 8.50% to 9/29/1995* 4,311,326 4,311,326
------------ ------------
6,326,326 6,398,826
Computers--1.0% BB- Ba3 2,100,000 Dell Computer Corp., Senior Notes,
11% due 8/15/2000 2,118,375 2,304,750
Consumer NR++ NR++ 5,000,000 CHF/Ebel USA Inc., Term Loan B,
Products--3.3% due 9/30/2001, 9.1328% to 10/30/1995* 5,000,000 5,000,000
B+ Ba3 2,000,000 Coty Inc., 10.25% due 5/01/2005 2,000,000 2,060,000
B+ B2 1,000,000 Drypers Corp., Series B, Senior Notes,
12.50% due 11/01/2002 1,050,000 450,000
------------ ------------
8,050,000 7,510,000
Containers--1.7% B+ Ba3 4,000,000 Sweetheart Cup Co., Senior Secured
Notes, 9.625% due 9/01/2000 4,000,000 3,940,000
Diversified--4.7% B+ B1 3,000,000 Essex Group Inc., 10% due 5/01/2003 3,041,250 2,940,000
NR++ NR++ 2,119,370 Figgie International, Fixed Rate Loan,
due 1/01/1996, 10.75% to 9/30/1995* 2,119,370 2,119,370
B+ B2 1,000,000 J.B. Poindexter & Co., 12.50% due
5/15/2004 973,963 940,000
NR++ NR++ 4,813,625 Thermadyne Co., Term Loan B, due
2/01/2001, 8.875% to 9/07/1995* 4,813,625 4,813,625
------------ ------------
10,948,208 10,812,995
<PAGE>
Drug NR++ NR++ 4,047,107 Duane Reade Co., Term Loan A, due
Stores--4.6% 9/30/1997, 8.875% to 11/30/1995* 4,047,107 4,047,107
NR++ NR++ 1,500,000 Duane Reade Co., Term Loan B, due
9/30/1999, 9.375% to 11/30/1995* 1,500,000 1,500,000
BA3 Ba3 4,962,312 Thrifty Payless Inc., Term Loan B,
due 9/30/2001, 9.0625% to 9/22/1995* 4,962,312 4,962,312
------------ ------------
10,509,419 10,509,419
Educational B B3 5,000,000 La Petite Holdings Corp., Senior
Services--2.0% Secured Notes, 9.625% due 8/01/2001 5,000,000 4,550,000
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations Cost (Note 1b)
<S> <S> <S> <C> <S> <C> <C>
Electrical Berg Electronics Inc., Term Loan B,
Instruments due 3/31/2001:*
- --0.9% NR++ NR++ $ 8,333 8.94% to 9/29/1995 $ 8,333 $ 8,333
NR++ NR++ 1,966,667 8.94% to 11/27/1995 1,966,667 1,966,667
------------ ------------
1,975,000 1,975,000
Energy--1.1% BB- B1 2,500,000 Ferrellgas Partners, L.P., Series B,
Floating Rate Senior Notes, 9% due
8/01/200 12,489,039 2,493,750
Fertilizer--2.1% BB- B1 3,750,000 Sherritt Gordon Ltd., Senior Notes,
9.75% due 4/01/2003 3,762,500 3,787,500
BB- B1 1,000,000 Sherritt, Inc., USD Debentures, 10.50%
due 3/31/2014 1,000,000 1,015,000
------------ ------------
4,762,500 4,802,500
Food & NR++ NR++ 4,000,000 G. Heileman Brewing Co., Term Loan B,
Beverage--5.9% due 12/31/2000, 9.6875% to 10/13/1995* 4,000,000 4,000,000
B+ B1 5,000,000 Royal Crown Corp., Senior Secured Notes,
9.75% due 8/01/2000 5,000,000 4,650,000
Specialty Foods Corp., Term Loan B,
due 4/30/2001:*
NR++ NR++ 1,666,667 8.1875% to 9/21/1995 1,666,667 1,666,667
NR++ NR++ 1,666,667 8.125% to 10/20/1995 1,666,667 1,666,667
NR++ NR++ 1,666,667 8.0625% to 1/22/1996 1,666,667 1,666,667
------------ ------------
14,000,001 13,650,001
<PAGE>
Forest BB- Ba3 1,000,000 Mallette Inc., Senior Secured Notes,
Products--2.3% 12.25% due 7/15/2004 1,000,000 1,110,000
BB- Ba3 2,000,000 Rainy River Forest Products, 10.75%
due 10/15/2001 1,995,574 2,140,000
BB B1 2,000,000 Tembec Finance Corp., 9.875% due
9/30/2005 2,000,000 2,000,000
------------ ------------
4,995,574 5,250,000
Grocery--6.0% B- B3 4,000,000 Bruno's Supermarkets, 10.50% due
8/01/2005 4,000,000 3,890,000
B+ NR++ 1,979,000 Homeland Stores, Inc., Series D,
Floating Rate Senior Secured Notes,
9.062% due 2/28/1997 (1) 1,979,000 1,959,210
NR++ Ba3 4,151,701 Pathmark Stores, Inc., Term Loan B,
due 10/31/1999, 8.9375% to 11/30/1995* 4,151,701 4,151,701
BB- Ba3 1,000,000 The Penn Traffic Company, Senior Notes,
8.625% due 12/15/2003 1,000,000 855,000
B- B2 2,000,000 Pueblo Xtra International, Inc.,
Senior Notes, 9.50% due 8/01/2003 2,000,000 1,860,000
B+ B3 1,000,000 Stater Brothers Holdings, Inc., Senior
Notes, 11% due 3/01/2001 1,000,000 985,000
------------ ------------
14,130,701 13,700,911
Health B B2 2,500,000 Charter Medical Corp., Senior Sub-
Services--3.7% ordinated Notes, 11.25% due 4/15/2004 2,500,000 2,681,250
B B2 1,000,000 Integrated Health Services, Inc., Senior
Subordinated Notes, 10.75% due 7/15/2004 1,000,000 1,065,000
B B1 5,200,000 MEDIQ/PRN Life Support Services, Inc.,
Senior Secured Notes, 11.125% due
7/01/1999 5,409,000 4,836,000
------------ ------------
8,909,000 8,582,250
Hotels--0.8% NR++ NR++ 2,000,000 Four Seasons Hotels Inc., Notes, 9.125%
due 7/01/2000*** 1,934,018 1,940,000
Leasing & Rental B- B2 2,000,000 Cort Furniture Rental Corp., Senior
Services--3.9% Notes, 12% due 9/01/2000 1,999,397 1,950,000
Prime Acquisition, Term Loan, due
12/31/2000:*
NR++ NR++ 1,600,000 9.0625% to 9/05/1995 1,600,000 1,600,000
NR++ NR++ 1,780,000 9.0313% to 10/03/1995 1,780,000 1,780,000
NR++ NR++ 1,600,000 8.875% to 11/06/1995 1,600,000 1,600,000
BB- B1 2,000,000 The Scotsman Group, Inc., Senior
Secured Notes, 9.50% due 12/15/2000 2,000,000 1,965,000
------------ ------------
8,979,397 8,895,000
<PAGE>
Leisure & B- B3 1,500,000 Alliance Entertainment Corp.,
Entertain- 11.25% due 7/15/2005*** 1,500,000 1,492,500
ment--0.6%
Manufacturing B- B3 1,000,000 Crain Industries Inc., 13.50% due
- --2.0% 8/15/2005*** 1,000,000 1,005,000
B+ B1 3,623,000 Foamex L.P., Senior Secured Notes,
9.50% due 6/01/2000 3,643,000 3,532,425
------------ ------------
4,643,000 4,537,425
Marking B+ B2 1,000,000 Monarch Acquisition Corp., 12.50% due
Devices--0.4% 7/01/2003*** 1,000,000 1,015,000
Metals--8.3% B B1 1,000,000 Algoma Steel, Inc.,12.375% due 7/15/2005 902,167 920,000
B B2 3,000,000 Bayou Steel Corp., First Mortgage Notes,
10.25% due 3/01/2001 3,000,000 2,835,000
B B1 1,000,000 Gulf States Steel Corp., 13.50% due
4/15/2003*** 989,286 970,000
NR++ NR++ 2,000,000 Renco Metals, Inc., 12% due 7/15/2000 1,971,999 2,100,000
B+ B2 2,000,000 Republic Engineered Steel, Inc., First
Mortgage Notes, 9.875% due 12/15/2001 2,000,000 1,860,000
B- B3 5,000,000 Russell Metals, 10.25% due 6/15/2000 5,011,250 4,637,500
B+ B1 3,000,000 WCI Steel Inc., Senior Notes, 10.50%
due 3/01/2002 3,000,000 2,940,000
B B2 3,000,000 Weirton Steel Corp., Senior Notes,
10.75% due 6/01/2005*** 2,955,558 2,760,000
------------ ------------
19,830,260 19,022,500
Musical NR++ B3 1,000,000 Selmer Co. Inc., 11% due 5/15/2005*** 1,000,000 960,000
Instruments
- --0.4%
<PAGE>
Paper--16.3% Fort Howard Corp., Term Loan B, due
12/31/2002:*
NR++ Ba3 5,000,000 9% to 9/19/1995 5,000,000 5,000,000
NR++ Ba3 5,000,000 8.88% to 12/19/1995 5,000,000 5,000,000
B B3 1,000,000 Gaylord Container Corp., Senior Notes,
11.50% due 5/15/2001 1,000,000 1,052,500
Jefferson Smurfit/Container Corp. of
America, Term Loan B, due 4/30/2002:*
NR++ B1 375,000 9.4375% to 9/25/1995 375,000 375,000
NR++ B1 1,633,333 8.9375% to 10/20/1995 1,633,333 1,633,333
6,833,333 9.375% to 10/24/1995 6,833,333 6,833,333
Repap New Brunswick Inc.:
BB- Ba3 2,000,000 9.50% due 7/15/2000 2,027,500 1,995,000
BB- Ba3 1,000,000 9.875% due 7/15/2000 1,000,000 1,000,000
NR++ Ba2 7,500,000 S.D. Warren Co., Term Loan B, due
12/19/2002, 8.94% to 9/25/1995* 7,500,000 7,500,000
Stone Container Corp., Canadian Tender
Loan, due 4/01/2000:*
NR++ Ba3 3,450,000 9% to 9/18/1995 3,450,000 3,450,000
NR++ Ba3 3,712,500 9% to 10/16/1995 3,712,500 3,712,500
------------ ------------
37,531,666 37,551,666
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Debt Obligations Cost (Note 1b)
<S> <S> <S> <C> <S> <C> <C>
Printing & NR++ NR++ $2,496,728 Ziff Davis Acquisition Corp., Term
Publishing--2.1% Loan B, due 12/31/2001, 9.4375% to
9/28/1995* $ 2,496,728 $ 2,496,728
NR++ NR++ 2,351,725 Ziff Davis Acquisition Corp., Term
Loan C, due 12/31/2002, 9.9375% to
9/28/1995* 2,351,725 2,351,725
------------ ------------
4,848,453 4,848,453
<PAGE>
Restaurant--1.7% BB- B1 4,000,000 Host Marriott Corp., 9.50% due
5/15/2005*** 3,895,573 3,830,000
Retail-- CCC+ B2 2,500,000 Color Tile Inc., Senior Notes, 10.75%
Specialty--9.9% due 12/15/2001 2,500,000 1,000,000
Federated Department Stores, Inc.,
Term Loan, due 3/31/2000:*
NR++ Ba1 3,125,000 7.4375% to 9/25/1995 3,125,000 3,125,000
NR++ Ba1 1,875,000 7% to 9/29/1995 1,875,000 1,875,000
Music Acquisition Corp., Term Loan B,
due 2/28/2001:*
NR++ NR++ 1,812,500 8.875% to 9/18/1995 1,812,500 1,812,500
NR++ NR++ 3,062,500 8.9375% to 9/21/1995 3,062,500 3,062,500
NR++ NR++ 9,912,700 Saks & Co., Term Loan, Tranche B, due
6/30/2000, 9.25% to 11/09/1995* 9,912,700 9,912,700
B+ B1 2,000,000 Specialty Retailers, Inc., Series A,
Senior Notes, 10% due 8/15/2000 2,000,000 1,930,000
------------ ------------
24,287,700 22,717,700
Security NR++ NR++ 4,194,740 Alert Centre Inc., Term Loan, due
Systems--1.8% 8/01/2001, 8.875% to 9/05/1995* 4,194,740 4,194,740
Shipping--1.0% BB- Ba2 1,000,000 Eletson Holdings, Inc., 9.25% due
11/15/2003 915,978 960,000
B- B3 1,500,000 OMI Corp., Senior Notes, 10.25% due
11/01/2003 1,500,000 1,275,000
------------ ------------
2,415,978 2,235,000
Utilities--2.5% B+ B1 2,000,000 Beaver Valley Funding, 8.625% due
6/01/2007 1,698,283 1,751,080
BB Ba2 2,000,000 Cleveland Electric Illuminating,
Inc., 9.50% due 5/15/2005 1,996,229 2,002,800
B Ba3 2,000,000 Public Service Company of New Mexico,
10.30% due 1/15/2014 2,020,000 2,059,500
------------ ------------
5,714,512 5,813,380
Warehousing & D Caa 2,000,000 Americold Corp., First Mortgage Bonds,
Storage--2.8% Series B, 11.50% due 3/01/2005 2,045,000 1,940,000
NR++ NR++ 4,581,250 Pierce Leahy Corp., Term Loan, Tranche
A, due 6/30/2001, 9.125% to 9/29/1995* 4,581,250 4,581,250
------------ ------------
6,626,250 6,521,250
<PAGE>
Total Corporate Debt
Obligations--127.8% 299,329,735 293,935,041
Shares
Held Warrants
Leasing & Rental NR++ NR++ 66,000 Cort Furniture Rental Corp. (a) 760 82,500
Services--0.0%
Metals--0.0% NR++ NR++ 1,000 Gulf States Steel Corp. (a) 11,000 1,500
Total Warrants--0.0% 11,760 84,000
Face
Amount Short-Term Securities
Commercial $ 178,000 General Electric Capital Corp.,
Paper**--0.1% 5.82% due 9/01/1995 178,000 178,000
Total Short-Term Securities--0.1% 178,000 178,000
Total Investments--127.9% $299,519,495 294,197,041
============
Liabilities in Excess of Other
Assets--(27.9%) (64,183,003)
------------
Net Assets--100.0% $230,014,038
============
<FN>
(1)Interest rate resets quarterly and is based on the three month
LIBOR (London Interbank Offered Rate), plus an interest rate spread
of three hundred basis points.
(a)Warrants entitle the fund to purchase a predetermined number of
shares of common stock/face amount of bonds. The purchase price and
number of shares/face amount are subject to adjustments under
certain conditions until the expiration date.
++Not Rated.
*Floating or Variable Rate Corporate Loans--The interest rates on
floating or variable rate corporate loans are subject to change
periodically based on the change in the prime rate of a US Bank,
LIBOR (London Interbank Offered Rate), or, in some cases, another
base lending rate. The interest rates shown are those in effect at
August 31, 1994.
**Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the fund.
***Restricted securities as to resale. The value of the fund's
investment in restricted securities was $25,150,000, representing
10.93% of net assets.
<PAGE>
<CAPTION>
Acquisition Value
Issue Dates Cost (Note 1b)
Alliance Entertainment Corp.,
11.25% due 7/15/2005 7/25/1995 $ 1,500,000 $ 1,492,500
Benedek Broadcasting,
11.875% due 3/01/2005 3/03/1995 1,500,000 1,567,500
Continental Cablevision, Inc.,
Senior Notes, 9.125% due
11/01/2004 7/20/1995 2,500,000 2,500,000
Crain Industries Inc.,
13.50% due 8/15/2005 8/29/1995 1,000,000 1,005,000
Four Seasons Hotels Inc., Notes,
9.125% due 7/01/2000 1/25/1994 1,934,018 1,940,000
Granite Broadcasting Corp.,
10.375% due 5/15/2005 5/12/1995 2,000,000 2,027,500
Gulf States Steel Corp.,
13.50% due 4/15/2003 8/08/1995 989,286 970,000
Harvard Industries, Inc., Senior
Notes, 11.125% due 8/01/2005 7/28/1995 1,000,000 1,012,500
Host Marriott Corp., 5/18/1995 to
9.50% due 5/15/2005 7/31/1995 3,895,573 3,830,000
Monarch Acquisition Corp.,
12.50% due 7/01/2003 6/23/1995 1,000,000 1,015,000
Selmer Co. Inc., 11% due
5/15/2005 5/25/1995 1,000,000 960,000
Weirton Steel Corp., Senior Notes,
10.75% due 6/01/2005 6/05/1995 2,955,558 2,760,000
Walbro Corp., Senior Notes, 7/27/1995 to
9.875% due 7/15/2005 8/08/1995 1,996,520 1,990,000
Young Broadcasting Corp.,
10.125% due 2/15/2005 6/07/1995 2,000,000 2,080,000
Total $25,270,955 $25,150,000
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of August 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$299,519,495) (Note 1b) $294,197,041
Cash 308,236
Receivables:
Interest $ 4,889,035
Securities sold 1,039,632 5,928,667
------------
Deferred facility expenses (Note 6) 43,829
Deferred organization expenses (Note 1f) 69,749
Prepaid expenses and other assets 1,142
------------
Total assets 300,548,664
------------
Liabilities: Payables:
Loans (Note 6) 67,000,000
Dividends to shareholders (Note 1g) 666,472
Interest on loans (Note 6) 318,544
Investment adviser (Note 2) 121,906
Commitment fees 18,910 68,125,832
------------
Deferred income (Note 1e) 2,293,186
Accrued expenses and other liabilities 115,608
Total liabilities 70,534,626
------------
Net Assets: Net assets $230,014,038
============
Capital: Common Stock, par value $.10 per share; 200,000,000 shares
authorized (25,388,292 shares issued and outstanding) $ 2,538,829
Paid-in capital in excess of par 238,288,358
Undistributed investment income--net 4,711,731
Accumulated realized capital losses on investments--net (Note 7) (10,202,426)
Unrealized depreciation on investments--net (5,322,454)
------------
Total capital--Equivalent to $9.06 net asset value per share of
Common Stock (market price--$9.00) $230,014,038
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended August 31, 1995
<S> <S> <C>
Investment Income Interest and discount earned $ 15,412,894
(Note 1e): Facility and other fees 443,347
------------
Total income 15,856,241
------------
Expenses: Loan interest expense fees (Note 6) 2,449,893
Investment advisory fees (Note 2) 753,069
Professional fees 53,399
Accounting services (Note 2) 50,796
Borrowing costs (Note 6) 48,452
Facility fee amortization (Note 6) 43,101
Transfer agent fees (Note 2) 35,688
Printing and shareholder reports 33,690
Amortization of organization expenses (Note 1f) 18,997
Custodian fees 16,716
Directors' fees and expenses 13,241
Pricing services 3,660
Listing fees 136
Other 18,562
------------
Total expenses 3,539,400
------------
Investment income--net 12,316,841
------------
Realized & Realized loss on investments--net (1,408,602)
Unrealized Gain Change in unrealized depreciation on investments--net 3,627,410
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 14,535,649
- --Net (Notes ============
1c, 1e & 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
August 31, February 28,
Increase (Decrease) in Net Assets: 1995 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 12,316,841 $ 22,904,509
Realized loss on investments--net (1,408,602) (8,793,344)
Change in unrealized appreciation(depreciation) on
investments--net 3,627,410 (13,013,937)
------------ ------------
Net increase in net assets resulting from operations 14,535,649 1,097,228
------------ ------------
Dividends & Investment income--net (11,528,645) (21,343,397)
Distributions to Realized gain on investments--net -- (1,784,188)
Shareholders ------------ ------------
(Note 1g):
Net decrease in net assets resulting from dividends and
distributions to shareholders (11,528,645) (23,127,585)
------------ ------------
Capital Share Offering costs resulting from the issuance of Common Stock -- (85,747)
Transactions Value of shares issued to Common Stock shareholders in
(Note 4): reinvestment of dividends and distributions -- 781,304
------------ ------------
Net increase in net assets resulting from capital share
transactions -- 695,557
------------ ------------
Net Assets: Total increase (decrease) in net assets 3,007,004 (21,334,800)
Beginning of period 227,007,034 248,341,834
------------ ------------
End of period* $230,014,038 $227,007,034
============ ============
<FN>
*Undistributed investment income--net $ 4,711,731 $ 3,923,535
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
For the Six Months Ended August 31, 1995
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 14,535,649
Operating Adjustments to reconcile net increase in net assets resulting
Activities: from operations to net cash
provided by operating activities:
Decrease in receivables 447,796
Increase in other assets (1,042)
Decrease in other liabilities (138,530)
Realized and unrealized loss on investments--net (2,218,808)
Amortization of premium and discount (638,588)
------------
Net cash provided by operating activities 11,986,477
------------
Cash Provided by Proceeds from sales of long-term investments 99,530,806
Investing Purchases of long-term investments (88,993,018)
Activities: Purchases of short-term investments (114,374,230)
Proceeds from sales and maturities of short-term investments 118,304,000
------------
Net cash provided by investing activities 14,467,558
------------
Cash Used for Short-term borrowings (15,000,000)
Financing Dividends paid to shareholders (11,569,681)
Activities: ------------
Net cash used for financing activities (26,569,681)
------------
Cash: Net increase in cash (115,646)
Cash at beginning of period 423,882
------------
Cash at end of period $ 308,236
============
Cash Flow Cash paid for interest $ 2,566,471
Information: ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been
derived from information provided in the financial For the Six For the For the Period
statements. Months Ended Year Ended April 30, 1993++
August 31, Feb. 28, to Feb. 28,
Increase (Decrease) in Net Asset Value: 1995++++ 1995++++ 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.94 $ 9.82 $ 9.50
Operating ------------ ------------ ------------
Performance: Investment income--net .49 .90 .70
Realized and unrealized gain (loss) on invest-
ments--net .08 (.87) .25
------------ ------------ ------------
Total from investment operations .57 .03 .95
------------ ------------ ------------
Less dividends and distributions from:
Investment income--net (.45) (.84) (.61)
Realized gain on investments--net -- (.07) (.02)
------------ ------------ ------------
Total dividends and distributions (.45) (.91) (.63)
------------ ------------ ------------
Net asset value, end of period $ 9.06 $ 8.94 $ 9.82
============ ============ ============
Market price per share, end of period $ 9.00 $ 8.625 $ 9.375
============ ============ ============
Total Investment Based on net asset value per share 6.69%+++ .82% 10.28%+++
Return:** ============ ============ ============
Based on market price per share 9.85%+++ 1.87% .02%+++
============ ============ ============
Ratios to Average Expenses, net of reimbursement and excluding
Net Assets: interest expense .94%* .80% .67%*
============ ============ ============
Expenses, net of reimbursement 3.05%* 2.46% 1.61%*
============ ============ ============
Expenses 3.05%* 2.46% 1.75%*
============ ============ ============
Investment income--net 10.61%* 7.07% 7.33%*
============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 230,014 $ 227,007 $ 248,342
Data: ============ ============ ============
Portfolio turnover 29.99% 44.81% 52.73%
============ ============ ============
<PAGE>V
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, result in
substantially different returns. Total investment returns exclude
the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Senior High Income Portfolio, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
represented. All such adjustments are of a normal recurring nature.
The Fund determines and makes available for publication the net
asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol ARK.
(a) Corporate debt obligations--The Fund invests principally in
senior debt obligations ("Senior Debt") of companies, including
corporate loans made by banks and other financial institutions and
both privately and publicly offered corporate bonds and notes.
Because agents and intermediaries are primarily commercial banks,
the Fund's investment in corporate loans could be considered
concentrated in financial institutions.
<PAGE>
(b) Valuation of investments--Portfolio securities are valued on the
basis of prices furnished by one or more pricing services, which
determine prices for normal, institutional-size trading units. In
certain circumstances, portfolio securities are valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The
value of interest rate swaps, caps, and floors is determined in
accordance with a formula and then confirmed periodically by
obtaining a bank quotation. Positions in options are valued at the
last sale price on the market where any such option is principally
traded. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair value as
determined in good faith by or on behalf of the Board of Directors
of the Fund. Since corporate loans are purchased and sold primarily
at par value, the Fund values the loans at par, unless Fund Asset
Management, L.P. ("FAM") determines par does not represent fair
value. In the event such a determination is made, fair value will be
determined in accordance with guidelines approved by the Fund's
Board of Directors. Obligations with remaining maturities of sixty
days or less are valued at amortized cost unless this method no
longer produces fair valuations.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
<PAGE>
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction is less than or exceeds the premiums paid or
received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (concluded)
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below), a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Facility fees are accreted
to income over the term of the related loan.
(f) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
<PAGE>
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. The Fund may at times pay out
less than the entire amount of net investment income earned in any
particular period and may at times pay out such accumulated
undistributed income in other periods to permit the Fund to maintain
a more stable level of distributions.
2. Investment Advisory Agreement with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets plus the proceeds of any
outstanding borrowings used for leverage.
Accounting services are provided to the Fund by FAM at cost.
During the six months ended August 31, 1995, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), $719 for security price
quotations to compute the net asset value of the Fund.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended August 31, 1995 were $88,993,018 and
$100,570,438, respectively.
Net realized and unrealized losses as of August 31, 1995 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,408,602) $(5,322,454)
----------- -----------
Total $(1,408,602) $(5,322,454)
=========== ===========
<PAGE>
As of August 31, 1995, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $5,322,454, of
which $1,676,959 related to appreciated securities and $6,999,413
related to depreciated securities. The aggregate cost of investments
at August 31, 1995 for Federal income tax purposes was $299,519,495.
4. Capital Share Transaction:
The Fund is authorized to issue 200,000,000 shares of capital stock
par value $.10, all of which are initially classified as Common
Stock. The Board of Directors is authorized, however, to classify
and reclassify any unissued shares of capital stock without approval
of the holders of Common Stock.
For the six months ended August 31, 1995, shares issued and
outstanding remained constant at 25,388,292. At August 31, 1995,
total paid-in capital amounted to $240,827,187.
5. Unfunded Loan Interests:
As of August 31, 1995, the Fund had unfunded loan commitments of
$2,500,000, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Marcus Cable Co. $2,500
6. Short-Term Borrowings:
On June 16, 1993, the Fund entered into a credit facility with a
syndicate of banks led by The Bank of New York consisting of a one-
year $55,000,000 revolving credit facility bearing interest on
outstanding balances at an alternate base rate plus 0.25% and/or
LIBOR plus 1.25%, and of a two-year $25,000,000 term loan facility
bearing interest on outstanding balances at an alternate base rate
plus 0.50% and/or LIBOR plus 1.375%. On June 10, 1994, this credit
facility and all outstanding balances thereunder were refinanced by
a one-year $120,000,000 revolving credit facility extended by a
syndicate of banks led by The Bank of New York and bearing interest
on outstanding balances at the Federal Funds rate plus 1.125% and/or
an alternate base rate plus 0.125% and/or LIBOR plus 1.125%. On June
9, 1995, the existing credit facility was extended for an additional
year and amended to reduce applicable interest rates on outstanding
balances to Federal Funds rate plus 0.75% and/or alternate base rate
plus 0% and/or LIBOR plus 0.75%. For the six months ended August 31,
1995, the maximum amount borrowed was $86,000,000, the average
amount borrowed was approximately $69,200,000, and the daily
weighted average interest rate was 6.89%. For the year ended August
31, 1995, facility and commitment fees aggregated approximately
$91,553.
<PAGE>
7. Capital Loss Carryforward:
At February 28, 1995, the Fund had a net capital loss carryforward
of approximately $5,318,000, all of which expires in 2003. This
amount will be available to offset like amounts of any future
taxable gains.
PER SHARE INFORMATION
<TABLE>
Per Share
Selected Quarterly
Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized
Investment Gains Gains Net Investment Capital
For the Quarter Income (Losses) (Losses) Income Gains
<S> <C> <C> <C> <C> <C>
September 1, 1993 to November 30, 1993 $.22 $ .04 $ .06 $.20 --
December 1, 1993 to February 28, 1994 .24 .04 .06 .24 $.02
March 1, 1994 to May 31, 1994 .22 (.03) (.49) .20 --
June 1, 1994 to August 31, 1994 .23 (.14) (.05) .21 --
September 1, 1994 to November 30, 1994 .22 (.09) (.17) .21 --
December 1, 1994 to February 28, 1995 .23 (.09) .19 .22 .07
March 1, 1995 to May 31, 1995 .24 (.02) .20 .22 --
June 1, 1995 to August 31, 1995 .25 (.04) (.06) .23 --
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
September 1, 1993 to November 30, 1993 $9.77 $9.54 $10.125 $9.375 1,881
December 1, 1993 to February 28, 1994 9.89 9.70 9.875 9.125 1,990
March 1, 1994 to May 31, 1994 9.80 9.28 9.625 8.75 2,557
June 1, 1994 to August 31, 1994 9.40 9.13 9.29 8.25 3,034
September 1, 1994 to November 30, 1994 9.17 8.90 9.125 7.75 3,252
December 1, 1994 to February 28, 1995 8.94 8.74 8.875 8.375 2,284
March 1, 1995 to May 31, 1995 9.16 8.95 8.875 8.125 3,147
June 1, 1995 to August 31, 1995 9.17 9.04 9.125 8.50 3,279
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
John W. Fraser, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, New York 10286
NYSE Symbol
ARK
