SENIOR HIGH
INCOME
PORTFOLIO, INC.
FUND LOGO
Semi-Annual Report
August 31, 1998
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. Statements and other information herein are as dated
and are subject to change.
Senior High Income
Portfolio, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Senior High Income Portfolio, Inc.
DEAR SHAREHOLDER
During the first six months of 1998, Senior High Income Portfolio,
Inc. operated in a very strong environment for high-yield debt.
However, during this period, we continued to increase the
Portfolio's exposure to bank loans, since floating rate bank loans
offered more attractive opportunities than high-yield bonds from a
risk/reward standpoint. As long-term US interest rates moved lower,
leveraged senior secured floating rate bank loans, which are
typically set at a spread above the London Interbank Offered Rate
(LIBOR), have been priced in the new-issue market at yields that
were often equivalent to the unsecured subordinated bonds of the
same issuer.
In early summer, the high-yield market was pressured by disruptions
in the equity and emerging markets, which resulted in a marked
decrease in liquidity and, in turn, a decrease in prices in all
three markets. Additionally, this scenario negatively impacted the
leveraged bank loan market as well. There has been downward pressure
on the bid side of the dealer market primarily as a result of many
hedge fund managers and crossover mutual fund investors selling
their loan positions to provide needed liquidity. While the credit
environment has not changed, the problems of other fixed-income and
equity markets have negatively impacted the loan market.
By August 31, 1998, more than 96% of the Portfolio's investments in
corporate loans were accruing interest at a yield spread above
LIBOR, the rate that major international banks charge each other for
US dollar-denominated deposits outside of the United States. LIBOR
has tracked very closely with other short-term rates in the United
States, particularly the Federal Funds rate. Since the average reset
on the Portfolio's floating rate investments is 42 days, the yield
on the bank loan portion of the Portfolio is likely to move within a
two-month period after any Federal Funds rate change. This should be
offset by the increasing spreads over LIBOR that we are seeing on
new loans coming to market. At August 31, 1998, floating rate
securities made up 53.75% of the market value of the Portfolio's
investments, with the remaining 46.25% invested in high-yield fixed
rate bonds. Given the current high-yield and interest rate
environments, we anticipate maintaining a minimum 40% weighting in
floating rate loans. Approximately $42.0 million remained available
under the Portfolio's leverage facility at the close of the period.
Fund Performance
For the six months ended August 31, 1998, the Portfolio's total
investment return was -1.47%, based on a change in per share net
asset value from $9.37 to $8.79, and assuming reinvestment of $0.451
per share income dividends. For the same six-month period, the net
annualized yield of the Portfolio's Common Stock was 10.20%. Since
inception (April 30, 1993) through August 31, 1998, the total
investment return on the Portfolio's Common Stock was +55.08%, based
on a change in per share net asset value from $9.50 to $8.79, and
assuming reinvestment of $4.747 per share income dividends. At the
end of the August period, the Portfolio was 30% leveraged as a
percentage of total assets. (For a complete explanation of the
benefits and risks of leverage, see page 4 of this report to
shareholders.)
Market Update
As we stated, prior to July, both the leveraged loan and high-yield
markets continued to be strong. Demand for bank loans was robust as
banks and other institutional investors competed for the fees and
high spreads available in this sector. This demand continued the
trend in growing liquidity and the run up in prices for leveraged
bank loans that we have seen since the beginning of 1998. Leveraged
loan new-issue volume for the first half of 1998 increased to $140.1
billion, which is a 113% increase over the $65.8 billion recorded
during the same period in 1997, and is the highest total of the
1990s. (Leveraged loans are those at a yield spread of at least
1.50% over LIBOR.) At the same time, secondary trading volume of
leveraged loans reached a record level of $35.6 billion during the
first half of 1998, compared to a record $60.2 billion for all of
1997, and remains on track to exceed last year's total.
Senior High Income Portfolio, Inc.
August 31, 1998
With almost uninterrupted inflows of investor assets, yield spreads
in the high-yield bond market remained at historically narrow levels
throughout the first half of 1998. The high-yield bond market
benefited from strong demand, a good economy, a record-breaking US
stock market and low default rates.
This environment changed abruptly in August. As measured by the
unmanaged Merrill Lynch High Yield Master Index, the high-yield bond
market generated a return of -4.32% for August, which reduced the
year-to-date return to +0.57%. This decline reflected the dramatic
reduction in market liquidity, a worldwide "flight-to-quality"
sentiment and declining interest rates as the yield on the ten-year
Treasury note fell from 5.70% to 4.98% during the period. However,
the significant widening of the spread over Treasury securities, as
measured by the Merrill Lynch High Yield Master Index, from 304
basis points (3.04%) to 502 basis points (5.02%) during the period
offset this decline.
New high-yield bond issuance broke all previous records in the first
half of 1998, nearly equaling the total record issuance during all
of 1997. The first half of 1998 volume of $106 billion was up 83%
over last year's comparable $57 billion. From an industry
standpoint, telecommunications grew to over 25% of the market in
1997. Companies such as Sprint PCS and Iridium were issuers in the
high-yield market to fund their huge capital needs for the build out
of their systems for the next generation of wireless telephony. By
year-end, cable television and telecommunications accounted for over
25% of the outstanding bonds in the high-yield universe. These two
sectors currently make up a sizable portion of the Portfolio (14.08%
of total assets), but are underweighted relative to the market given
our preference for borrowers who have an existing infrastructure, a
growing subscriber base and are moving toward completion of their
network build-out plans.
Investment Activities
The Portfolio's average stated maturity was 6.9 years as of August
31, 1998, but, based upon past experience, the Portfolio can be
expected to have a real average life of approximately 2 years--3
years as a result of the shorter average life of bank loans, which
are freely prepayable without call protection. At August 31, the
Portfolio's floating rate investments were spread across 66
borrowers in 30 industries. Fixed-rate investments were spread
across 145 borrowers in 39 industries. See the "Portfolio
Information" section on page 4 of this report to shareholders for
listings of the Portfolio's largest holdings and industries.
Overall, fundamentals for both the bank loan and high-yield bond
markets remain positive although there is some concern regarding
third-quarter corporate earnings and the resultant impact on bank
loan and bond ratings. Defaults, although expected to increase this
year, are at historically low levels. Our focus has and will
continue to be to invest in those companies that are generating
improved earnings trends or whose issues we believe are undervalued.
The industry focus has been on those companies that have leading
market shares, strong managements and improving cash flows.
During the period, the best-performing industry sectors included
cable television, publishing, and radio and television broadcasting.
These industries not only had more stable cash flows than many of
their cyclical counterparts, but also benefited from the substantial
merger and acquisition activity in these sectors. A number of
cyclical sectors underperformed the market at large. Paper and
metals and mining were such industry groups, resulting from the
concerns over the long-term effects of the Asian currency crisis on
these industries. In certain cyclical areas, we were more willing to
trade out of the unsecured bond and into the senior secured bank
debt in order to seek to limit the Portfolio's downside volatility.
Prior to August, stronger companies had been taking advantage of
attractive public debt and equity markets to improve their balance
sheets and reduce debt. The disruption experienced in the high-yield
and equity markets has severely reduced investor liquidity and
dampened interest in new issues. With long-term bond yields at near
historic lows, a gradual improvement in the high-yield new issue
market can be expected as market liquidity improves sufficiently to
reduce required spreads over the benchmark Treasury securities.
Until this happens, the demand, by issuers, for leveraged bank loans
is expected to be very strong as issuers have fewer options. Bank
loans should enjoy wider spreads over LIBOR and increased upfront
fees as a result, which should offset the Federal Reserve Board's
interest rate easing.
Senior High Income Portfolio, Inc.
August 31, 1998
Over the coming months, we expect leveraged bank loan pricing to
improve until the high-yield market stages a turnaround. With the
Federal Reserve Board adopting an easing position for the near term,
fixed-income investors may be somewhat cautious while crossover
investors may increase their portfolios' weights in the bank loan
market. Flows into the high-yield bond and loan markets, which were
negative in the latter half of August and the first half of
September, have returned to positive recently and should remain
steady. We expect the forward calendar to continue to be somewhat
light throughout the remainder of 1998 and are cautiously optimistic
for a pick-up in activity in early 1999. We will continue to be
opportunistic in our high-yield bond purchases, selling overvalued
bonds and sectors and buying those that are undervalued (with an
emphasis on the secondary market). In the meantime, we will maintain
a defensive position in secured floating rate bank debt, buying new
issues in the high-yield market and buying into the secondary market
when undervalued investments are available.
In Conclusion
We appreciate your ongoing investment in Senior High Income
Portfolio, Inc., and we look forward to reviewing our strategy with
you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(R. Douglas Henderson)
R. Douglas Henderson
Senior Vice President and Portfolio Manager
October 20, 1998
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
R. Douglas Henderson, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, NY 10286
NYSE Symbol
ARK
Senior High Income Portfolio, Inc.
August 31, 1998
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.
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.
PORTFOLIO INFORMATION
As of August 31, 1998
Quality Ratings Percent of
S&P/Moody's Long-Term Investments
BBB/Baa 1.2%
BB/Ba 30.0
B/B 34.6
CCC/Caa 0.3
NR (Not Rated) 33.9
Percent of
Five Largest Industries Total Assets
Telephone Communications 10.5%
Health Services 9.2
Metals & Mining 6.8
Chemicals 6.5
Paper 5.9
Percent of
Ten Largest Holdings Total Assets
Starwood Hotels & Resorts 2.2%
Riverwood International, Inc. 1.8
Omnipoint Communications Corp. 1.8
Huntsman Corporation 1.6
Sprint Spectrum/Lucent Technologies 1.5
National Gypsum Company 1.5
Paper Acquisition Services 1.4
Stone Container Corp. 1.3
Integrated Health Services, Inc. 1.2
Favorite Brands International 1.1
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Advertising--1.2% B B1 $ 1,000,000 Outdoor Systems, Inc., 8.875%
due 6/15/2007 $ 992,480 $ 1,005,000
NR* NR* 4,750,000 Petry Media, Term, due 3/31/2002+++ 4,731,248 4,678,750
------------ ------------
5,723,728 5,683,750
Aerospace--1.8% NR* Ba3 2,718,215 K & F Industries, Term B, due
10/15/2005+++ 2,735,204 2,725,011
NR* NR* 5,500,000 Stellex Industries Inc., Term B,
due 12/31/2005+++ 5,493,292 5,496,563
------------ ------------
8,228,496 8,221,574
Agricultural B+ B1 3,000,000 Chiquita Brands International Inc.,
Products--1.1% 10.25% due 11/01/2006 2,984,518 3,150,000
B B2 2,000,000 Sun World International, 11.25% due
4/15/2004 2,000,000 2,105,000
------------ ------------
4,984,518 5,255,000
Aircraft & BB Ba2 2,000,000 Airplanes Pass Through Trust, 10.875%
Parts--1.3% due 3/15/2019 (d) 2,000,000 2,320,600
B- B3 1,500,000 Argo-Tech Corp., 8.625% due 10/01/2007 1,500,000 1,387,500
B+ B3 2,500,000 Derlan Manufacturing, 10% due 1/15/2007 2,477,271 2,475,000
------------ ------------
5,977,271 6,183,100
Amusement & B B2 500,000 AMC Entertainment Inc., 9.50% due
Recreational 3/15/2009 (b) 497,531 460,000
Services--2.4% NR* Ba3 2,237,500 AMF Group, Inc., Term, due 3/31/2002+++ 2,232,808 2,240,297
CCC+ B3 2,000,000 Hollywood Entertainment Corp., 10.625%
due 8/15/2004 (b) 2,000,000 1,965,000
B- B3 1,000,000 Hollywood Theater, Inc., 10.625%
due 8/01/2007 1,000,000 970,000
B B3 1,050,000 Loews Cineplex Entertainment Corp.,
8.875% due 8/01/2008 1,041,480 992,250
Metro Goldwyn Mayer Co.+++:
NR* Ba2 2,585,000 Revolving Credit, due 9/30/2003 2,585,000 2,520,375
NR* Ba2 2,000,000 Term A, due 12/31/2005 1,990,782 1,992,500
------------ ------------
11,347,601 11,140,422
Apparel--1.1% Arena Brands, Inc.+++:
NR* NR* 468,333 Revolving Credit, due 6/01/2002 469,520 470,090
NR* NR* 1,097,733 Term A, due 6/01/2002 1,099,105 1,101,849
NR* NR* 2,041,096 Term B, due 6/01/2002 2,043,648 2,048,751
B- B3 1,500,000 Gear For Sports, 9.625% due 3/01/2007 1,500,000 1,515,000
------------ ------------
5,112,273 5,135,690
Automotive NR* Ba3 1,437,301 Advanced Accessory, Term B, due
Equipment-- 10/30/2004+++ 1,434,739 1,445,026
5.7% B- B3 1,500,000 Aetna Industries Inc., 11.875% due
10/01/2006 1,500,000 1,567,500
NR* NR* 7,000,000 American Axel, Term B, due 3/31/2007+++ 6,993,436 6,947,500
B B2 1,000,000 Delco Remy International Inc.,
10.625% due 8/01/2006 1,000,000 1,035,000
NR* NR* 6,000,000 Federal Mogul Corp., Term B, due
12/31/2005+++ 6,000,000 5,985,000
B- B3 3,635,000 Key Plastics, Inc., 10.25% due 3/15/2007 3,611,174 3,562,300
B- B3 1,500,000 Newcor Inc., 9.875% due 3/01/2008 1,500,000 1,387,500
B- B2 1,000,000 Trident Automotive, 10% due 12/15/2005 1,000,000 1,040,000
B+ B2 4,000,000 Walbro Corp., 9.875% due 7/15/2005 3,991,757 3,790,000
------------ ------------
27,031,106 26,759,826
Broadcast B- B3 1,000,000 ++Acme Television/Finance, 10.875%
Radio & TV-- due 9/30/2004 802,178 780,000
4.1% B- B3 3,000,000 Allbritton Communications Co., 9.75% due
11/30/2007 2,926,069 3,120,000
B- B3 5,050,000 Granite Broadcasting Corp., 8.875% due
5/15/2008 5,086,952 4,873,250
B- B3 900,000 Regional Independent Media Group, 10.50%
due 7/01/2008 (b) 900,000 884,250
B- B3 2,500,000 STC Broadcasting Inc., 11% due 3/15/2007 2,500,000 2,625,000
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Broadcast TV Azteca, S.A. de C.V.:
Radio & TV B+ Ba3 $ 1,250,000 10.125% due 2/15/2004 $ 1,248,647 $ 1,037,500
(concluded) B+ Ba3 2,250,000 10.50% due 2/15/2007 2,334,375 1,777,500
Young Broadcasting Corp.:
B B2 2,000,000 10.125% due 2/15/2005 2,000,000 2,110,000
B B2 2,000,000 9% due 1/15/2006 1,947,766 2,070,000
------------ ------------
19,745,987 19,277,500
Building & BB+ Ba2 1,000,000 Kaufman & Broad Home Corp., 7.75% due
Construction--0.2% 10/15/2004 992,819 980,000
Building Dal Tile International, Inc.+++:
Materials--2.9% NR* NR* 1,668,449 Revolving Credit, due 12/31/2002 1,626,700 1,589,198
NR* NR* 2,326,203 Term, due 12/31/2002 2,286,569 2,215,709
NR* Ba3 9,924,874 National Gypsum Company, Term B,
due 9/20/2003+++ 9,910,010 9,924,875
------------ ------------
13,823,279 13,729,782
Cable Television CSC Holdings Inc.:
Services--5.2% BB+ Ba2 800,000 7.25% due 7/15/2008 800,000 757,944
BB+ Ba2 1,000,000 7.625% due 7/15/2018 999,012 914,270
BB- B1 2,000,000 Globo Comunicacoes e Participacoes
S.A., 10.625% due 12/05/2008 (b) 2,006,000 1,230,000
BB+ Ba3 3,000,000 Lenfest Communications, Inc., 8.375%
due 11/01/2005 2,992,975 3,135,000
NR* NR* 7,123,125 Marcus Cable Co., Term B, due
4/30/2004+++ 7,096,896 7,116,447
BB+ Ba3 1,500,000 Multicanal S.A., 10.50% due 4/15/2018 (b) 1,507,500 1,020,000
NR* NR* 3,063,411 NTL, Inc., Term, due 1/31/1999 (b)+++ 3,063,411 3,061,496
B- B3 500,000 Park and View Inc., 13% due 5/15/2008 (b) 500,000 465,000
NR* NR* 1,225,000 ++RCN Corp., 11% due 7/01/2008 (b) 729,988 649,250
B B3 1,575,000 Supercanal Holdings S.A., 11.50% due
5/15/2005 (b) 1,575,000 1,320,795
B+ B1 5,000,000 Telewest Communications PLC, 9.625% due
10/01/2006 5,000,000 4,850,000
------------ ------------
26,270,782 24,520,202
Casinos--0.7% BB Ba3 1,650,000 Grand Casinos, Inc., 10.125% due
12/01/2003 1,765,500 1,757,250
B B2 1,500,000 Harveys Casinos Resorts,
10.625% due 6/01/2006 1,500,000 1,605,000
------------ ------------
3,265,500 3,362,250
Chemicals--9.3% BB- B1 3,000,000 Acetex Corp., 9.75% due 10/01/2003 2,990,553 2,910,000
BB Ba2 1,500,000 Borden Chemicals and Plastics L.P.,
9.50% due 5/01/2005 1,500,000 1,447,500
NR* NR* 5,000,000 Epsilon Products, Term B, due
12/31/2005+++ 5,000,000 5,000,000
Foamex L.P.+++:
NR* NR* 3,562,868 Term B, due 6/30/2005 3,558,917 3,575,115
NR* NR* 3,238,971 Term C, due 6/30/2006 3,235,306 3,252,129
Huntsman Corporation:
B- B2 6,000,000 9.031% due 7/01/2007 (b) 6,000,000 5,835,000
NR* Ba2 5,000,000 Term, due 12/31/2002+++ 4,993,766 4,975,000
NR* Ba2 5,000,000 Huntsman Specialty Chemicals, Term,
due 3/15/2007+++ 5,106,250 5,075,000
BB- Ba3 2,500,000 ISP Holdings Inc., 9% due 10/15/2003 2,494,489 2,550,000
NR* NR* 4,900,000 Lyondell Chemical Company, Term B,
due 6/30/2005+++ 4,895,148 4,921,438
NR* NR* 4,089,973 Vinings Industries, Term B,
due 3/31/2005+++ 4,086,015 4,102,754
------------ ------------
43,860,444 43,643,936
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Consumer NR* Ba3 $ 4,738,889 Boyds Collection Ltd., Term B,
Products--3.9% due 4/21/2005+++ $ 4,727,442 $ 4,747,774
E & S Holdings Co.+++:
NR* B1 2,833,922 Revolving Credit, due 9/30/2003 2,638,218 2,699,310
NR* B1 737,961 Term A, due 9/30/2003 707,578 699,218
B+ B2 1,000,000 Evenflo Company Inc., 11.75% due
8/15/2006 (b) 1,000,000 975,000
B B3 1,050,000 Home Products International Inc.,
9.625% due 5/15/2008 1,050,000 955,500
NR* NR* 4,500,000 Samsonite Corp., Term, due 6/24/2005+++ 4,494,437 4,443,750
B+ Ba3 3,500,000 Shop-Vac Corporation, 10.625%
due 9/01/2003 3,741,875 3,692,500
------------ ------------
18,359,550 18,213,052
Diversified-- B- B3 3,000,000 AmeriServe Food Co., 10.125%
2.4% due 7/15/2007 3,000,000 2,707,500
NR* NR* 5,000,000 Bridge Information, Term, due
5/29/2005+++ 4,987,835 5,012,500
BB- Ba2 2,000,000 Gulf Canada Resources Ltd., 9.25%
due 1/15/2004 2,105,000 2,086,200
B- B3 1,500,000 Insilco Corp., 10.25% due 8/15/2007 1,500,000 1,507,500
------------ ------------
11,592,835 11,313,700
Drilling--1.7% B+ B1 4,000,000 Cliffs Drilling Company, 10.25%
due 5/15/2003 4,325,000 4,240,000
BBB- Ba1 2,000,000 Falcon Drilling Company, Inc., 9.75%
due 1/15/2001 2,115,000 2,010,000
NR* NR* 1,727,718 Rigco North America, Term, due
9/30/1998+++ 1,727,718 1,732,037
------------ ------------
8,167,718 7,982,037
Drug/Proprietary NR* NR* 2,487,500 Duane Reade Co., Term B, due
Stores--0.5% 2/14/2005+++ 2,480,149 2,506,156
Educational B- B3 1,050,000 La Petite Academy, 10% due 5/15/2008 1,050,000 997,500
Services--0.2%
Electronics/ NR* Ba3 4,625,000 Amphenol Corp., Term B, due 5/19/2005+++ 4,615,238 4,652,461
Electrical B- B3 2,000,000 Federal Data Corp., 10.125% due 8/01/2005 2,000,000 1,950,000
Components-- B+ B3 1,000,000 High Voltage Engineering Corp., 10.50% due
1.6% 8/15/2004 1,000,000 950,000
------------ ------------
7,615,238 7,552,461
Energy--7.0% B B1 2,000,000 Belco Oil & Gas Corp., 8.875% due
9/15/2007 2,000,000 1,660,000
B- B3 2,500,000 Bellwether Exploration Co., 10.875% due
4/01/2007 2,500,000 2,275,000
NR* Ba2 5,000,000 Clark Refining, Term, due 11/15/2004+++ 5,000,000 4,931,250
B- B3 1,000,000 Continental Resources Inc., 10.25% due
8/01/2008 (b) 1,000,000 890,000
B B2 1,000,000 Cross Timbers Oil Co., 8.75% due
11/01/2009 1,000,000 900,000
B B2 1,500,000 Energy Corp. of America, 9.50% due
5/15/2007 1,500,000 1,365,000
NR* Ba2 5,000,000 Ferrell, Term C, due 6/17/2006+++ 5,000,000 5,018,750
B B2 1,000,000 Forcenergy Inc., 8.50% due 2/15/2007 987,096 800,000
B- B3 1,850,000 Gothic Production Corp., 11.125% due
5/01/2005 1,850,000 1,480,000
B- B3 2,000,000 Kelly Oil & Gas Corp., 10.375% due
10/15/2006 1,995,587 1,820,000
NR* NR* 5,000,000 Plains All, Term, due 6/30/2005+++ 4,987,614 5,021,875
B+ B2 1,000,000 Snyder Oil Corp., 8.75% due 6/15/2007 1,002,500 950,000
BB- B1 2,000,000 Tesoro Petroleum Corporation, 9% due
7/01/2008 (b) 1,988,696 1,910,000
B- B2 2,000,000 United Refining Co., 10.75% due 6/15/2007 2,000,000 1,820,000
B+ B1 2,000,000 Vintage Petroleum Inc., 8.625% due
2/01/2009 1,984,514 1,900,000
------------ ------------
34,796,007 32,741,875
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Financial B Ba2 $ 4,000,000 First Nationwide Escrow, 10.625%
Services--1.2% due 10/01/2003 $ 4,000,000 $ 4,370,000
BB- B2 1,500,000 Olympic Financial Ltd., 11.50%
due 3/15/2007 1,500,000 1,140,000
------------ ------------
5,500,000 5,510,000
Food & Kindred Favorite Brands International:
Products--2.2% NR* NR* 5,000,000 10.25% due 8/20/2007 4,970,607 4,543,750
NR* NR* 3,125,000 Term B, due 5/19/2005+++ 3,120,452 3,078,125
B B2 3,000,000 SC International Services, Inc., 9.25%
due 9/01/2007 3,053,765 2,895,000
------------ ------------
11,144,824 10,516,875
Forest B B3 4,500,000 Ainsworth Lumber, 12.50% due
Products--4.4% 7/15/2007 (c) 4,485,636 4,545,000
BB Ba3 1,000,000 Malette Inc., 12.25% due 7/15/2004 1,000,000 1,107,500
B+ B3 550,000 Millar Western Forest Products Ltd.,
9.875% due 5/15/2008 (b) 550,000 423,500
NR* NR* 5,000,000 Strategic Timbers Inc., Bridge Loan,
due 10/27/1999+++ 5,000,000 5,000,000
BB Ba3 6,000,000 Tembec Finance Corp., 9.875% due
9/30/2005 6,110,000 6,120,000
B B3 4,000,000 Uniforet Inc., 11.125% due 10/15/2006 4,000,000 3,400,000
------------ ------------
21,145,636 20,596,000
Furniture & NR* NR* 5,000,000 Furniture Brands International Ltd.,
Fixtures--1.1% Term, due 6/27/2007+++ 5,018,750 5,000,000
Grocery B Ba3 2,889,885 Star Markets Co., Inc., Term C,
Stores--0.6% due 12/31/2002+++ 2,885,223 2,889,885
Health B- B3 1,500,000 Alliance Imaging, Inc., 9.94% due
Services--13.2% 12/15/2005 1,500,000 1,425,000
Community Health Care Inc.+++:
NR* NR* 1,787,671 Term B, due 12/31/2003 1,780,705 1,788,230
NR* NR* 1,787,671 Term C, due 12/31/2004 1,780,360 1,788,230
NR* NR* 1,342,466 Term D, due 12/31/2005 1,336,779 1,343,724
Dade International Inc.+++:
NR* B1 1,480,985 Term B, due 12/31/2002 1,484,688 1,479,134
NR* B1 1,480,985 Term C, due 12/31/2003 1,484,688 1,480,985
NR* B1 1,562,814 Term D, due 12/31/2004 1,566,721 1,563,790
B+ B2 1,500,000 Dynacare, Inc., 10.75% due 1/15/2006 1,498,933 1,528,125
B- B3 1,250,000 Everest Healthcare Services, 9.75% due
5/01/2008 (b) 1,250,000 1,196,875
CC B3 550,000 Graham-Field Health Products Inc.,
9.75% due 8/15/2007 (b) 578,750 456,500
BBB- Ba2 3,000,000 HEALTHSOUTH Corp., 9.50% due 4/01/2001 3,155,000 3,090,000
Imed Corp. (Alaris)+++:
BB- B1 1,336,200 Term B, due 11/01/2003 1,336,200 1,342,881
BB- B1 1,336,200 Term C, due 11/01/2004 1,336,200 1,342,881
BB- B1 1,257,621 Term D, due 5/01/2005 1,257,621 1,263,909
Integrated Health Services, Inc.:
B- B2 3,000,000 Senior Sub Notes, 9.50% due 9/15/2007 3,000,000 2,805,000
NR* Ba3 5,000,000 Term B, due 9/15/2004+++ 4,989,133 4,984,375
NR* NR* 5,000,000 MEDIQ Life Support Services, Inc.,
Term, due 6/30/2006+++ 5,025,000 5,007,813
Paracelsus Healthcare Corp.+++:
NR* B1 1,381,333 Term A, due 3/31/2003 1,374,674 1,379,607
NR* B1 2,000,000 Term B, due 3/31/2004 1,990,281 1,998,750
Paragon Health Network+++:
NR* Ba3 2,500,000 Term B, due 3/31/2005 2,497,709 2,481,250
NR* Ba3 2,500,000 Term C, due 3/31/2006 2,497,674 2,481,250
B B1 3,000,000 Physician Sales & Services Inc.,
8.50% due 10/01/2007 3,017,451 2,925,000
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Health Services NR* NR* $ 5,000,000 Sterling Diagnostics, Term B, due
(concluded) 9/30/2005+++ $ 4,988,651 $ 4,981,250
Sun Healthcare Group Inc.+++:
NR* Ba3 1,379,659 Term B, due 11/12/2004 1,377,788 1,378,797
NR* Ba3 1,379,659 Term C, due 11/12/2005 1,377,754 1,378,797
Tenet Healthcare Inc.:
BB- Ba3 2,500,000 8.625% due 1/15/2007 2,497,638 2,500,000
BB- Ba3 1,575,000 8.125% due 12/01/2008 (b) 1,568,993 1,523,813
NR* NR* 5,000,000 Total Renal Care Holdings, Term,
due 3/31/2008+++ 4,993,894 5,001,562
------------ ------------
62,543,285 61,917,528
Hotels & B- B2 6,000,000 Extended Stay America Inc., 9.15% due
Motels--5.5% 3/15/2008 6,000,000 5,610,000
BB Ba2 2,500,000 HMH Properties Inc., 7.875% due
8/01/2008 2,483,876 2,362,500
BB Ba2 3,000,000 Prime Hospitality Corp., 9.25%
due 1/15/2006 2,991,990 3,015,000
NR* NR* 15,000,000 Starwood Hotels & Resorts, Bridge
Loan, due 2/23/2003+++ 14,986,086 15,000,000
------------ ------------
26,461,952 25,987,500
Leasing & Rental B- B3 1,000,000 National Equipment Services, 10% due
Services--1.3% 11/30/2004 (b) 988,636 960,000
Renters Choice Inc.+++:
NR* NR* 2,236,563 Term B, 10% due 1/31/2006 2,234,340 2,232,369
NR* NR* 2,733,576 Term C, 10.25% due 1/31/2007 2,730,857 2,728,451
------------ ------------
5,953,833 5,920,820
Manufacturing-- B- B2 500,000 Fairfield Manufacturing Co.,
2.0% 11.375% due 7/01/2001 526,000 507,500
B- B2 900,000 Globe Manufacturing Corp., 10% due
8/01/2008 (b) 900,000 861,750
Paint Sundry+++:
NR* NR* 886,076 Term, due 8/11/2008 882,763 887,737
NR* NR* 607,595 Term B, due 8/11/2005 605,329 608,734
NR* NR* 506,329 Term C, due 8/11/2006 504,439 507,278
Sealy Mattress+++:
B+ Ba3 2,267,273 Axel B, due 12/15/2004 2,298,448 2,275,775
B+ Ba3 1,632,727 Axel C, due 12/15/2005 1,655,177 1,638,850
B+ Ba3 2,086,364 Axel D, due 12/15/2006 2,115,051 2,094,187
------------ ------------
9,487,207 9,381,811
Measuring, NR* NR* 4,650,566 CHF/Ebel USA, Inc., Term B,
Analyzing & due 9/30/2001+++ 4,650,566 4,650,566
Controlling
Instruments--1.0%
Metals & NR* NR* 2,952,381 Adience Inc., Term B, due 4/17/2005+++ 2,942,540 2,959,762
Mining--9.8% B B3 3,000,000 Anker Coal Group Inc., 9.75% due
10/01/2007 3,015,000 2,640,000
B B1 850,000 Bayou Steel Corp., 9.50% due
5/15/2008 (b) 842,044 777,750
NR* B1 2,000,000 CSN Iron Panama, 9.125% due
6/01/2007 (b) 1,991,699 1,210,000
B B2 2,000,000 Continental Global Group, 11%
due 4/01/2007 2,000,000 2,050,000
GS Technologies Operating Co.:
B B2 1,000,000 12% due 9/01/2004 994,154 1,080,000
B B2 1,000,000 12.25% due 10/01/2005 1,000,000 1,050,000
B- B2 1,000,000 Geneva Steel Company, 9.50% due 1/15/2004 942,746 750,000
BB Ba2 2,000,000 Grupo Imsa S.A., 8.93% due 9/30/2004 1,999,441 1,550,000
Ispat International N.V.+++:
NR* NR* 1,850,000 Term B, due 7/15/2005 1,847,719 1,847,688
NR* NR* 1,850,000 Term C, due 7/15/2006 1,847,713 1,847,688
B+ B1 3,500,000 Ivaco Inc., 11.50% due 9/15/2005 3,438,654 3,710,000
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Metals & Mining NR* NR* $ 4,961,539 Kopper Industries Inc., Term B, due
(concluded) 12/01/2004+++ $ 4,955,813 $ 4,955,337
B- B3 1,600,000 Metal Management Inc., 10% due
5/15/2008 (b) 1,600,000 1,328,000
B+ B2 875,000 Pen Holdings Inc., 9.875% due
6/15/2008 (b) 868,234 848,750
B B2 3,000,000 Renco Metals, Inc., 11.50% due 7/01/2003 3,007,500 3,060,000
NR* Ba2 3,414,286 UCAR International, Inc., Term B, due
12/31/2002+++ 3,411,599 3,328,929
Weirton Steel Corp.:
B B2 2,000,000 11.375% due 7/01/2004 2,057,500 2,000,000
B B2 3,190,000 10.75% due 6/01/2005 3,152,467 3,174,050
NR* Ba3 6,000,000 Wheeling-Pittsburg Steel Corp., Term, due
11/15/2006+++ 6,014,415 6,018,749
------------ ------------
47,929,238 46,186,703
Music--0.7% B B2 3,000,000 Selmer Co., Inc., 11% due 5/15/2005 3,000,000 3,150,000
Packaging--3.4% NR* B2 4,000,000 Anchor Glass Container Corp., 11.25%
due 4/01/2005 4,000,000 4,160,000
B- B3 1,000,000 Fonda Group Inc., 9.50% due 3/01/2007 1,000,000 945,000
B+ B2 2,000,000 Packaging Resources Group, 11.625% due
5/01/2003 2,000,000 1,915,000
BB- B2 2,000,000 Printpack Inc., 9.875% due 8/15/2004 2,000,000 2,000,000
NR* Ba2 4,811,232 Silgan Corp., Term B, due 6/30/2005+++ 4,806,932 4,805,218
B B3 2,000,000 Spinnaker Industries Inc., 10.75%
due 10/15/2006 2,000,000 1,920,000
------------ ------------
15,806,932 15,745,218
Paper--8.5% B B3 1,500,000 Four M Corp., 12% due 6/01/2006 1,500,000 1,515,000
B- B3 3,000,000 Gaylord Container Corp., 9.75%
due 6/15/2007 3,000,000 2,595,000
NR* NR* 9,312,380 Paper Acquistion Services, Term,
due 6/08/2001+++ 9,299,254 9,311,216
NR* NR* 5,000,000 Repap New Brunswick, Inc., Term B, due
6/01/2004+++ 5,000,000 5,050,000
B B2 1,000,000 Republic Group Inc., 9.50% due
7/15/2008 (b) 1,000,000 947,500
Riverwood International, Inc.+++:
B+ B1 8,486,842 Term B, due 2/28/2004 8,389,567 8,523,972
B+ B1 3,394,429 Term C, due 8/28/2004 3,354,353 3,409,279
NR* Ba3 8,633,263 Stone Container Corp., Term B,
due 4/01/2000+++ 8,570,471 8,644,055
------------ ------------
40,113,645 39,996,022
Printing & B B2 1,000,000 Big Flower Press Holdings, Inc.,
Publishing--0.5% 8.875% due 7/01/2007 992,433 975,000
B- B3 1,500,000 T/SF Communications Corp., 10.375% due
11/01/2007 1,478,512 1,462,500
------------ ------------
2,470,945 2,437,500
Property BB- Ba3 2,000,000 Forest City Enterprises Inc.,
Management-- 8.50% due 3/15/2008 2,000,000 1,960,000
0.9% NR* NR* 3,000,000 ++Rockefeller Center Properties
(Convertible), 11.441% due 12/31/2000 2,337,597 2,355,000
------------ ------------
4,337,597 4,315,000
Restaurants-- BB- Ba3 7,000,000 Host Marriott Corp., 9.50% due 5/15/2005 6,848,685 7,245,000
2.5% NR* Ba3 4,670,724 Shoney's Inc., Term B, due 4/30/2002+++ 4,645,591 4,600,663
------------ ------------
11,494,276 11,845,663
Retail NR* NR* 5,000,000 Asbury Automotive, Senior Note, 9.437%
Specialty--3.4% due 3/31/2005 4,957,749 4,987,500
NR* NR* 7,500,000 Keystone Automotive Operations, 9.937%
due 3/06/2008 7,463,306 7,462,500
B B2 1,575,000 TM Group Holdings, 11% due 5/15/2008 (b) 1,575,000 1,555,312
B- B3 2,000,000 United Auto Group Inc., 11% due 7/15/2007 1,972,491 1,810,000
------------ ------------
15,968,546 15,815,312
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Shipbuilding & B+ Ba2 $ 4,000,000 Newport News Shipbuilding, Inc.,
Repairing--0.9% 9.25% due 12/01/2006 $ 4,000,000 $ 4,200,000
Shipping--2.1% BB- Ba2 4,500,000 Eletson Holdings Inc., 9.25% due
11/15/2003 4,405,906 4,545,000
B+ B2 2,000,000 Global Ocean Carriers, 10.25% due
7/15/2007 1,971,688 1,580,000
BB Ba2 3,000,000 Stena Line AB, 10.50% due 12/15/2005 3,000,000 3,120,000
B+ B3 500,000 TBS Shipping International Ltd.,
10% due 5/01/2005 (b) 465,710 410,000
------------ ------------
9,843,304 9,655,000
Telephone American Communication Services, Inc.+++:
Communications-- NR* NR* 2,116,564 Term B, due 6/26/2006 2,114,479 2,115,242
15.1% NR* NR* 2,883,435 Term C, due 6/26/2007 2,880,588 2,881,633
NR* NR* 4,000,000 American Tower Systems Co., Term, due
12/16/2006+++ 3,990,161 4,010,000
Cellular Inc.+++:
NR* B1 586,527 Term B, due 9/30/2006 584,569 588,360
NR* B1 1,161,440 Term C, due 3/31/2007 1,157,548 1,165,795
NR* B1 3,252,033 Term D, due 9/30/2007 3,241,089 3,264,228
NR* NR* 3,350,000 ++E. Spire Communications Inc., 10.52%
due 7/01/2008 (b) 2,048,834 1,557,750
B B3 2,850,000 Level 3 Communications Inc., 9.125% due
5/01/2008 (b) 2,838,257 2,536,500
CCC Caa1 3,000,000 ++McCaw International Ltd., 13.355% due
4/15/2007 (b) 1,853,634 1,800,000
B+ B2 2,500,000 ++McLeod Inc., 8.686% due 3/01/2007 1,746,914 1,750,000
Metronet Communications:
B B3 2,000,000 12% due 8/15/2007 1,980,748 2,120,000
B B3 1,675,000 ++9.95% due 6/15/2008 (b) 1,052,019 879,375
B B3 2,500,000 Nextlink Communications Inc., 9% due
3/15/2008 2,495,109 2,250,000
Omnipoint Communications Corp.+++:
NR* NR* 6,792,172 Term A, due 2/17/2006 6,785,687 6,809,152
NR* NR* 1,938,478 Term B, due 2/17/2006 1,936,628 1,943,325
NR* NR* 3,117,187 Term C, due 2/17/2006 3,102,368 3,124,980
B+ B3 1,000,000 ++PTC International Finance, 10.269%
due 7/01/2007 691,648 655,000
B- B3 800,000 Primus Telecommunications Group Inc.,
11.75% due 8/01/2004 828,000 784,000
BB+ Ba1 2,500,000 Quest Communications, 10.875% due
4/01/2007 2,500,000 2,775,000
RSL Communications:
B- B3 3,000,000 9.125% due 3/01/2008 3,000,000 2,610,000
B- B3 3,000,000 ++9.887% due 3/01/2008 1,961,088 1,560,000
NR* NR* 4,986,000 Satellite Mexicanos, 9.39% due
6/30/2004 (b) 4,974,257 3,988,800
NR* B1 10,000,000 Sprint Spectrum/Lucent Technologies,
Term, due 6/29/2001+++ 9,953,686 10,006,250
NR* NR* 5,000,000 Telecorp PCS, Term B, due 1/15/2008+++ 4,990,081 4,975,000
BBB- Ba3 1,500,000 Telefonica de Argentina S.A., 9.125%
due 5/07/2008 (b) 1,490,883 1,102,500
B- Caa1 2,000,000 ++Telesystems International Wireless,
13.246% due 6/30/2007 1,223,466 1,200,000
NR* NR* 2,500,000 Western PCS, Term B, due 6/30/2007+++ 2,495,066 2,509,375
------------ ------------
73,916,807 70,962,265
Textile Mill B B3 3,000,000 Galey & Lord Inc., 9.125% due 3/01/2008 3,030,000 2,595,000
Products--1.0% BB NR* 2,050,000 Westpoint Stevens Inc., 7.875% due
6/15/2008 (b) 2,023,244 2,006,438
------------ ------------
5,053,244 4,601,438
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Corporate Debt Obligations Cost (Note 1A)
<S> <S> <S> <C> <S> <C> <C>
Transportation CCC- Ba3 $ 4,000,000 Ameritruck Distribution Corp., 12.25%
Services--3.6% due 11/15/2005 $ 3,964,171 $ 1,890,000
NR* NR* 4,710,811 Atlas Freight, Term, due 5/29/2004+++ 4,700,682 4,716,699
BB- NR* 4,000,000 Autopistas Del Sol S.A., 10.25% due
8/01/2009 (b) 4,035,000 2,940,000
B+ B1 2,000,000 Coach USA Inc., 9.375% due 7/01/2007 2,000,000 1,920,000
BB Ba3 2,500,000 Enterprises ShipHolding Corp., 8.875%
due 5/01/2008 (b) 2,494,351 2,206,250
MRS Logistica S.A. (b):
B NR* 2,000,000 9% due 8/15/2005 1,993,140 1,685,000
B NR* 500,000 10.625% due 8/15/2005 494,824 348,750
B- Caa1 1,600,000 Trism Inc., 10.75% due 12/15/2000 1,454,210 1,288,000
------------ ------------
21,136,378 16,994,699
Utilities--1.3% B+ Ba1 4,500,000 AES Corp., 8.50% due 11/01/2007 4,466,456 4,275,000
BB+ Baa1 2,000,000 Empresa Electrica del Norte S.A.,
7.75% due 3/15/2006 (b) 1,806,193 1,771,418
------------ ------------
6,272,649 6,046,418
Waste Manage- BB- B3 3,000,000 ++Norcal Waste Systems, Inc., 12.50%
ment--0.7% due 11/15/2005 2,930,413 3,465,000
Total Corporate Debt Obligations--141.2% 679,490,551 662,987,036
Shares
Held Equity Investments
Cable Television Services--0.0% 615,733 Supercanal Holdings S.A. (a) 0 1
Financial Services--0.1% 500,000 Fuji JGB Investments LLC, 9.87%
(Preferred)(b) 500,000 335,000
Leasing & Rental Services--0.1% 13,068 CORT Business Services Corporation 3,037 319,349
Metals & Mining--0.0% 3,000 Gulf States Steel Corp. (a)(b) 33,000 900
Telephone 3,000 McCaw International Ltd. (a)(b) 46,799 1,200
Communications--0.0% 2,000 Metronet Communications (a)(b) 20,500 64,489
1,000 Unifi Communications Inc. (a)(b) 56,590 10
------------ ------------
123,889 65,699
Total Equity Investments--0.2% 659,926 720,949
Face
Amount Short-Term Investments
Commercial Paper**--0.1% $ 354,000 General Motors Acceptance Corp.,
5.81% due 9/01/1998 354,000 354,000
Total Short-Term Investments--0.1% 354,000 354,000
Total Investments--141.5% $680,504,477 664,061,985
============
Liabilities in Excess of Other Assets--(41.5%) (194,634,488)
------------
Net Assets--100.0% $469,427,497
============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock/face amount of bonds and are non-income
producing. The purchase price and number of shares/face amount are
subject to adjustments under certain conditions until the expiration
date.
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(c)Represents a pay-in-kind security which may pay
interest/dividends in additional face/share.
(d)Pass-through security is subject to principal paydowns.
*Not Rated.
**Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
++Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Fund.
+++Floating or Variable Rate Corporate Debt--The interest rates on
floating or variable rate corporate debt 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. Corporate loans represent 72.5% of the Fund's net
assets.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of August 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$680,504,477) (Note 1b) $ 664,061,985
Cash 822,364
Receivables:
Interest $ 11,139,417
Principal paydowns 29,950
Securities sold 7,984 11,177,351
-------------
Deferred facility fees 12,967
Prepaid expenses and other assets 35,128
-------------
Total assets 676,109,795
-------------
Liabilities: Payables:
Loans (Note 6) 203,000,000
Interest on loans (Note 6) 2,422,950
Dividends to shareholders (Note 1f) 873,512
Investment adviser (Note 2) 272,665
Commitment fees 16,704 206,585,831
-------------
Deferred income (Note 1e) 94,981
Accrued expenses and other liabilities 1,486
-------------
Total liabilities 206,682,298
-------------
Net Assets: Net assets $ 469,427,497
Capital: =============
Common Stock, par value $.10 per share; 200,000,000 shares
authorized (53,434,636 shares issued and outstanding) $ 5,343,464
Paid-in capital in excess of par 497,783,992
Undistributed investment income--net 4,061,407
Accumulated realized capital losses on investments--net (Note 7) (21,318,874)
Unrealized depreciation on investments--net (16,442,492)
-------------
Total Capital--Equivalent to $8.79 net asset value per share of
Common Stock (market price--$8.00) $ 469,427,497
=============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
August 31, 1998
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 31,103,534
(Note 1e): Facility and other fees 269,818
-------------
Total income 31,373,352
-------------
Expenses: Loan interest expense (Note 6) $ 5,401,108
Investment advisory fees (Note 2) 1,690,566
Borrowing costs (Note 6) 164,455
Accounting services (Note 2) 63,279
Professional fees 53,212
Transfer agent fees (Note 2) 45,999
Custodian fees 33,581
Directors' fees and expenses 20,510
Printing and shareholder reports 18,783
Pricing services 5,715
Other 32,156
-------------
Total expenses 7,529,364
-------------
Investment income--net 23,843,988
-------------
Realized & Realized loss on investments--net (1,429,910)
Unrealized Loss Change in unrealized appreciation/depreciation on
on Investments-- investments--net (29,884,607)
Net (Notes 1c, -------------
1e & 3): Net Decrease in Net Assets Resulting from Operations $ (7,470,529)
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Aug. 31, 1998 Feb. 28, 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 23,843,988 $ 48,201,118
Realized gain (loss) on investments--net (1,429,910) 3,698,086
Change in unrealized appreciation/depreciation
on investments--net (29,884,607) 3,855,886
------------- -------------
Net increase (decrease) in net assets resulting
from operations (7,470,529) 55,755,090
------------- -------------
Dividends to Investment income--net (23,980,163) (47,759,736)
Shareholders ------------- -------------
(Note 1f): Net decrease in net assets resulting from dividends to
shareholders (23,980,163) (47,759,736)
------------- -------------
Capital Share Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 4,401,181 11,321,619
(Note 4): Offering costs from issuance of Common Stock resulting
from reorganization -- (9,911)
------------- -------------
Net increase in net assets resulting from capital
share transactions 4,401,181 11,311,708
------------- -------------
Net Assets: Total increase (decrease) in net assets (27,049,511) 19,307,062
Beginning of period 496,477,008 477,169,946
------------- -------------
End of period* $ 469,427,497 $ 496,477,008
============= =============
<FN>
*Undistributed investment income--net $ 4,061,407 $ 4,197,582
============= =============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Six Months Ended
August 31, 1998
<S> <S> <C> <C>
Cash Provided by Net decrease in net assets resulting from operations $ (7,470,529)
Operating Adjustments to reconcile net increase in net assets
Activities: resulting from operations to net
cash provided by operating activities:
Increase in receivables 284,355
Increase in other assets 3,743
Increase in other liabilities (133,089)
Realized and unrealized gain on investments--net 31,314,517
Amortization of discount--net (922,520)
-------------
Net cash provided by operating activities 23,076,477
-------------
Cash Used for Proceeds from sales of long-term investments 276,746,181
Investing Purchases of long-term investments (301,844,727)
Activities: Purchases of short-term investments (69,185,097)
Proceeds from sales and maturities of short-term investments 68,935,000
-------------
Net cash used for investing activities (25,348,643)
-------------
Cash Provided by Cash receipts of borrowings 233,800,000
Financing Cash payments on borrowings (212,000,000)
Activities: Dividends paid to shareholders (18,705,470)
-------------
Net cash provided by financing activities 3,094,530
-------------
Cash: Net increase in cash 822,364
Cash at beginning of period --
-------------
Cash at end of period $ 822,364
=============
Cash Flow Cash paid for interest $ 4,932,411
Information: =============
Noncash Value of capital shares issued in reinvestment of dividends
Financing paid to shareholders $ 4,410,181
Activities: =============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Six For the For the
The following per share data and ratios have been derived Months Year Year
from information provided in the financial statements. Ended For the Year Ended Ended Ended
Aug. 31, February 28, Feb. 29, Feb. 28,
Increase (Decrease) in Net Asset Value: 1998++ 1998++ 1997++ 1996++ 1995++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.37 $ 9.22 $ 9.21 $ 8.94 $ 9.82
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .45 .92 .89 .92 .90
Realized and unrealized gain (loss) on
investments--net (.58) .14 .04 .27 (.87)
-------- -------- -------- -------- --------
Total from investment operations (.13) 1.06 .93 1.19 .03
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.91) (.92) (.92) (.84)
Realized gain on investments--net -- -- -- -- (.07)
-------- -------- -------- -------- --------
Total dividends and distributions (.45) (.91) (.92) (.92) (.91)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.79 $ 9.37 $ 9.22 $ 9.21 $ 8.94
======== ======== ======== ======== ========
Market price per share, end of period $ 8.00 $ 10.125 $ 9.50 $ 9.25 $ 8.625
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.47%)+++ 11.95% 10.80% 14.14% .81%
Return:** ======== ======== ======== ======== ========
Based on market price per share (17.02%)+++ 17.41% 13.67% 18.82% 1.87%
======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense .86%* .83% .75% .92% .80%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.04%* 2.66% 1.84% 2.92% 2.46%
======== ======== ======== ======== ========
Investment income--net 9.63%* 9.98% 9.45% 10.14% 7.07%
======== ======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) $203,000 $181,200 $ 81,000 $ 47,000 $ 82,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands) $181,345 $149,166 $ 82,384 $ 68,473 $ 92,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period $ 3.41 $ 2.85 $ 2.13 $ 2.68 $ 3.67
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $469,427 $496,477 $477,170 $236,136 $227,007
Data: ======== ======== ======== ======== ========
Portfolio turnover 40.74% 58.60% 98.51% 50.76% 44.81%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market price, which can be
significantly greater or lesser than the net asset value,
may result in substantially different returns. Total investment
returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregrate total investment return.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 1998
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
presented. 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.
(b) Valuation of investments--Corporate loans will be valued in
accordance with guidelines established by the Fund's Board of
Directors. Under the Fund's current guidelines, corporate loans will
be valued at the average of the mean between the bid and asked
quotes received from one or more brokers, if available.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. 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 sale price on the market where any such
option is principally traded. Short-term securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(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
financial 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.
* 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
Senior High Income Portfolio, Inc.
August 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
* 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) 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 dividends.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("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, 1998, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc., $1,917 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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended August 31, 1998 were $290,619,025 and
$271,369,123, respectively.
Senior High Income Portfolio, Inc.
August 31, 1998
Net realized losses for the six months ended August 31, 1998 and net
unrealized losses as of August 31, 1998 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,429,910) $(16,442,492)
----------- ------------
Total $(1,429,910) $(16,442,492)
=========== ============
As of August 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $16,442,492, of which $6,312,234
related to appreciated securities and $22,754,726 related to
depreciated securities. The aggregate cost of investments at August
31, 1998 for Federal income tax purposes was $680,504,496.
4. Capital Share Transactions:
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.
Shares issued and outstanding during the six months ended August 31,
1998 and the year ended February 28, 1998 increased by 473,912 and
1,205,888, respectively, as a result of dividend reinvestment.
5. Unfunded Loan Interests:
As of August 31, 1998, the Fund had unfunded loan commitments of
$10,189,052, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $1,229
Dal Tile International, Inc. 963
E & S Holdings Co. 1,921
Metro Goldwyn Mayer Co. 515
NTL, Inc. 2,228
Teligent Inc. 3,333
6. Short-Term Borrowings:
On April 28, 1998, the Fund entered into a one-year credit agreement
with a syndicate of banks led by The Bank of New York. The agreement
provides for a $245,000,000 leverage facility bearing interest at
the Prime rate, the Federal Funds rate plus 0.40%, and/or the
Eurodollar rate plus 0.40%. For the six months ended August 31,
1998, the average amount borrowed was approximately $181,345,355 and
the daily weighted average interest rate was 5.92%. For the six
months ended August 31, 1998, facility and commitment fees
aggregated approximately $164,455.
7. Capital Loss Carryforward:
At February 28, 1998, the Fund had a net capital loss carryforward
of approximately $19,889,000, of which $7,098,000 expires in 2003,
$12,057,000 expires in 2004, and $734,000 expires in 2005. This
amount will be available to offset like amounts of any future
taxable gains.
8. Subsequent Event:
On September 8, 1998, the Board of Directors of the Fund declared an
ordinary income dividend in the amount of $.076007 per share,
payable on September 30, 1998 to shareholders of record as of
September 22, 1998.
