SENIOR HIGH
INCOME
PORTFOLIO, INC.
FUND LOGO
Annual Report
February 28, 1999
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
For the year ended February 28, 1999, the Portfolio's total
investment return was -0.87%, based on a change in per share net
asset value from $9.37 to $8.40, and assuming reinvestment of $0.886
per share income dividends. During the same 12-month period, the net
annualized yield of the Portfolio's Common Stock was 10.44%. For the
six-month period ended February 28, 1999, the total investment
return on the Portfolio's Common Stock was +0.62%, based on a change
in per share net asset value from $8.79 to $8.40, and assuming
reinvestment of $0.436 per share income dividends. During the same
period, the net annualized yield of the Portfolio's Common Stock was
10.21%. At the end of the February quarter, the Portfolio was 30.23%
leveraged, having borrowed $199 million of its $245 million credit
facility at an average rate of 5.69%. (For a complete explanation of
the benefits and risks of leverage, see page 5 of this report to
shareholders.)
Portfolio Strategy
In early summer, the high-yield market was pressured by disruptions
in equity and emerging markets that resulted in a marked decrease in
liquidity and a decrease in prices virtually across the board in all
three markets. This scenario negatively impacted the leveraged bank
loan market as well. The bid side of the dealer market experienced
downward pressure primarily as a result of many hedge fund managers
and crossover mutual fund investors selling their bonds and loan
positions to provide needed liquidity. While the credit environment
has not significantly changed, the problems of other fixed-income
and equity markets impacted the high-yield bond and leveraged loan
markets.
Beginning in November 1998, the high-yield bond and bank loan
environments stabilized significantly. Both markets have experienced
some improvement from their lows of September prices but remain
below pre-August levels. While this has had an adverse impact on the
Portfolio's net asset value, the yield has improved as spreads
continue to remain wide. Both markets have experienced slow
improvement, and we see significant upside potential in both markets
over the next 6 months--18 months.
By February 28, 1999, 52% of the Portfolio's investments in
corporate loans were accruing interest at a yield spread above the
London Interbank Offered Rate (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 interest 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 up or down
within a two-month period after any Federal Funds rate change. At
February 28, 1999, floating rate securities made up 52.7% of the
market value of the Portfolio's investments, with an additional
46.8% invested in fixed-rate, high-yield bonds. Approximately $46
million remained available under the leverage facility at the close
of the period. Given the current environment, we intend to maintain
at least a 45% weighting in floating rate loans.
As a result of the uncertainties experienced last summer, leveraged
loan new-issue volume for the second half of 1998 was approximately
$70 billion, a 46% decrease from the $130 million recorded during
the comparable period in 1998 and a 50% decrease from the first half
volume of $140 billion. (Leveraged loans are those at a spread of at
least 1.5% over LIBOR.) At the same time, secondary trading volume
of leveraged loans reached a record level of $67 billion during 1998
as compared to the previous record level of $62 billion for all of
1997. Year-to-date 1999 volume appears on track to exceed last
year's total.
Senior High Income Portfolio, Inc.
February 28, 1999
The market upheaval of August and September 1998 temporarily halted
the almost uninterrupted investor inflows into the high-yield
market. This adjustment of investor sentiment and the liquidity
concerns of certain large investors shifted the markets' supply/
demand balance markedly. Despite the continuation of a strong US
economy, a rebound in the stock market and low default rates,
returns generated in the high-yield bond and leveraged loan markets
were below recent years' performance. High-yield bonds generated a
total return of -3.46% for the second half of 1998 and a full year
return of +0.55%, as measured by the unmanaged Donaldson, Lufkin and
Jenrette (DLJ) High Yield Index. Bank loans generated a total return
of +1.32% for the second half of 1998 and a full year return for
1998 of +5.61%, as measured by the unmanaged DLJ Leveraged Loan
Index. These returns reflect the dramatic reduction in market
liquidity and the general "flight to quality" sentiment.
The bellwether ten-year Treasury yield decreased from 5.47% at June
30, 1998 to 4.64% at year-end. As of February 28, 1999, the yield
had moved back up to 5.09%. High-yield bond spreads over Treasury
securities have remained very wide relative to comparable spreads
last summer. The spread over Treasury securities increased from
3.73% at June 30, 1998 to 5.88% at year-end, as measured by the
Merrill Lynch Master Index. Those yield spreads have eased since
year-end, but still remained at a very attractive 5.56% by February
28, 1999.
As was the case in the bank loan market, new-issue activity slowed
dramatically in the latter half of 1998. The second half of 1998
dollar volume was $37 billion, down 45% from last year's comparable
$67 billion. From an industry standpoint, telecommunications
continued at over 25% of the market in 1998. This sector now makes
up a sizable portion of the Portfolio (7.75% of net assets) but is
clearly underweighted to the market.
By February 28, 1999, the Portfolio's average stated maturity was
6.7 years but had an expected 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. The Portfolio's
floating rate investments were spread across 72 borrowers in 45
industries. Fixed-rate investments were spread across 152 borrowers
in 31 industries. (The "Portfolio Information" section on page 5 of
this report to shareholders provides listings of the five largest
industries and ten largest holdings represented in the Portfolio.)
Overall, fundamentals for both the bank loan and high-yield bond
markets have improved dramatically since last summer, and we believe
there remains significant upside movement as market technicals
improve. Although defaults across the high-yield bond and bank loan
markets have increased somewhat over the last several months, they
remain below historic averages. Our focus has and will likely
continue to be to invest in those companies that are generating
improved earnings trends or whose securities we believe are
undervalued.
Our industry focus continues to be on those companies that have
leading market shares, strong managements and improving cash flows.
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, metals and mining, energy
and healthcare were such industry groups. Concerns over the long-
term effects of the Asian currency crisis and/or regulatory changes
on these industries had an adverse effect on performance. We believe
the industry fundamentals in both the paper and energy sectors will
begin to improve over the first half of 1999 with expected
improvements in the steel and healthcare sectors in late 1999 or
early 2000. In certain cyclical names, we have been 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.
The disruption experienced in the high-yield and equity markets
severely reduced investor liquidity and dampened interest in new
issues in the second half of 1998. With long-term bond yields at
near historic lows, a gradual improvement in the high-yield new-
issue market is materializing as market liquidity improves and
required spreads over benchmark Treasury securities remain very
attractive. The demand for leveraged bank loans continues to be very
strong as high-yield demand still lags behind the levels of early
1998. Bank loan spreads over LIBOR and upfront fees are likely to
remain attractive as a result.
Senior High Income Portfolio, Inc.
February 28, 1999
We expect the Federal Reserve Board to maintain a neutral stance
with regard to interest rates for the near term. Fixed-income
investors may be somewhat cautious while crossover investors may
increase their portfolio weighting in the bank loan market if they
foresee increasing interest rates. Flows into the high-yield bond
and loan markets have been generally positive from November 1998
through February 1999 and are likely to remain steady. We are
cautiously optimistic for a pick-up in both high-yield bond and bank
activity through the second quarter of 1999. We will continue to be
opportunistic in our high-yield bond purchases, selling overvalued
bonds and sectors and buying 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,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Joseph T. Monagle Jr.)
Joseph T. Monagle Jr.
Senior Vice President
April 16, 1999
We are pleased to announce that Richard C. Kilbride, Paul Travers
and Gilles Marchand have each been appointed Vice President and
Portfolio Manager of Senior High Income Portfolio, Inc. Mr. Kilbride
has almost 20 years experience in the fixed-income markets and has
previously served as a Managing Director of Fixed Income for Merrill
Lynch Asset Management, L.P. (MLAM) and its affiliated asset
management companies in London and in Los Angeles. Mr. Travers
joined MLAM's Bank Loan Portfolio Group last year, bringing with him
15 years of diversified professional experience in the bank loan
industry. He was previously Head of U.S. Corporate Banking in the
New York branch of BHF-BANK. Mr. Marchand has been a Bank Loan
Credit Analyst for MLAM for the last three years and has almost 10
years buy side experience in a wide range of fixed-income
securities.
These appointments follow the resignation of R. Douglas Henderson as
Senior Portfolio Manager. Mr. Henderson has left MLAM to pursue
opportunities on the sell side of the loan participation market. We
appreciate the contribution Mr. Henderson made to the growth of the
Portfolio and we wish him well for the future. We continue to have
an excellent team of portfolio managers and analysts in place, and
we look forward to building upon the successful performance of the
Portfolio to date. You will be hearing directly from Messrs.
Kilbride, Travers and Marchand in subsequent reports.
Senior High Income Portfolio, Inc.
February 28, 1999
PROXY RESULTS
During the twelve-month period ended February 28, 1999, Senior High
Income Portfolio, Inc. shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
July 9, 1998. The description of each proposal and number of shares
voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Voted
Voted For Without Authority
<S> <S> <C> <C>
1. To elect the Portfolio's Board Ronald W. Forbes 52,089,559 582,872
of Directors: Cynthia A. Montgomery 51,990,866 681,565
Charles C. Reilly 51,995,648 676,783
Kevin A. Ryan 51,991,459 680,972
Richard R. West 52,098,642 573,789
Arthur Zeikel 51,987,650 684,781
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Portfolio's
independent auditors. 51,556,675 302,212 813,544
</TABLE>
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Senior High Income Portfolio,
Inc.'s Board of Directors. We are pleased to announce that Terry K.
Glenn has been elected President and Director of the Portfolio. Mr.
Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Portfolio's Board of
Directors in wishing him well in his retirement from Merrill Lynch
and are pleased that he will continue as a member of the Portfolio's
Board of Directors.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000
Problem"). The Portfolio could be adversely affected if the computer
systems used by the Portfolio's management or other Portfolio
service providers do not properly address this problem before
January 1, 2000. The Portfolio's management expects to have
addressed this problem before then, and does not anticipate that the
services it provides will be adversely affected. The Portfolio's
other service providers have told the Portfolio's management that
they also expect to resolve the Year 2000 Problem, and the
Portfolio's management will continue to monitor the situation as the
Year 2000 approaches. However, if the problem has not been fully
addressed, the Portfolio could be negatively affected. The Year 2000
Problem could also have a negative impact on the securities in which
the Portfolio invests, and this could hurt the Portfolio's
investment returns.
Senior High Income Portfolio, Inc.
February 28, 1999
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 February 28, 1999
Quality Ratings Percent of
S&P/Moody's Long-Term Investments
BBB/Baa 0.6%
BB/Ba 23.7
B/B 45.0
CCC/Caa 1.2
CC/Ca 0.2
NR (Not Rated) 29.3
Percent of
Five Largest Industries Total Assets
Telephone Communications 8.2%
Chemicals 7.3
Metals & Mining 6.3
Hotels & Motels 5.7
Paper 5.7
Percent of
Ten Largest Holdings Total Assets
Starwood Hotels & Resorts 3.0%
Riverwood International, Inc. 1.8
Omnipoint Communications Corp. 1.5
Paper Acquisition Services 1.4
Huntsman Corp. 1.4
UCAR International, Inc. 1.3
Lyondell Chemical Company 1.2
Stone Container Corp. 1.2
Western PCS 1.1
Host Marriott Travel Plaza 1.1
Senior High Income Portfolio, Inc.
February 28, 1999
<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-- B B1 $ 1,000,000 Outdoor Systems Inc., 8.875% due
1.2% 6/15/2007 $ 992,767 $ 1,075,000
NR* NR* 4,500,000 Petry Media, Term, due 3/31/2002+++ 4,500,000 4,500,000
-------------- --------------
5,492,767 5,575,000
Agricultural B+ B1 3,000,000 Chiquita Brands International Inc.,
Products--1.1% 10.25% due 11/01/2006 2,985,140 3,097,500
B B2 2,000,000 Sun World International, Inc., 11.25%
due 4/15/2004 2,000,000 2,100,000
-------------- --------------
4,985,140 5,197,500
Aircraft & BB Ba2 2,000,000 Airplanes Pass Through Trust, 10.875%
Parts--1.0% due 3/15/2019 (d) 2,000,000 2,168,800
B+ B3 2,500,000 Derlan Manufacturing, 10% due 1/15/2007 2,478,143 2,200,000
-------------- --------------
4,478,143 4,368,800
Amusement & AMC Entertainment, Inc. (b):
Recreational B- B3 500,000 9.50% due 3/15/2009 497,601 496,250
Services--3.2% B- B3 1,475,000 9.50% due 2/01/2011 1,475,000 1,456,563
NR* NR* 1,987,500 AMF Group, Inc., Term, due 3/31/2002+++ 1,983,846 1,848,375
B B2 800,000 Carmike Cinemas Inc., 9.375% due 2/01/2009 (b) 803,000 812,000
CCC+ B3 2,000,000 Hollywood Entertainment, 10.625%
due 8/15/2004 (b) 2,000,000 2,030,000
D Ca 1,000,000 Hollywood Theatres, Inc., 10.625% due
8/01/2007 (f) 1,000,000 425,000
B+ B1 800,000 Intrawest Corp., 9.75% due 8/15/2008 824,000 825,000
Metro Goldwyn Mayer Co. (MGM)+++:
NR* NR* 441,667 Revolving Credit, due 9/30/2003 441,667 427,036
NR* NR* 4,000,000 Term A, due 12/31/2005 3,922,518 3,927,500
B B2 2,500,000 Riddell Sports Inc., 10.50% due 7/15/2007 2,353,445 2,350,000
-------------- --------------
15,301,077 14,597,724
Apparel--2.0% Arena Brands, Inc.+++:
NR* NR* 486,111 Revolving Credit, due 6/01/2002 486,111 486,111
NR* NR* 1,011,972 Term A, due 6/01/2002 1,011,972 1,011,972
NR* NR* 2,019,656 Term B, due 6/01/2002 2,019,656 2,019,656
B- B3 1,500,000 GFSI Inc., 9.625% due 3/01/2007 1,500,000 1,395,000
NR* NR* 3,990,000 Norcross Safety, Term, due 12/31/2005+++ 3,990,000 3,990,000
-------------- --------------
9,007,739 8,902,739
Automotive B+ NR* 1,417,430 Advanced Accessory Systems, Term B, due
Equipment-- 10/30/2004+++ 1,417,430 1,417,430
5.7% NR* NR* 2,000,000 American Axel, Term B, due 3/31/2007+++ 2,000,000 2,000,000
B- B3 2,500,000 Cambridge Industries Inc., 10.25% due
7/15/2007 2,082,749 1,975,000
B B2 1,000,000 Delco Remy International Inc., 10.625%
due 8/01/2006 1,000,000 1,070,000
B B2 800,000 Hayes Lemmerz International Inc., 8.25%
due 12/15/2008 (b) 800,000 804,000
B- B3 3,635,000 Key Plastics, Inc., 10.25% due 3/15/2007 3,612,071 3,544,125
B- B3 1,500,000 Newcor Inc., 9.875% due 3/01/2008 1,500,000 1,335,000
Safelite Glass Corp.+++:
BB- B2 2,061,429 Term B, due 12/23/2003 2,018,913 2,020,844
BB- B2 2,061,429 Term C, due 12/23/2004 2,018,634 2,020,844
B- B3 1,600,000 Special Devices Inc., 11.375% due
12/15/2008 (b) 1,600,000 1,616,000
B- B2 1,000,000 Trident Automotive, 10% due 12/15/2005 1,000,000 1,020,000
B+ B2 3,325,000 Venture Holdings Trust, 9.50% due
7/01/2005 3,330,000 3,225,250
B+ B2 4,000,000 Walbro Corp., Series B, 9.875% due
7/15/2005 3,992,184 3,920,000
-------------- --------------
26,371,981 25,968,493
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Broadcast B B2 $ 2,875,000 Ackerley Group Inc., 9% due
Radio & TV 1/15/2009 (b) $ 2,960,500 $ 2,946,875
- --2.5% B- B3 1,000,000 ++Acme Television/Finance, 10.875%
due 9/30/2004 845,675 840,000
B- B3 3,000,000 Albritton Communications, 9.75% due
11/30/2007 2,928,549 3,210,000
Young Broadcasting Corporation:
B B2 2,000,000 10.125% due 2/15/2005 2,000,000 2,120,000
B B2 2,000,000 9% due 1/15/2006 1,950,260 2,060,000
-------------- --------------
10,684,984 11,176,875
Building & B- B2 1,525,000 Webb (Del E.) Corp., 10.25% due 2/15/2010 1,500,481 1,519,281
Construction--
0.3%
Building Dal Tile International, Inc.+++:
Materials--2.7% NR* NR* 1,582,888 Revolving Credit, due 12/31/2002 1,549,381 1,517,594
NR* NR* 2,192,513 Term, due 12/31/2003 2,158,045 2,107,553
B+ B+ 5,484,195 Falcon, Term, due 6/30/2005+++ 5,484,195 5,477,340
Paint Sundry+++:
NR* NR* 886,076 Term, due 8/11/2008 886,076 886,076
NR* NR* 606,076 Term B, due 8/11/2005 606,076 606,076
NR* NR* 504,810 Term C, due 8/11/2006 504,810 504,810
B B2 1,000,000 Republic Group Inc., 9.50% due 7/15/2008 1,000,000 1,012,500
-------------- --------------
12,188,583 12,111,949
Cable B+ NR* 2,000,000 Avalon Cable, Term B, due 10/31/2006+++ 1,985,416 2,015,000
Television CSC Holdings Inc.:
Services--3.6% BB+ Ba2 800,000 7.25% due 7/15/2008 800,000 803,616
BB+ Ba2 1,000,000 7.625% due 7/15/2018 999,023 999,650
B B3 1,000,000 Coaxial Communications/Phoenix, 10% due
8/15/2006 1,052,500 1,060,000
BB+ Ba3 3,000,000 Lenfest Communications, Inc., 8.375% due
11/01/2005 2,993,339 3,240,000
BB+ Ba3 1,500,000 Multicanal SA, 10.50% due 4/15/2018 1,507,500 1,155,000
CCC+ B3 500,000 Park N View Inc., 13% due 5/15/2008 469,404 400,000
NR* B3 1,225,000 ++RCN Corp., 11% due 7/01/2008 769,681 661,500
CCC B3 1,575,000 Supercanal Holdings SA, 11.50% due
5/15/2005 (b) 1,575,000 685,125
B+ B1 5,000,000 Telewest Communications PLC, 9.625% due
10/01/2006 5,000,000 5,375,000
-------------- --------------
17,151,863 16,394,891
Chemicals-- BB- B1 3,000,000 Acetex Corp., 9.75% due 10/01/2003 2,991,286 2,970,000
10.6% NR* NR* 5,000,000 Epsilon Products, Term B, due
12/31/2005+++ 5,000,000 5,000,000
BBB- Baa3 2,000,000 Equistar Chemicals LP, 8.75% due
2/15/2009 (b) 1,994,372 2,042,500
NR* NR* 2,713,393 Exide Corp., Term B, due 3/19/2005+++ 2,663,395 2,669,301
Foamex L.P.+++:
B Ba3 3,544,874 Term B, due 6/30/2005 3,541,181 3,504,994
B Ba3 3,222,613 Term C, due 6/30/2006 3,219,151 3,191,393
Huntsman Corp.:
B+ B2 6,000,000 8.33% due 7/01/2007 (b) 6,000,000 5,640,000
NR* NR* 3,477,209 Term, due 12/31/2002+++ 3,473,294 3,425,051
BB NR* 5,000,000 Huntsman Specialty Chemicals, Term,
due 3/15/2007+++ 5,106,250 4,931,250
BB- Ba3 2,500,000 ISP Holdings Inc., 9% due 10/15/2003 2,494,921 2,593,750
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Chemicals NR* NR* $ 8,154,719 Lyondell Chemical Company, Term B, due
(concluded) 6/30/2005+++ $ 8,167,896 $ 7,920,270
NR* NR* 4,069,918 Vinings Industries, Term B, due
3/31/2005+++ 4,069,918 4,069,918
-------------- --------------
48,721,664 47,958,427
Consumer B+ Ba3 3,927,778 Boyds Collection Ltd., Term B, due
Products--3.7% 4/21/2006+++ 3,918,865 3,920,413
B+ B2 1,000,000 Evenflo Co. Inc., 11.75% due
8/15/2006 (b) 1,000,000 1,020,000
B B3 1,050,000 Home Products International Inc., 9.625%
due 5/15/2008 1,050,000 1,029,000
BB- Ba3 1,250,000 Polaroid Corporation, 11.50% due 2/15/2006 1,250,000 1,284,375
NR* NR* 4,500,000 Samsonite Corporation, Term, due
6/24/2005+++ 4,494,748 4,342,500
B+ B2 1,490,000 Scotts Company, 8.625% due 1/15/2009 (b) 1,490,000 1,534,700
B+ Ba3 3,500,000 Shop Vac Corp., 10.625% due 9/01/2003 3,741,875 3,828,125
-------------- --------------
16,945,488 16,959,113
Diversified NR* NR* 5,000,000 Bridge Information, Term B, due
- --2.2% 5/29/2005+++ 4,988,523 4,990,625
NR* Ba3 5,000,000 Superior/Essex Corp., Term, due
11/27/2006+++ 4,950,656 4,965,625
-------------- --------------
9,939,179 9,956,250
Drilling--2.1% BB+ Ba2 4,000,000 Cliffs Drilling, 10.25% due 5/15/2003 4,325,000 4,080,000
BBB- Ba3 2,000,000 Falcon Drilling Co. Inc., 9.75% due
1/15/2001 2,115,000 1,960,000
B+ B1 2,475,000 Parker Drilling Co., 9.75% due 11/15/2006 2,123,752 1,881,000
BB+ Ba3 1,727,718 Rigco North America, Term, due
3/30/1999+++ 1,727,718 1,727,718
-------------- --------------
10,291,470 9,648,718
Drug/ B+ B1 2,475,000 Duane Reade Co., Term B, due 2/15/2005+++ 2,468,161 2,465,719
Proprietary
Stores--0.5%
Educational B- B3 1,050,000 La Petite Academy/LPA Holdings, 10% due
Services--0.2% 5/15/2008 1,050,000 1,023,750
Electronics/ B B2 3,232,000 Advanced Glassfiber Yarn, 9.875% due
Electrical 1/15/2009 (b) 3,167,759 3,256,240
Components-- B B2 1,613,000 BGF Industries Inc., 10.25% due
2.8% 1/15/2009 (b) 1,580,935 1,629,130
Dynatech Corp.+++:
B+ NR* 1,660,671 Term B Prime, due 3/31/2005 1,660,671 1,662,747
B+ NR* 1,660,671 Term C Prime, due 3/31/2006 1,660,671 1,662,747
B+ NR* 1,660,671 Term D Prime, due 3/31/2007 1,660,671 1,662,747
B- B3 2,000,000 Federal Data Corp., 10.125% due 8/01/2005 2,000,000 1,960,000
B+ B3 1,000,000 High Voltage Engineering, 10.50% due
8/15/2004 1,000,000 950,000
-------------- --------------
12,730,707 12,783,611
Energy--6.8% B B1 2,000,000 Belco Oil & Gas Corp., 8.875% due
9/15/2007 2,000,000 1,860,000
B- B3 2,500,000 Bellwether Exploration, 10.875% due
4/01/2007 2,500,000 2,537,500
BB Ba3 5,000,000 Clark Refining, Term, due 11/15/2004+++ 5,000,000 4,600,000
CCC Caa1 1,000,000 Continental Resources, 10.25% due 8/01/2008 1,000,000 780,000
B B2 1,000,000 Cross Timbers Oil Company, 8.75% due
11/01/2009 1,000,000 885,000
B B2 1,500,000 Energy Corp. of America, 9.50% due
5/15/2007 1,500,000 1,387,500
NR* Ba2 5,000,000 Ferrell Companies, Inc., Term C, due
6/17/2006+++ 5,000,000 5,000,000
CCC- Caa2 1,000,000 Forcenergy, Inc., 8.50% due 2/15/2007 987,620 360,000
B B2 2,000,000 Forest Oil Corporation, 10.50% due
1/15/2006 1,976,369 2,010,000
CCC+ B3 1,850,000 Gothic Production Corp., 11.125% due
5/01/2005 1,850,000 1,332,000
BB- Ba2 2,000,000 Gulf Canada Resources Ltd., 9.25% due
1/15/2004 2,105,000 1,997,180
B- B3 2,000,000 Kelly Oil & Gas Corp., 10.375% due
10/15/2006 1,995,765 1,280,000
B+ B1 2,000,000 Nuevo Energy Co., 8.875% due 6/01/2008 1,910,300 1,840,000
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Energy B+ B2 $ 1,000,000 Snyder Oil Corp., 8.75% due 6/15/2007 $ 1,002,500 $ 995,000
(concluded) BB- B1 2,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 1,989,060 1,920,000
B+ B1 2,000,000 Vintage Petroleum, Inc., 8.625% due
2/01/2009 1,984,978 1,850,000
-------------- --------------
33,801,592 30,634,180
Financial NR* NR* 500,000 InvestCorp., due 10/21/2008+++ 500,000 500,000
Services--0.7% B+ Ba3 2,475,000 Willis Corroon Corporation, 9% due
2/01/2009 (b) 2,475,000 2,475,000
-------------- --------------
2,975,000 2,975,000
Food & Kindred B+ B1 2,100,000 Canandaigua Brands Inc., 8.50% due
Products--2.8% 3/01/2009 2,100,000 2,100,000
Favorite Brands International:
B- B3 5,000,000 10.25% due 8/20/2007 4,971,623 2,125,000
B B2 3,104,167 Term B, due 5/19/2005+++ 3,099,891 2,809,271
B- B3 3,000,000 Nebco Evans, 10.125% due 7/15/2007 3,000,000 2,400,000
B B2 3,000,000 SC International Services, Inc., 9.25%
due 9/01/2007 3,053,811 3,060,000
-------------- --------------
16,225,325 12,494,271
Forest B B3 4,500,000 Ainsworth Lumber Company, 12.50% due
Products--4.5% 7/15/2007 (c) 4,487,254 4,522,500
BB Ba3 1,000,000 Malette Inc., 12.25% due 7/15/2004 1,000,000 1,068,750
B+ B3 550,000 Millar Western Forest, 9.875% due 5/15/2008 550,000 451,000
NR* NR* 5,000,000 Strategic Timber Inc., Bridge Loan, due
10/27/1999+++ 5,000,000 5,000,000
BB Ba3 6,000,000 Tembec Finance Corporation, 9.875% due
9/30/2005 6,110,000 6,360,000
B B3 4,000,000 Uniforet Inc., 11.125% due 10/15/2006 4,000,000 2,920,000
-------------- --------------
21,147,254 20,322,250
Furniture & B- B3 3,150,000 Formica Corp., 10.875% due 3/01/2009 (b) 3,150,000 3,130,313
Fixtures--0.9% Sealy Mattress+++:
NR* NR* 370,522 Axel B, due 12/15/2004 375,617 370,754
NR* NR* 266,871 Axel C, due 12/15/2005 270,541 267,038
NR* NR* 341,035 Axel D, due 12/15/2006 345,725 341,248
-------------- --------------
4,141,883 4,109,353
Gaming--2.2% NR* NR* 679,688 ++Harrah's Jazz Casino, 0% due 10/01/2002 (f) 679,688 679,688
BB+ Ba2 1,200,000 Harrah's Operating Co. Inc., 7.875% due
12/15/2005 1,200,000 1,200,000
B B2 1,500,000 Harvey Casino Resorts, 10.625% due
6/01/2006 1,500,000 1,563,750
B B2 1,275,000 Hollywood Park Inc., 9.25% due
2/15/2007 (b) 1,275,000 1,279,781
BB- Ba3 1,400,000 Mohegan Tribal Gaming Authority, 8.75%
due 1/01/2009 (b) 1,400,000 1,400,000
BB+ Ba2 2,550,000 Park Place Entertainment, 7.875% due
12/15/2005 (b) 2,550,000 2,499,000
B B2 1,700,000 Trump Atlantic City Associates/Funding
Inc., 11.25% due 5/01/2006 1,458,290 1,445,000
-------------- --------------
10,062,978 10,067,219
Grocery B B3 5,000,000 Grand Union, Term, due 8/17/2003+++ 4,975,895 5,018,750
Stores--1.7% B NR* 2,880,472 Star Markets Co., Inc., Term C, due
12/31/2002+++ 2,876,286 2,878,671
-------------- --------------
7,852,181 7,897,421
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Healthcare B- B3 $ 1,500,000 Alliance Imaging Inc., 9.233% due
Providers 12/15/2005 $ 1,500,000 $ 1,462,500
- --7.0% Community Health Care Inc.+++:
NR* NR* 1,773,973 Term B, due 12/31/2003 1,767,631 1,765,103
NR* NR* 1,773,973 Term C, due 12/31/2004 1,767,200 1,765,103
NR* NR* 1,328,767 Term D, due 12/31/2005 1,323,450 1,322,123
CC Caa1 550,000 Graham Field Health PDS, 9.75% due
8/15/2007 (b) 578,750 319,000
Integrated Health Services, Inc.:
CCC B2 3,000,000 9.50% due 9/15/2007 3,000,000 2,190,000
B+ NR* 4,950,000 Term B, due 9/15/2004+++ 4,939,736 4,368,375
Mariner/Paragon Health Network+++:
NR* Ba3 2,495,000 Term B, due 3/31/2005 2,492,847 1,971,050
NR* Ba3 2,495,000 Term C, due 3/31/2006 2,492,790 1,971,050
Paracelsus Healthcare Corp.+++:
NR* NR* 1,344,000 Term A, due 3/31/2003 1,344,000 1,344,000
NR* NR* 2,000,000 Term B, due 3/31/2004 2,000,000 2,000,000
Sun Healthcare Group Inc.+++:
NR* NR* 1,372,726 Term B, due 11/12/2004 1,370,975 1,046,704
NR* NR* 1,372,726 Term C, due 11/12/2005 1,370,921 1,046,704
Tenet Healthcare Corp.:
BB- Ba3 2,500,000 8.625% due 1/15/2007 2,497,736 2,500,000
BB- Ba3 1,575,000 8.125% due 12/01/2008 (b) 1,569,184 1,575,000
NR* NR* 4,950,000 Total Renal Care Holdings, Term, due
3/31/2008+++ 4,944,183 4,844,813
-------------- --------------
34,959,403 31,491,525
Hotels & B- B2 6,000,000 Extended Stay America, 9.15% due
Motels--8.3% 3/15/2008 6,000,000 5,820,000
HMH Properties, Inc.:
BB Ba2 2,500,000 7.875% due 8/01/2008 2,484,420 2,381,250
BB Ba2 1,600,000 8.45% due 12/01/2008 1,594,700 1,568,000
NR* NR* 4,864,371 Patriot American, Revolving Credit, due
7/18/2000+++ 4,815,941 4,811,167
BB Ba2 3,000,000 Prime Hospitality Corporation, 9.25% due
1/15/2006 2,992,375 3,120,000
NR* NR* 20,000,000 Starwood Hotels & Resorts, Bridge Loan,
due 2/23/2003+++ 19,987,399 19,993,750
-------------- --------------
37,874,835 37,694,167
Leasing & B+ NR* 5,000,000 MEDIQ Life Support Services, Inc.,
Rental Term, due 6/30/2006+++ 5,025,000 4,993,750
Services National Equipment Services:
- --3.5% B B3 500,000 10% due 11/30/2004 (b) 489,441 510,000
B B3 1,000,000 10% due 11/30/2004 989,302 1,020,000
B B3 500,000 Neff Corp., 10.25% due 6/01/2008 (b) 492,684 495,000
Renters Choice Inc.+++:
NR* NR* 1,924,063 Term B, due 1/31/2006 1,922,249 1,924,063
NR* NR* 2,351,632 Term C, due 1/31/2007 2,349,499 2,351,632
B B3 1,000,000 Universal Hospital Services, 10.25%
due 3/01/2008 (b) 850,803 890,000
NR* Ba3 3,491,250 William Scotsman, Term, due 5/21/2005+++ 3,491,250 3,499,978
-------------- --------------
15,610,228 15,684,423
Manufacturing B- B2 500,000 Fairfield Manufacturing, 11.375% due
- --1.6% 7/01/2001 526,000 515,000
B- B2 900,000 Globe Manufacturing Corp., 10% due
8/01/2008 (b) 900,000 792,000
B- B3 1,250,000 Russell-Stanley Holdings Inc., 10.875%
due 2/15/2009 (b) 1,240,626 1,225,000
NR* Ba3 4,987,437 Terex Corp., Term B, due 3/06/2005+++ 4,963,096 4,965,617
-------------- --------------
7,629,722 7,497,617
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Measuring, NR* NR* $ 3,687,503 CHF/Ebel USA, Inc., Term B, due
Analyzing & 9/30/2001+++ $ 3,687,503 $ 3,687,503
Controlling
Instruments
- --0.8%
Medical Dade International Inc.+++:
Equipment--2.2% NR* NR* 1,295,651 Term B, due 12/31/2002 1,298,890 1,294,841
NR* NR* 1,295,651 Term C, due 12/31/2003 1,298,890 1,294,841
NR* NR* 1,367,105 Term D, due 12/31/2004 1,370,523 1,366,251
Imed Corp. (Alaris)+++:
B+ B1 1,284,559 Term B, due 11/01/2003 1,284,559 1,281,348
B+ B1 1,284,559 Term C, due 11/01/2004 1,284,559 1,281,348
B+ B1 1,205,838 Term D, due 5/01/2005 1,205,838 1,202,823
B+ Ca3 2,000,000 Physician Sales & Service, 8.50% due
10/01/2007 2,020,718 2,080,000
-------------- --------------
9,763,977 9,801,452
Metals & NR* NR* 2,952,381 Adience Refractory Inc., Term B, due
Mining--9.1% 10/17/2005+++ 2,952,381 2,952,381
CCC Caa1 3,000,000 Anker Coal Group, Inc., 9.75% due
10/01/2007 3,015,000 1,650,000
B B1 850,000 Bayou Steel Corp., 9.50% due 5/15/2008 842,299 828,750
NR* B2 2,000,000 CSN Iron SA, 9.125% due 6/01/2007 (b) 1,992,015 1,380,000
B B2 2,000,000 Continental Global Group, 11% due
4/01/2007 2,000,000 1,660,000
GS Technologies Operating Co.:
B B2 1,000,000 12% due 9/01/2004 994,499 675,000
B B2 1,000,000 12.25% due 10/01/2005 1,000,000 675,000
D Ca 1,000,000 Geneva Steel, 9.50% due 1/15/2004 (f) 945,522 210,000
Ispat International N.V.+++:
BB Ba3 1,840,750 Term B, due 7/15/2005 1,838,611 1,769,421
BB Ba3 1,840,750 Term C, due 7/15/2006 1,838,583 1,769,421
B+ B1 3,500,000 Ivaco, Inc., 11.50% due 9/15/2005 3,441,557 3,500,000
NR* Ba2 4,923,077 Kopper Industries Inc., Term B, due
12/01/2004+++ 4,917,771 4,898,462
CCC+ Caa1 1,600,000 Metal Management Inc., 10% due 5/15/2008 1,600,000 1,016,000
B+ B2 875,000 Pen Holdings Inc., 9.875% due 6/15/2008 868,443 879,375
B B2 3,000,000 Renco Metals Inc., 11.50% due 7/01/2003 3,007,500 3,135,000
UCAR International, Inc.+++:
B B2 3,400,000 Term B, due 12/31/2002 3,397,554 3,391,500
B B2 5,000,000 Term C, due 12/31/2003 4,987,699 5,012,500
NR* Ba3 6,000,000 Wheeling-Pittsburg Steel Corp., Term,
due 11/15/2006+++ 6,014,943 5,767,500
-------------- --------------
45,654,377 41,170,310
On-Line B- B3 750,000 Verio Inc., 11.25% due 12/01/2008 (b) 750,000 806,250
Services--0.2%
Packaging--2.1% B+ B2 4,000,000 Anchor Glass, 11.25% due 4/01/2005 4,000,000 4,180,000
BB- B1 675,000 Consumers Packaging Inc., 9.75% due
2/01/2007 (b) 675,000 696,094
B- B3 1,000,000 Fonda Group Inc., 9.50% due 3/01/2007 1,000,000 845,000
B+ B3 2,000,000 Printpack Inc., 9.875% due 8/15/2004 2,000,000 1,970,000
B B3 2,000,000 Spinnaker Industries Inc., 10.75% due
10/15/2006 2,000,000 1,705,000
-------------- --------------
9,675,000 9,396,094
Paper--8.3% CCC Caa2 1,500,000 Four M Corp., 12% due 6/01/2006 1,500,000 1,140,000
B- B3 3,000,000 Gaylord Container Corp., 9.75% due
6/15/2007 3,000,000 2,865,000
NR* NR* 9,312,380 Paper Acquisition Services, Term, due
6/08/2001+++ 9,280,163 9,265,818
NR* NR* 5,000,000 Repap New Brunswick, Inc., Term B, due
6/01/2004+++ 5,000,000 4,787,500
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Paper Riverwood International, Inc.+++:
(concluded) NR* NR* $ 8,444,549 Term B, due 2/28/2004 $ 8,354,924 $ 8,476,216
NR* NR* 3,377,286 Term C, due 8/31/2004 3,340,025 3,389,951
NR* NR* 7,639,522 Stone Container Corp., Term B, due
4/01/2000+++ 7,600,622 7,658,621
-------------- --------------
38,075,734 37,583,106
Pharmaceutical NR* NR* 4,995,192 Sterling Diagnostics, Term B, due
Life Sciences 9/30/2005+++ 4,995,192 4,995,192
& Labs--1.1%
Printing & Big Flower Press Holdings:
Publishing B+ B2 1,000,000 8.875% due 7/01/2007 992,719 1,025,000
- --2.0% B+ B2 1,375,000 8.625% due 12/01/2008 (b) 1,375,000 1,388,750
B+ B1 1,325,000 Mail-Well Corp., 8.75% due 12/15/2008 (b) 1,322,224 1,358,125
B- B3 1,275,000 Phoenix Color Corporation, 10.375% due
2/01/2009 (b) 1,275,000 1,297,313
B B3 800,000 Premier Graphics Inc., 11.50% due
12/01/2005 (b) 800,000 780,000
B- B3 900,000 Regional Independent Media, 10.50% due
7/01/2008 900,000 900,000
B- B3 1,500,000 T/SF Communications Corp., 10.375% due
11/01/2007 1,479,229 1,545,000
BB- B1 750,000 World Color Press Inc., 8.375% due
11/15/2008 (b) 750,000 750,000
-------------- --------------
8,894,172 9,044,188
Property BB- Ba3 2,000,000 Forest City Enterprises Inc., 8.50% due
Management--0.4% 3/15/2008 2,000,000 2,020,000
Refineries-- B- B3 2,000,000 United Refining Co., 10.75% due 6/15/2007 2,000,000 1,400,000
Petroleum--0.3%
Restaurants-- Dominos Inc. & Bluefence Inc.+++:
2.9% B+ NR* 912,500 Term B, due 12/21/2006 903,528 914,211
B+ NR* 912,500 Term C, due 12/21/2007 903,502 913,070
BB- Ba3 7,000,000 Host Marriott Travel Plaza, 9.50% due
5/15/2005 6,856,791 7,315,000
NR* NR* 3,976,097 Shoney's Inc., Term B, due 4/30/2002+++ 3,976,097 3,976,097
-------------- --------------
12,639,918 13,118,378
Retail NR* NR* 4,000,000 Asbury Automotive, due 3/31/2005+++ 4,000,000 4,000,000
Specialty--1.6% B B3 1,575,000 TM Group Holdings, 11% due 5/15/2008 (b) 1,575,000 1,590,750
B- Caa1 2,000,000 United Auto Group, Inc., 11% due
7/15/2007 1,973,423 1,540,000
-------------- --------------
7,548,423 7,130,750
Satellite Tele- Echostar DBS Corp.(b):
communications B B2 700,000 9.25% due 2/01/2006 700,000 708,750
Distribution B B2 3,275,000 9.375% due 2/01/2009 3,275,000 3,283,188
Systems--2.0% B- B3 350,000 Pegasus Communications, 9.75% due
12/01/2006 (b) 350,000 365,750
NR* B1 4,986,000 Satelites Mexicanos SA, 9.03% due
6/30/2004 (b) 4,975,049 4,636,980
-------------- --------------
9,300,049 8,994,668
Shipbuilding & B+ B1 4,000,000 Newport News Shipbuilding, Inc., 9.25% due
Repairing--1.0% 12/01/2006 4,000,000 4,360,000
Shipping--1.9% BB- Ba3 4,500,000 Eletson Holdings, Inc., 9.25% due
11/15/2003 4,414,669 4,320,000
B+ Ba3 1,525,000 Enterprises Shipholding, 8.875% due
5/01/2008 1,521,669 1,204,750
BB Ba2 3,000,000 Stena AB, 10.50% due 12/15/2005 3,000,000 3,120,000
-------------- --------------
8,936,338 8,644,750
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Textile Mill B B3 $ 3,000,000 Galey & Lord, Inc., 9.125% due
Products--1.0% 3/01/2008 $ 3,030,000 $ 2,265,000
BB Ba3 2,050,000 Westpoint Stevens Inc., 7.875% due
6/15/2008 2,024,159 2,126,875
-------------- --------------
5,054,159 4,391,875
Transportation- D Ca 4,000,000 Ameritruck Distribution Corp., 12.25%
Services--1.9% due 11/15/2005 (f) 3,964,991 320,000
NR* NR* 4,405,405 Atlas Freight, Term, due 5/29/2004+++ 4,396,635 4,401,275
BB- NR* 2,000,000 Autopistas del Sol SA, 10.25% due
8/01/2009 (b) 2,035,000 1,500,000
MRS Logistica SA (b):
B NR* 2,000,000 9% due 8/15/2005 1,993,499 1,210,000
B NR* 500,000 10.625% due 8/15/2005 495,078 225,000
B- Caa2 1,600,000 Trism Inc., 10.75% due 12/15/2000 1,481,612 784,000
-------------- --------------
14,366,815 8,440,275
Utilities--1.0% B+ Ba1 4,500,000 AES Corporation, 8.50% due 11/01/2007 4,467,681 4,443,750
Waste BB Ba2 1,500,000 Allied Waste North America, 7.875% due
Management-- 1/01/2009 (b) 1,497,422 1,511,250
1.1% BB- B3 3,000,000 ++Norcal Waste Systems, 12.50% due
11/15/2005 2,933,339 3,375,000
-------------- --------------
4,430,761 4,886,250
Wired NR* NR* 3,350,000 ++E.Spire Communications, 10.52% due
Telecommun- 7/01/2008 2,154,062 1,222,750
ications--4.4% B B3 500,000 Hermes Europe Railtel BV, 10.375% due
1/15/2009 (b) 500,000 531,250
Level 3 Communications:
B B3 2,850,000 9.125% due 5/01/2008 2,838,644 2,800,125
B B3 1,225,000 ++10.50% due 12/01/2008 (b) 752,984 713,563
B+ B2 2,500,000++McLeodUSA Inc., 8.686% due 3/01/2007 1,838,614 1,981,250
B B2 750,000 Metromedia Fiber Network, 10% due
11/15/2008 (b) 750,000 780,000
Metronet Communications:
B B3 2,000,000 12% due 8/15/2007 (e) 1,981,361 2,260,000
B B3 1,675,000 ++9.95% due 6/15/2008 1,103,893 1,147,375
Primus Telecommunications Group:
B- B3 800,000 11.75% due 8/01/2004 828,000 824,000
B- B3 1,475,000 11.25% due 1/15/2009 (b) 1,475,000 1,497,125
RSL Communications PLC:
B- B2 3,000,000 9.125% due 3/01/2008 3,000,000 2,805,000
B- B2 3,000,000 ++9.887% due 3/01/2008 2,054,963 1,702,500
B- B3 1,500,000 Worldwide Fiber Inc., 12.50% due
12/15/2005 (b) 1,500,000 1,552,500
-------------- --------------
20,777,521 19,817,438
Wireless American Cellular+++:
Telecommun- NR* B2 2,500,000 Term B, due 6/30/2007 2,500,000 2,500,000
ications--11.9% NR* B2 2,500,000 Term C, due 9/30/2007 2,500,000 2,500,000
NR* NR* 4,000,000 American Tower Systems Co., Term, due
12/16/2006+++ 4,000,000 4,000,000
Cellular Finance Inc.+++:
NR* Ba3 586,527 Term B, due 9/30/2006 584,661 587,993
NR* Ba3 1,161,440 Term C, due 3/31/2007 1,157,715 1,164,344
NR* Ba3 3,252,033 Term D, due 9/30/2007 3,241,514 3,260,163
NR* B2 5,000,000 Iridium Operating LLC, Term, due
12/29/2000+++ 4,936,539 4,887,500
CCC+ Caa1 3,000,000 ++McCaw International Ltd., 13.355% due
4/15/2007 1,977,653 1,680,000
B- B1 7,000,000 Nextel Communications, Term C, due
3/31/2007+++ 6,887,867 7,017,500
B B3 2,500,000 Nextlink Communications, 9% due 3/15/2008 2,495,274 2,362,500
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
<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>
Wireless Omnipoint Communications Corp.+++:
Telecommun- NR* B2 $ 5,765,430 Term A, due 2/17/2006 $ 5,760,205 $ 5,188,887
ications NR* B2 1,930,184 Term B, due 2/17/2006 1,928,435 1,737,166
(concluded) NR* B2 3,101,563 Term C, due 2/17/2006 3,087,548 2,791,406
NR* B3 1,000,000 ++PTC International Finance BV, 10.269%
due 7/01/2007 724,814 720,000
NR* NR* 5,000,000 Telecorp PCS, Inc., Term B, due
1/15/2008+++ 4,990,438 4,950,000
CCC+ Caa1 2,000,000 ++Telesystem International Wireless
Inc., 13.246% due 6/30/2007 1,303,758 880,000
NR* NR* 7,500,000 Western PCS, Term B, due 6/30/2007+++ 7,467,579 7,492,969
-------------- --------------
55,544,000 53,720,428
Total Corporate Debt Obligations--142.6% 674,151,448 645,328,923
Shares
Held Equity Investments
Cable Television 500 Park N View (Warrants) (a) 31,000 17,506
Services--0.0% 615,733 Supercanal Holdings SA (Warrants) (a) 0 0
-------------- --------------
31,000 17,506
Financial Services--0.0% 1,500 Olympic Financial Limited (Warrants) (a) 25,650 7,500
Leasing & Rental Services--0.1% 13,398 CORT Business Services Corporation (f) 3,037 221,904
Metals & Mining--0.0% 3,000 Gulf States Steel (Warrants) (a)(b) 33,000 900
Telephone 1,000 Unifi Communications (Warrants) (a)(b) 56,590 10
Communications--0.0%
Wired Telecommunications--0.0% 2,000 Metronet Communications (Warrants) (a)(b) 20,500 145,304
Wireless Telecommunications--0.0% 3,000 McCaw International Ltd. (Warrants) (a)(b) 46,799 7,500
Total Equity Investments--0.1% 216,576 400,624
Face
Amount Short-Term Investments
Commercial Paper**--0.2% $ 897,000 General Electric Capital Corp., 4.875% due
3/01/1999 897,000 897,000
Total Short-Term Investments--0.2% 897,000 897,000
Total Investments--142.9% $ 675,265,024 646,626,547
==============
Liabilities in Excess of Other Assets--(42.9%) (194,067,559)
--------------
Net Assets--100.0% $ 452,558,988
==============
<FN>
*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 73.1% of the Fund's net
assets.
(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/shares.
(d)Pass-through security is subject to principal paydowns.
(e)Each $1,000 face amount contains one warrant of Metronet
Communications.
(f)Non-income producing security.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$675,265,024) (Note 1b) $ 646,626,547
Cash 302,155
Receivables:
Interest $ 10,476,692
Principal paydowns 877,143 11,353,835
-------------
Deferred facility fees 7,322
Prepaid expenses and other assets 64,231
-------------
Total assets 658,354,090
-------------
Liabilities: Payables:
Loans (Note 6) 199,000,000
Securities purchased 3,500,000
Interest on loans (Note 6) 1,854,765
Dividends to shareholders (Note 1f) 790,647
Investment adviser (Note 2) 249,971
Commitment fees 12,294 205,407,677
-------------
Deferred income (Note 1e) 256,138
Accrued expenses and other liabilities 131,287
-------------
Total liabilities 205,795,102
-------------
Net Assets: Net assets $ 452,558,988
=============
Capital: Common Stock, par value $.10 per share; 200,000,000 shares
authorized (53,870,134 shares issued and outstanding) $ 5,387,013
Paid-in capital in excess of par 501,426,423
Undistributed investment income--net 3,530,425
Accumulated realized capital losses on investments--net (Note 7) (29,146,396)
Unrealized depreciation on investments--net (28,638,477)
-------------
Total Capital--Equivalent to $8.40 net asset value per share of
Common Stock (market price--$8.125) $ 452,558,988
=============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
February 28, 1999
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 60,155,089
(Note 1e): Facility and other fees 696,655
-------------
Total income 60,851,744
-------------
Expenses: Loan interest expense (Note 6) $ 9,893,320
Investment advisory fees (Note 2) 3,232,352
Borrowing costs (Note 6) 348,881
Professional fees 253,807
Accounting services (Note 2) 159,154
Transfer agent fees (Note 2) 77,950
Custodian fees 65,405
Printing and shareholder reports 42,723
Directors' fees and expenses 38,125
Pricing services 13,640
Listing fees 9,264
Other 11,093
-------------
Total expenses 14,145,714
-------------
Investment income--net 46,706,030
-------------
Realized & Realized loss on investments--net (9,257,432)
Unrealized Change in unrealized appreciation/depreciation on investments--net (42,080,592)
Loss on -------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (4,631,994)
(Notes 1c, =============
1e & 3):
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended February 28,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 46,706,030 $ 48,201,118
Realized gain (loss) on investments--net (9,257,432) 3,698,086
Change in unrealized appreciation/depreciation on investments
--net (42,080,592) 3,855,886
------------- -------------
Net increase (decrease) in net assets resulting from operations (4,631,994) 55,755,090
------------- -------------
Dividends to Investment income--net (47,373,187) (47,759,736)
Shareholders ------------- -------------
(Note 1f): Net decrease in net assets resulting from dividends to
shareholders (47,373,187) (47,759,736)
------------- -------------
Capital Share Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 8,087,161 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 8,087,161 11,311,708
------------- -------------
Net Assets: Total increase (decrease)in net assets (43,918,020) 19,307,062
Beginning of year 496,477,008 477,169,946
------------- -------------
End of year* $ 452,558,988 $ 496,477,008
============= =============
<FN>
*Undistributed investment income--net $ 3,530,425 $ 4,197,582
============= =============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Year Ended
February 28, 1999
<S> <S> <C>
Cash Provided by Net decrease in net assets resulting from operations $ (4,631,994)
Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Increase in receivables 947,080
Decrease in other assets (19,734)
Decrease in other liabilities (437,420)
Realized and unrealized gain on investments--net 51,338,024
Amortization of discount--net (2,579,199)
-------------
Net cash provided by operating activities 44,616,757
-------------
Cash Used for Proceeds from sales of long-term investments 444,767,511
Investing Purchases of long-term investments (467,610,991)
Activities: Purchases of short-term investments (140,796,743)
Proceeds from sales and maturities of short-term investments 140,021,000
-------------
Net cash used for investing activities (23,619,223)
-------------
Cash Used for Cash receipts of borrowings 413,800,000
Financing Cash payments on borrowings (396,000,000)
Activities: Dividends paid to shareholders (38,495,379)
-------------
Net cash used for financing activities (20,695,379)
-------------
Cash: Net increase in cash 302,155
Cash at beginning of year --
-------------
Cash at end of year $ 302,155
=============
Cash Flow Cash paid for interest $ 9,992,808
Information: =============
Noncash Value of capital shares issued in reinvestment of dividends paid to
Financing shareholders $ 8,087,161
Activities: =============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
FINANCIAL INFORMATION (CONCLUDED)
<TABLE>
Financial Highlights
<CAPTION>
For the For the
The following per share data and ratios have been derived Year Year
from information provided in the financial statements. For the Year Ended Ended Ended
February 28, Feb. 29, Feb. 28,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.37 $ 9.22 $ 9.21 $ 8.94 $ 9.82
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .87 .92 .89 .92 .90
Realized and unrealized gain (loss) on
investments--net (.95) .14 .04 .27 (.87)
-------- -------- -------- -------- --------
Total from investment operations (.08) 1.06 .93 1.19 .03
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.89) (.91) (.92) (.92) (.84)
Realized gain on investments--net -- -- -- -- (.07)
-------- -------- -------- -------- --------
Total dividends and distributions (.89) (.91) (.92) (.92) (.91)
-------- -------- -------- -------- --------
Net asset value, end of year $ 8.40 $ 9.37 $ 9.22 $ 9.21 $ 8.94
-------- -------- -------- -------- --------
Market price per share, end of year $ 8.125 $ 10.125 $ 9.50 $ 9.25 $ 8.625
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.87%) 11.95% 10.80% 14.14% .81%
Return:* ======== ======== ======== ======== ========
Based on market price per share (11.26%) 17.41% 13.67% 18.82% 1.87%
======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense .90% .83% .75% .92% .80%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.99% 2.66% 1.84% 2.92% 2.46%
======== ======== ======== ======== ========
Investment income--net 9.87% 9.98% 9.45% 10.14% 7.07%
======== ======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) $199,000 $181,200 $ 81,000 $ 47,000 $ 82,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the year (in thousands) $174,240 $149,166 $ 82,384 $ 68,473 $ 92,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the year $ 3.26 $ 2.85 $ 2.13 $ 2.68 $ 3.67
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $452,559 $496,477 $477,170 $236,136 $227,007
Data: ======== ======== ======== ======== ========
Portfolio turnover 68.52% 58.60% 98.51% 50.76% 44.81%
======== ======== ======== ======== ========
<FN>
*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.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
February 28, 1999
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. The Fund's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates. 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 Board of Directors.
Under the Fund's current guidelines, Corporate Loans for which an
active secondary market exists and for which the Investment Adviser
can obtain at least two quotations from banks or dealers in
Corporate Loans will be valued by calculating the mean of the last
available bid and asked prices in the markets for such Corporate
Loans, and then using the mean of those two means. If only one quote
for a particular Corporate Loan is available, such Corporate Loan
will be valued on the basis of the mean of the last available bid
and asked prices in the market. For Corporate Loans for which an
active secondary market does not exist to a reliable degree in the
opinion of the Investment Adviser, such Corporate Loans will be
valued by the Investment Adviser at fair value, which is intended to
approximate market value.
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.
Senior High Income Portfolio, Inc.
February 28, 1999
* 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.
* 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 year ended February 28, 1999, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, $2,334 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 year ended February 28, 1999 were $460,011,624 and
$440,362,776, respectively.
Net realized losses for the year ended February 28, 1999 and net
unrealized losses as of February 28, 1999 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(9,257,432) $(28,638,477)
----------- ------------
Total $(9,257,432) $(28,638,477)
=========== ============
As of February 28, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $28,671,644, of which $6,753,288
related to appreciated securities and $35,424,932 related to
depreciated securities. The aggregate cost of investments at
February 28, 1999 for Federal income tax purposes was $675,298,191.
Senior High Income Portfolio, Inc.
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
Shares issued and outstanding during the years ended February 28,
1999 and February 28, 1998 increased by 909,410 and 1,205,888,
respectively, as a result of dividend reinvestment.
5. Unfunded Loan Interests:
As of February 28, 1999, the Fund had unfunded loan commitments of
$6,368,205, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $1,250
Dal Tile International, Inc. 1,091
Metro Goldwyn Mayer Co. 558
Patriot American 136
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
is a $245,000,000 credit facility bearing interest at the Prime
rate, the Federal Funds rate plus 0.40%, and/or the Eurodollar rate
plus 0.40%. For the year ended February 28, 1999, the average amount
borrowed was approximately $174,239,560, and the daily weighted
average interest rate was 5.69%. For the year ended February 28,
1999, facility and commitment fees aggregated $348,881.
7. Capital Loss Carryforward:
At February 28, 1999, the Fund had a net capital loss carryforward
of approximately $24,172,000, of which $7,098,000 expires in 2003,
$12,057,000 expires in 2004, $734,000 expires in 2005 and $4,283,000
expires in 2007. This amount will be available to offset like
amounts of any future taxable gains.
8. Subsequent Event:
On March 8, 1999, the Board of Directors of the Fund declared an
ordinary income dividend in the amount of $.065535 per share,
payable on March 31, 1999 to shareholders of record as of March 24,
1999.
Senior High Income Portfolio, Inc.
February 28, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Senior High Income Portfolio, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of Senior High
Income Portfolio, Inc. as of February 28, 1999, the related
statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at February
28, 1999 by correspondence with the custodian, brokers and financial
intermediaries or other alternative procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Senior High Income Portfolio, Inc. as of February 28, 1999, the
results of its operations, its cash flows, the changes in its net
assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 21, 1999
</AUDIT-REPORT>
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Joseph T. Monagle Jr., Senior Vice President
Richard C. Kilbride, Vice President
Gilles Marchand, Vice President
Paul Travers, Vice President
Donald C. Burke, Vice President and Treasurer
Patrick D. Sweeney, Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, NY 10286
NYSE Symbol
ARK
Gerald M. Richard, Treasurer of Senior High Income Portfolio, Inc.
has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Portfolio's Board of Directors in wishing
Mr. Richard well in his retirement.
