SENIOR HIGH
INCOME
PORTFOLIO, INC.
FUND LOGO
Semi-Annual Report
August 31, 2000
Senior High Income Portfolio, Inc. seeks to provide high current
income by investing principally in senior debt obligations of
companies, including corporate loans made by banks and other
financial institutions and both privately placed and publicly
offered corporate bonds and notes.
This report, including the financial information herein, is
transmitted to shareholders of Senior High Income Portfolio, Inc.
for their information. It is not a prospectus. 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 six-month period ended August 31, 2000, Senior High Income
Portfolio, Inc.'s total investment return was -0.84%, based on a
change in per share net asset value from $7.54 to $7.01, and
assuming reinvestment of $0.431 per share income dividends. During
the same six-month period, the net annualized yield of the
Portfolio's Common Stock was 12.13%. Since inception (April 30,
1993) through August 31, 2000, the total investment return on the
Portfolio's Common Stock was +56.44%, based on a change in per share
net asset value from $9.50 to $7.01, and assuming reinvestment of
$6.490 per share income dividends. At the end of the August period,
the Portfolio was 26.5% leveraged as a percentage of total assets.
(For a complete explanation of the benefits and risks of leveraging,
see page 5 of this report to shareholders.)
Investment Approach
Senior High Income Portfolio, Inc. consists largely of high-yield
bonds and participations in leveraged bank loans. The high-yield
bond and bank loan markets are comprised of similar industry sectors
and often contain overlapping issuers. As a result, general economic
events and trends tend to move the two markets in the same
direction, although bonds typically experience greater volatility
than bank loans. This can be attributed to two factors. First, bank
loans are typically senior secured obligations, thus generally
offering investors greater principal protection than unsecured
bonds. Second, bank loans are typically floating rate instruments
whose principal value generally does not move inversely with
interest rate movements, as is the case with fixed rate bonds. In
the last two years, both markets have been adversely affected by the
increased premium accorded to credit risk.
Market Review
Principal (or price) returns were negative in both the high-yield
and leveraged loan markets over the six months ended August 31,
2000. The high-yield market, as measured by the Donaldson, Lufkin,
Jenrette (DLJ) High Yield Bond Index, experienced principal
depreciation of 454 basis points (4.54%). The loan market
experienced almost half that decline, reporting a principal loss of
261 basis points, as measured by the DLJ Leveraged Loan Index.
Throughout the period, "flight-to-quality" remained the performance
theme in the high-yield market. Issues that were higher rated
(securities rated BB), larger ($300 million and greater), and in
sectors with stability or positive event risk (such as cable,
wireless telecommunications, gaming and energy) outperformed their
riskier counterparts. In contrast to the high-yield market, the bank
loan market had mixed results. Both the higher-rated issues
(securities rated BB) and distressed issues (securities rated CCC/CC
and C) performed well, while the B-rated issues underperformed. The
loan market favored the same sectors as the high-yield market.
For the last six months, the total return (principal return plus
interest income earned) of the high-yield bond market was barely in
positive territory as it posted a return of +0.27%, as measured by
the unmanaged DLJ High Yield Bond Index. The loan market fared
better and provided a total return of +2.27%, as measured by the
unmanaged DLJ Leveraged Loan Index. Although a reduction in Treasury
yields helped boost the performance of high-yield bonds, widening
credit spreads more than offset the reduction in underlying interest
rates. During the period, the ten-year Treasury yield fell from
6.41% to 5.73%, or 68 basis points, while high-yield credit spreads
widened 143 basis points. This maintained a continuing market theme
of the last few years whereby credit risk, as measured by the spread
at which issuers' securities trade over US Treasury securities, has
been a stronger force on the price of securities than the effect of
the underlying changes in interest rates. Bank term loan spreads
widened as well, although by only 63 basis points for B-rated
issuers.
Senior High Income Portfolio, Inc.
August 31, 2000
During the period, the energy, chemicals, gaming, broadcasting and
wireless telecommunications sectors performed well. These industries
benefited from one or more of the following characteristics:
improving commodity prices, stable cash flows and robust growth
prospects. However, certain sectors such as wired telecommunications,
retail and metals/mining continued to experience difficulties
resulting in credit deterioration and principal losses (realized
and unrealized) for some of the Portfolio's holdings. The
wired telecommunications industry underperformed because of investor
nervousness about the completion of business plans of some of its
operators. Retailers suffered from a lack of pricing power and an
escalation of competition from e-commerce. The metals/mining
industry continued to suffer through cyclical troughs in a number of
commodities.
Investment Activities
At August 31, 2000, 56% of the Portfolio's assets were allocated to
bonds and 43% to bank loans. As of August 31, 2000, most of the
Portfolio's 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 tracks very closely
with other short-term interest rates in the United States,
particularly the Federal Funds rate. Since the reset period on the
Portfolio's floating rate investments is between 30 days - 90 days,
the yield on the bank loan portion of the Portfolio is likely to
move in the same direction within a short period of time after any
Federal Funds rate change.
We continue to maintain significant diversification across the
Portfolio's investments. At August 31, 2000, the Portfolio was
comprised of 196 borrowers across 53 industries. (See the "Portfolio
Profile" on page 22 of this report to shareholders, which provides
listings of the Portfolio's ten largest holdings and five largest
industries as of August 31, 2000.)
Investment Strategy
Throughout the six months ended August 31, 2000, the Portfolio's
investment philosophy remained unchanged: to invest in leveraged
transactions in which borrowers have strong market shares,
experienced management, consistent cash flows and appropriate
risk/reward characteristics. In addition, we look for companies with
significant underlying asset and franchise value, strong capital
structures and equity sponsors that support their investments. An
example of a credit purchased in the last six months that
demonstrates these criteria is Adelphia Communications Corporation.
Adelphia Communications, through its subsidiary Century Cable LLC,
issued a $1 billion institutional term loan priced at 3% over LIBOR.
Adelphia Communications is one of the top five cable companies with
more than 1.5 million paid subscribers. Century Cable, the operating
company borrower, is capitalized with $4.25 billion of equity from
its parent, producing a relatively conservative debt capitalization
ratio of 33%. With average industry transactions occurring at
approximately $4,000 per subscriber, the intrinsic equity value of
our borrower is significant with its debt per subscriber estimated
at $1,350. The loan also has several covenants in the credit
agreement to protect the integrity of the credit. We believe assets
such as Adelphia Communications will lessen the volatility in the
Portfolio and are likely to consistently generate solid income.
Market Outlook
Compared with the pace of a year ago, the current environment's
leveraged loan and high-yield bond issuance has been limited.
Investors have been very selective, and transactions that are
successfully issued are well structured and attractively priced.
This activity reflects the three large themes - liquidity risk,
default risk and monetary policy risk - that are affecting the
market.
Senior High Income Portfolio, Inc.
August 31, 2000
As for the liquidity risk of leveraged finance, retail mutual funds
are playing a significantly reduced role in absorbing the supply of
leveraged loan and high-yield new issuance, as a result of continued
outflows in mutual funds of these asset classes. More than $7
billion in assets have exited these retail mutual funds thus far in
2000. However, some of the weakness in retail inflows was offset by
more than $17 billion of structured product issuance, which is
targeted at institutional investors. With new ramp-up institutional
activity being the marginal buyer in the markets, these vehicles
take on much of the new issuance, as well as purchase much of the
good-quality credits in secondary trading. Because of the small per-
issue appetite of a typical structured product and the
diversification requirements that it has, the leveraged finance
market has some breadth, but little depth.
At the same time, and as we mentioned in our last report to
shareholders, ever since the Russian default crisis in the late
summer of 1998, the volatility of the leveraged loan and high-yield
markets has continued to increase from historical norms. A
contributing influence on the elevated risk premium being levied on
the leveraged markets is that investors have tolerance for only a
limited number of credit rating downgrades and defaults. When a
borrower reports weaker-than-expected results, investors attempt to
sell immediately to avoid any potential impairment. If a borrower's
ability to repay its debts (as perceived by the marketplace) drops
precipitously, or if there is no liquidity during its slide
downward, investors are forced to sell at low recovery rates. This
heightened sensitivity creates opportunities because decisions
sometimes are based not on credit fundamentals but on a more
reactionary basis. Nevertheless, these circumstances result in
increased trading activity, and hence volatility, as everyone often
tries to reach the exit first when investors sense a potential
problem.
Related to this factor is the incidence of issuers in payment
default. Defaults increased in 1999 and some sectors continue to
struggle despite the resilient strength of the domestic economy. For
example, the automotive parts, healthcare, movie theater and textile
sectors have a number of transactions outstanding in our market that
have materially underperformed since origination. The transactions
were well capitalized when originally structured, but cash flow
dropped or did not grow to a sufficient level to support the
existing balance sheets. Affected by these downgrades, investors
scrutinize any news with a jaded view, creating trading activity
before news has been digested and exacerbating volatility.
As of August 31, 2000, the trailing 12-month high-yield market
default rate was 4.8% (dollar-weighted), as measured by Moody's
Investor Services, Inc. In recent months, these figures have shown
some encouraging signs as the default rate has sequentially
decreased from 7.0% to 6.7% for the May-June 2000 period, from 6.7%
to 5.7% for the June-July 2000 period, and then again from 5.7% to
4.8% for the July-August 2000 period. If this trend were to
continue, much of the default risk fears that hang over the
leveraged finance market could ease.
At the same time, monetary policy risk seems lower. The economic
outlook is turning increasingly favorable as the Federal Reserve
Board seems to have engineered a somewhat less torrid pace for the
economy, while "new economy"-driven productivity gains have helped
keep inflation at acceptable levels. Investors seem to accept that
the economy could grow at a sustainable rate of 4% or more without
price pressures. Therefore, most market observers conclude that the
string of Federal Reserve Board tightenings has neared its
conclusion. With the economy likely having avoided a hard landing
and little inflation appearing because of the Federal Reserve
Board's actions to date, the prospects for leveraged credits should
be good.
Senior High Income Portfolio, Inc.
August 31, 2000
Two factors on the horizon that could alter these views include the
price of oil and the US presidential election. Oil prices currently
reflect low inventories and some holdback on the part of producers
from increasing production to the higher levels that the market may
have desired. Investor fears are that any further increase in prices
could work their way into core inflation. Separately, the election,
and its resulting impact on taxes and spending issues, leaves many
investors with some uncertainty regarding future fiscal policy.
In Conclusion
The high-yield bond and loan markets continue to experience above-
average volatility as investors remain wary of higher defaults,
mutual fund redemptions, the general level of interest rates and a
lack of liquidity in the dealer community. We are confident in the
Federal Reserve Board's ability to avoid an economic "hard landing,"
which is a positive for the entire leveraged finance asset class.
Furthermore, we believe there will be a moderation in the market
default rate as aggressive transactions underwritten in the past few
years and sectors such as healthcare, negatively affected by
specific factors, are restructured and exit the system. If general
fundamentals improve, and with market yields at near all-time highs,
we would expect the leveraged finance markets to strengthen over the
next 12 months. Notwithstanding the expectation of better market
conditions ahead, we continue to be conservative in our purchasing
decisions, focusing on large issuers that are well capitalized in
selective industries.
We thank you for your investment in Senior High Income Portfolio,
Inc., and we look forward to reviewing our outlook and strategy with
you again in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Richard C. Kilbride)
Richard C. Kilbride
Vice President and Co-Portfolio Manager
(Richard C. Kilbride)
Richard C. Kilbride
Vice President and Co-Portfolio Manager
October 5, 2000
Senior High Income Portfolio, Inc.
August 31, 2000
THE BENEFITS AND RISKS OF LEVERAGING
Senior High Income Portfolio, Inc. (the "Fund") 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. To the extent that 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 will be the beneficiaries of the incremental yield.
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.
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Advertising-- BBB Baa1 $ 1,000,000 Outdoor Systems Inc., 8.875% due 6/15/2007 $ 1,022,500
1.2% NR* NR* 3,683,333 Petry Media, Term, due 3/31/2002+++ 3,609,667
--------------
4,632,167
Air Transporta- NR* NR* 1,530,402 Gemini Air Cargo, Term A, due 8/12/2005+++ 1,528,011
tion--0.4%
Aircraft & BB Ba2 1,975,400 Airplanes Pass Through Trust, 10.875% due
Parts--0.4% 3/15/2012 (d) 1,611,531
Amusement & AMC Entertainment Inc.:
Recreational CCC- Caa3 1,275,000 9.50% due 3/15/2009 (b) 452,625
Services--2.2% CCC- Caa3 700,000 9.50% due 2/01/2011 248,500
D C 800,000 ++Carmike Cinemas Inc., 9.375% due 2/01/2009 176,000
B- B3 2,000,000 Hollywood Entertainment, 10.625% due 8/15/2004 (b) 1,580,000
NR* NR* 4,000,000 Metro-Goldwyn-Mayer Co., Term A, due 12/31/2005+++ 3,918,332
B B2 2,500,000 Riddell Sports, Inc., 10.50% due 7/15/2007 2,025,000
--------------
8,400,457
Apparel--1.2% Arena Brands, Inc.+++:
NR* NR* 1,006,944 Revolving Credit, due 6/01/2002 956,597
NR* NR* 719,390 Term A, due 6/01/2002 683,420
NR* NR* 1,955,336 Term B, due 6/01/2002 1,857,569
B- B3 1,500,000 GFSI Inc., 9.625% due 3/01/2007 1,110,000
--------------
4,607,586
Automotive NR* Ca 4,000,000 Cambridge Industries Inc., 10.25% due 7/15/2007 1,170,000
Equipment-- BB- Ba3 3,277,500 Collins & Aikman Corp., Term A, due 12/31/2003+++ 3,222,192
2.9% B B2 800,000 Hayes Lemmerz International Inc., 8.25% due 12/15/2008 698,000
NR* Caa2 3,635,000 ++Key Plastics, Inc., 10.25% due 3/15/2007 363,500
CCC+ Caa2 1,600,000 Special Devices Inc., 11.375% due 12/15/2008 616,000
B+ B2 1,875,000 Tenneco Automotive Inc., 11.625% due 10/15/2009 1,612,500
Venture Holdings Trust:
B B2 3,325,000 9.50% due 7/01/2005 2,660,000
B- B3 700,000 12% due 6/01/2009 469,000
--------------
10,811,192
Broadcast-- B B2 2,875,000 Ackerley Group Inc., 9% due 1/15/2009 2,716,875
Radio & TV-- B- B3 1,000,000 ++Acme Television/Finance, 10.875% due 9/30/2004 950,000
6.5% B- B3 3,000,000 Albritton Communications, 9.75% due 11/30/2007 2,895,000
B B1 3,500,000 Benedek Broadcasting Corporation, Term B,
due 11/20/2007+++ 3,489,062
NR* NR* 3,200,000 Gocom Communications, Term B, due 12/31/2007+++ 3,200,000
NR* Caa1 5,000,000 ++Radio Unica Corp., 11.75% due 8/01/2006 3,450,000
B- B3 3,775,000 Spanish Broadcasting System, 9.625% due 11/01/2009 3,756,125
Young Broadcasting Inc.:
B B2 2,000,000 10.125% due 2/15/2005 2,000,000
B B2 2,000,000 9% due 1/15/2006 1,905,000
--------------
24,362,062
Building & B- B2 1,180,000 Webb (Del E.) Corp., 10.25% due 2/15/2010 1,126,900
Construction--
0.3%
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Building Dal Tile International, Inc.+++:
Materials--1.4% NR* NR* $ 925,668 Revolving Credit, due 12/31/2002 $ 891,727
NR* NR* 1,497,326 Term, due 12/31/2002 1,465,977
Paint Sundry+++:
NR* NR* 590,750 Term B, due 8/11/2005 581,889
NR* NR* 491,787 Term C, due 8/11/2006 484,410
NR* NR* 886,076 Term N, due 8/11/2008 815,190
B B2 1,000,000 Republic Group Inc., 9.50% due 7/15/2008 1,000,000
--------------
5,239,193
Business B+ B1 2,487,500 Muzak Audio, Term B, due 12/31/2006+++ 2,466,772
Services--1.6% B+ B3 4,000,000 Muzak Bridge, Bridge, due 3/15/2009+++ 3,510,000
--------------
5,976,772
Cable CSC Holdings Inc.:
Television BB+ Ba1 800,000 7.25% due 7/15/2008 753,286
Services--13.9% BB+ Ba1 1,000,000 7.625% due 7/15/2018 912,144
NR* NR* 5,000,000 Century Cable LLC, Term, due 6/30/2009+++ 5,008,750
Charter Communications Holdings:
B+ B2 2,500,000 8.625% due 4/01/2009 2,281,250
B+ B2 5,000,000 10% due 4/01/2009 5,000,000
Classic Cable Inc.:
B- B3 800,000 9.375% due 8/01/2009 628,000
B- B3 2,250,000 10.50% due 3/01/2010 1,878,750
BB NR* 2,605,263 Term C, due 1/31/2008+++ 2,600,378
B B3 3,000,000 Coaxial Communications/Phoenix, 10% due 8/15/2006 2,955,000
Echostar DBS Corporation:
B B2 700,000 9.25% due 2/01/2006 693,000
B B2 3,275,000 9.375% due 2/01/2009 3,246,344
BBB Baa2 3,000,000 Lenfest Communications, Inc., 8.375% due 11/01/2005 3,125,700
NR* NR* 3,750,000 Mallard Cablevision LLC, Term B, due 9/30/2008+++ 3,740,625
BB+ B1 1,500,000 Multicanal SA, 10.50% due 4/15/2018 1,035,000
CCC+ B3 500,000 Park N View Inc., 13% due 5/15/2008 202,500
Pegasus Communications:
CCC+ B3 350,000 9.75% due 12/01/2006 348,250
B+ B+ 2,000,000 Term, due 4/30/2005+++ 2,006,666
B- B3 1,000,000 RCN Corporation, 10.125% due 1/15/2010 800,000
D Caa3 1,575,000 Supercanal Holdings SA, 11.50% due 5/15/2005 (b)(e) 630,000
Telewest Communications PLC:
B+ B1 5,000,000 9.625% due 10/01/2006 4,737,500
B+ B1 2,900,000 9.875% due 2/01/2010 (b) 2,762,250
United Pan-Europe Communications NV:
B- B2 3,000,000 ++10.875% due 8/01/2009 2,550,000
B B2 5,000,000 11.25% due 2/01/2010 4,368,750
--------------
52,264,143
Chemicals-- B+ B3 3,000,000 Acetex Corp., 9.75% due 10/01/2003 2,865,000
6.0% BBB- Baa3 2,000,000 Equistar Chemicals LP, 8.75% due 2/15/2009 1,955,840
Huntsman Corp.:
NR* B2 6,000,000 10.263% due 7/01/2007 (b) 5,250,000
BB- Ba2 1,902,209 Term, due 12/31/2002+++ 1,864,164
Lyondell Petrochemical Co.+++:
NR* Ba3 2,411,583 Term B, due 6/30/2005 2,442,293
NR* Ba3 1,975,000 Term E, due 5/17/2006 2,046,957
NR* NR* 2,435,053 Pinnacle Polymers, Term B, due 12/31/2005+++ 2,429,988
NR* NR* 4,009,755 Vinings Industries, Term B, due 3/31/2005+++ 3,945,852
--------------
22,800,094
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Computer-Related NR* NR* $ 3,652,470 Bridge Information Systems, Term B, due 5/29/2005+++ $ 2,976,763
Products--1.1% B- B3 2,000,000 Federal Data Corp., 10.125% due 8/01/2005 1,200,000
--------------
4,176,763
Consumer B+ B2 1,000,000 Evenflo Company Inc., 11.75% due 8/15/2006 992,500
Products--0.5% B B3 1,050,000 Home Products International Inc., 9.625% due 5/15/2008 661,500
--------------
1,654,000
Diversified--0.8% B+ Ba1 2,977,500 Blount Inc., Term B, due 6/30/2006+++ 2,993,007
Drilling--2.3% BB- Ba3 4,000,000 Cliffs Drilling, 10.25% due 5/15/2003 4,140,000
BB- B1 2,000,000 Falcon Drilling Co. Inc., 9.75% due 1/15/2001 2,000,000
B+ B1 2,475,000 Parker Drilling Co., 9.75% due 11/15/2006 2,481,188
--------------
8,621,188
Drug/Proprietary SDM Corporation+++:
Stores--0.8% BB Ba3 1,500,000 Term C, due 2/04/2008 1,504,554
BB Ba3 1,500,000 Term E, due 2/04/2009 1,504,554
--------------
3,009,108
Educational B- B3 1,050,000 La Petite Academy/LPA Holdings, 10% due 5/15/2008 651,000
Services--0.2%
Electronics/ B B2 3,232,000 Advanced Glassfiber Yarn, 9.875% due 1/15/2009 2,872,440
Electrical BB- Ba3 3,000,000 Amkor Technologies Inc., 9.25% due 5/01/2006 2,992,500
Components-- B+ B3 1,000,000 High Voltage Engineering, 10.75% due 8/15/2004 690,000
1.7% --------------
6,554,940
Energy--5.7% B B1 2,000,000 Belco Oil & Gas Corp., 8.875% due 9/15/2007 1,890,000
B- B3 2,500,000 Bellwether Exploration, 10.875% due 4/01/2007 2,350,000
B B2 2,000,000 Chesapeake Energy Corp., 9.625% due 5/01/2005 2,012,500
CCC+ Caa1 1,000,000 Continental Resources, 10.25% due 8/01/2008 897,500
B B2 1,000,000 Cross Timbers Oil Company, 8.75% due 11/01/2009 980,000
B- Caa1 1,500,000 Energy Corp. of America, 9.50% due 5/15/2007 1,095,000
NR* Ba2 2,000,000 Ferrell Companies, Inc., Term C, due 6/17/2006+++ 1,965,000
B B2 2,000,000 Forest Oil Corporation, 10.50% due 1/15/2006 2,087,500
CCC B3 1,850,000 Gothic Production Corp., 11.125% due 5/01/2005 1,961,000
BB Ba2 2,000,000 Gulf Canada Resources Ltd., 9.25% due 1/15/2004 2,027,500
CC Ca 2,000,000 Kelly Oil & Gas Corp., 10.375% due 10/15/2006 1,320,000
B+ B1 3,000,000 Nuevo Energy Company, 9.50% due 6/01/2008 3,015,000
--------------
21,601,000
Environmental-- B+ B3 3,200,000 IT Group Inc., 11.25% due 4/01/2009 2,816,000
0.8%
Financial NR* NR* 2,422,081 Blackstone Capital, Term, due 11/30/2000+++ 2,403,915
Services--5.0% NR* Ba3 4,000,000 Highland Legacy Limited Co., 12.961% due 6/01/2011 (b) 3,950,000
NR* NR* 500,000 Investcorp SA, Term, due 10/21/2008+++ 499,020
B- B3 4,520,000 Lodgian Financing Corp., 12.25% due 7/15/2009 3,683,800
NR* NR* 1,000,000 Pennant CBO Limited, 13.43% due 3/14/2011 (b) 987,500
SKM-Libertyview CBO Limited (b):
NR* Baa2 1,500,000 8.71% due 4/10/2011 1,371,435
NR* Ba3 1,000,000 11.91% due 4/10/2011 916,250
NR* Ba3 2,700,000 Sovereign Bankcorp, Inc., Term, due 11/17/2003+++ 2,710,125
NR* NR* 2,378,830 Wasserstein, Term, due 11/30/2000+++ 2,360,988
--------------
18,883,033
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Food & Kindred B B2 $ 3,000,000 SC International Services, Inc., 9.25% due 9/01/2007 $ 2,880,000
Products--0.8%
Forest B B2 4,500,000 Ainsworth Lumber Company, 12.50% due 7/15/2007 (c) 4,286,250
Products--2.9% B+ B2 550,000 Millar Western Forest, 9.875% due 5/15/2008 544,500
BB+ Ba2 6,000,000 Tembec Finance Corporation, 9.875% due 9/30/2005 6,210,000
--------------
11,040,750
Furniture & B- B3 3,150,000 Formica Corporation, 10.875% due 3/01/2009 1,890,000
Fixtures--0.5%
Gaming--8.5% B- B3 1,350,000 Coast Hotels & Casino, 9.50% due 4/01/2009 1,323,000
B B2 1,500,000 Harvey Casino Resorts, 10.625% due 6/01/2006 1,545,000
Hollywood Park Inc.:
B B2 5,275,000 9.25% due 2/15/2007 5,393,688
B B2 2,000,000 9.50% due 8/01/2007 2,045,000
B+ B2 1,150,000 Horseshoe Gaming Holdings, 8.625% due 5/15/2009 1,118,375
Isle of Capri Casinos, Inc.:
B B2 2,360,000 8.75% due 4/15/2009 2,212,500
BB- Ba2 3,192,000 Term B, due 3/01/2006+++ 3,210,204
BB- Ba2 2,793,000 Term C, due 3/01/2007+++ 2,808,928
NR* NR* 764,907 Jazz Casino Co. LLC, 8% due 5/15/2010 (c) 42,070
B B2 5,000,000 Majestic Star LLC, 10.875% due 7/01/2006 4,400,000
BB- Ba3 3,000,000 Mohegan Tribal Gaming, 8.75% due 1/01/2009 2,932,500
B B2 3,850,000 Peninsula Gaming LLC, 12.25% due 7/01/2006 (g) 3,782,625
B- B3 1,700,000 Trump Atlantic City Associates/Funding Inc., 11.25% due
5/01/2006 1,139,000
--------------
31,952,890
Grocery CCC Caa 4,976,273 Grand Union Co., Term, due 8/17/2003+++ 2,359,584
Stores--0.6%
Healthcare B+ NR* 4,792,846 Iasis Health, Term B, due 9/30/2006+++ 4,782,661
Providers--1.9% NR* C 3,000,000 Integrated Health Services, Inc., 9.50% due 9/15/2007 (e) 60,000
BB- Ba3 2,500,000 Tenet Healthcare Corp., 8.625% due 1/15/2007 2,462,500
--------------
7,305,161
Hotels & B- B2 6,000,000 Extended Stay America, 9.15% due 3/15/2008 5,520,000
Motels--4.2% HMH Properties, Inc.:
BB Ba2 1,600,000 8.45% due 12/01/2008 1,550,000
BB Ba2 1,075,000 Series B, 7.875% due 8/01/2008 1,010,500
BB Ba2 3,000,000 Prime Hospitality Corporation, 9.25% due 1/15/2006 3,015,000
Wyndam International, Inc., Term+++:
NR* NR* 2,000,000 due 6/30/2004 1,995,556
NR* NR* 3,000,000 due 6/30/2006 2,955,750
--------------
16,046,806
Industrial-- B+ B2 3,450,000 Building One Services, 10.50% due 5/01/2009 (b) 3,018,750
Consumer
Services--0.8%
Insurance--0.6% B+ Ba3 2,475,000 Willis Corroon Corporation, 9% due 2/01/2009 2,252,250
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Leasing & Rental D B1 $ 4,912,163 MEDIQ Life Support Services, Inc., Term,
Services--1.6% due 6/30/2006+++ $ 2,149,071
B B3 1,500,000 National Equipment Services, 10% due 11/30/2004 1,200,000
B B3 500,000 Neff Corp., 10.25% due 6/01/2008 275,000
BB+ Ba2 2,500,000 United Rental, Term C, due 8/12/2006+++ 2,468,490
--------------
6,092,561
Manufacturing-- B+ NR* 1,500,000 Citation Corporation, Term B, due 12/01/2007+++ 1,479,375
3.3% B- B2 1,932,000 Fairfield Manufacturing Company Inc., 9.625%
due 10/15/2008 1,642,200
D Ca 1,500,000 Morris Materials Handling, 9.50% due 4/01/2008 (e) 86,250
B- B3 1,250,000 Russell-Stanley Holding Inc., 10.875% due 2/15/2009 589,063
BB Ba3 4,853,529 Terex Corp., Term B, due 3/06/2005+++ 4,854,665
B B2 5,000,000 Woods Equipment Company, 12% due 7/15/2009 3,750,000
--------------
12,401,553
Medical Alaris Medical Systems, Inc.+++:
Equipment--0.9% B+ B1 1,119,440 Term B, due 11/01/2003 1,115,242
B+ B1 1,119,440 Term C, due 11/01/2004 1,115,242
B+ B1 1,053,679 Term D, due 5/01/2005 1,049,728
--------------
3,280,212
Metals & CCC Caa2 2,387,816 Anker Coal Group Inc., 14.25% due 9/01/2007 1,026,761
Mining--4.2% B B1 850,000 Bayou Steel Corp., 9.50% due 5/15/2008 705,500
BB- B2 2,000,000 CSN Iron SA, 9.125% due 6/01/2007 (b) 1,710,000
GS Technologies Operating Co:
CCC Ca 1,000,000 12% due 9/01/2004 120,000
CCC Ca 1,000,000 12.25% due 10/01/2005 120,000
D C 1,000,000 Geneva Steel, 9.50% due 1/15/2004 (e) 166,250
Ispat International N.V.+++:
BB Ba3 1,813,000 Term B, due 7/15/2005 1,764,780
BB Ba3 1,813,000 Term C, due 7/15/2006 1,764,780
CCC Caa2 1,600,000 Metal Management Inc., 10% due 5/15/2008 160,000
B+ B2 875,000 Pen Holdings Inc., 9.875% due 6/15/2008 673,750
CCC+ Caa2 3,000,000 Renco Metals Inc., 11.50% due 7/01/2003 1,207,500
B+ B1 2,000,000 Russel Metals Inc., 10% due 6/01/2009 1,930,000
NR* B2 6,000,000 Wheeling-Pittsburgh Steel Corp., Term,
due 11/15/2006+++ 4,590,000
--------------
15,939,321
Online B- B3 1,150,000 PSINet Inc., 11% due 8/01/2009 993,313
Services--0.3%
Packaging--1.9% B- B2 4,000,000 Anchor Glass, 11.25% due 4/01/2005 3,000,000
B- Caa1 675,000 Consumers Packaging Inc., 9.75% due 2/01/2007 168,750
B- B3 1,000,000 Fonda Group Inc., 9.50% due 3/01/2007 830,000
B B3 4,000,000 Spinnaker Industries Inc., 10.75% due 10/15/2006 3,200,000
--------------
7,198,750
Paper--8.9% BB Ba2 4,950,000 Pacifica Papers Inc., Term B, due 12/31/2006+++ 4,974,750
NR* B2 5,000,000 Repap New Brunswick, Inc., Term B, due 6/01/2004+++ 4,912,500
Riverwood International Inc.+++:
B B1 8,317,669 Term B, due 2/28/2004 8,347,130
B B1 3,325,860 Term C, due 8/31/2004 3,337,640
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Paper Stone Container Corp.+++:
(concluded) B+ B3 $ 4,576,000 Term F, due 12/31/2005 $ 4,588,511
B+ B3 3,577,778 Term G, due 12/31/2006 3,579,695
B+ B3 3,938,000 Term H, due 12/31/2007 3,940,111
--------------
33,680,337
Petroleum NR* Ba3 3,444,790 Clark Refining & Marketing, Term, due 11/15/2004+++ 2,847,694
Refineries--1.6% BB- B1 2,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 1,947,500
B- B3 2,000,000 United Refining Co., 10.75% due 6/15/2007 1,200,000
--------------
5,995,194
Printing & B- B3 900,000 Regional Independent Media, 10.50% due 7/01/2008 936,000
Publishing--0.8% B- B3 1,500,000 T/SF Communications Corp., 10.375% due 11/01/2007 1,396,875
BBB- Baa3 750,000 World Color Press Inc., 8.375% due 11/15/2008 729,355
--------------
3,062,230
Property NR* Ba3 3,000,000 NRT Incorporated, Term, due 7/31/2004+++ 2,981,250
Management-- B Caa1 600,000 Prison Realty Trust Inc., 12% due 6/01/2006 501,000
0.9% --------------
3,482,250
Restaurants-- Domino's & Bluefence+++:
0.5% B+ B1 883,303 Term B, due 12/21/2006 887,278
B+ B1 884,688 Term C, due 12/21/2007 888,742
--------------
1,776,020
Retail NR* NR* 3,960,000 Asbury Automotive Group, Senior Note,
Specialty--1.0% due 3/31/2005+++ 3,910,500
Satellite B+ B1 2,425,000 Satelites Mexicanos SA, 11.28% due 6/30/2004 (b) 2,194,625
Telecommunications
Distribution
Systems--0.6%
Shipbuilding & B+ Ba3 4,000,000 Newport News Shipbuilding, Inc., 9.25% due 12/01/2006 4,040,000
Repairing--1.1%
Shipping--1.1% BB- Ba3 4,500,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 4,263,750
Textile Mill B Ca 3,000,000 Galey & Lord, Inc., 9.125% due 3/01/2008 1,560,000
Products--0.9% D Ca 900,000 Globe Manufacturing Corp., 10% due 8/01/2008 90,000
BB B1 2,050,000 Westpoint Stevens Inc., 7.875% due 6/15/2008 (f) 1,773,250
--------------
3,423,250
Tower BB- B1 4,000,000 American Towers, Inc., Term B, due 12/30/2007+++ 4,022,272
Construction Crown Castle International Corporation:
& Leasing--2.2% B B1 500,000 9% due 5/15/2011 477,500
B B1 3,000,000 9.50% due 8/01/2011 2,932,500
BB- Ba3 1,000,000 Term B, due 3/31/2008+++ 1,002,847
--------------
8,435,119
Transportation D Ca 4,000,000 AmeriTruck Distribution Corp., 12.25% due 11/15/2005 (e) 40,000
Services--0.5% BB- NR* 2,000,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (b) 1,520,000
NR* NR* 556,651 Trism, Inc., 12% due 2/15/2005 (e) 400,789
--------------
1,960,789
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED)
<CAPTION>
S&P MOODY'S FACE
INDUSTRIES RATING RATING AMOUNT CORPORATE DEBT OBLIGATIONS VALUE
<S> <S> <S> <C> <S> <C>
Utilities--1.1% B+ Ba3 $ 4,500,000 AES Corporation, 8.50% due 11/01/2007 $ 4,263,750
Waste Allied Waste North America Inc.:
Management-- B+ B2 3,000,000 10% due 8/01/2009 2,677,500
3.5% BB Ba3 2,272,727 Term B, due 6/30/2006+++ 2,182,236
BB Ba3 2,727,273 Term C, due 6/30/2007+++ 2,618,684
BB- B3 5,000,000 ++Norcal Waste Systems, 13.50% due 11/15/2005 5,256,250
D Ca 1,350,000 Safety-Kleen Corporation, 9.25% due 5/15/2009 (e) 27,000
B B3 575,000 Stericycle Inc., 12.375% due 11/15/2009 598,000
--------------
13,359,670
Wired B- B3 3,375,000 Caprock Communications Corporation, 11.50% due 5/01/2009 2,092,500
Telecommun- NR* NR* 3,350,000 ++E.Spire Communications, 10.521% due 7/01/2008 938,000
ications--6.9% BB- B 2,200,000 Global Crossing Holdings Ltd., Term B, due 6/30/2006+++ 2,212,769
B B3 500,000 Hermes Europe RailTel BV, 10.375% due 1/15/2009 320,000
B B3 2,850,000 Level 3 Communications Inc., 9.125% due 5/01/2008 2,554,313
B+ B2 750,000 Metromedia Fiber Network, 10% due 11/15/2008 738,750
Nextlink Communications Inc.:
B B2 2,500,000 9% due 3/15/2008 2,237,500
B B2 3,000,000 ++12.25% due 6/01/2009 1,800,000
NR* NR* 2,500,000 Pacific Crossing Ltd., Term B, due 7/28/2006+++ 2,453,125
Primus Telecommunications Group:
B- B3 800,000 11.75% due 8/01/2004 520,000
B- B3 1,475,000 11.25% due 1/15/2009 929,250
RSL Communications PLC:
B- B3 3,000,000 9.125% due 3/01/2008 735,000
B- B3 3,000,000 ++11.965% due 3/01/2008 510,000
B- B3 3,333,333 Teligent Inc., Term, due 7/01/2002+++ 3,161,110
B- B3 500,000 Versatel Telecom BV, 11.875% due 7/15/2009 (b) 450,000
Williams Communications Group Inc.:
BB- B2 1,250,000 10.70% due 10/01/2007 1,210,938
BB- B2 1,250,000 10.875% due 10/01/2009 1,204,688
Worldwide Fiber Inc.:
B+ B3 1,500,000 12.50% due 12/15/2005 1,425,000
B+ B3 500,000 12% due 8/01/2009 450,000
--------------
25,942,943
Wireless NR* NR* 3,000,000 Clearnet Communications, Term C, due 7/09/2007+++ 2,775,000
Telecommun- B- B3 1,650,000 ++Microcell Telecommunications, 12% due 6/01/2009 1,196,250
ications--10.2% Nextel Communications, Inc.+++:
BB- Ba2 2,500,000 Term B, due 6/30/2008 2,513,542
BB- Ba2 2,500,000 Term C, due 12/31/2008 2,513,542
BB- Ba2 14,272,500 Term D, due 3/31/2009 14,214,111
B+ B2 1,000,000 ++PTC International Finance BV, 10.269% due 7/01/2007 740,000
B+ B2 750,000 PTC International Finance II SA, 11.25% due 12/01/2009 761,250
NR* B2 5,000,000 Telecorp PCS, Inc., Term B, due 1/15/2008+++ 4,994,790
CCC+ Caa1 2,000,000 ++Telesystem International Wireless Inc., 16.147%
due 6/30/2007 1,300,000
B+ B1 7,000,000 VoiceStream PCS Holdings Corp., Term B, due 1/15/2009+++ 6,976,669
B- B2 575,000 VoiceStream Wireless Company, 10.375% due 11/15/2009 621,000
--------------
38,606,154
Total Investments in Corporate Debt Obligations
(Cost--$567,120,792)--131.7% 497,368,629
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (CONCLUDED)
<CAPTION>
SHARES
INDUSTRIES HELD EQUITY INVESTMENTS VALUE
<S> <C> <S> <C>
Cable Television 500 Park N View Inc. (Warrants) (a) $ 2,500
Services--0.0% 615,733 Supercanal Holdings SA (Warrants) (a) 6
--------------
2,506
Energy--0.4% 56,267 Forcenergy Inc. 1,357,441
Financial Services--0.0% 1,500 Olympic Financial Limited (Warrants) (a) 1,500
Gaming--0.0% 27,112 Peninsula Gaming LLC 162,670
Metals & Mining--0.0% 3,000 Gulf States Steel (Warrants) (a)(b) 30
Telephone 1,000 Unifi Communications (Warrants) (a)(b) 10
Communications--0.0%
Transportation Services--0.0% 35,255 Trism, Inc. (e) 35,255
Wired Telecommunications--0.1% 2,000 Metronet Communications (Warrants) (a)(b) 228,194
Wireless Telecommunications--0.0% 3,000 McCaw International Ltd. (Warrants) (a)(b) 45,000
Total Equity Investments (Cost--$1,441,224)--0.5% 1,832,606
Face
Amount Short-Term Investments
Commercial Paper**--1.3% $5,008,000 General Motors Acceptance Corp., 6.69% due 9/01/2000 5,008,000
Total Short-Term Investments (Cost--$5,008,000)--1.3% 5,008,000
Total Investments (Cost--$573,570,016)--133.5% 504,209,235
Liabilities in Excess of Other Assets--(33.5%) (126,547,479)
--------------
Net Assets--100.0% $377,661,756
==============
*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 56.9% of the Fund's net
assets.
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment 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)Non-income producing security.
(f)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $1,773,250,
representing 0.5% of net assets.
Acquisition
Issue Date Cost Value
Westpoint Stevens Inc.,
7.875% due 6/15/2008 6/03/1998 $2,027,166 $1,773,250
---------- ----------
Total $2,027,166 $1,773,250
========== ==========
(g)Each $1,000 face amount contains 7.042 convertible preferred
membership interests of Peninsula Gaming LLC.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of August 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$573,570,016) $ 504,209,235
Cash 380,223
Receivables:
Interest $ 11,666,143
Securities sold 903,542
Principal paydowns 59,435 12,629,120
------------
Deferred facility fees 3,551
Prepaid expenses and other assets 13,176
------------
Total assets 517,235,305
------------
Liabilities: Loans 137,100,000
Payables:
Interest on loans 763,920
Dividends to shareholders 556,774
Investment adviser 175,999
Securities purchased 25,848
Commitment fees 16,150 1,538,691
------------
Deferred income 138,220
Accrued expenses and other liabilities 796,638
------------
Total liabilities 139,573,549
------------
Net Assets: Net assets $377,661,756
============
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 2,901,623
Accumulated realized capital losses on investments--net (62,554,302)
Unrealized depreciation on investments--net (69,499,001)
------------
Total Capital--Equivalent to $7.01 net asset value per share of
Common Stock (market price--$6.8125) $377,661,756
============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
Statement of Operations
For the Six Months Ended
August 31, 2000
<S> <S> <C> <C>
Investment Interest and discount earned $ 29,068,327
Income: Facility and other fees 176,212
--------------
Total income 29,244,539
--------------
Expenses: Loan interest expense $ 5,271,412
Investment advisory fees 1,354,820
Accounting services 194,289
Transfer agent fees 48,968
Custodian fees 34,424
Listing fees 31,919
Printing and shareholder reports 31,056
Professional fees 30,326
Directors' fees and expenses 22,224
Pricing services 10,759
--------------
Total expenses 7,030,197
--------------
Investment income--net 22,214,342
--------------
Realized & Realized loss on investments--net (11,715,093)
Unrealized Change in unrealized depreciation on investments--net (15,650,996)
Loss on --------------
Investments--Net: Net Decrease in Net Assets Resulting from Operations $ (5,151,747)
==============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
August 31, February 29,
Increase (Decrease) in Net Assets: 2000 2000
<S> <S> <C> <C>
Operations: Investment income--net $ 22,214,342 $ 47,617,753
Realized loss on investments--net (11,715,093) (21,692,813)
Change in unrealized depreciation on investments--net (15,650,996) (25,209,528)
------------- -------------
Net increase (decrease) in net assets resulting from operations (5,151,747) 715,412
------------- -------------
Dividends to Dividends to shareholders from investment income--net (23,231,011) (47,229,886)
Shareholders: ------------- -------------
Net Assets: Total decreasein net assets (28,382,758) (46,514,474)
Beginning of period 406,044,514 452,558,988
------------- -------------
End of period* $ 377,661,756 $ 406,044,514
============= =============
*Undistributed investment income--net $ 2,901,623 $ 3,918,292
============= =============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONTINUED)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Six Months Ended
August 31, 2000
<S> <S> <C>
Cash Provided by Net decrease in net assets resulting from operations $ (5,151,747)
Operating Adjustments to reconcile net increase in net assets
Activities: resulting from operations to net cash
provided by operating activities:
Increase in receivables (18,839)
Decrease in other assets 24,897
Decrease in other liabilities (793,173)
Realized and unrealized loss on investments--net 27,366,089
Amortization of discount--net (1,445,837)
--------------
Net cash provided by operating activities 19,981,390
--------------
Cash Used for Proceeds from sales of long-term investments 76,122,354
Investing Purchases of long-term investments (78,542,537)
Activities: Purchases of short-term investments (139,528,597)
Proceeds from sales and maturities of short-term investments 134,866,000
--------------
Net cash used for investing activities (7,082,780)
--------------
Cash Used for Cash receipts of borrowings 76,100,000
Financing Cash payments on borrowings (66,000,000)
Activities: Dividends paid to shareholders (23,336,832)
--------------
Net cash used for financing activities (13,236,832)
--------------
Cash: Net decrease in cash (338,222)
Cash at beginning of period 718,445
--------------
Cash at end of period $ 380,223
==============
Cash Flow Cash paid for interest $ 6,459,719
==============
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
FINANCIAL INFORMATION (CONCLUDED)
<TABLE>
Financial Highlights
<CAPTION>
For the For the
The following per share data and ratios have been derived Six Months Year
from information provided in the financial statements. Ended Ended For the Year Ended
August 31, Feb. 29, February 28,
Increase (Decrease) in Net Asset Value: 2000++ 2000++ 1999++ 1998++ 1997++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.54 $ 8.40 $ 9.37 $ 9.22 $ 9.21
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .41 .88 .87 .92 .89
Realized and unrealized gain (loss) on
investments--net (.51) (.86) (.95) .14 .04
-------- -------- -------- -------- --------
Total from investment operations (.10) .02 (.08) 1.06 .93
-------- -------- -------- -------- --------
Less dividends from investment income--net (.43) (.88) (.89) (.91) (.92)
-------- -------- -------- -------- --------
Net asset value, end of period $ 7.01 $ 7.54 $ 8.40 $ 9.37 $ 9.22
======== ======== ======== ======== ========
Market price per share, end of period $ 6.8125 $ 6.5625 $ 8.125 $ 10.125 $ 9.50
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.84%)+++ 1.11% (.87%) 11.95% 10.80%
Return:** ======== ======== ======== ======== ========
Based on market price per share 10.72%+++ (9.02%) (11.26%) 17.41% 13.67%
======== ======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense .90%* .98% .90% .83% .75%
Net Assets: ======== ======== ======== ======== ========
Expenses 3.61%* 3.45% 2.99% 2.66% 1.84%
======== ======== ======== ======== ========
Investment income--net 11.42%* 11.73% 9.87% 9.98% 9.45%
======== ======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) $137,100 $127,000 $199,000 $181,200 $ 81,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands) $151,519 $175,899 $174,240 $149,166 $ 82,384
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period $ 2.81 $ 3.26 $ 3.26 $ 2.85 $ 2.13
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $377,662 $406,045 $452,559 $496,477 $477,170
Data: ======== ======== ======== ======== ========
Portfolio turnover 14.72% 46.11% 68.52% 58.60% 98.51%
======== ======== ======== ======== ========
*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 charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Senior High Income Portfolio, Inc.
August 31, 2000
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 accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. 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 are valued in
accordance with guidelines established by the Fund's Board of
Directors. Corporate Loans are valued at the mean between the last
available bid and asked prices from one or more brokers or dealers
as obtained from Loan Pricing Corporation. 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 that 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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.
August 31, 2000
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
* 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 (including amortization of
discount) 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 .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, 2000, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, $1,091 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.
Senior High Income Portfolio, Inc.
August 31, 2000
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended August 31, 2000 were $78,559,898 and
$77,085,331, respectively.
Net realized losses for the six months ended August 31, 2000 and net
unrealized losses as of August 31, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $(11,715,093) $(69,360,781)
Unfunded corporate loans -- (138,220)
------------ ------------
Total $(11,715,093) $(69,499,001)
============ ============
As of August 31, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $69,360,781, of which $3,430,439
related to appreciated securities and $72,791,220 related to
depreciated securities. The aggregate cost of investments at August
31, 2000 for Federal income tax purposes was $573,570,016.
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 six months ended August 31,
2000 and for the year ended February 29, 2000 remained constant.
5. Unfunded Corporate Loans:
As of August 31, 2000, the Fund had unfunded loan commitments of
$3,432,715, which would be extended at the option of the borrower,
pursuant to the following loan agreements:
Unfunded
Commitment
Borrower (in thousands)
Arena Brands, Inc. $ 631
Dal Tile International, Inc. $1,802
Metro-Goldwyn-Mayer Studios Inc. $1,000
6. Short-Term Borrowings:
On April 28, 2000, the Fund extended its one-year credit agreement
with The Bank of New York. The agreement is a $235,000,000 credit
facility bearing interest at the Prime rate, the Federal Funds rate
plus .50% and/or Eurodollar rate plus .50%.
On July 6, 2000, the Fund entered into a one-year $190,000,000
revolving credit and security agreement with Citibank, N.A. and
other lenders (the "Lenders").This agreement replaced the agreement
the Fund had extended on December 17, 1999. The Fund may borrow
money through (i) a line of credit from certain Lenders at the
Eurodollar rate plus .75%, or the highest of the Federal Funds rate
plus .50%, a Base rate as determined by Citibank, N.A. and the
latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates of
deposit of major US money market banks plus .50%, of (ii) though the
issuance of commercial paper notes by certain Lenders at rates of
interest equivalent to the weighted average of the per annum rates
paid or payable by such Lenders in respect of those commercial
notes.
For the six months ended August 31, 2000, the average amount
borrowed was approximately $151,519,000 and the daily weighted
average interest rate was 6.90%.
7. Capital Loss Carryforward:
At February 29, 2000, the Fund had a net capital loss carryforward
of approximately $36,927,000, of which $7,098,000 expires in 2003,
$12,057,000 expires in 2004, $734,000 expires in 2005, $4,283,000
expires in 2007 and $12,755,000 expires in 2008. This amount will be
available to offset like amounts of any future taxable gains.
8. Subsequent Event:
On September 7, 2000, the Board of Directors of the Fund declared an
ordinary income dividend in the amount of $.070147 per share,
payable on September 29, 2000 to shareholders of record as of
September 18, 2000.
Senior High Income Portfolio, Inc.
August 31, 2000
PORTFOLIO PROFILE (UNAUDITED)
AS OF AUGUST 31, 2000
Percent of
Ten Largest Holdings Total Assets
Nextel Communications, Inc. 3.7%
Stone Container Corp. 2.3
Riverwood International Inc. 2.2
Isle of Capri, Inc. 1.6
VoiceStream PCS Holdings Corp. 1.5
Allied Waste North America Inc. 1.4
Hollywood Park Inc. 1.4
Charter Communications Holdings 1.4
United Pan-Europe Communications NV 1.3
Tembec Finance Corporation 1.2
Percent of
Five Largest Industries Total Assets
Cable Television Services 10.1%
Wireless Telecommunications 7.5
Paper 6.5
Gaming 6.2
Wired Telecommunications 5.1
Percent of
Quality Ratings Long-Term
S&P/Moody's Investments
BBB/Baa 1.6%
BB/Ba 29.8
B/B 53.0
CCC/Caa 2.6
CC/Ca 0.5
C/C 0.1
NR (Not Rated) 12.4
Percent of
Breakdown of Investments Long-Term
by Country Investments
United States 87.2%
Canada 5.8
United Kingdom 2.5
Netherlands 1.5
Argentina 0.9
Greece 0.8
Mexico 0.4
Brazil 0.3
Poland 0.3
Cayman Islands 0.2
Belgium 0.1
Senior High Income Portfolio, Inc.
August 31, 2000
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
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Joseph T. Monagle Jr., Senior Vice President
Richard C. Kilbride, Vice President
Gilles Marchand, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, NY 10286
NYSE Symbol
ARK
