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<SEC-DOCUMENT>0000900092-96-000265.txt : 19961028
<SEC-HEADER>0000900092-96-000265.hdr.sgml : 19961028
ACCESSION NUMBER: 0000900092-96-000265
CONFORMED SUBMISSION TYPE: N-30D
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19960831
FILED AS OF DATE: 19961025
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SENIOR HIGH INCOME PORTFOLIO INC
CENTRAL INDEX KEY: 0000896665
STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000]
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-30D
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-07456
FILM NUMBER: 96647871
BUSINESS ADDRESS:
STREET 1: 800 SCUDDERS MILL RD
CITY: PLAINSBORO
STATE: NJ
ZIP: 08536
BUSINESS PHONE: 6092822800
MAIL ADDRESS:
STREET 1: PO BOX 9011
CITY: PRINCETON
STATE: NJ
ZIP: 08543-9011
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<DESCRIPTION>SEMI-ANNUAL REPORT
<TEXT>
SENIOR HIGH
INCOME
PORTFOLIO, INC.
FUND LOGO
Semi-Annual Report
August 31, 1996
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.
<PAGE>
Senior High Income
Portfolio, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Senior High Income Portfolio, Inc.
DEAR SHAREHOLDER
On April 19, 1996, Senior High Income Portfolio, Inc. merged with
Senior High Income Portfolio II, Inc. and Senior Strategic Income
Fund, Inc. The purpose of the merger was to spread the operating
costs of similar funds over a larger asset base, thereby reducing
the expense ratio of the funds. The investment objective of the
Portfolio remains unchanged: to seek to provide shareholders with
high current income by investing primarily in senior debt
obligations of companies, including portions of corporate loans made
by banks and other financial institutions and both publicly offered
and privately placed corporate bonds and notes. The securities by
and large are rated in the lower rating categories of the
established agencies or are unrated, as is commonly the case with
bank loans.
<PAGE>
For the six months ended August 31, 1996, the Portfolio's total
investment return was +3.53%, based on a change in per share net
asset value from $9.21 to $9.06, and assuming reinvestment of $0.461
per share income dividends. During the same period, the net
annualized yield of the Portfolio's Common Stock was 10.21%. Since
inception (April 30, 1993) through August 31, 1996, the total
investment return on the Portfolio's Common Stock was +31.40%, based
on a change in per share net asset value from $9.50 to $9.06, and
assuming reinvestment of $2.922 per share income dividends. At the
end of the August period, the Portfolio was 17.7% leveraged, having
borrowed $97 million of its $220 million line of credit available at
an average borrowing cost of 5.93%. (For a complete explanation of
the benefits and risks of leveraging, see page 4 of this report to
shareholders.)
As of August 31, 1996, the Portfolio paid out a regular monthly
dividend at an annualized rate of 9.25% so that the Portfolio could
maintain a more stable level of distributions. Monthly dividends are
limited to the lesser of the targeted monthly dividend rate in
effect and the amount of previously undistributed net investment
income held by the Portfolio. For Federal income tax purposes, the
Portfolio is required to distribute substantially all of its net
investment income for each calendar year. All net realized long-term
and short-term capital gains, if any, will be distributed to the
Portfolio's shareholders annually. The targeted monthly dividend
rate has increased from an annualized rate of 8.0% since September
1993.
The Environment
The Federal Reserve Board has held short-term interest rates steady
since the 25 basis point (0.25%) easing in January 1996. Strong
gross domestic product and employment growth have failed to
significantly increase inflation, prompting the Federal Reserve
Board to maintain a neutral stance regarding interest rates. Fixed-
income investors, on the other hand, continue to fear inflation and
greet any signs of inflation with additional selling. The ten-year
US Treasury bond yield rose from 5.6% in mid-February to over 7.0%
by mid-July. Concerns about higher interest rates and disappointing
earnings reports by technology companies negatively impacted the
stock market, with technology stocks leading the slump from early
summer record levels. (However, after the close of the August
reporting period, US stock prices rose to new historic high levels.)
Economic growth positively impacts most of the issuers in the
leveraged loan and bond markets, leading to improved credit quality.
Investors attracted by the higher yields available in these asset
classes are willing to accept higher risk premiums when the outlook
for financial performance is good and default rates are low. Demand
for bank loans continued to be fueled by mutual fund inflows and
increased participation by insurance companies, hedge funds and
structured institutional funds. This demand has outpaced supply,
despite first half 1996 leveraged loan (defined as the London
Interbank Offered Rate +1.50% or more) new-issue volume growth of
more than 50% over the first half of 1995. Insufficient new-issue
supply forced loan buyers to turn to the secondary market, pushing
bids for many leveraged term loans consistently above par and
contributing to very strong secondary market liquidity.
<PAGE>
High-yield bonds experienced a similar excess of demand during the
period ended August 31, 1996. Mutual fund inflows reached record
levels, while insurance companies and pension advisers increased
allocations to the asset class. Receding fears of recession have
also forced portfolio managers to reassess often large cash
positions, adding additional liquidity to the market. Despite
compression of the spread between the Merrill Lynch High Yield
Master Index and the ten-year Treasury bond from a high of 379 basis
points in early March to 338 basis points by the end of August,
investors find the premium attached to high-yield bonds attractive,
particularly in light of improving financial performance and low
default rates. Issuers proved eager to satisfy this demand, selling
$50.3 billion in new issues during the first eight months of 1996,
an 80.3% increase over 1995. Most new issues have been well
oversubscribed, resulting in pricing at or below the low end of
price estimates and in secondary market premiums shortly after
issuance.
Most industry groups benefited from high-yield loan and bond market
strength. Media and communications issues proved particularly active
in response to ongoing consolidation driven by deregulation and the
introduction of new technologies. Investors did exhibit discrimination
towards some issues by communications issuers with no track record,
limited equity backing and unproven technology, forcing restructuring
or cancellation of these issues. Basic commodities industries,
such as paper and metals manufacturing, outperformed as late
1995/early 1996 product pricing pressures eased, allowing price
stability or, in some cases, price increases. Retailing issues
produced mixed results. Specialty retailers performed quite well
while home improvement and discount chains suffered under the
weight of competition from better capitalized, more efficient rivals.
Portfolio Strategy
At August 31, 1996, floating rate investments totaled 43.8% of the
Portfolio's net assets, primarily corporate loans, and fixed-rate
high-yield bonds totaled 56.2%. Approximately $86 million was
available for additional borrowing under the Portfolio's leverage
facility, based on the Portfolio's August 31, 1996 borrowing base.
We did not aggressively use the Portfolio's leverage facility during
the period because of the limited supply of new floating rate
investments and the relatively fully priced nature of many fixed-
rate investments.
<PAGE>
During the six-month period ended August 31, 1996, we continued to
focus on increasing the Portfolio's floating rate exposure. Several
factors served to limit our success in achieving a greater floating
rate weighting. First, demand for new floating rate issues resulted
in price competition among underwriting banks, forcing down
borrowing spreads to unattractive levels. Demand also reduced
allocations of new issues. Third, refinancings of existing
investments often occurred at lower spreads, reflecting demand and
improved credit quality, thereby eliminating existing investments
without providing new investment opportunities. Finally, the
secondary market provided few opportunities to invest in issues to
which the Portfolio does not already have exposure.
Consequently, we centered on attractive high-yield bond investments.
During the period, we invested in several new issues of companies
with solid market positions that exhibit long-term growth potential.
Examples include Chiquita Brands International Inc., the leading
banana distributor in the world; Hayes Wheels International, Inc., a
leading manufacturer of wheels and other components for vehicles,
and K&F Industries, Inc., a leading manufacturer of aerospace
components. We also invested in secondary market purchases of bonds
of companies that may have experienced short-term earnings
disappointments, but whose long-term prospects represented
attractive total return potential. Examples of this include Grand
Union Co., a grocery store chain that recently received a
significant equity infusion. The Portfolio remained focused on cash
pay bonds of issuers with current cash flow and avoided deferred
payment or zero-coupon bonds of companies with no cash flow and
massive capital spending needs. We also took advantage of strong
markets to take profits in issues that may have traded ahead of
their underlying credit fundamentals.
Looking forward, we will continue to emphasize floating rate
investments as well as look for both buy and sell bond opportunities
that we expect to enhance the return of the Portfolio. As always,
credit quality will remain a high priority.
At August 31, 1996, the Portfolio's floating rate investments were
diversified across 37 borrowers in 22 industries, and fixed-rate
investments were diversified across 101 borrowers in 32 industries.
The largest industry concentrations were: paper (11.1% of total
assets); health services (7.8%); broadcast--radio & TV (7.7%);
metals & mining (6.7%); and food & kindred products (7.3%).
In Conclusion
We appreciate your ongoing investment in Senior High Income
Portfolio, Inc., and welcome our newest shareholders. We look
forward to reviewing our strategy with you again in our upcoming
annual report to shareholders.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(John W. Fraser)
John W. Fraser
Vice President and Portfolio Manager
(R. Douglas Henderson)
R. Douglas Henderson
Vice President and Portfolio Manager
October 16, 1996
THE BENEFITS AND RISKS OF LEVERAGING
Senior High Income Portfolio, Inc. has the ability to utilize
leverage through borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging
is based on the premise that the cost of assets to be obtained from
leverage will be based on short-term interest rates, which normally
will be lower than the return earned by the fund on its longer-term
portfolio investments. Since the total assets of the fund (including
the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the fund's Common Stock shareholders are the
beneficiaries of the incremental yield. Should the differential
between the underlying interest rates narrow, the incremental yield
"pick up" will be reduced. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect the full
decline in the entire portfolio holdings resulting therefrom since
the assets obtained from leverage do not fluctuate.
<PAGE>
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility.
In addition, there is the risk that fluctuations in interest rates
on borrowings (or in the dividend rates on any Preferred Stock, if
the fund were to issue the preferred stock) may reduce the Common
Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage
exceeds the cost of leverage, the fund's net income will be greater
than if leverage had not been used. Conversely, if the income from
the securities purchased is not sufficient to cover the cost of
leverage, the fund's net income will be less than if leverage had
not been used, and therefore the amount available for distribution
to Common Stock shareholders will be reduced. In this case, the fund
may nevertheless decide to maintain its leveraged position in order
to avoid capital losses on securities purchased with leverage.
However, the fund will not generally utilize leverage if it
anticipates that its leveraged capital structure would result in a
lower rate of return for its Common Stock than would be obtained if
the Common Stock were unleveraged for any significant amount of
time.
<TABLE>
SCHEDULE OF INVESTMENTS (In Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Corporate Debt Obligations+++ Type Rating Maturity** (Note 1b)
<S> <C> <S> <C> <S> <S> <C>
Advertising-- $ 2,000 Adams Outdoor Adventure LP -- B2 3/15/06 $ 2,055
2.7% 5,000 Lamar Advertising Co. -- B2 5/15/03 5,225
2,500 Outdoor Systems, Inc. Term B NR* 12/31/02 2,503
2,500 Outdoor Systems, Inc. Term C NR* 12/31/03 2,504
Total Advertising (Cost--$11,944) 12,287
Agricultural 2,000 Fresh Del Monte Produce N.V. -- Caa 5/01/03 1,870
Products--
0.4% Total Agricultural Products
(Cost--$2,025) 1,870
<PAGE>
Aircraft & 2,000 Airplanes Pass Through Trust -- Ba2 3/15/19 2,115
Parts--5.3% 5,000 BE Aerospace, Inc. -- Ba3 3/01/03 5,100
2,240 Gulfstream Delaware Corp. Term NR* 3/31/98 2,241
1,117 Gulfstream Delaware Corp. Term A NR* 3/31/98 1,118
4,500 Gulfstream Delaware Corp. Term B NR* 3/31/98 4,501
1,000 ++K&F Industries, Inc., Senior Sub Notes -- B2 9/01/04 1,014
4,000 Talley Manufacturing & Technology, Inc. -- B2 10/15/03 4,165
3,000 UNC, Inc. -- B1 7/15/03 2,940
1,000 ++UNC, Inc. -- B3 6/01/06 1,040
Total Aircraft & Parts (Cost--$23,837) 24,234
Amusement & 4,912 AMF Group, Inc. Term Ba3 3/31/01 4,925
Recreational 1,500 ++Cobb Theatres LLC -- B2 3/01/03 1,552
Services--1.6% 1,000 Plitt Theaters, Inc. -- B3 6/15/04 1,016
Total Amusement & Recreational
Services (Cost--$7,462) 7,493
Automotive & 11,848 Collins & Aikman Corp. Term B B1 12/31/02 11,840
Equipment-- 1,000 ++Delco Remy International Inc. -- B2 8/01/06 1,017
5.1% 2,000 Harvard Industries, Inc. -- B2 7/15/04 1,800
1,000 Harvard Industries, Inc. -- B3 8/01/05 870
2,000 Hayes Wheels International, Inc.,
Senior Sub Notes -- B3 7/15/06 2,055
2,000 JPS Automotive Products Corp. -- B2 6/15/01 2,050
4,000 Walbro Corp. -- Ba3 7/15/05 4,000
Total Automotive & Equipment (Cost--$23,783) 23,632
Broadcast-- 4,910 American Media, Inc. Term B NR* 9/30/02 4,885
Radio & TV 1,000 American Radio Systems Corp., Senior
- --9.4% Sub Notes -- B2 2/01/06 965
5,000 CAI Wireless Systems, Inc. -- B3 9/15/02 5,150
1,000 Continental Cablevision, Inc. -- Ba2 9/15/01 1,035
2,500 Continental Cablevision, Inc. -- Ba2 8/15/03 2,610
4,000 Granite Broadcasting Corp., Senior
Sub Notes -- B3 5/15/05 4,000
3,000 Lenfest Communications Inc. -- Ba3 11/01/05 2,775
5,000 Mobilemedia Communications, Inc. Term B B1 6/30/03 5,015
5,000 Rifkin Acquisition Partners LP, Senior
Sub Notes -- B3 1/15/06 5,000
3,000 Sinclair Broadcasting Group, Inc. Term B Ba3 11/30/03 3,019
5,000 Telewest Communications PLC -- B1 10/01/06 4,950
4,000 Young Broadcasting Corp., Senior
Sub Notes -- B2 2/15/05 3,960
Total Broadcast--Radio & TV (Cost--$43,497) 43,364
Building 9,992 National Gypsum Term B Ba3 9/20/03 10,029
Materials--2.9% 3,000 Schuller International Group -- Ba3 12/15/04 3,255
Total Building Materials (Cost--$12,972) 13,284
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Corporate Debt Obligations+++ Type Rating Maturity** (Note 1b)
<S> <C> <S> <C> <S> <S> <C>
Building & $ 3,000 Presley Companies -- B3 7/01/01 $ 2,872
Construction--
0.6%
Total Building & Construction (Cost--$3,000) 2,872
Cable--2.6% 12,000 Marcus Cable Co. Term B NR* 4/30/04 12,068
Total Cable (Cost--$11,917) 12,068
Casinos--1.7% 3,500 GB Property Funding Corp. -- B2 1/15/04 3,045
1,500 Harvey Casinos Resorts, Senior
Sub Notes -- B2 6/01/06 1,545
1,000 Players International, Inc. -- Ba3 4/15/05 980
2,500 Trump Atlantic City Association/
Funding Inc. -- B1 5/01/06 2,388
Total Casinos (Cost--$8,500) 7,958
Chemicals--2.5% 3,000 Acetex Corp. -- B1 10/01/03 2,872
1,500 Borden Chemicals and Plastics LP -- Ba2 5/01/05 1,492
1,481 Freedom Chemical Company Term B Ba3 6/30/02 1,478
5,816 Inspec Chemical Corp. Term B NR* 12/02/00 5,836
Total Chemicals (Cost--$11,724) 11,678
Consumer 4,000 Coty, Inc., Senior Sub Notes -- Ba3 5/01/05 4,240
Products--1.5% 3,000 ++Remington Arms Company, Inc., Senior
Sub Notes -- B3 12/01/03 2,753
Total Consumer Products (Cost--$6,752) 6,993
Diversified-- 3,000 Essex Group Inc. -- B1 5/01/03 3,037
2.5% 1,687 Intermetro Acquisition Term B NR* 6/30/03 1,691
1,313 Intermetro Acquisition Term C NR* 6/30/04 1,316
3,000 J.B. Poindexter & Co., Inc. -- B2 5/15/04 2,857
3,000 Valcor Inc. -- B1 11/01/03 2,700
Total Diversified (Cost--$11,988) 11,601
<PAGE>
Drug/Proprietary 6,040 Duane Reade Co. Term A NR* 9/30/97 5,851
Stores--2.7% 1,500 Duane Reade Co. Term B NR* 9/30/99 1,453
1,663 Smith Food & Drug Centers, Inc. Term B Ba3 11/30/03 1,675
1,663 Smith Food & Drug Centers, Inc. Term C Ba3 11/30/04 1,676
1,663 Smith Food & Drug Centers, Inc. Term D Ba3 8/31/05 1,677
Total Drug/Proprietary Stores (Cost--$12,481) 12,332
Educational 5,000 La Petite Holdings Corp. -- B3 8/01/2001 4,550
Services--1.0%
Total Educational Services (Cost--$5,000) 4,550
Electronics/ 2,000 Advanced Micro Devices Inc. -- Ba1 8/01/03 2,025
Electrical 3,000 Exide Electronics Corp., Senior
Components-- Sub Notes -- B3 3/15/06 3,157
3.0% 3,994 International Wire Group, Inc. Term B NR* 9/30/02 4,000
1,865 Tracor Inc. Term B Ba3 10/31/00 1,871
2,860 Tracor Inc. Term C Ba3 4/30/01 2,869
Total Electronics/Electrical Components (Cost--$13,635) 13,922
Energy--1.5% 2,000 Maxus Energy Corp. -- B1 11/01/03 1,950
4,000 Mesa Operating Co., Senior Sub Notes -- B2 7/01/06 4,180
1,000 Plains Resources, Inc., Senior
Sub Notes -- B2 3/15/06 1,020
Total Energy (Cost--$6,918) 7,150
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (Continued) (In Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Corporate Debt Obligations+++ Type Rating Maturity** (Note 1b)
<S> <C> <S> <C> <S> <S> <C>
Fertilizer-- $ 7,500 Viridian Corp. -- Ba3 4/01/03 $ 7,772
1.9% 1,000 Viridian Corp. -- Ba3 3/31/14 1,080
Total Fertilizer (Cost--$8,525) 8,852
Financial--1.1% 5,000 Continental AG -- NR* 7/31/02 5,003
Total Financial (Cost--$5,000) 5,003
Food & Kindred 2,992 American Italian Pasta Company Term C NR* 2/28/04 2,966
Products--8.8% 3,000 Chiquita Brands International Inc. -- B1 11/01/06 3,090
3,000 Eagle Food Centers Inc. -- Ba3 4/15/00 2,760
4,907 President Baking Company Term B NR* 9/30/00 4,895
4,721 SC International Services, Inc. Caterair B2 9/15/01 4,745
5,887 SC International Services, Inc. SCIB B2 9/15/02 5,916
1,296 SC International Services, Inc. SCIB B2 9/15/03 1,303
9,971 Specialty Foods Inc. Term B B3 4/30/01 9,946
3,077 Van De Kamps Inc. Term B Ba3 4/30/03 3,085
1,923 Van De Kamps Inc. Term C Ba3 9/30/03 1,928
Total Food & Kindred Products (Cost--$40,254) 40,634
<PAGE>
Forest 1,000 Malette Inc. -- Ba3 7/15/04 1,060
Products--1.0% 4,000 Tembec Finance Corp. -- B1 9/30/05 3,770
Total Forest Products (Cost--$5,000) 4,830
General 4,750 Camelot Music Acquisition Corp. Term B NR* 8/31/01 1,711
Merchandise-- 7,323 Federated Department Stores, Inc. Term Ba1 3/31/00 7,304
Stores--2.8% 4,000 Specialty Retailers, Inc., Series A -- B1 8/15/00 3,960
Total General Merchandise--Stores (Cost--$15,961) 12,975
Grocery Stores-- 2,500 Grand Union Co. -- B3 9/01/04 2,481
2.4% 5,000 The Penn Traffic Company -- Ba3 12/15/03 4,150
2,000 Pueblo Xtra International, Inc. -- B2 8/01/03 1,790
905 Ralph's Grocery Co. Term B Ba3 6/15/02 909
905 Ralph's Grocery Co. Term C Ba3 6/15/03 909
905 Ralph's Grocery Co. Term D Ba3 2/15/04 914
Total Grocery Stores (Cost--$12,075) 11,153
Health 1,500 ++Aetna Industries, Inc. -- B3 10/01/06 1,500
Services--9.4% 1,815 Community Health Care Inc. Term B NR* 12/31/03 1,820
1,815 Community Health Care Inc. Term C NR* 12/31/04 1,820
1,370 Community Health Care Inc. Term D NR* 12/31/05 1,373
1,636 Dade International Inc. Term B B1 12/31/02 1,647
1,636 Dade International Inc. Term C B1 12/31/03 1,649
1,727 Dade International Inc. Term D B1 12/31/04 1,743
1,500 Dynacare, Inc. -- B2 1/15/06 1,511
3,000 Grancare Inc., Senior Sub Notes -- B2 9/15/05 2,947
3,000 Integrated Health Services, Inc.,
Senior Sub Notes -- B2 7/15/04 3,135
8,890 MEDIQ/PRN Life Support Services, Inc. -- B1 7/01/99 9,601
5,500 Magellan Health Services, Inc.,
Senior Sub Notes -- B2 4/15/04 5,885
5,000 Medco Behavioral Care Term A B2 6/01/03 4,980
3,000 Paracelsus Healthcare, Inc.,
Senior Sub Notes -- B1 8/15/06 3,030
1,000 Regency Health Service, Inc.,
Senior Sub Notes -- B2 10/15/02 992
Total Health Services (Cost--$42,587) 43,633
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Corporate Debt Obligations+++ Type Rating Maturity** (Note 1b)
<S> <C> <S> <C> <S> <S> <C>
Hotels & $ 2,000 ++Four Seasons Hotels Inc. -- B1 7/01/00 $ 2,010
Motels--1.5% 3,000 Prime Hospitality Corp. -- Ba3 1/15/06 2,962
2,000 Wyndham Hotel Corp., Senior Sub Notes -- B2 5/15/06 2,050
Total Hotels & Motels (Cost--$6,936) 7,022
Leasing & Rental 1,200 Cort Furniture Rental Corp. -- B2 9/01/00 1,254
Services--2.2% 4,940 Prime Acquisition Term B1 12/31/00 4,943
4,000 The Scotsman Group, Inc. -- B1 12/15/00 4,040
Total Leasing & Rental Services (Cost--$10,111) 10,237
Manufacturing-- 3,000 Crain Industries Inc., Senior
1.8% Sub Notes -- B3 8/15/05 3,225
3,623 Foamex LP -- B1 6/01/00 3,605
1,500 ++Tokheim Corp., Senior Sub Notes -- B3 8/01/06 1,526
Total Manufacturing (Cost--$8,143) 8,356
Marking Devices-- 3,000 Monarch Acquisition Corp. -- B2 7/01/03 3,232
0.7%
Total Marking Devices (Cost--$3,000) 3,232
Materials Handling 1,500 Alvey Systems, Inc., Senior Sub Notes -- NR* 1/31/03 1,560
& Storage--1.4% 5,000 Americold Corp. -- B2 3/01/05 5,012
Total Materials Handling & Storage (Cost--$6,613) 6,572
Measuring, 4,651 CHF/Ebel USA Inc. Term B NR* 9/30/01 4,578
Analyzing &
Controlling
Instruments--1.0%
Total Measuring, Analyzing &
Controlling Instruments (Cost--$4,578) 4,578
Metals & 3,000 Bayou Steel Corp. -- B2 3/01/01 2,805
Mining--8.1% 1,000 GS Technologies Operating Co. -- B2 9/01/04 1,034
1,000 GS Technologies Operating Co. -- B2 10/01/05 1,035
3,000 Gulf States Steel Corp. -- B1 4/15/03 2,715
2,000 Jorgensen (Earle M.) Co. -- B2 3/01/00 2,000
3,000 Renco Metals, Inc. -- B2 7/01/03 3,157
2,000 Republic Engineered Steel, Inc. -- B2 12/15/01 1,870
2,000 ++Royal Oak Mines Inc. -- NR* 8/15/06 2,000
7,000 Russell Metals Inc. -- B3 6/15/00 6,843
3,857 UCAR International, Inc. Term B Ba3 1/31/03 3,862
5,000 WCI Steel, Inc. -- B1 3/01/02 5,175
5,190 Weirton Steel Corp. -- B2 6/01/05 4,853
Total Metals & Mining (Cost--$37,987) 37,349
<PAGE>
Musical 3,000 Selmer Co., Inc., Senior Sub Notes -- B3 5/15/05 3,165
Instruments--0.7%
Total Musical Instruments (Cost--$3,000) 3,165
Packaging--1.8% 2,000 ++Packaging Resources Group -- B2 5/01/03 2,035
2,000 ++Printpack, Inc. -- B2 8/15/04 2,030
4,000 Sweetheart Cup Co. -- Ba3 9/01/00 4,060
Total Packaging (Cost--$8,000) 8,125
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
Face Loan Moody's Stated Value
Industries Amount Corporate Debt Obligations+++ Type Rating Maturity** (Note 1b)
<S> <C> <S> <C> <S> <S> <C>
Paper--13.4% $ 3,103 Fort Howard Corp. Term B Ba3 12/31/02 $ 3,123
1,500 ++Four M Corp. -- B2 6/01/06 1,549
3,000 Gaylord Container Corp. -- Ba3 5/15/01 3,105
13,177 Jefferson Smurfit/Container Corp.
of America Term B Ba3 4/30/02 13,260
5,000 Repap New Brunswick, Inc. -- B1 7/15/00 4,945
8,571 Riverwood International, Inc. Term B Ba3 2/28/04 8,609
3,429 Riverwood International, Inc. Term C Ba3 8/28/04 3,444
4,965 S.D. Warren Co. Term B Ba2 6/30/02 4,982
18,900 Stone Container Corp. Term B Ba3 4/01/00 18,983
Total Paper (Cost--$60,977) 62,000
Printing & 1,750 ++National Fiberstock Corp. -- B3 6/15/02 1,776
Publishing--1.0% 3,000 Treasure Chest Advertising Co. Term Ba3 12/31/02 3,008
Total Printing & Publishing (Cost--$4,740) 4,784
Restaurant--1.7% 8,000 Host Marriott Corp. -- B1 5/15/05 7,800
Total Restaurant (Cost--$7,786) 7,800
<PAGE>
Shipping--2.4% 4,500 Eletson Holdings, Inc. -- Ba2 11/15/03 4,320
3,000 Stena Line AB -- Ba2 12/15/05 3,030
2,000 Teekay Shipping Inc. -- Ba2 2/01/08 1,920
2,000 Viking Star Shipping Inc. -- Ba2 7/15/03 2,040
Total Shipping (Cost--$11,387) 11,310
Telephone 4,964 Shared Technology Inc. Term B NR* 3/31/03 4,946
Communications--
1.1%
Total Telephone Communications (Cost--$4,935) 4,946
Textile Mills 3,000 ++Avondale Mills Inc., Senior Sub Notes -- B2 5/01/06 3,000
Products--1.2% 2,500 Dominion Textile USA, Inc. -- Ba2 4/01/06 2,500
Total Textile Mills Products (Cost--$5,455) 5,500
Transportation-- 4,000 Ameritruck Distribution Corp., Senior
1.3% Sub Notes -- B3 11/15/05 3,810
2,100 Trism, Inc., Senior Sub Notes -- B2 12/15/00 1,974
Total Transportation (Cost--$5,965) 5,784
Utilities--2.2% 1,605 Beaver Valley Funding Corp. -- B1 6/01/07 1,394
4,000 Cleveland Electric Illuminating Co. -- Ba2 5/15/05 3,870
1,000 El Paso Electric Co. -- Ba3 2/01/06 997
1,000 El Paso Electric Co. -- Ba3 5/01/11 1,006
2,920 Public Service of New Mexico -- Ba3 1/15/14 3,088
Total Utilities (Cost--$10,276) 10,355
Waste 3,000 ++Norcal Waste Systems, Inc. -- B3 11/15/05 3,173
Management--0.7%
Total Waste Management (Cost--$2,947) 3,173
Total Corporate Debt Obligations (Cost--$549,673)--118.6% 548,656
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In Thousands)
<CAPTION>
Shares Value
Industries Held Warrants (a) (Note 1b)
<S> <C> <S> <C>
Electrical 3 ++Exide Electronics Corp. $ 60
Instruments--0.0%
<PAGE>
Leasing & 66 Cort Furniture Rental Corp. 165
Rental Services--
0.0%
Steel--0.0% 3 ++Gulf States Steel Corp. 1
Total Warrants (Cost--$119)--0.0% 226
Short-Term Investments
Commercial General Electric Capital Corp. ($381,000
Paper***--0.1% par, maturing 9/03/1996, yielding 5.30%) 381
Total Short-Term Investments (Cost--$381)--0.1% 381
Total Investments (Cost--$550,173)--118.7% 549,263
Liabilities in Excess of Other Assets--(18.7%) (86,488)
---------
Net Assets (Equivalent to $9.06 per share
based on 51,070 shares outstanding)--100.0% $ 462,775
=========
<FN>
*Not Rated.
**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.
***Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the
Portfolio.
(a)Warrants entitle the Portfolio to purchase a predetermined number
of shares of common stock/face amount of bonds. The purchase price
and number of shares/face amount are subject to adjustments under
certain conditions until the expiration date.
++Restricted securities as to resale. The value (in thousands) of
the Portfolio's investment in restricted securities was
approximately $28,036 (in thousands), representing 6.1% of net
assets.
Acquisition Value
Issue Date(s) Cost (Note 1b)
<PAGE>
Aetna Industries, Inc.
due 10/01/06 8/08/96 $ 1,500 $ 1,500
Avondale Mills Inc., Senior
Sub Notes due 5/01/06 4/23/96 2,955 3,000
Cobb Theatres LLC, Senior
Secured Notes due 3/01/03 2/29/96 1,500 1,552
Delco Remy International
Inc. due 8/01/06 7/26/96 1,000 1,017
Exide Electronics Corp.
(Warrants) 3/07/96 85 60
Four M Corp. due 6/01/06 5/23/96 1,500 1,549
Four Seasons Hotels Inc.
due 7/01/00 1/25/94 1,945 2,010
Gulf States Steel Corp.
(Warrants) 4/12/95 33 1
K & F Industries, Inc.
due 9/01/04 8/12/96 1,000 1,014
National Fiberstock Corp.
due 6/15/02 6/21/96 1,750 1,776
Norcal Waste Systems, Inc.
due 11/15/05 11/15/95 2,947 3,173
Packaging Resources Group
due 5/01/03 5/10/96 2,000 2,035
Printpack, Inc.
due 8/15/04 8/15/96 2,000 2,030
Remington Arms Company,
Inc., Senior Sub Notes 6/20/96-
due 12/01/03 6/21/96 2,752 2,753
Royal Oak Mines Inc.
due 8/15/06 8/05/96 2,000 2,000
Tokheim Corp. due 8/01/06 8/16/96 1,500 1,526
UNC, Inc. due 6/01/06 5/23/96 1,000 1,040
Total $27,467 $28,036
======= =======
+++Corporate loans represent 50.1% of the Portfolio's net assets.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets, Liabilities and Capital as of August 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$550,173,010)
(Note 1b) $ 549,262,533
Interest receivable 10,920,972
Deferred facility fees 14,837
Deferred organization expenses (Note 1f) 41,347
Prepaid expenses and other assets 6,002
---------------
Total assets 560,245,691
---------------
<PAGE>
Liabilities: Payables:
Loans (Note 5) $ 97,000,000
Investment adviser (Note 2) 249,477
Interest on loans (Note 5) 56,109
Commitment fees 29,095 97,334,681
---------------
Accrued expenses and other liabilities 135,955
---------------
Total liabilities 97,470,636
---------------
Net Assets: Net assets $ 462,775,055
===============
Capital: Common Stock, par value $.10 per share; 200,000,000
shares authorized (51,069,842 shares issued and
outstanding) $ 5,106,984
Paid-in capital in excess of par 476,316,565
Undistributed investment income--net 5,307,410
Accumulated realized capital losses on investments
--net (Note 6) (23,045,427)
Unrealized depreciation on investments--net (910,477)
---------------
Total Capital--Equivalent to $9.06 net asset value
per share of Common Stock (market price--$9.25) $ 462,775,055
===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
August 31, 1996
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 23,701,051
(Note 1e): Facility and other fees 529,618
---------------
Total income 24,230,669
---------------
<PAGE>
Expenses: Loan interest expense (Note 5) $ 2,586,100
Investment advisory fees (Note 2) 1,245,435
Borrowing costs (Note 5) 122,665
Printing and shareholder reports 62,947
Custodian fees 48,758
Professional fees 33,773
Transfer agent fees (Note 2) 29,557
Directors' fees and expenses 18,069
Amortization of organization expenses (Note 1f) 10,153
Pricing services 8,676
Listing fees 392
Other 39,174
---------------
Total expenses 4,205,699
---------------
Investment income--net 20,024,970
---------------
Realized & Realized loss on investments--net (1,000,272)
Unrealized Change in unrealized appreciation/depreciation
Loss on on investments--net (2,756,025)
Investments--Net ---------------
(Notes 1c, 1e & 3): Net Increase in Net Assets Resulting from Operations $ 16,268,673
===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: August 31, 1996 February 29, 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 20,024,970 $ 23,524,388
Realized loss on investments--net (1,000,272) (4,045,820)
Change in unrealized appreciation/depreciation on
investments--net (2,756,025) 10,795,412
--------------- ---------------
Net increase in net assets resulting from operations 16,268,673 30,273,980
--------------- ---------------
Dividends to Investment income--net (18,733,988) (23,431,545)
Shareholders --------------- ---------------
(Note 1g): Net decrease in net assets resulting from dividends
to shareholders (18,733,988) (23,431,545)
--------------- ---------------
<PAGE>
Capital Share Net proceeds from issuance of Common Stock resulting
Transactions from reorganization 222,966,255 --
(Note 4): Value of shares issued to Common Stock shareholders
in reinvestment of dividends 6,138,419 2,286,227
--------------- ---------------
Net increase in net assets resulting from capital
share transactions 229,104,674 2,286,227
--------------- ---------------
Net Assets: Total increase in net assets 226,639,359 9,128,662
Beginning of period 236,135,696 227,007,034
--------------- ---------------
End of period* $ 462,775,055 $ 236,135,696
=============== ===============
<FN>
*Undistributed investment income--net $ 5,307,410 $ 4,016,428
=============== ===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Cash Flows
<CAPTION>
For the Six Months Ended
August 31, 1996
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 16,268,673
Operating Adjustments to reconcile net increase in net assets resulting
Activities: from operations to net cash used for operating activities:
Increase in receivables (4,517,437)
Decrease in other assets 121,784
Increase in other liabilities 217,958
Realized and unrealized loss on investments--net 3,756,297
Amortization of discount--net (255,538)
---------------
Net cash provided by operating activities 15,591,737
---------------
Cash Used for Proceeds from sales of long-term investments 292,110,129
Investing Purchases of long-term investments (298,126,756)
Activities: Purchases of short-term investments (127,176,665)
Proceeds from sales and maturities of short-term investments 128,818,000
---------------
Net cash used for investing activities (4,375,292)
---------------
<PAGE>
Cash Used for Cash receipts from borrowings 136,000,000
Financing Cash payments on borrowings (134,000,000)
Activities: Dividends paid to shareholders (13,217,003)
---------------
Net cash used for financing activities (11,217,003)
---------------
Cash: Net decrease in cash (558)
Cash at beginning of period 558
---------------
Cash at end of period $ 0
===============
Cash Flow Cash paid for interest $ 2,536,905
Information: ===============
Noncash Capital shares issued in reinvestment of dividends paid
Financing to shareholders $ 6,138,419
Activities: ===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
For the For the For the Period
The following per share data and ratios have been derived Six Months Year Year April 30,
from information provided in the financial statements. Ended Ended Ended 1993++ to
Aug. 31, Feb. 29, Feb. 28, Feb. 28,
Increase (Decrease) in Net Asset Value: 1996++++ 1996++++ 1995++++ 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.21 $ 8.94 $ 9.82 $ 9.50
Operating -------- -------- -------- --------
Performance: Investment income--net .46 .92 .90 .70
Realized and unrealized gain (loss) on
investments--net (.15) .27 (.87) .25
-------- -------- -------- --------
Total from investment operations .31 1.19 .03 .95
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.92) (.84) (.61)
Realized gain on investments--net -- -- (.07) (.02)
-------- -------- -------- --------
Total dividends and distributions (.46) (.92) (.91) (.63)
-------- -------- -------- --------
Net asset value, end of period $ 9.06 $ 9.21 $ 8.94 $ 9.82
======== ======== ======== ========
Market price per share, end of period $ 9.25 $ 9.25 $ 8.625 $ 9.375
======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 3.53%+++ 14.14% .82% 10.28%+++
Return:** ======== ======== ======== ========
Based on market price per share 5.25%+++ 18.82% 1.87% .02%+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement and excluding
Net Assets: interest expense .62%* .92% .80% .67%*
======== ======== ======== ========
Expenses, net of reimbursement 1.62%* 2.92% 2.46% 1.61%*
======== ======== ======== ========
Expenses 1.62%* 2.92% 2.46% 1.75%*
======== ======== ======== ========
Investment income--net 7.71%* 10.14% 7.07% 7.33%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $462,775 $236,136 $227,007 $248,342
Data: ======== ======== ======== ========
Portfolio turnover 62.12% 50.76% 44.81% 52.73%
======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) $ 97,000 $ 47,000 $ 82,000 $ 84,000
======== ======== ======== ========
Asset coverage per $1,000 $ 5,760 $ 6,024 $ 3,768 $ 3,956
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, 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.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregrate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
1. Significant Accounting Policies:
Senior High Income Portfolio, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund determines and makes available for publication the net
asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol ARK.
(a) Corporate debt obligations--The Fund invests principally in
senior debt obligations ("Senior Debt") of companies, including
corporate loans made by banks and other financial institutions and
both privately and publicly offered corporate bonds and notes.
Because agents and intermediaries are primarily commercial banks,
the Fund's investment in corporate loans could be considered
concentrated in financial institutions.
(b) Valuation of investments--Until June 17, 1996, corporate loans
were valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund. As of June 17,
1996, the Board of Directors enhanced their policy for valuing
corporate loans whereby the corporate loans would be valued at the
average of the mean between the bid and asked quotes received from
one or more brokers, if available.
Other portfolio securities may be valued on the basis of prices
furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. In certain circumstances,
portfolio securities are valued at the last sale price on the
exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there
were no sales during the day. The value of interest rate swaps,
caps, and floors is determined in accordance with a formula and then
confirmed periodically by obtaining a bank quotation. Positions in
options are valued at the last 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.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* 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.
<PAGE>
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Facility fees are accreted
to income over the term of the related loan.
(f) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. The Fund may at times pay out
less than the entire amount of net investment income earned in any
particular period and may at times pay out such accumulated
undistributed income in other periods to permit the Fund to maintain
a more stable level of distributions.
2. Investment Advisory Agreement with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management ("FAM"). The general partner of FAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets plus the proceeds of any
outstanding borrowings used for leverage.
Accounting services are provided to the Fund by FAM at cost.
During the six months ended August 31, 1996, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), $3,271 for security price
quotations to compute the net asset value of the Fund.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended August 31, 1996 were $296,618,670 and
$292,110,129, respectively.
Net realized and unrealized losses as of August 31, 1996 were as
follows:
<PAGE>
Realized Unrealized
Losses Losses
Long-term investment $(1,000,272) $ (910,477)
----------- ----------
Total $(1,000,272) $ (910,477)
=========== ==========
As of August 31, 1996, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $910,477, of
which $8,113,128 related to appreciated securities and $9,023,605
related to depreciated securities. The aggregate cost of investments
at August 31, 1996 for Federal income tax purposes was $550,173,010.
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.
For the six months ended August 31, 1996, shares issued and
outstanding increased by 25,430,250, of which 24,749,374 resulted
from a reorganization and 680,876 resulted from reinvestment of
dividends, to 51,069,842. At August 31, 1996, total paid-in capital
amounted to $481,423,549.
5. Short-Term Borrowings:
On April 15, 1996, the Fund extended its credit agreement with a
syndicate of banks led by The Bank of New York. The agreement is a
$225,000,000 credit facility bearing interest at the Federal Funds
Rate plus 0.50% and/or the Prime Rate plus 0% and/or the Eurodollar
Rate plus 0.50%. For the six months ended August 31, 1996, the
maximum amount borrowed was $119,000,000, the average amount
borrowed was approximately $86,038,000, and the daily weighted
average interest rate was 5.93%. For the six months ended August 31,
1996, facility and commitment fees aggregated $122,665.
6. Capital Loss Carryforward:
At February 29, 1996, the Fund had a net capital loss carryforward
of approximately $12,363,000, of which $5,318,000 expires in 2003
and $7,045,000 expires in 2004. This amount will be available to
offset like amounts of any future taxable gains.
<PAGE>
7. Subsequent Event:
On September 6, 1996, the Board of Directors of the Fund declared an
ordinary income dividend in the amount of $.078561 per share,
payable on September 30, 1996 to shareholders of record as of
September 17, 1996.
8. Acquisition of Senior High Income Portfolio II,
Inc. and Senior Strategic Income Fund, Inc.:
On April 15, 1996, pursuant to an agreement and plan of
reorganization approved by shareholders, the Fund acquired all the
assets and liabilities of Senior High Income Portfolio II, Inc. and
Senior Strategic Income Fund, Inc. The acquisition was accomplished
by a tax-free exchange of 24,749,374 Common Stock shares of the Fund
for 16,710,754 and 7,818,379 Common Stock shares for Senior High
Income Portfolio II, Inc. and Senior Strategic Income Fund, Inc.,
respectively. As of that date, Senior High Income Portfolio II,
Inc.'s net assets of $148,924,064, including $3,140,213 of
unrealized depreciation and $6,443,907 of accumulated net realized
capital losses and Senior Strategic Income Fund, Inc.'s net assets
of $71,458,384, including $150,877 unrealized appreciation and
$2,762,085 accumulated net realized capital losses, were combined
with those of the Fund. The aggregate net assets of the Fund
immediately after the acquisition amounted to $449,986,715.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
John W. Fraser, Vice President
R. Douglas Henderson, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian and Transfer Agent
The Bank of New York
110 Washington Street
New York, New York 10286
NYSE Symbol
ARK
<PAGE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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