-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TW4br2qUoJ+me6cl97uLPcHrDa1uHzZDffhHcBU0ECqp0egpZIQZB46mY1hLq1du R3Jqg4UmeeAWRxrhkLkyGw== 0000900092-04-000313.txt : 20041029 0000900092-04-000313.hdr.sgml : 20041029 20041029165359 ACCESSION NUMBER: 0000900092-04-000313 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040831 FILED AS OF DATE: 20041029 DATE AS OF CHANGE: 20041029 EFFECTIVENESS DATE: 20041029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENIOR HIGH INCOME PORTFOLIO INC CENTRAL INDEX KEY: 0000896665 IRS NUMBER: 223226962 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07456 FILM NUMBER: 041107010 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 N-CSRS 1 ml7176.txt SENIOR HIGH INCOME PORTFOLIO UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-7456 Name of Fund: Senior High Income Portfolio, Inc. Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Terry K. Glenn, President, Senior High Income Portfolio, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011 Registrant's telephone number, including area code: (609) 282-2800 Date of fiscal year end: 02/29/04 Date of reporting period: 03/01/04 - 08/31/04 Item 1 - Report to Stockholders (BULL LOGO) Merrill Lynch Investment Managers www.mlim.ml.com Senior High Income Portfolio, Inc. Semi-Annual Report August 31, 2004 Senior High Income Portfolio, Inc. seeks to provide shareholders with as high a level of current income as is consistent with its investment policies and prudent investment management 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. The Fund invests primarily in debt obligations that are rated in the lower rating categories of the established rating services (Baa or lower by Moody's Investors Service, Inc. or BBB or lower by Standard & Poor's) or unrated debt investments of comparable quality. 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 leverages 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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Information about how the Fund voted proxies relating to securities held in the Fund's portfolio during the most recent 12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2) on the Securities and Exchange Commission's Web site at http://www.sec.gov. Senior High Income Portfolio, Inc. Box 9011 Princeton, NJ 08543-9011 (GO PAPERLESS LOGO) It's Fast, Convenient, & Timely! To sign up today, go to www.icsdelivery.com/live. Senior High Income Portfolio, Inc. The Benefits and Risks of Leveraging Senior High Income Portfolio, Inc. (the "Fund") utilizes 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 income 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 net asset value and 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. Electronic Delivery The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this website http://www.icsdelivery.com/live and follow the instructions. When you visit this site, you will obtain a personal identification number (PIN). You will need this PIN should you wish to update your e-mail address, choose to discontinue this service and/or make any other changes to the service. This service is not available for certain retirement accounts at this time. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 A Letter From the President Dear Shareholder In recent months, the Federal Reserve Board (the Fed) has taken center stage as it shifts away from its long-accommodative monetary stance. The Fed raised the Federal Funds rate 75 basis points (.75%) in three separate moves since June, bringing the target short-term interest rate to 1.75% - still low by historical standards. The Fed has been deliberate in telegraphing its intention to take a "measured" approach to interest rate increases in order to avoid upsetting the economy or the financial markets, while still leaving room to move more aggressively if inflation and economic growth accelerate more than anticipated. The forward curve currently projects further increases in short-term interest rates before year- end. In addition to the Fed policy change, the financial markets recently have had to grapple with a tense geopolitical environment, higher oil prices and the worry and anticipation that accompanies a presidential election. The transition to higher rates can cause concern among equity and fixed income investors alike. For bond investors, rising interest rates means the value of older issues declines because they bear the former lower interest rates. In addition, increasing inflation erodes the purchasing power of fixed income securities. Nevertheless, for the six-month and 12-month periods ended August 31, 2004, fixed income markets provided positive results. For example, the Lehman Brothers Aggregate Bond Index returned +1.15% and +6.13%; the Credit Suisse First Boston High Yield Index returned +3.42% and +14.68%; and the Citigroup Mortgage Index returned +1.79% and +6.07% for the six-month and 12-month periods, respectively. As always, our investment professionals are closely monitoring the markets, the economy and the overall environment in an effort to make well-informed decisions for the portfolios they manage. Our goal is to provide shareholders with competitive returns, while always keeping one eye on managing the unavoidable risk inherent in investing. We thank you for trusting Merrill Lynch Investment Managers with your investment assets, and we look forward to serving you in the months and years ahead. Sincerely, (Terry K. Glenn) Terry K. Glenn President and Director SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 A Discussion With Your Portfolio Manager The Portfolio provided positive returns for the period, outperforming its blended benchmark due to an overweight position in high yield bonds and our ample use of leverage. How did the Portfolio perform during the period in light of the existing market conditions? For the six-month period ended August 31, 2004, the Common Stock of Senior High Income Portfolio, Inc. had net annualized yields of 8.88% and 9.23%, based on a period-end per share net asset value of $6.10 and a per share market price of $5.87, respectively, and $0.273 per share income dividends. Over the same period, the total investment return on the Portfolio's Common Stock was +4.84%, based on a beginning and ending net asset value of $6.10, and assuming reinvestment of $0.276 per share ordinary income dividends. The Portfolio's benchmark, which is an equal blend of the Credit Suisse First Boston (CSFB) High Yield Index and the CSFB Leveraged Loan Index, returned +2.85% for the same period. For a description of the Portfolio's total investment return based on a change in the per share market value of the Portfolio's Common Stock (as measured by the trading price of the Portfolio's shares on the New York Stock Exchange), and assuming reinvestment of dividends, please refer to the Financial Highlights section of the Financial Statements included in this report. As a closed-end fund, the Portfolio's shares may trade in the secondary market at a premium or discount to the Portfolio's net asset value. As a result, total investment returns based on changes in the market value of the Portfolio's Common Stock can vary significantly from total investment returns based on changes in the Portfolio's net asset value. The rate of high yield bond issuance has kept pace with that of 2003, with high yield proceeds of $66 billion in the first half of 2004 versus $68 billion in the first half of 2003. As in 2003, this year's issuance has consisted primarily of refinancing activity (75%), as corporate treasurers capitalized on the relatively low interest rate environment. During this period, there was a troublesome trend whereby companies were issuing zero-coupon debt at the holding company to finance dividends to equity sponsors. This activity had a "double-barreled" impact on leverage - increasing debt while decreasing equity - and often stretched credit parameters beyond reasonable limits. However, the market eventually pushed back and we have seen this trend subside. Nevertheless, the high yield market's risk appetite has been steadily increasing. The percentage of transactions rated B or lower has risen from 45% in 2001 to 54% in 2002, 63% in 2003 and 68% in the first half of 2004. This trend may persist as the forecast default rate continues to decline. Moody's Investors Service is predicting a 2004 default rate of 2.3%, compared to 4.13% in 2003. Technicals in the leveraged bank loan market were similar to those of the high yield market. Refinancing accounted for 81% of bank loan issuance in the first half of 2004, while investor demand for bank loans soared. The resulting supply/demand imbalance prompted tighter spreads, smaller allocations and transaction upsizing. For example, the average spread on B-rated loans compressed from 350 basis points (3.5%) in September 2003 to 291 basis points in August 2004. What were the reasons for the Portfolio's outperformance of its benchmark? The Portfolio's outperformance was driven primarily by our overweight position in high yield bonds. We rebalanced the Portfolio toward fixed rate investments after the events of September 11, 2001, as the Federal Reserve Board (the Fed) cut the Federal Funds rate from 3.5% to 1.0% by June 2003. The interest rate cuts had dramatically reduced the yield on the LIBOR-based bank loan component of the portfolio. (LIBOR refers to the London Interbank Offer Rate. The three-month LIBOR is the base upon which nearly all our bank loans and floating rate notes are set.) Also contributing to the Portfolio's outperformance was our ample use of the permissible leverage lines. We use commercial paper-based borrowings for leverage up to 33% of the Portfolio's total assets. The average amount of Portfolio leverage during the six-month period was 27.8%. (For a complete discussion of the benefits and risk of leverage, refer to page 2 of this report to shareholders.) Top-performing portfolio holdings during the past six months included Mission Energy Holding Company, Highland Legacy Limited Co. and GEO Specialty Chemicals Inc. In Mission Energy, the Portfolio holds $6.5 million in bonds with a 13.5% coupon. The bonds, which are due on July 15, 2008, appreciated in price from 103 to 123 during the period. The company is selling a portfolio of international assets and has received much higher-than-expected bids. This has led to speculation that the company will tender for this issue somewhere in the high 120s range. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Regarding Highland Legacy, our $4 million investment in this collateralized debt obligation continued to rally during the period from 55 to 75. This price action reflects the favorable impact of the high yield rally on the portfolio's valuation. Our $3.6 million bond position in GEO appreciated from 30 to 50 during the period. GEO, which filed for bankruptcy in March 2004, has a portfolio of niche businesses that supply functional chemicals to the industrial water treatment, paints and coatings, construction and electronics markets. During the past several months, all of the market segments in which the company operated benefited from a strong U.S. economy. Investments that detracted from results during the period included Telewest Global, Inc., Advanced Accessory Systems and Calpine Corporation. Our $7.9 million bond position in Telewest, which was priced at 64.5 on March 1, 2004, was converted into equity through a U.K. court reorganization. Our August 31, 2004 equity value equates to a price of about 47 on the bond position. We suspect that this is due to technical pressures arising from bondholders liquidating their equity positions. Telewest management continues to make significant operating progress. The Portfolio's $7.5 million bond investment in automotive supplier Advanced Accessory Systems declined in price from 106 to 95 during the period. The company's prospects continue to be impaired by its higher steel costs and pricing concession demands from the original equipment manufacturers. The Portfolio owns $4 million in bank debt and $3 million in bonds of merchant power company Calpine. During the period, the prices of both securities were volatile, but ultimately declined about 10 points. Calpine's electrical generation capacity consists of gas turbines. The company continues to feel the impact of a low-spark spread environment (that is, high natural gas prices and soft wholesale electrical prices), coupled with the higher operating expenses associated with a larger plant fleet. As Calpine has now almost completed it expansion program, forward funding requirements will subside. In the meantime, we believe the company's liquidity is sufficient to see it through an eventual recovery in market prices. What changes were made to the Portfolio during the period? We continued to reposition the Portfolio during the period, shifting to an allocation of 60% fixed rate and 40% floating rate investments. This compared to a composition of 80% fixed rate and 20% floating rate last year. Given the robust demand for bank loans, allocations were usually a small percentage of our original order. To achieve our 60% fixed/40% floating rate target, we purchased $33 million in floating rate notes during the six-month period. We continue to believe that the downside risk associated with rising interest rates outweighs the benefits we may see from a bond rally. At period-end, the Fed had already initiated two interest rate hikes of 25 basis points. There was a third quarter-point increase in September, bringing the target short-term interest rate to 1.75%. This, and the prospect of additional interest rate hikes, served to raise the three-month LIBOR rate from 1.12% at August 31, 2003, to 1.80% at August 31, 2004. How would you characterize the Portfolio's position at the close of the period? We would characterize our position at period-end as defensive while still focused on maintaining the Portfolio's attractive yield. We also continue to be cautious and selective in adding new positions, and intend to maintain our use of leverage within a target range of 25%-30% of total assets. Kevin J. Booth Vice President and Portfolio Manager September 22, 2004 SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Portfolio Information As of August 31, 2004 Percent of Ten Largest Bank Loan Holdings Net Assets Wellman, Inc., First Lien Term, 8.75% due 2/04/2009 2.4% Charter Communications, Term B, 4.92% due 4/27/2011 2.3 Sealy Mattress Company, Term, 5.972% due 4/06/2013 1.8 TransWestern Publishing Company, LLC, Term B, 3.875% due 2/25/2011 1.7 The Goodyear Tire & Rubber Company, Term, 6.059% due 3/31/2006 1.5 American Safety Razor Company, Term B, 4.95% due 4/01/2011 1.5 High Voltage Engineering Corporation, Term A, 8.68% due 7/31/2006 1.5 Century Cable Holdings LLC, Term, 6.50% due 6/30/2009 1.4 Insight Midwest Holdings, LLC, Term B, 3.937% due 12/31/2009 1.2 Polymer Group, Inc., First Lien Term, 4.84% due 4/01/2010 1.2 Percent of Five Largest Industries* Net Assets Chemicals 20.3% Cable--U.S. 13.4 Utilities 9.1 Packaging 7.8 Automotive 7.2 *For Fund compliance purposes, "Industries" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Portfolio management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Percent of Total Quality Ratings by S&P/Moody's Investments AAA/Aaa 0.1% BB/Ba 18.9 B/B 66.9 CCC/Caa 6.7 CC/Ca 0.1 C/C 0.4 D/D 0.2 NR (Not Rated) 3.6 Other* 3.1 *Includes portfolio holdings in common stocks, preferred stocks, other interests, warrants and short-term investments. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments
S&P Moody's Face Industry++ Ratings Ratings Amount Corporate Debt Obligations Value Aerospace & The Titan Corporation: Defense--2.1% B B2 $1,000,000 8% due 5/15/2011 $ 1,032,500 BB- Ba3 2,992,366 Term B, due 6/30/2009++++ 3,006,706 B B2 2,960,000 Vought Aircraft Industries, Inc., 8% due 7/15/2011 2,937,800 ------------- 6,977,006 Airlines--0.2% CCC- Ca 900,000 Evergreen International Aviation, Inc., 12% due 5/15/2010 531,000 Automotive-- B- B2 3,184,000 Accuride Corporation, Term B, due 6/30/2007++++ 3,262,607 7.2% CCC+ B3 7,550,000 Advanced Accessory Systems, 10.75% due 6/15/2011 7,172,500 NR* NR* 5,000,000 The Goodyear Tire & Rubber Company, Term, due 3/31/2006++++ 5,065,625 B Caa1 1,800,000 Metaldyne Corporation, 11% due 6/15/2012 1,566,000 B+ B1 1,436,719 NFIL Holdings Inc., Term B, due 2/27/2010++++ 1,456,025 B- B1 1,350,000 Remy International, Inc., 5.60% due 4/15/2009 (d) 1,370,250 Tenneco Automotive Inc.: B- B3 1,875,000 11.625% due 10/15/2009 2,001,563 B- B2 475,000 10.25% due 7/15/2013 549,813 B B1 1,235,172 Tranche B, due 12/12/2010++++ 1,258,332 B B1 558,621 Tranche B-1, Credit Link, due 12/12/2010++++ 570,142 Venture Holdings Company LLC (g): NR* NR* 3,325,000 9.50% due 7/01/2005 133,000 NR* NR* 700,000 12% due 6/01/2009 875 ------------- 24,406,732 Broadcasting-- CCC B3 3,000,000 Granite Broadcasting Corporation, 9.75% due12/01/2010 2,827,500 0.8% Cable-- B B3 4,650,000 Kabel Deutschland GmbH, 10.625% due 7/01/2014 (b) 4,766,250 International-- NTL Cable PLC (b): 2.2% B- B3 2,350,000 6.61% due 10/15/2012 (d) 2,397,000 B- B3 350,000 8.75% due 4/15/2014 364,000 ------------- 7,527,250 Cable--U.S.-- BB- B1 1,800,000 CSC Holdings, Inc., 7.25% due 7/15/2008 1,872,000 13.4% Century Cable Holdings, LLC:++++ NR* Caa1 3,000,000 Discretionary Term, due 12/31/2009 2,925,624 NR* NR* 5,000,000 Term, due 6/30/2009 4,885,270 Charter Communications Holdings, LLC: CCC- Ca 1,750,000 10% due 4/01/2009 1,443,750 CCC- Ca 1,000,000 11.75%** due 1/15/2010 805,000 CCC- Ca 2,000,000 11.125% due 1/15/2011 1,670,000 CCC- Ca 1,500,000 9.92% due 4/01/2011 1,185,000 CCC- Ca 1,000,000 10% due 5/15/2011 790,000 B B2 8,000,000 Charter Communications, Term B, due 4/27/2011++++ 7,905,832 Inmarsat Investments Limited:++++ BB- Ba3 2,500,000 Term B, due 1/23/2017 2,512,265 NR* NR* 2,500,000 Term C, due 1/23/2012 2,521,640 BB+ Ba3 3,980,000 Insight Midwest Holdings, LLC, Term B, due 12/31/2009++++ 4,042,498 NR* NR* 2,363,981 Mallard Cablevision LLC & Sun Tel Communications, Term B, due 9/30/2008++++ (g) 23,640 B+ B2 3,000,000 Mediacom Broadband LLC, 11% due 7/15/2013 3,247,500 D B2 4,000,000 Olympus Cable Holdings LLC, Term B, due 9/30/2010++++ 3,910,000 NR* NR* 550,040 Pegasus Media & Communications, Inc., Term, due 4/30/2005++++ 550,814 CCC+ B3 5,250,000 Rainbow National Services LLC, 8.75% due 9/01/2012 (b) 5,394,375 ------------- 45,685,208
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (continued)
S&P Moody's Face Industry++ Ratings Ratings Amount Corporate Debt Obligations Value Chemicals-- B+ B1 $3,000,000 Arteva Specialties Sarl, 9.25% due 5/01/2012 (b) $ 3,195,000 20.3% B- B3 875,000 BCP Caylux Holdings Luxembourg SCA, 9.625% due 6/15/2014 (b) 939,531 B- B3 2,250,000 Compass Minerals International, Inc., 12%** due 6/01/2013 1,755,000 Crompton Corporation (b): B B1 3,000,000 7.67% due 8/01/2010 (d) 3,067,500 B B1 3,000,000 9.875% due 8/01/2012 3,120,000 D C 3,600,000 GEO Specialty Chemicals, Inc., 10.125% due 8/01/2008 (g) 1,800,000 Huntsman International LLC: B- B3 1,000,000 9.875% due 3/01/2009 1,080,000 CCC+ Caa1 2,000,000 10.125% due 7/01/2009 2,060,000 B B1 2,000,000 Term, due 12/31/2010++++ 2,030,000 B+ B2 1,750,000 ISP Holdings, Inc., 10.625% due 12/15/2009 1,925,000 B B3 925,000 KRATON Polymers LLC, 8.125% due 1/15/2014 (b) 915,750 B B2 2,500,000 Koppers Inc., 9.875% due 10/15/2013 2,750,000 BB Ba3 2,500,000 KoSa B/INVISTA, Term due 4/29/2011++++ 2,515,625 B+ B1 1,650,000 Lyondell Chemical Company, 11.125% due 7/15/2012 1,876,875 B+ B1 1,350,000 Lyondell Chemical Worldwide, Inc., 9.80% due 2/01/2020 1,363,500 BB- B1 1,200,000 Millennium America Inc., 7.625% due 11/15/2026 1,086,000 BB- B2 5,350,000 Omnova Solutions Inc., 11.25% due 6/01/2010 5,885,000 NR* NR* 1,671,088 Pinnacle Polymers Term, due 12/15/2006++++ 1,692,059 NR* NR* 2,500,000 Pioneer Companies, Inc., 5.086% due 12/31/2006 (d) 2,362,500 B+ B2 4,000,000 Polymer Group, Inc., First Lien Term, due 4/01/2010++++ 4,029,168 B+ B3 6,375,000 PolyOne Corporation, 10.625% due 5/15/2010 6,932,812 Rockwood Specialties Group, Inc.: B- B3 1,825,000 10.625% due 5/15/2011 1,989,250 B+ B1 1,600,000 Term B, due 7/30/2012++++ 1,613,286 Terra Industries: B+ B3 2,500,000 12.875% due 10/15/2008 3,075,000 B- Caa1 1,250,000 11.50% due 6/01/2010 1,393,750 B- B3 400,000 United Agri Products, Inc., 8.25% due 12/15/2011 (b) 432,000 BB- B1 8,000,000 Wellman, Inc., First Lien Term, due 2/04/2009++++ 8,140,000 ------------- 69,024,606 Consumer B+ B1 6,000,000 Sealy Mattress Company, Term, due 4/06/2013++++ 6,135,000 Durables--2.8% Simmons Company: B- Caa1 450,000 7.875% due 1/15/2014 463,500 B+ B3 3,000,000 Term B, due 6/19/2011++++ 3,027,657 ------------- 9,626,157 Consumer B B2 4,987,500 American Safety Razor Company, Term B, due 4/01/2011++++ 5,049,844 Non-Durables-- B+ Ba3 1,675,000 Chattem, Inc., 4.79% due 3/01/2010 (d) 1,721,063 4.0% B- Caa1 1,000,000 General Binding Corporation, 9.375% due 6/01/2008 1,022,500 B B3 1,975,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 2,073,750 B+ B2 2,125,000 North Atlantic Trading Company, Inc., 9.25% due 3/01/2012 2,071,875 B+ B1 1,492,500 Solo Cup Company, Term, due 2/27/2011++++ 1,509,601 ------------- 13,448,633 Diversified B B3 325,000 Houghton Mifflin Company, 9.875% due 2/01/2013 339,219 Media--2.4% TransWestern Publishing Company, LLC:++++ B B2 2,000,000 Term, due 4/30/2009 2,018,334 BB- B1 5,730,000 Term B, due 2/25/2011 5,778,350 ------------- 8,135,903
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (continued)
S&P Moody's Face Industry++ Ratings Ratings Amount Corporate Debt Obligations Value Energy-- CCC+ Caa1 $1,000,000 Continental Resources, Inc., 10.25% due 8/01/2008 $ 1,033,750 Exploration & Quest Cherokee, LLC:++++ Production-- B B2 222,222 Revolving Credit, due 7/25/2010 223,889 0.9% B B2 1,777,778 Term B, due 7/25/2010 1,791,111 ------------- 3,048,750 Energy--Other-- Dresser, Inc.: 3.8% B B2 1,000,000 9.375% due 4/15/2011 1,075,000 BB- Ba3 1,250,000 Term, due 2/25/2010++++ 1,281,250 BB- Ba3 736,934 Term B, due 4/10/2009++++ 748,103 NR* Caa3 1,035,000 Energy Corporation of America, 9.50% due 5/15/2007 983,250 B- NR* 3,656,000 Giant Industries, Inc., 11% due 5/15/2012 4,140,420 Star Gas Partners, LP: B B3 2,750,000 10.25% due 2/15/2013 2,970,000 B B3 1,750,000 10.25% due 2/15/2013 (b) 1,890,000 ------------- 13,088,023 Financial--2.6% NR* Ba3 4,000,000 Highland Legacy Limited Co., 7.429% due 6/01/2011 (b)(d) 3,000,000 D NR* 500,000 Investcorp SA, 7.54%, due 10/21/2008 499,173 NR* Ca 1,138,809 Pennant CBO Limited, 13.43% due 3/14/2011 (b) 569,404 B B3 3,925,000 Refco Finance Holdings LLC, 9% due 8/01/2012 (b) 4,062,375 SKM-Libertyview CBO I Limited (b)(g): NR* Ca 1,500,000 8.71% due 4/10/2011 675,000 NR* C 1,000,000 11.91% due 4/10/2011 80,000 ------------- 8,885,952 Food/Tobacco-- Atkins Nutritionals, Inc.:++++ 6.0% B+ B2 1,447,500 First Lien, due 11/26/2009 1,288,275 B+ B2 1,500,000 Second Lien Term, due 11/26/2009 1,295,000 Commonwealth Brands, Inc. (b): B- B2 2,250,000 9.75% due 4/15/2008 2,379,375 B- B3 2,825,000 10.625% due 9/01/2008 2,987,437 B+ B2 1,800,000 Dole Food Company, Inc., 8.875% due 3/15/2011 1,926,000 BB- B1 1,880,411 Dr Pepper Bottling, Term B, due 12/19/2010++++ 1,901,859 B- B2 2,200,000 Gold Kist Inc., 10.25% due 3/15/2014 (b) 2,420,000 B+ B1 1,246,875 Luigino's, Inc., Term, due 4/02/2011++++ 1,259,344 B- B3 3,000,000 Merisant Company, 9.50% due 7/15/2013 (b) 3,000,000 B- B1 2,000,000 Pierre Foods, Inc., Term B, due 6/30/2010++++ 2,016,250 ------------- 20,473,540 Gaming--2.2% B B2 2,000,000 Jacobs Entertainment, Inc., 11.875% due 2/01/2009 2,245,000 B B2 925,000 The Majestic Star Casino, LLC, 9.50% due 10/15/2010 945,812 B+ B2 1,632,046 Marina District Finance Co., Term B, due 5/31/2007++++ 1,641,226 CCC+ Caa1 311,000 Pinnacle Entertainment, Inc., 9.25% due 2/15/2007 (b) 319,941 B- B2 2,000,000 Venetian Casino Resort, LLC, 11% due 6/15/2010 2,277,500 ------------- 7,429,479 Health Care-- B+ B1 1,717,234 MedPointe Inc., Term B, due 9/30/2008++++ 1,724,211 3.9% BB- Ba3 2,375,000 Orthofix International NV, Term B, due 12/15/2008++++ 2,400,978 B- B3 3,000,000 Tenet Healthcare Corporation, 7.375% due 2/01/2013 2,775,000 VWR International, Inc.: B B3 700,000 8% due 4/15/2014 (b) 722,750 B+ B1 3,661,334 Term B, due 4/07/2011++++ 3,720,373 CCC+ B3 1,675,000 Vanguard Health Systems, Inc., 9.75% due 8/01/2011 1,943,000 ------------- 13,286,312
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (continued)
S&P Moody's Face Industry++ Ratings Ratings Amount Corporate Debt Obligations Value Housing--0.9% NR* NR* $ 226,860 Formica Corporation, 7.86% due 6/10/2011 $ 215,517 BB Ba1 2,000,000 Lone Star Industries Inc., 8.85% due 6/15/2005 (b) 2,058,076 B- B3 700,000 U.S. Concrete, Inc., 8.375% due 4/01/2014 717,500 ------------- 2,991,093 Information BB+ Ba2 2,450,000 Freescale Semiconductor, Inc., 4.38% due 7/15/2009 (b)(d) 2,492,875 Technology-- B+ B1 3,875,000 VUTEk Inc., Term, due 6/25/2010++++ 3,865,313 1.9% ------------- 6,358,188 Leisure--5.1% B- B1 6,000,000 FelCor Lodging LP, 5.84% due 6/01/2011 (b)(d) 6,030,000 B+ Ba3 274,000 HMH Properties, Inc., 7.875% due 8/01/2008 282,220 B+ B1 5,050,000 Intrawest Corporation, 10.50% due 2/01/2010 5,435,062 Wyndham International, Inc.:++++ NR* NR* 4,861,796 Term 1, due 6/30/2006 4,763,549 NR* NR* 987,061 Term 2, due 4/01/2006 979,164 ------------- 17,489,995 Manufacturing-- B- B3 275,000 Aearo Company, 8.25% due 4/15/2012 281,875 6.9% B- B3 3,000,000 Communications & Power Industries, Inc., 8% due 2/01/2012 3,022,500 B- B2 1,250,000 Da-Lite Screen Company, Inc., 9.50% due 5/15/2011 (b) 1,312,500 B- B3 2,000,000 EaglePicher Incorporated, 9.75% due 9/01/2013 2,155,000 BB- Ba3 5,000,000 High Voltage Engineering Corporation, Term A, due 7/31/2006++++ 4,975,000 B+ Ba3 4,989,614 Invensys International Holdings Ltd., Term, due 8/26/2009++++ 5,058,221 B- B3 2,825,000 Invensys plc, 9.875% due 3/15/2011(b) 2,867,375 B- B3 3,500,000 MetoKote Corporation, Term, due 2/13/2011++++ 3,543,750 B+ B3 300,000 NMHG Holding Company, 10% due 5/15/2009 330,000 ------------- 23,546,221 Metals--Other-- B+ B1 5,500,000 Massey Energy Company, 6.95% due 3/01/2007 5,775,000 1.7% Packaging-- B+ B2 5,200,000 Anchor Glass Container Corporation, 11% due 2/15/2013 5,928,000 7.8% CCC B3 1,900,000 Consolidated Container Company LLC, 10.75%** due 6/15/2009 (b) 1,520,000 B B2 2,300,000 Crown Euro Holdings SA, 10.875% due 3/01/2013 2,673,750 BB- B1 5,142,857 Owens-Illinois Inc., Term C, due 4/01/2008++++ 5,210,357 B- Caa2 3,300,000 Pliant Corporation 13% due 6/01/2010 3,036,000 CCC+ Caa1 1,000,000 Radnor Holdings Corporation, 11% due 3/15/2010 840,000 B- B2 650,000 Tekni-Plex, Inc., 8.75% due 11/15/2013 (b) 624,000 CCC+ Caa1 5,550,000 U.S. Can Corporation, 10.875% due 7/15/2010 5,772,000 B B2 900,000 Wise Metals Group LLC, 10.25% due 5/15/2012 (b) 904,500 ------------- 26,508,607 Paper--5.2% BB Ba2 3,275,000 Abitibi-Consolidated Inc., 5.02% due 6/15/2011 (b)(d) 3,340,500 BB Ba2 4,625,000 Bowater Incorporated, 4.52% due 3/15/2010 (d) 4,601,875 BB+ Ba2 4,325,000 Georgia-Pacific Corporation, 9.375% due 2/01/2013 5,092,687 B- B3 625,000 Graphic Packaging International Inc., 9.50% due 8/15/2013 700,000 SP Newsprint Co.:++++ B+ B1 525,833 Tranche B, due 1/09/2010 533,064 B+ B1 966,667 Tranche B L/C, due 1/09/2010 981,167 B B2 800,000 Stone Container Corporation, 8.375% due 7/01/2012 880,000 BB- Ba3 1,500,000 Tembec Industries, Inc., 8.625% due 6/30/2009 1,563,750 ------------- 17,693,043 Retail--0.3% B+ B1 895,500 General Nutrition Center, Inc., Term B, due 12/05/2009++++ 905,798
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (continued)
S&P Moody's Face Industry++ Ratings Ratings Amount Corporate Debt Obligations Value Services--6.9% BB Ba3 $2,000,000 Allied Waste Industries, Inc., Tranche A--Credit Linked Deposit, due 1/15/2010++++ $ 2,030,500 Allied Waste North America, Inc.: BB- Ba3 720,000 7.875% due 4/15/2013 759,600 B+ B2 3,125,000 7.375% due 4/15/2014 3,035,156 B B1 1,600,000 Corrections Corporation of America, 9.875% due 5/01/2009 1,786,000 B+ B1 995,000 FTD, Inc., Term, due 2/28/2011++++ 1,004,950 CCC Caa2 250,000 Great Lakes Dredge & Dock Corporation, 7.75% due 12/15/2013 207,187 NR* NR* 3,200,000 IT Group Inc., 11.25% due 4/01/2009 (g) 32 BB Ba1 3,000,000 MSW Energy Holdings LLC, 8.50% due 9/01/2010 3,270,000 United Rentals, Inc.:++++ BB Ba3 1,662,500 Initial Term, due 2/14/2011 1,681,827 NR* NR* 333,333 Tranche B Term Link Deposit, due 2/14/2011 338,472 B+ B2 3,750,000 United Rentals North America, Inc., 7.75% due 11/15/2013 (b) 3,487,500 B+ B1 3,990,000 Waste Services, Inc., Term B, due 3/31/2011++++ 3,885,263 B- B3 2,075,000 Williams Scotsman, Inc., 9.875% due 6/01/2007 2,043,875 ------------- 23,530,362 Telecommunica- B- B3 2,045,000 Cincinnati Bell Inc., 8.375% due 1/15/2014 1,809,825 tions--5.9% B+ B1 2,200,000 Consolidated Communications Acquisition of TXU, Inc., Term B, due 10/14/2011++++ 2,230,250 B- Caa1 5,550,000 FairPoint Communications, Inc., 12.50% due 5/01/2010 5,938,500 CCC B3 500,000 Horizon PCS, Inc., 11.375% due 7/15/2012 (b) 512,500 B B3 4,000,000 Qwest Communications International Inc., 5.211% due 2/15/2009 (b)(d) 3,720,000 B B1 3,500,000 Time Warner Telecom Holdings, Inc., 5.711% due 2/15/2011 (d) 3,412,500 CCC+ B3 2,500,000 Time Warner Telecom, Inc., 9.75% due 7/15/2008 2,425,000 ------------- 20,048,575 Transporta- B+ B2 1,325,000 Laidlaw International, Inc., 10.75% due 6/15/2011 1,510,500 tion--1.1% B+ Ba3 2,197,059 North American Van Lines, Inc., Term, due 10/29/2010++++ 2,218,344 ------------- 3,728,844 Utilities-- B- B3 2,250,000 The AES Corporation, 8.50% due 11/01/2007 2,300,625 9.1% CCC+ Caa1 1,500,000 Calpine Canada Energy Finance ULC, 8.50% due 5/01/2008 956,250 Calpine Corporation: CCC+ Caa1 1,300,000 8.50% due 2/15/2011 802,750 B+ B1 3,960,000 Term B, due 7/15/2007++++ 3,366,000 D NR* 1,000,000 Mirant Americas Generation LLC, 7.625% due 5/01/2006 (g) 832,500 Mission Energy Holding Company: CCC B3 5,300,000 13.50% due 7/15/2008 6,664,750 NR* NR* 4,000,000 Term, due 12/11/2006++++ 4,020,000 B+ B1 2,000,000 Northwest Pipeline Corporation, 6.625% due 12/01/2007 2,125,000 Sierra Pacific Resources: NR* B2 2,100,000 8.75% due 5/15/2005 2,152,500 B- B2 2,750,000 8.625% due 3/15/2014 (b) 2,887,500 BB+ Ba1 792,000 TNP Enterprises, Inc., Term, due 12/31/2006++++ 806,850 B+ Ba3 3,222,308 Teton Power Funding LLC, Term, due 3/12/2011++++ 3,254,531 B+ B3 725,000 The Williams Companies, Inc., 8.625% due 6/01/2010 841,000 ------------- 31,010,256 Wireless CCC Caa1 4,000,000 American Tower Systems Corporation, 9.375% due 2/01/2009 4,270,000 Communica- B- B2 2,985,000 Centennial Cellular, Term A, due 2/09/2011++++ 2,995,495 tions--6.6% CCC B3 5,000,000 Crown Castle International Corporation., 7.50% due 12/01/2013 5,000,000 B- B1 1,191,000 Dobson Cellular Systems, Inc., Term, due 3/31/2010++++ 1,190,553 B- B2 1,000,000 Rural Cellular Corporation, 6.02% due 3/15/2010 (b)(d) 1,015,000 CCC+ B2 3,123,077 SBA Senior Finance, Inc., Term B, due 10/31/2008++++ 3,150,891 CCC+ B3 3,700,000 SpectraSite, Inc., 8.25% due 5/15/2010 3,866,500 CCC+ B2 800,000 US Unwired Inc., 5.791% due 6/15/2010 (d) 812,000 ------------- 22,300,439 Total Investments in Corporate Debt Obligations (Cost--$455,860,152)--134.2% 456,288,472
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (continued)
Shares Industry++ Held Preferred Stocks Value Cable--U.S.--0.0% 2,500 Adelphia Communications Corporation (c) $ 15,000 Diversified Media--1.1% 150,000 Newscorp Overseas Limited 3,754,500 Total Investments in Preferred Stocks (Cost--$2,925,000)--1.1% 3,769,500 Common Stocks Cable--International--1.1% 323,90 Telewest Global, Inc. (c) 3,741,114 Consumer--Non-durables--0.0% 1,000 Galey & Lord, Inc. (c) 0 Leisure--0.1% 41,866 Lodgian, Inc. (c) 436,244 Manufacturing--0.2% 62,581 High Voltage Engineering Corporation (c) 510,003 Telecommunications--0.1% 14,246 IDT Corporation (c) 182,000 17,811 IDT Corporation (Class B) (c) 267,699 ------------- 449,699 Wireless Communications--0.2% 126 Microcell Telecommunications Inc. (Class A) (c) 2,961 30,314 Microcell Telecommunications Inc. (Class B) (c) 713,216 ------------- 716,177 Total Investments in Common Stocks (Cost--$14,677,888)--1.7% 5,853,237 Beneficial Interest Other Interests (f) $ 4,130,972 Cambridge Industries, Inc. (Litigation Trust Certificates) 41,338 10,284 MEDIQ Incorporated (Preferred Stock Escrow due 2/01/2006) 0 10,284 MEDIQ Incorporated (Preferred Stock Escrow due 4/01/2004) 0 2,750,000 WilTel Communications Group, Inc. (Litigation Trust Certificates) 0 Total Investments in Other Interests (Cost--$0)--0.0% 41,338 Shares Held Warrants (a) Consumer--Non-durables--0.0% 5,262 Galey & Lord, Inc., Series A 0 5,538 Galey & Lord, Inc., Series B 0 ------------- 0 Gaming--0.0% 27,111 Peninsula Gaming Company, LLC 162,670 Paper--0.0% 3,500 JSG Funding PLC 35,000 Wireless Communications--0.1% 600 American Tower Escrow Corporation 111,000 5,613 Microcell Telecommunications Inc. 48,436 9,355 Microcell Telecommunications Inc. 75,047 ------------- 234,483 Total Investments in Warrants (Cost--$2,422,075)--0.1% 432,153
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Schedule of Investments (concluded)
Beneficial Interest Short-Term Securities Value $ 4,332,776 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (e) $ 4,332,776 Total Short-Term Securities (Cost--$4,332,776)--1.3% 4,332,776 Total Investments (Cost--$480,217,891***)--138.4% 470,717,476 Liabilities in Excess of Other Assets--(38.4%) (130,646,465) ------------- Net Assets--100.0% $ 340,071,011 ============= *Not Rated. **Represents a zero coupon or step bond; the interest rate shown reflects the effective yield at the time of purchase by the Fund. ***The cost and unrealized appreciation/depreciation of investments as of August 31, 2004, as computed for federal income tax purposes, were as follows: Aggregate cost $ 479,950,867 ============= Gross unrealized appreciation $ 21,117,969 Gross unrealized depreciation (30,351,360) ------------- Net unrealized depreciation $ (9,233,391) ============= ++For Fund compliance purposes, "Industry" means any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Breakdown is a percent of net assets. ++++Floating Rate Corporate Debt in which the Portfolio invests generally pays interest at rates that are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as London Interbank Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major U.S. banks or (iii) the certificate of deposit rate. Corporate loans represent 50.5% of the Portfolio'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)Non-income producing security. (d)Floating rate note. (e)Investments in companies considered to be an affiliate of the Fund (such companies are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940) were as follows: Net Interest Affiliate Activity Income Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $(487,170) $25,939 (f)Other interests represent beneficial interest in liquidation trusts and other reorganization entities and are non-income producing. (g)Non-income producing-issuer filed for bankruptcy or is in default of interest payments. See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Statement of Assets, Liabilities and Capital
As of August 31, 2004 Assets Investments in unaffiliated securities, at value (identified cost--$475,885,115) $ 466,384,700 Investments in affiliated securities, at value (identified cost--$4,332,776) 4,332,776 Cash 57,038 Receivables: Interest (including $150 from affiliates) $ 6,833,489 Securities sold 3,619,886 Principal paydowns 28,897 10,482,272 --------------- Deferred facility fees 7,167 Prepaid expenses 2,955 --------------- Total assets 481,266,908 --------------- Liabilities Loans 139,264,000 Payables: Securities purchased 1,294,124 Dividends to shareholders 218,607 Interest on loans 50,119 Investment adviser 13,129 Commitment fees 4,152 Other affiliates 2,926 1,583,057 --------------- Deferred income 21,474 Accrued expenses and other liabilities 327,366 --------------- Total liabilities 141,195,897 --------------- Net Assets Net assets $ 340,071,011 =============== Capital Common Stock, par value $.10 per share; 200,000,000 shares authorized (55,727,331 shares issued and outstanding) $ 5,572,733 Paid-in capital in excess of par 492,361,406 Undistributed investment income--net $ 3,157,453 Accumulated realized capital losses--net (151,522,479) Unrealized depreciation--net (9,498,102) --------------- Total accumulated losses--net (157,863,128) --------------- Total capital--Equivalent to $6.10 net asset value per share of Common Stock (market price--$5.87) $ 340,071,011 =============== See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Statement of Operations
For the Six Months Ended August 31, 2004 Investment Income Interest (including $25,939 from affiliates) $ 18,329,923 Dividends 588,098 Facility and other fees 11,810 --------------- Total income 18,929,831 --------------- Expenses Investment advisory fees $ 1,197,142 Loan interest expense 1,024,204 Borrowing costs 85,303 Accounting services 59,895 Professional fees 55,633 Transfer agent fees 35,904 Printing and shareholder reports 28,350 Listing fees 22,192 Directors' fees and expenses 20,879 Custodian fees 18,312 Pricing services 10,293 Other 14,806 --------------- Total expenses 2,572,913 --------------- Investment income--net 16,356,918 --------------- Realized & Unrealized Gain (Loss)--Net Realized gain on investments--net 7,286,319 Change in unrealized depreciation on: Investments--net (8,401,199) Foreign currency transactions--net 12 (8,401,187) --------------- --------------- Total realized and unrealized loss--net (1,114,868) --------------- Net Increase in Net Assets Resulting from Operations $ 15,242,050 =============== See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Statements of Changes in Net Assets
For the Six For the Months Ended Year Ended August 31, February 29, Increase (Decrease) in Net Assets: 2004 2004 Operations Investment income--net $ 16,356,918 $ 34,591,358 Realized gain (loss)--net 7,286,319 (24,537,705) Change in unrealized depreciation--net (8,401,187) 96,591,178 --------------- --------------- Net increase in net assets resulting from operations 15,242,050 106,644,831 --------------- --------------- Dividends to Shareholders Dividends to shareholders from investment income--net (15,378,708) (35,624,986) --------------- --------------- Capital Share Transactions Value of shares issued to Common Stock shareholders in reinvestment of dividends 257,753 3,507,088 --------------- --------------- Net increase in net assets resulting from capital share transactions 257,753 3,507,088 --------------- --------------- Net Assets Total increasein net assets 121,095 74,526,933 Beginning of period 339,949,916 265,422,983 --------------- --------------- End of period* $ 340,071,011 $ 339,949,916 =============== =============== *Undistributed investment income--net $ 3,157,453 $ 2,179,243 =============== =============== See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Statement of Cash Flows
For the Six Months Ended August 31, 2004 Cash Provided by Operating Activities Net increase in net assets resulting from operations $ 15,242,050 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Decrease in receivables 578,969 Increase in other assets and deferred facility fees (3,633) Increase in other liabilities 184,238 Realized and unrealized loss--net 1,114,868 Amortization of premium and discount--net (605,971) Proceeds from sales and paydowns of long-term investments 169,805,443 Purchases of long-term investments (178,938,840) Net proceeds from sales and maturities of short-term investments 487,170 --------------- Net cash provided by operating activities 7,864,294 =============== Cash Used for Financing Activities Cash receipts of borrowings 107,967,000 Cash payments on borrowings (101,000,000) Dividends paid to shareholders (14,902,348) --------------- Net cash used for financing activities (7,935,348) =============== Cash Net decrease in cash (71,054) Cash at beginning of period 128,092 --------------- Cash at end of period $ 57,038 =============== Cash Flow Information Cash paid for interest $ 996,538 =============== Non-Cash Financing Activities Capital shares issued on reinvestment of dividends paid to shareholders $ 257,753 =============== See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Financial Highlights
The following per share data and ratios have been derived For the Six For the from information provided in the financial statements. Months Ended Year Ended For the Year Ended August 31, February 29, February 28, Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001 Per Share Operating Performance Net asset value, beginning of period $ 6.10 $ 4.82 $ 5.40 $ 6.63 $ 7.54 ---------- ---------- ---------- ---------- ---------- Investment income--net*** .29 .62 .63 .70 .82 Realized and unrealized gain (loss)--net (.01) 1.30 (.59) (1.22) (.89) ---------- ---------- ---------- ---------- ---------- Total from investment operations .28 1.92 .04 (.52) (.07) ---------- ---------- ---------- ---------- ---------- Less dividends from investment income--net (.28) (.64) (.62) (.71) (.84) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 6.10 $ 6.10 $ 4.82 $ 5.40 $ 6.63 ========== ========== ========== ========== ========== Market price per share, end of period $ 5.87 $ 6.11 $ 5.45 $ 5.89 $ 6.64 ========== ========== ========== ========== ========== Total Investment Return** Based on net asset value per share 4.84%++ 41.49% 1.18% (8.03%) .28% ========== ========== ========== ========== ========== Based on market price per share .72%++ 25.34% 4.88% .16% 15.39% ========== ========== ========== ========== ========== Ratios to Average Net Assets Expenses, excluding interest expense .65%* .90% .97% .95% .90% ========== ========== ========== ========== ========== Expenses 1.07%* 1.42% 1.78% 2.46% 3.59% ========== ========== ========== ========== ========== Investment income--net 6.83%* 11.23% 12.75% 11.83% 11.92% ========== ========== ========== ========== ========== Leverage Amount of borrowings (in thousands) $ 139,264 $ 132,297 $ 104,600 $ 127,600 $ 141,200 ========== ========== ========== ========== ========== Average amount of borrowings outstanding during the period (in thousands) $ 137,454 $ 112,037 $ 110,348 $ 128,203 $ 146,163 ========== ========== ========== ========== ========== Average amount of borrowings outstanding per share during the period $ 2.47 $ 2.02 $ 2.02 $ 2.37 $ 2.71 ========== ========== ========== ========== ========== Supplemental Data Net assets, end of period (in thousands) $ 340,071 $ 339,950 $ 265,423 $ 293,988 $ 357,345 ========== ========== ========== ========== ========== Portfolio turnover 35.41% 63.78% 74.70% 47.93% 30.15% ========== ========== ========== ========== ========== *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.
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 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 amended, as a non- diversified, closed-end management investment company. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. 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 daily basis. The Fund's Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol ARK. (a) Corporate debt obligations--The Fund invests principally in senior debt obligations 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 or other financial institutions, 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 the limited number of Corporate Loans for which no reliable price quotes are available, such Corporate Loans will be valued by Loan Pricing Corporation through the use of pricing matrices to determine valuations. If the pricing service does not provide a value for a Corporate Loan, the Investment Adviser will value the Corporate Loan at fair value, which is intended to approximate market value. Securities that are held by the Fund that are traded on stock exchanges or the Nasdaq National Market are valued at the last sale price or official close price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price for short positions. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by or under the authority of the Board of Directors of the Fund. Long positions in securities traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are valued at the last available bid price or yield equivalent obtained from one or more dealers or pricing services approved by the Board of Directors of the Fund. Short positions in securities traded in the OTC market are valued at the last available ask price. Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most representative market. When the Fund writes an option, the amount of the premium received is recorded on the books of the Fund as an asset and an equivalent liability. The amount of the liability is subsequently valued to reflect the current market value of the option written, based on the last sale price in the case of exchange- traded options or, in the case of options traded in the OTC market, the last ask price. Options purchased by the Fund are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. The value of swaps, including interest rate swaps, caps and floors, will be determined by obtaining dealer quotations. Other investments, including futures contracts and related options, are stated at market value. Obligations with remaining maturities of 60 days or less are valued at amortized cost unless the Investment Adviser believes that this method no longer produces fair valuations. Repurchase agreements will be valued at cost plus accrued interest. The Fund employs certain pricing services to provide securities prices for the Fund. 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, including valuations furnished by the pricing services retained by the Fund, which may use a matrix system for valuations. The procedures of a pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Notes to Financial Statements (continued) Generally, trading in foreign securities, as well as U.S. government securities and money market instruments, is substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates also are generally determined prior to the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that may not be reflected in the computation of the Fund's net asset value. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such securities, those securities may be valued at their fair value as determined in good faith by the Board of Directors or by the Investment Adviser using a pricing service and/or procedures approved by the Board of Directors. (c) Derivative financial instruments--The Fund may engage in various portfolio investment strategies both to increase the returns of the Fund and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund may 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. * Swaps--The Fund may enter into swap agreements, which are OTC contracts in which the Fund and a counterparty agree to make periodic net payments on a specified notional amount. The net payments can be made for a set period of time or may be triggered by a pre-determined credit event. The net periodic payments may be based on a fixed or variable interest rate; the change in market value of a specified security, basket of securities, or index; or the return generated by a security. (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). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. The Fund amortizes all premiums and discounts on debt securities. (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. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Notes to Financial Statements (continued) (g) Securities lending--The Fund may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Where the Fund receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Fund typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Fund receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. 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. The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral received by the Fund for such loans, among other things, in a private investment company managed by MLIM, LLC or in registered money market funds advised by FAM or its affiliates. For the six months ended August 31, 2004, the Fund reimbursed FAM $3,586 for certain accounting services. In addition, MLPF&S received $1,250 in commissions on the execution of Portfolio security transactions for the Portfolio for the six months ended August 31, 2004. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended August 31, 2004 were $174,485,311 and $164,832,346, respectively. 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, 2004 and for the year ended February 28, 2003 increased by 42,393 and 614,404, respectively, as a result of dividend reinvestment. 5. Unfunded Corporate Loans: As of August 31, 2004, the Fund had unfunded loan commitments of $1,343,590, which would be extended at the option of the borrower, pursuant to the following loan agreements: Unfunded Commitment Borrower (in thousands) SP Newsprint $967 SBA Communications $377 SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Notes to Financial Statements (concluded) 6. Short-Term Borrowings: On May 26, 2004, the Fund renewed its $151,000,000 revolving credit and security agreement with Citibank, N.A. and other lenders (the "Lenders"). 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 U.S. for three-month certificates of deposit of major U.S. money market banks plus .50%, or (ii) the issuance of commercial paper notes by certain Lenders at rates of interest derived from the weighted average of the per annum rates paid or payable by such Lenders in respect of those commercial notes. As security for its obligations to the Lenders under the revolving credit and security agreement, the Fund has granted a security interest in substantially all of its assets to and in favor of the Lenders. The Fund also pays additional borrowing costs which includes a commitment fee for this facility at an annual rate of .10% and a program fee of .24% on the borrowings outstanding. For the six months ended August 31, 2004, the average amount borrowed was approximately $137,454,000 and the daily weighted average interest rate was 1.48%. 7. Capital Loss Carryforward: On February 29, 2004, the Fund had a capital loss carryforward of $151,440,900 of which $733,844 expires in 2005; $4,282,847 expires in 2007; $12,755,214 expires in 2008; $25,658,795 expires in 2009; $54,958,583 expires in 2010; $30,706,546 expires in 2011 and $22,345,071 expires in 2012. This amount will be available to offset like amounts on any future taxable gains. 8. Subsequent Event: The Portfolio paid an ordinary income dividend in the amount of $.045000 per share on September 30, 2004 to shareholders of record on September 14, 2004. Proxy Results During the six-month period ended August 31, 2004, Senior High Income Portfolio, Inc.'s shareholders voted on the following proposal. The proposal was approved at a shareholders' meeting on August 25, 2004. A description of the proposal and number of shares voted are as follows:
Shares Voted Shares Withheld For From Voting 1. To elect the Portfolio's Board of Directors: Terry K. Glenn 53,331,253 1,108,032 Ronald W. Forbes 53,348,369 1,090,916 Cynthia A. Montgomery 53,326,648 1,112,637 Kevin A. Ryan 53,290,759 1,148,526 Roscoe S. Suddarth 53,296,600 1,142,685 Richard R. West 53,307,610 1,131,675 Edward D. Zinbarg 53,304,264 1,135,021
SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Officers and Directors Terry K. Glenn, President and Director Ronald W. Forbes, Director Cynthia A. Montgomery, Director Jean Margo Reid, Director Kevin A. Ryan, Director Roscoe S. Suddarth, Director Richard R. West, Director Edward D. Zinbarg, Director Kevin J. Booth, Vice President Donald C. Burke, Vice President and Treasurer Jeffrey Hiller, Chief Compliance Officer Alice A. Pellegrino, Secretary Custodian The Bank of New York 100 Church Street New York, NY 10286 Transfer Agent The Bank of New York 101 Barclay Street New York, NY 10286 NYSE Symbol ARK Availability of Quarterly Schedule of Investments The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. SENIOR HIGH INCOME PORTFOLIO, INC., AUGUST 31, 2004 Item 2 - Code of Ethics - Not Applicable to this semi-annual report Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual report Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-annual report Item 5 - Audit Committee of Listed Registrants - Not Applicable to this semi-annual report Item 6 - Schedule of Investments - Not Applicable Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies - Not Applicable to this semi-annual report Item 8 - Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers - Not Applicable Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable Item 10 - Controls and Procedures 10(a) - The registrant's certifying officers have reasonably designed such disclosure controls and procedures to ensure material information relating to the registrant is made known to us by others particularly during the period in which this report is being prepared. The registrant's certifying officers have determined that the registrant's disclosure controls and procedures are effective based on our evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report. 10(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11 - Exhibits attached hereto 11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report 11(a)(2) - Certifications - Attached hereto 11(a)(3) - Not Applicable 11(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Senior High Income Portfolio, Inc. By: _/s/ Terry K. Glenn_______ Terry K. Glenn, President of Senior High Income Portfolio, Inc. Date: October 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: _/s/ Terry K. Glenn________ Terry K. Glenn, President of Senior High Income Portfolio, Inc. Date: October 18, 2004 By: _/s/ Donald C. Burke________ Donald C. Burke, Chief Financial Officer of Senior High Income Portfolio, Inc. Date: October 18, 2004 EX-99.CERT 2 ex99cert.txt EX-99 CERT EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry K. Glenn, President of Senior High Income Portfolio, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Senior High Income Portfolio, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: October 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of Senior High Income Portfolio, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald C. Burke, Chief Financial Officer of Senior High Income Portfolio, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Senior High Income Portfolio, Inc. (the "Fund"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c) disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. Date: October 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of Senior High Income Portfolio, Inc. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Terry K. Glenn, President of Senior High Income Portfolio, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: October 18, 2004 /s/ Terry K. Glenn Terry K. Glenn, President of Senior High Income Portfolio, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Senior High Income Portfolio, Inc. and will be retained by Senior High Income Portfolio, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of Senior High Income Portfolio, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: October 18, 2004 /s/ Donald C. Burke Donald C. Burke, Chief Financial Officer of Senior High Income Portfolio, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Senior High Income Portfolio, Inc. and will be retained by Senior High Income Portfolio, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----