UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-07456
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: Robert C. Doll, Jr., Chief
Executive Officer, 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: 02/28/05
Date of reporting period: 03/01/04 - 02/28/05
Item 1 - Report to Stockholders
Senior High
Income
Portfolio, Inc.
Annual Report
February 28, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
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.
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.
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 Web site at
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., FEBRUARY 28, 2005
A Letter From the President
Dear Shareholder
Financial markets broadly posted positive returns over the most
recent reporting period, with international equities providing some
of the most impressive results.
Total Returns as of February 28, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 9.99% + 6.98%
International equities (MSCI Europe Australasia Far East Index) +21.18 +18.68
Fixed income (Lehman Brothers Aggregate Bond Index) + 1.26 + 2.43
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 2.40 + 2.96
High yield bonds (Credit Suisse First Boston High Yield Index) + 7.53 +11.21
The U.S. economy has continued to show resilience in the face of
the Federal Reserve Board's (the Fed) continued interest rate hikes
and, more recently, higher oil prices. The Fed's measured tightening
program recently brought the federal funds rate to 2.75% en route
to a more "neutral" short-term interest rate target (relative to
inflation). Since the U.S. presidential election, progress has been
monitored on many fronts in Washington, although concerns remain
about the structural problems of debt and deficits, as reflected by
a significant decline in the U.S. dollar.
U.S. equities ended 2004 in a strong rally, but remained in a fairly
narrow trading range for the first two months of 2005. Divergences
were notable among sectors, with energy emerging as a clear leader.
On the positive side, corporations have accelerated their hiring
plans, capital spending remains reasonably robust and merger-and-
acquisition activity has increased. Offsetting the positives are
slowing corporate earnings growth, renewed energy price concerns
and the potential for an economic slowdown. International equities,
particularly in Asia, have benefited from higher economic growth
rates (China recorded growth of 9.3% in 2004), stronger currencies
and relatively reasonable valuations.
The major action in the bond market has been a flattening of the
yield curve. As short-term interest rates continued to rise, yields
on the long end of the curve remained relatively stable - even
declining at certain points since the Fed's monetary tightening
program began in June 2004. This phenomenon has been largely
attributed to continued foreign interest in U.S. bonds, which has
served to absorb much of the excess supply. By period-end, many
believed long-term yields were long overdue for a rise.
Looking ahead, the environment is likely to be a challenging one for
investors, with diversification and selectivity becoming
increasingly important themes. With this in mind, we encourage you
to meet with your financial advisor to review your goals and asset
allocation and to rebalance your portfolio, as necessary, to ensure
it remains aligned with your objectives and risk tolerance. As
always, 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,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
A Discussion With Your Portfolio Manager
The Portfolio's total return significantly exceeded that of its
blended benchmark for the fiscal year, primarily because of our
overweight position in high yield bonds and our active use of
leverage.
How did the Portfolio perform during the fiscal year in light of the
existing market conditions?
For the 12-month period ended February 28, 2005, the Common Stock of
Senior High Income Portfolio, Inc. had net annualized yields of
8.77% and 8.87%, based on a year-end per share net asset value of
$6.28 and a per share market price of $6.21, respectively, and
$0.551 per share income dividends. Over the same period, the total
investment return on the Portfolio's Common Stock was +12.88%, based
on a change in per share net asset value from $6.10 to $6.28, and
assuming reinvestment of all distributions. The Portfolio's total
return for the year significantly exceeded the +8.25% return of its
benchmark, which is an equal blend of the Credit Suisse First Boston
(CSFB) High Yield Index and the CSFB Leveraged Loan Index.
For the six-month period ended February 28, 2005, the total
investment return on the Portfolio's Common Stock was +7.67%, based
on a change in per share net asset value from $6.10 to $6.28, and
assuming reinvestment of all distributions. The blended benchmark
provided a return of +5.25% for the same six-month 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 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 high yield market closed out 2004 with an 11% return, far lower
than the 29% return recorded in 2003, but still quite respectable.
High yield bond issuance in 2004 totaled $131 billion, slightly down
from $133 billion in 2003. As in 2003, when 79% of proceeds were
used to refinance existing debt, some 69% of the proceeds went for
refinancing in 2004 as corporate treasurers continued to exploit
cheaper financing opportunities. While the yield on the 10-year
Treasury note (which is the typical reference rate for high yield
bonds) has not changed appreciably over the past two years, the
required spread off of Treasury securities for high yield bonds has
narrowed significantly. This spread compression has been the
principal driver of the high yield bond rally, and has presented
these refinancing opportunities. The high yield market momentum has
slowed somewhat thus far in 2005, with a year-to-date return of
+1.31% as of February 28, 2005.
The market's appetite for risk was greater in 2004 than in 2003,
as measured by the major rating agencies. Issues rated B and lower
accounted for 62% of 2004's high yield bond volume compared to
63% for 2003, 54% for 2002 and 45% for 2001. Moreover, CCC and
split-CCC issuance was 7.2% in 2004 versus 3.0% in 2003 and 0.4%
in 2002. Despite this, credit measures remained relatively intact.
Debt/EBITDA (earnings before interest, taxes, depreciation and
amortization) in 2003 was 4.9 times versus 5.0 times in 2004.
Interest coverage in 2003 was 2.5 times versus 2.7 times in 2004.
The anomaly of better interest coverage despite higher leverage is
explained by compression-driven lower spreads for high yield bonds.
Default rates continued to decline in 2004 to 1.27% versus 4.13% in
2003 and 15.41% in 2002. While 2002 saw the highest default rate
ever, 2004 saw the lowest since 1997, according to CSFB.
Conditions in the leveraged bank loan market were much the same as
those impacting high yield bonds. That is, strong demand has been
leading to compressed spreads, which has encouraged companies to
refinance their bank debt. This dynamic was even more pronounced in
the bank loan market because, unlike high yield bonds, bank loans
generally lack call protection.
What factors contributed most to Portfolio performance?
The outperformance of the benchmark is attributed primarily to an
overweight bond position and our use of the Portfolio's leverage
line. We use commercial paper-based borrowings up to a maximum of
33% of the Portfolio's market value. The average amount of Portfolio
leverage during the six-month period was around 27%. (For a complete
discussion of the benefits and risks of leveraging, refer to page 2
of this report to shareholders.)
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Specific credits that made significant contributions to Portfolio
performance included GEO Specialty Chemicals, Inc., Mission Energy
Holding Co. and Highland Legacy Ltd. GEO is a specialty chemical
company that supplies functional chemicals to a variety of markets,
including the industrial water treatment, paints and coatings,
construction and electronics industries. Our $3.6 million bond
position rallied from 30 to 64 prior to the company's Chapter 11
filing in March 2004. We subsequently participated in financing the
company's emergence from Chapter 11 whereby we have a $4.7 million
floating rate note position that appreciated from 99 to 106.75. The
strength of the market segments in which the company participates
has contributed to a favorable financial outlook for GEO.
At period-end, the Portfolio held $3.9 million in Mission Energy
bonds with a coupon of the 13.5%. The bonds are set to mature on
July 15, 2008. We sold $2.9 million as the bonds appreciated in
price from 103 to 122 during the period. The company sold a
portfolio of international assets and received much higher-than-
expected bids. This has led to speculation that Mission Energy will
tender for this issue somewhere in the 120s range. The indenture
allows the company to call the bonds at a T+50 make-whole, a premium
using a discount rate based on a 50 basis point spread above the
comparable Treasury rate. This would price the bonds in the mid
130s.
Our $4 million investment in the collateralized debt obligation
(CDO) of Highland Legacy rallied from 55 to 81. This price action
reflects the favorable impact of the high yield rally on the CDO
portfolio's valuation.
Investments that detracted from performance over the past year
included Advanced Accessory Systems LLC, Atkins Nutritionals, Inc.
and Star Gas Partners LP (SGU). The Portfolio's $7.5 million bond
investment in Advanced Accessory Systems, a tier-1 automotive
supplier, declined in price from 106 to 92 during the year. The
company's prospects continue to be impaired by higher steel costs
and pricing concession demands from the original equipment
manufacturers.
In terms of Atkins Nutritionals, we sold first and second lien term
loans totaling $3 million during the year. The loans had weakened
28 points following disappointing financial results. Retailers are
struggling to work through a glut of low-carb inventory, which
severely impacted Atkins' sales.
Our $4.25 million investment in SGU bonds fell 18 points during the
period. SGU is a heating oil distributor that made strategic
missteps with a centralized call/service initiative leading to
customer defections. The adverse impact on operations was further
compounded by the relatively mild winter weather experienced in the
Northeast.
What changes were made to the Portfolio during the period?
During the year, we completed a repositioning of the portfolio,
moving from 75% fixed rate and 25% floating rate investments to a
52% fixed rate and 48% floating rate composition. In doing so, we
have essentially lessened the negative impact that rising interest
rates would have on the portfolio's net asset value.
Since June 2004, the Federal Reserve Board (Fed) has raised interest
rates 25 basis points (.25%) at each of its meetings, bringing the
federal funds rate from 1% to 2.75%. The consensus view is that the
Fed will continue its measured monetary tightening program until
the target rate reaches a point of "neutrality," which most have
placed in the area of 3% to 4%. Although long-term interest rates
have been slow to follow short-term interest rates higher - a market
phenomenon that even Fed Chairman Alan Greenspan has called a
"conundrum" - we continue to believe that rising long-term interest
rates are the primary threat to investors in the high yield market.
How would you characterize the Portfolio's position at the close of
the period?
We would characterize our position at period-end as increasingly
defensive, with greater investment in floating rate securities,
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%.
Kevin J. Booth
Vice President and Portfolio Manager
March 29, 2005
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Portfolio Information
As of February 28, 2005
Percent of
Ten Largest Holdings Net Assets
Wellman, Inc. First Lien Term Loan, due
2/10/2009 2.3%
Charter Communications Operating LLC
Tranche B Term Loan, due 4/07/2011 2.3
Sealy Mattress Co. Term Loan Unsecured,
due 4/06/2013 1.8
TransWestern Publishing Co., LLC First Lien
Tranche B Term Loan, due 2/25/2011 1.5
Goodyear Tire & Rubber Tranche B Term Loan,
due 3/31/2006 1.4
Century Cable Holdings LLC Term Loan, due
6/30/2009 1.4
Insight Midwest Holdings, LLC Term Loan B,
due 12/31/2009 1.2
Waste Services, Inc. Tranche B Term Loan,
due 3/31/2011 1.1
Olympus Cable Holdings, LLC Term Loan B,
due 9/30/2010 1.1
Polymer Group, Inc. First Lien Term Loan,
due 4/01/2010 1.1
Percent of
Five Largest Industries* Net Assets
Chemicals 22.4%
Cable--U.S. 16.4
Manufacturing 7.5
Paper 7.2
Packaging 7.0
* 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 Fund 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
BB/Ba 17.1%
B/B 68.5
CCC/Caa 8.4
CC/Ca 0.3
NR (Not Rated) 3.0
Other* 2.7
* Includes portfolio holdings in common stocks, preferred stocks, other
interests, warrants and short-term investments.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (in U.S. dollars)
Face
Industry* Amount Corporate Debt Obligations Value
Aerospace & $ 400,000 K&F Acquisition, Inc., 7.75% due 11/15/2014 (i) $ 405,000
Defense--2.6% Titan Corp.:
1,000,000 8% due 5/15/2011 1,075,000
2,977,099 Term Loan B, due 6/30/2009 (a) 3,019,431
4,510,000 Vought Aircraft Industries, Inc., 8% due 7/15/2011 4,555,100
-------------
9,054,531
Airlines--0.2% 900,000 Evergreen International Aviation, Inc., 12% due 5/15/2010 738,000
Automotive--6.1% 7,550,000 Advanced Accessory Systems LLC, 10.75% due 6/15/2011 6,983,750
1,975,000 Cooper Standard Auto, 8.375% due 12/15/2014 (i) 1,866,375
1,350,000 Delco Remy International, Inc., 6.66% due 4/15/2009 (f) 1,377,000
5,000,000 Goodyear Tire & Rubber Tranche B Term Loan, due 3/31/2006 (a) 5,062,500
Metaldyne Corp.:
1,800,000 11% due 6/15/2012 1,575,000
2,000,000 Term Loan D, due 12/31/2009 (a) 2,019,500
Tenneco Automotive, Inc.:
475,000 Series B, 10.25% due 7/15/2013 558,125
1,092,618 Term Loan B, due 12/12/2010 (a) 1,114,015
557,382 Tranche B-1 Credit Linked, due 12/12/2010 (a) 568,297
Venture Holdings Co. LLC (c):
700,000 12% due 6/01/2009 0
3,325,000 Series B, 9.50% due 7/01/2005 66,500
-------------
21,191,062
Broadcasting--0.8% 3,000,000 Granite Broadcasting Corp., 9.75% due 12/01/2010 2,872,500
Cable-- 4,650,000 Kabel Deutschland GmbH, 10.625% due 7/01/2014 (i) 5,347,500
International--2.6% NTL Cable Plc (i):
2,350,000 7.66% due 10/15/2012 (f) 2,423,438
350,000 8.75% due 4/15/2014 398,125
Telewest Communications Networks, Ltd. (a):
566,667 Term Loan B, due 11/30/2012 574,104
433,333 Term Loan C, due 11/30/2013 439,382
-------------
9,182,549
Cable--U.S.--16.3% 1,800,000 CSC Holdings, Inc., 7.25% due 7/15/2008 1,919,250
Century Cable Holdings LLC (a):
3,000,000 Discretionary Term Loan, due 12/31/2009 2,988,750
5,000,000 Term Loan, due 6/30/2009 4,983,480
Charter Communications Holdings LLC:
1,750,000 10% due 4/01/2009 1,483,125
1,000,000 11.75% due 1/15/2010 902,500
2,000,000 11.125% due 1/15/2011 1,710,000
1,500,000 9.92% due 4/01/2011 1,222,500
1,000,000 10% due 5/15/2011 817,500
7,960,000 Charter Communications Operating LLC Tranche B Term Loan, due
4/07/2011 (a) 7,997,149
Inmarsat Facility (a):
2,292,136 Term Loan B, due 1/08/2011 2,304,415
2,297,523 Term Loan C, due 1/08/2012 2,317,955
3,960,000 Insight Midwest Holdings, LLC Term Loan B, due 12/31/2009 (a) 4,034,250
Intelsat Bermuda Ltd. (i):
1,925,000 7.794% due 1/15/2012 (f) 1,977,937
1,675,000 8.25% due 1/15/2013 1,754,563
2,400,000 8.625% due 1/15/2015 2,562,000
2,328,240 Mallard Cablevision LLC & Sun Tel Communications Term Loan B, due
9/30/2008 (a)(c) 4,656
1,400,000 Mediacom Broadband LLC, 11% due 7/15/2013 1,548,750
1,675,000 Mediacom LLC, 9.50% due 1/15/2013 1,746,188
New Skies Satellites NV:
1,550,000 7.438% due 11/01/2011 (i) 1,625,563
2,450,000 9.125% due 11/01/2012 (i) 2,548,000
806,870 Term Loan, due 5/04/2011 (a) 815,269
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry* Amount Corporate Debt Obligations Value
Cable--U.S. $4,000,000 Olympus Cable Holdings, LLC Term Loan B, due 9/30/2010 (a) $ 3,983,752
(concluded) 5,250,000 Rainbow National Services LLC, 8.75% due 9/01/2012 (i) 5,985,000
-------------
57,232,552
Chemicals--21.8% 1,350,000 ArCo Chemical Co., 9.80% due 2/01/2020 1,566,000
555,000 BCP Caylux Holdings Luxembourg SCA, 9.625% due 6/15/2014 (i) 641,025
2,641,151 CII Carbon, LLC Term Loan, due 6/25/2008 (a) 2,616,390
2,600,000 Celanese Holdings, LLC Term Loan B, due 4/06/2011 (a) 2,655,250
2,250,000 Compass Minerals International, Inc. Series B, 12%** due 6/01/2013 1,890,000
Crompton Corp.:
3,900,000 8.71% due 8/01/2010 (f) 4,231,500
3,000,000 9.875% due 8/01/2012 3,390,000
4,744,000 GEO Speciality Chemicals, Inc., 11.064% due 12/31/2009 (g) 5,064,220
Huntsman International LLC:
1,000,000 9.875% due 3/01/2009 1,102,500
1,219,000 10.125% due 7/01/2009 1,281,474
1,913,962 Term Loan B, due 12/31/2010 (a) 1,950,805
1,750,000 ISP Holdings, Inc. Series B, 10.625% due 12/15/2009 1,907,500
Invista B.V.:
3,000,000 9.25% due 5/01/2012 (i) 3,367,500
1,682,206 New Tranche B-1 Term Loan, due 4/29/2011 (a) 1,710,593
758,971 New Tranche B-2 Term Loan, due 4/29/2011 (a) 771,778
2,500,000 Koppers, Inc., 9.875% due 10/15/2013 2,850,000
1,650,000 Lyondell Chemical Co., 11.125% due 7/15/2012 1,947,000
1,200,000 Millennium America, Inc., 7.625% due 11/15/2026 1,212,000
5,350,000 Omnova Solutions, Inc., 11.25% due 6/01/2010 5,724,500
1,334,127 Pinnacle Polymers (Epsilon Products) Term Loan, due 12/15/2006 (a) 1,354,005
1,281,041 Pioneer Cos., Inc., 6.05% due 12/31/2006 (f) 1,351,498
3,753,333 Polymer Group, Inc. First Lien Term Loan, due 4/01/2010 (a) 3,807,288
6,375,000 PolyOne Corp., 10.625% due 5/15/2010 7,267,500
Rockwood Specialties Group, Inc.:
1,825,000 10.625% due 5/15/2011 2,071,375
250,000 7.50% due 11/15/2014 (i) 263,750
1,600,000 Tranche D Term Loan, due 12/10/2012 (a) 1,627,429
Terra Capital, Inc.:
2,500,000 12.875% due 10/15/2008 3,062,500
832,000 11.50% due 6/01/2010 969,280
361,000 United Agri Products, 8.25% due 12/15/2011 (i) 389,880
8,000,000 Wellman, Inc. First Lien Term Loan, due 2/10/2009 (a) 8,133,336
-------------
76,177,876
Consumer-- 6,000,000 Sealy Mattress Co. Term Loan Unsecured, due 4/06/2013 (a) 6,190,002
Durables--2.8% Simmons Bedding Co.:
450,000 7.875% due 1/15/2014 469,125
3,000,000 Term Loan, due 6/19/2012 (a) 3,056,250
-------------
9,715,377
Consumer-- 1,675,000 Chattem, Inc., 5.91% due 3/01/2010 (f) 1,708,500
Non-Durables--2.8% 1,500,000 Culligan International Co. Term Loan, due 9/30/2011 (a) 1,525,625
1,000,000 General Binding Corp., 9.375% due 6/01/2008 990,000
1,975,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 2,157,687
2,125,000 North Atlantic Trading Co., 9.25% due 3/01/2012 1,689,375
200,000 Riddell Bell Holdings, Inc., 8.375% due 10/01/2012 (i) 207,000
1,485,000 Solo Cup Co. Term Loan, due 2/27/2011 (a) 1,515,165
-------------
9,793,352
Diversified 325,000 Houghton Mifflin Co., 9.875% due 2/01/2013 343,687
Media--1.9% 5,295,000 TransWestern Publishing Co., LLC First Lien Tranche B Term Loan,
due 2/25/2011 (a) 5,320,374
Universal City Florida Holding Co. I/II (i):
700,000 7.493% due 5/01/2010 (f) 733,250
175,000 8.375% due 5/01/2010 184,188
-------------
6,581,499
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry* Amount Corporate Debt Obligations Value
Energy--Exploration Quest Cherokee, LLC (a):
& Production--1.0% $1,500,000 Revolving Credit, due 7/22/2009 $ 1,447,500
1,773,333 Term Loan B, due 7/22/2010 1,777,767
222,222 Term Loan C, due 12/31/2008 222,778
-------------
3,448,045
Energy-- Dresser, Inc.:
Other--5.4% 1,000,000 9.375% due 4/15/2011 1,080,000
718,038 Term Loan C, due 4/10/2009 (a) 727,462
1,250,000 Term Loan Unsecured, due 2/25/2010 (a) 1,271,875
1,100,000 Dresser-Rand Group, Inc., 7.375% due 11/01/2014 (i) 1,149,500
1,035,000 Energy Corp. of America Series A, 9.50% due 5/15/2007 1,033,706
3,656,000 Giant Industries, Inc., 11% due 5/15/2012 4,240,960
Regency Gas Services, LLC (a):
1,500,000 Second Lien Term Loan, due 12/01/2010 1,537,500
3,500,000 Term Loan, due 6/01/2010 3,565,625
Star Gas Partners LP:
2,750,000 10.25% due 2/15/2013 2,509,375
1,750,000 10.25% due 2/15/2013 (i) 1,596,875
-------------
18,712,878
Financial--3.6% 2,650,000 Fairfax Financial Holdings Ltd., 7.75% due 4/26/2012 2,769,250
4,000,000 Highland Legacy Ltd., 8.993% due 6/01/2011 (f)(i) 3,240,000
500,000 Investcorp SA, 7.54% due 10/21/2008 507,155
1,000,000 Pennant CBO Ltd., 13.43% due 3/14/2011 (i) 675,000
3,925,000 Refco Finance Holdings LLC, 9% due 8/01/2012 (i) 4,278,250
SKM-LibertyView CBO Ltd. Series 1A (c)(i):
1,500,000 Class C1, 8.71% due 4/10/2011 900,000
1,000,000 Class D, 11.91% due 4/10/2011 80,000
-------------
12,449,655
Food & Drug--0.2% 850,000 Duane Reade Inc., 7.01% due 12/15/2010 (f)(i) 850,000
Food/Tobacco--3.9% Commonwealth Brands, Inc. (i):
2,250,000 9.75% due 4/15/2008 2,407,500
2,825,000 10.625% due 9/01/2008 3,008,625
1,800,000 Dole Food Co., Inc., 8.875% due 3/15/2011 1,948,500
1,793,219 Dr. Pepper/Seven Up Bottling Group, Inc. Tranche B Term Loan,
due 12/19/2010 (a) 1,827,290
1,442,000 Gold Kist Inc., 10.25% due 3/15/2014 1,679,930
1,000,000 Merisant Co., 9.50% due 7/15/2013 (i) 885,000
1,820,000 Pierre Foods, Inc. Term Loan B, due 6/30/2010 (a) 1,843,509
-------------
13,600,354
Gaming--1.1% 2,000,000 Jacobs Entertainment, Inc., 11.875% due 2/01/2009 2,240,000
925,000 Majestic Star Casino LLC, 9.50% due 10/15/2010 979,344
675,000 Penn National Gaming, Inc., 6.75% due 3/01/2015 (i) 688,500
-------------
3,907,844
Health Care--4.6% 3,000,000 CDRV Investors, Inc., 9.75%** due 1/01/2015 (i) 1,860,000
Elan Finance Plc (i):
2,325,000 6.49% due 11/15/2011 (f) 2,022,750
1,650,000 7.75% due 11/15/2011 1,468,500
1,708,405 Medpointe Capital Partners, LLC Tranche B Term Loan, due 9/30/2008 (a) 1,716,947
1,744,318 Orthofix International NV Term Loan B, due 12/15/2008 (a) 1,769,393
3,000,000 Tenet Healthcare Corp., 7.375% due 2/01/2013 2,842,500
VWR International, Inc.:
700,000 8% due 4/15/2014 728,000
3,661,334 Tranche B Dollar Term Loan, due 4/07/2011 (a) 3,730,441
-------------
16,138,531
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry* Amount Corporate Debt Obligations Value
Housing--3.7% $ 226,860 Formica Holdings Corp., 7.87% due 6/10/2011 $ 215,517
2,300,000 General Growth Properties, Inc. Tranche B Term Loan, due
11/12/2008 (a) 2,338,550
Goodman Global Holding Co., Inc. (i):
500,000 5.76% due 6/15/2012 (f) 512,500
1,750,000 7.875% due 12/15/2012 1,710,625
3,318,750 Headwaters, Inc. Term Loan B, due 4/30/2011 (a) 3,367,147
2,000,000 LNR Property Corp. Tranche B Term Loan, due 2/03/2008 (a) 2,031,666
2,000,000 Lone Star Industries, 8.85% due 6/15/2005 (i) 2,016,126
700,000 US Concrete, Inc., 8.375% due 4/01/2014 735,000
-------------
12,927,131
Information 3,100,000 Amkor Technology, Inc., 9.25% due 2/15/2008 3,038,000
Technology--3.2% 2,450,000 Freescale Semiconductor, Inc., 5.41% due 7/15/2009 (f) 2,557,187
1,375,000 MagnaChip SemiConductor SA, 5.78% due 12/15/2011 (f)(i) 1,416,250
500,000 TTI Holding Corp., 8.875% due 3/01/2013 (i) 516,250
3,778,125 VUTEK Inc. Term Loan, due 6/25/2010 (a) 3,797,016
-------------
11,324,703
Leisure--4.0% 6,000,000 Felcor Lodging LP, 6.874% due 6/01/2011 (f) 6,367,500
274,000 Host Marriott Corp. Series B, 7.875% due 8/01/2008 281,535
2,000,000 True Temper Sports, Inc., 8.375% due 9/15/2011 1,925,000
Wyndham International, Inc. (a):
4,458,489 Term Loan I, due 6/30/2006 4,484,031
905,180 Term Loan II, due 4/01/2006 909,140
-------------
13,967,206
Manufacturing--7.5% 275,000 Aearo Co., 8.25% due 4/15/2012 288,750
3,000,000 Communications & Power Industries, Inc., 8% due 2/01/2012 3,131,250
3,057,865 EaglePicher Holdings, Inc. Tranche B Term Loan, due 8/07/2009 (a) 3,052,768
2,250,000 EaglePicher Industries, Inc., 9.75% due 9/01/2013 1,845,000
3,750,000 High Voltage Engineering Corp. Term Loan A, due 7/31/2006 (a) 3,731,250
4,942,893 Invensys International Holdings Ltd. First Lien Term Loan, due
9/04/2009 (a) 5,032,483
2,825,000 Invensys Plc, 9.875% due 3/15/2011 (i) 3,051,000
3,500,000 Metokote Corp. Second Lien Term Loan, due 2/13/2011 (a) 3,570,000
300,000 NMHG Holding Co., 10% due 5/15/2009 331,500
250,000 NSP Holdings LLC, 11.75% due 1/01/2012 (i) 260,000
2,000,000 Propex Fabrics, Inc., 10% due 12/01/2012 (i) 2,020,000
-------------
26,314,001
Metal-- 500,000 IMCO Recycling Escrow, Inc., 9% due 11/15/2014 (i) 525,000
Other--1.8% 5,375,000 Massey Energy Co., 6.95% due 3/01/2007 5,616,875
-------------
6,141,875
Packaging--7.0% 5,200,000 Anchor Glass Container Corp., 11% due 2/15/2013 5,369,000
1,900,000 Consolidated Container Co. LLC, 10.75%** due 6/15/2009 1,662,500
2,300,000 Crown European Holdings SA, 10.875% due 3/01/2013 2,731,250
3,631,029 Owens-Illinois Group Inc. French Tranche C-1 Term Loan, due
4/01/2008 (a) 3,699,110
3,300,000 Pliant Corp., 13% due 6/01/2010 3,225,750
650,000 Tekni-Plex, Inc., 8.75% due 11/15/2013 (i) 637,000
5,550,000 US Can Corp., 10.875% due 7/15/2010 5,994,000
1,250,000 Wise Metals Group LLC, 10.25% due 5/15/2012 1,275,000
-------------
24,593,610
Paper--7.2% 3,275,000 Abitibi-Consolidated, Inc., 5.99% due 6/15/2011 (f) 3,373,250
2,975,000 Ainsworth Lumber Co. Ltd., 6.30% due 10/01/2010 (f)(i) 3,064,250
718,591 Boise Cascade Holdings, LLC Tranche B Term Loan, due 10/28/2011 (a) 732,649
Boise Cascade LLC (i):
250,000 5.535% due 10/15/2012 (f) 258,125
350,000 7.125% due 10/15/2014 370,125
4,625,000 Bowater, Inc., 5.49% due 3/15/2010 (f) 4,775,312
4,325,000 Georgia-Pacific Corp., 9.375% due 2/01/2013 5,000,781
625,000 Graphic Packaging International Corp., 9.50% due 8/15/2013 707,812
3,150,000 JSG Funding Plc, 7.75% due 4/01/2015 (i) 3,150,000
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry* Amount Corporate Debt Obligations Value
Paper SP Newsprint Co. (a):
(concluded) $ 966,667 Tranche B L/C, due 1/09/2010 $ 978,750
518,333 Tranche B Term Loan, due 1/09/2010 529,348
800,000 Smurfit-Stone Container Enterprises, Inc., 8.375% due 7/01/2012 866,000
1,500,000 Tembec Industries, Inc., 8.625% due 6/30/2009 1,503,750
-------------
25,310,152
Retail--0.1% 306,789 General Nutrition Centers, Inc. Tranche B Term Loan, due
12/05/2009 (a) 311,391
Services--6.7% Allied Waste North America:
720,000 7.875% due 4/15/2013 752,400
3,125,000 Series B, 7.375% due 4/15/2014 3,000,000
1,963,062 Allied Waste North America, Inc. Tranche D Term Loan, due 1/15/2010 (a) 1,968,584
1,600,000 Corrections Corp. of America, 9.875% due 5/01/2009 1,762,000
250,000 Great Lakes Dredge & Dock Corp., 7.75% due 12/15/2013 225,000
1,000,000 HydroChem Industrial Services, Inc., 9.25% due 2/15/2013 (i) 1,016,250
3,000,000 MSW Energy Holdings LLC, 8.50% due 9/01/2010 3,270,000
United Rentals, Inc. (a):
1,654,167 Term Loan, due 2/14/2011 1,684,148
333,333 Tranche B, Credit-Linked Deposit, due 2/14/2011 338,646
5,450,000 United Rentals North America, Inc., 7.75% due 11/15/2013 (i) 5,463,625
3,970,000 Waste Services, Inc. Tranche B Term Loan, due 3/31/2011 (a) 4,007,219
-------------
23,487,872
Telecommunications-- 2,045,000 Cincinnati Bell, Inc., 8.375% due 1/15/2014 2,114,019
4.8% 2,185,333 Consolidated Communications, Inc. Term Loan C, due 10/14/2011 (a) 2,207,187
4,000,000 Qwest Communications International, 6.294% due 2/15/2009 (f)(i) 4,080,000
Time Warner Telecom Holdings, Inc.:
3,500,000 6.794% due 2/15/2011 (f) 3,631,250
2,000,000 9.25% due 2/15/2014 (i) 2,060,000
2,500,000 Time Warner Telecom, Inc., 9.75% due 7/15/2008 2,556,250
-------------
16,648,706
Transportation--0.4% 1,325,000 Laidlaw International, Inc., 10.75% due 6/15/2011 1,518,781
Utilities--6.2% 1,461,000 The AES Corp., 8.50% due 11/01/2007 1,482,915
Calpine Corp.:
1,300,000 8.50% due 2/15/2011 923,000
3,940,000 Second Lien Term Loan, due 7/15/2007 (a) 3,525,480
El Paso Corp. (a):
750,000 Deposit Account, due 11/23/2009 762,950
1,245,000 Term Loan, due 11/23/2009 1,268,344
3,900,000 Mission Energy Holding Co., 13.50% due 7/15/2008 4,875,000
2,000,000 Northwest Pipeline Corp., 6.625% due 12/01/2007 2,102,500
Sierra Pacific Resources:
2,100,000 8.75% due 5/15/2005 2,120,654
2,750,000 8.625% due 3/15/2014 3,038,750
788,000 TNP Enterprises, Inc. Term Loan, due 12/31/2006 (a) 798,835
725,000 Williams Cos., Inc., 8.625% due 6/01/2010 792,063
-------------
21,690,491
Wireless 739,000 American Tower Corp., 9.375% due 2/01/2009 775,950
Communications-- 2,970,000 Centennial Cellular Operating Co. Term Loan, due 2/09/2011 (a) 3,021,975
6.5% 5,000,000 Crown Castle International Corp., 7.50% due 12/01/2013 5,425,000
Dobson Cellular Systems (i):
2,200,000 7.493% due 11/01/2011 (f) 2,321,000
1,000,000 8.375% due 11/01/2011 1,065,000
500,000 Horizon PCS, Inc., 11.375% due 7/15/2012 (i) 572,500
1,000,000 Rural Cellular Corp., 6.99% due 3/15/2010 (f) 1,050,000
3,482,500 SBA Senior Finance, Inc. Tranche C Term Loan, due 10/31/2008 (a) 3,537,638
3,700,000 Spectrasite, Inc., 8.25% due 5/15/2010 3,977,500
800,000 US Unwired, Inc., 6.74% due 6/15/2010 (f) 836,000
-------------
22,582,563
Total Investments in Corporate Debt Obligations
(Cost--$469,664,636)--136.8% 478,465,087
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (continued) (in U.S. dollars)
Shares
Industry* Held Common Stocks Value
Cable-- 323,906 Telewest Global, Inc. (e) $ 5,405,991
International--1.6%
Chemicals--0.6% 142,466 GEO Specialty Chemicals, Inc. (e) 2,136,990
Leisure--0.2% 41,866 Lodgian, Inc. (e) 502,392
Manufacturing--0.0% 62,580 High Voltage Engineering Corp. (e) 93,870
Telecommunications-- 32,057 IDT Corp. Class B (e) 491,113
0.1%
Total Investments in Common Stocks
(Cost--$12,584,020)--2.5% 8,630,356
Preferred Stocks
Cable--U.S.--0.0% 2,500 Adelphia Communications Corp. Series B (e) 7,500
Total Investments in Preferred Stocks
(Cost--$225,000)--0.0% 7,500
Warrants (h)
Paper--0.0% 3,500 MDP Acquisitions Plc (expires 10/01/2013) 35,000
Wireless 600 American Tower Corp. (expires 8/01/2008) 140,400
Communications--0.0%
Total Investments in Warrants
(Cost--$39,036)--0.0% 175,400
Beneficial Interest/
Shares Held Other Interests (d)
Automotive $4,130,972 Cambridge Industries, Inc. (Litigation Trust Certificates) 41,310
Equipment--0.0%
Gaming--0.1% 27,112 Peninsula Gaming LLC (Convertible Membership Interest) 162,670
Health $ 10,284 MEDIQ Incorporated (Preferred Stock Escrow due 2/01/2006) 0
Services--0.0%
Telecommunications--0.0% $2,750,000 WilTel Communications Group, Inc. (Litigation Trust Certificates) 28
Total Investments in Other Interests
(Cost--$163,493)--0.1% 204,008
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Schedule of Investments (concluded) (in U.S. dollars)
Beneficial
Interest Short-Term Securities Value
$ 4,343,454 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (b) $ 4,343,454
Total Investments in Short-Term Securities
(Cost--$4,343,454)--1.2% 4,343,454
Total Investments (Cost--$487,019,639***)--140.6% 491,825,805
Liabilities in Excess of Other Assets--(40.6%) (142,034,894)
-------------
Net Assets--100.0% $ 349,790,911
=============
* 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. These industry
classifications are unaudited.
** Represents a 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 February 28, 2005, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 486,645,383
==============
Gross unrealized appreciation $ 23,231,395
Gross unrealized depreciation (18,050,973)
--------------
Net unrealized appreciation $ 5,180,422
==============
(a) Floating Rate Corporate Debt in which the Fund 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. Floating rate corporate debt represents
48.0% of the Fund's net assets.
(b) 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 $(476,492) $34,395
(c) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(d) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities and are non-income producing.
(e) Non-income producing security.
(f) Floating rate note.
(g) Convertible security.
(h) 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.
(i) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Statement of Assets, Liabilities and Capital
As of February 28, 2005
Assets
Investments in unaffiliated securities, at value (identified cost--$482,676,185) $ 487,482,351
Investments in affiliated securities, at value (identified cost--$4,343,454) 4,343,454
Cash 398,827
Receivables:
Interest (including $1,470 from affiliates) $ 7,238,604
Securities sold 1,616,591
Principal paydowns 195,148
Commitment fees 5,532 9,055,875
---------------
Unfunded loan commitment 7,203
Prepaid expenses 3,328
---------------
Total assets 501,291,038
---------------
Liabilities
Loans 147,500,000
Payables:
Securities purchased 3,205,000
Dividends to shareholders 195,308
Investment adviser 149,782
Interest on loans 45,986
Other affiliates 3,035
Commitment fees 2,803 3,601,914
---------------
Deferred income 21,400
Accrued expenses and other liabilities 376,813
---------------
Total liabilities 151,500,127
---------------
Net Assets
Net Assets $ 349,790,911
===============
Capital
Common Stock, par value $.10 per share; 200,000,000 shares authorized
(55,740,573 shares issued and outstanding) $ 5,574,057
Paid-in capital in excess of par 492,167,658
Undistributed investment income--net $ 3,094,503
Accumulated realized capital losses--net (155,858,676)
Unrealized appreciation--net 4,813,369
---------------
Total accumulated losses--net (147,950,804)
---------------
Total capital--Equivalent to $6.28 net asset value per share of Common Stock
(market price--$6.21) $ 349,790,911
===============
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Statement of Operations
For the Year Ended February 28, 2005
Investment Income
Interest (including $34,395 from affiliates) $ 36,950,349
Dividends 445,679
Facility and other fees 108,573
---------------
Total income 37,504,601
---------------
Expenses
Loan interest expense $ 2,655,334
Investment advisory fees 2,398,119
Borrowing costs 170,021
Accounting services 124,572
Professional fees 122,671
Transfer agent fees 70,342
Printing and shareholder reports 52,290
Directors' fees and expenses 45,787
Listing fees 45,278
Custodian fees 37,431
Pricing services 19,994
Other 32,318
---------------
Total expenses 5,774,157
---------------
Investment income--net 31,730,444
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 2,628,395
Foreign currency transactions--net (8,475) 2,619,920
---------------
Change in unrealized appreciation (depreciation) on:
Investments--net 5,903,069
Unfunded corporate loans--net 7,203
Foreign currency transactions--net 12 5,910,284
--------------- ---------------
Total realized and unrealized gain--net 8,530,204
---------------
Net Increase in Net Assets Resulting from Operations $ 40,260,648
===============
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Statements of Changes in Net Assets
For the For the
Year Ended Year Ended
February 28, February 29,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 31,730,444 $ 34,591,358
Realized gain (loss)--net 2,619,920 (24,537,705)
Change in unrealized appreciation (depreciation)--net 5,910,284 96,591,178
--------------- ---------------
Net increase in net assets resulting from operations 40,260,648 106,644,831
--------------- ---------------
Dividends to Shareholders
Dividends to shareholders from investment income--net (30,760,697) (35,624,986)
--------------- ---------------
Capital Share Transactions
Value of shares issued to Common Stock shareholders in reinvestment of
dividends 341,044 3,507,088
--------------- ---------------
Net increase in net assets resulting from capital share transactions 341,044 3,507,088
--------------- ---------------
Net Assets
Total increasein net assets 9,840,995 74,526,933
Beginning of year 339,949,916 265,422,983
--------------- ---------------
End of year* $ 349,790,911 $ 339,949,916
=============== ===============
* Undistributed investment income--net $ 3,094,503 $ 2,179,243
=============== ===============
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Statement of Cash Flows
For the Year Ended February 28, 2005
Cash Provided by Operating Activities
Net increase in net assets resulting from operations $ 40,260,648
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Decrease in receivables 171,856
Increase in other assets (373)
Increase in other liabilities 364,891
Realized and unrealized gain--net (8,530,204)
Realized loss on foreign currency transactions--net (8,475)
Amortization of premium and discount--net (1,702,709)
Proceeds from sales and paydowns of long-term investments 263,066,365
Proceeds on other investment related transactions 644,173
Purchases of long-term investments (279,450,584)
Proceeds from sales and maturities of short-term investments--net 476,492
---------------
Net cash provided by operating activities 15,292,080
===============
Cash Used for Financing Activities
Cash receipts from borrowings 191,193,000
Cash payments on borrowings (175,990,000)
Dividends paid to shareholders (30,224,345)
---------------
Net cash used for financing activities (15,021,345)
===============
Cash
Net increase in cash 270,735
Cash at beginning of year 128,092
---------------
Cash at end of year $ 398,827
===============
Cash Flow Information
Cash paid for interest $ 2,631,801
===============
Non-Cash Financing Activities
Capital shares issued on reinvestment of dividends paid to shareholders $ 341,044
===============
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Financial Highlights
For the For the
Year Ended Year Ended
The following per share data and ratios have been derived February 28, February 29, For the Year Ended February 28,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 6.10 $ 4.82 $ 5.40 $ 6.63 $ 7.54
---------- ---------- ---------- ---------- ----------
Investment income--net** .57 .62 .63 .70 .82
Realized and unrealized gain (loss)--net .16 1.30 (.59) (1.22) (.89)
---------- ---------- ---------- ---------- ----------
Total from investment operations .73 1.92 .04 (.52) (.07)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.55) (.64) (.62) (.71) (.84)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 6.28 $ 6.10 $ 4.82 $ 5.40 $ 6.63
========== ========== ========== ========== ==========
Market price per share, end of year $ 6.21 $ 6.11 $ 5.45 $ 5.89 $ 6.64
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 12.88% 41.49% 1.18% (8.03%) .28%
========== ========== ========== ========== ==========
Based on market price per share 11.44% 25.34% 4.88% .16% 15.39%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses, excluding interest expense .91% .90% .97% .95% .90%
========== ========== ========== ========== ==========
Expenses 1.69% 1.42% 1.78% 2.46% 3.59%
========== ========== ========== ========== ==========
Investment income--net 9.28% 11.23% 12.75% 11.83% 11.92%
========== ========== ========== ========== ==========
Leverage
Amount of borrowings, end of year
(in thousands) $ 147,500 $ 132,297 $ 104,600 $ 127,600 $ 141,200
========== ========== ========== ========== ==========
Average amount of borrowings outstanding
during the year (in thousands) $ 137,934 $ 112,037 $ 110,348 $ 128,203 $ 146,163
========== ========== ========== ========== ==========
Average amount of borrowings outstanding
per share during the year** $ 2.48 $ 2.02 $ 2.02 $ 2.37 $ 2.71
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 349,791 $ 339,950 $ 265,423 $ 293,988 $ 357,345
========== ========== ========== ========== ==========
Portfolio turnover 54.18% 63.78% 74.70% 47.93% 30.15%
========== ========== ========== ========== ==========
* 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.
See Notes to Financial Statements.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
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. 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 matrixes 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.
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.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Notes to Financial Statements (continued)
(c) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return 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. These periodic payments received
or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or
losses are also realized upon termination of the swap agreements.
Swaps are marked-to-market daily based on dealer-supplied valuations
and changes in value are recorded as unrealized appreciation
(depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform
under the contracts' terms and the possible lack of liquidity
with respect to the swap agreements.
(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., FEBRUARY 28, 2005
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 receives 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.
(h) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $2,699 has been reclassified
between undistributed net investment income and paid-in capital
in excess of par, $278,414 has been reclassified between paid-in
capital in excess of par and accumulated net realized capital
losses, and $51,788 has been reclassified between undistributed net
investment income and accumulated net realized capital losses as a
result of permanent differences attributable to foreign currency
transactions, the expiration of capital loss carryforwards, the
reclassification of proceeds on sales of securities in default and
amortization methods for premiums and discounts on fixed income
securities. These reclassifications have no effect on net assets or
net asset values per share.
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"), an
affiliate of FAM, 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 year ended February 28, 2005, the Fund reimbursed FAM $7,401
for certain accounting services.
In addition, MLPF&S received $2,406 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
February 28, 2005.
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 (including paydowns) of investments, excluding
short-term securities, for the year ended February 28, 2005 were
$276,907,931 and $256,256,224, 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.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Notes to Financial Statements (continued)
Shares issued and outstanding during the years ended February 28,
2005 and February 29, 2004 increased by 55,635 and 614,404,
respectively, as a result of dividend reinvestment.
5. Unfunded Corporate Loans:
As of February 28, 2005, the Fund had unfunded loan commitments of
approximately $1,000,000, which would be extended at the option of
the borrower, pursuant to the following loan agreement:
Unfunded
Commitment
Borrower (in thousands)
Quest Cherokee LLC $1,000
6. Short-Term Borrowings:
The Fund has entered into a revolving credit and security agreement
funded by a commercial paper asset securitization program with
Citicorp North America, Inc. ("Citicorp") as Agent, certain
secondary backstop lenders, and certain asset securitization
conduits as lenders (the "Lenders"). The credit facility has a
maximum limit of $163,500,000. Under the Citicorp program, the
conduits will fund advances to the Fund through the issuance of
highly rated commercial paper. As security for its obligations to
the Lenders under the revolving securitization facility, the Fund
has granted a security interest in substantially all of its assets
to and in favor of the Lenders. The interest rate on the Fund's
borrowings is based on the interest rate carried by the commercial
paper plus a program fee. The Fund pays additional borrowing costs
including a backstop commitment fee.
The weighted average annual interest rate was 1.93% and the
average borrowing was approximately $137,934,000 for the year
ended February 28, 2005.
7. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of
$.047000 per share on March 31, 2005 to shareholders of record
on March 15, 2005.
The tax character of distributions paid during the fiscal years
ended February 28, 2005 and February 29, 2004 was as follows:
2/28/2005 2/29/2004
Distributions paid from:
Ordinary income $ 30,760,697 $ 35,624,986
------------- -------------
Total taxable distributions $ 30,760,697 $ 35,624,986
============= =============
As of February 28, 2005, the components of accumulated losses on a
tax basis were as follows:
Undistributed ordinary income--net $ 2,720,247
Undistributed long-term capital gains--net --
----------------
Total undistributed earnings--net 2,720,247
Capital loss carryforward (150,707,056)*
Unrealized gains--net 36,005**
----------------
Total accumulated losses--net $ (147,950,804)
================
* On February 28, 2005, the Fund had a net capital loss carryfor-
ward of $150,707,056, of which $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 of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the book/tax differences in
the accrual of income on securities in default, amortization
methods for premiums and discounts on fixed income securities and
the deferral of post-October capital losses for tax purposes.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Senior High Income Portfolio, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of Senior High
Income Portfolio, Inc. as of February 28, 2005, and the related
statements of operations and cash flows for the year then ended,
the statements of changes in net assets for each of the two years
in the period then ended, and financial highlights for each of the
five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. The
Portfolio is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. An audit
includes consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Portfolio's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities
owned as of February 28, 2005, by correspondence with the custodian
and financial intermediaries; where replies were not received from
financial intermediaries, we performed other auditing procedures. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Senior High Income Portfolio, Inc. as of
February 28, 2005, the results of its operations and its cash flows
for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights
for each of the five years in the period then ended in conformity
with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 22, 2005
Fund Certification (unaudited)
On September 17, 2004, the Fund filed its Chief Executive Officer
Certification for the prior year with the New York Stock Exchange
pursuant to Section 303A.12(a) of the New York Stock Exchange
Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 were filed with the Fund's Form N-CSR and are available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Automatic Dividend Reinvestment Plan
The following description of the Fund's Automatic Dividend
Reinvestment Plan (the "Plan") is sent to you annually as required
by the federal securities laws.
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the
"Plan"), unless a holder of Common Stock otherwise elects, all
dividend and capital gains distributions will be automatically
reinvested by The Bank of New York, as agent for shareholders in
administering the Plan (the "Plan Agent"), in additional shares
of Common Stock of the Fund. Holders of Common Stock who elect not
to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the shareholder of record (or, if
the shares are held in street or other nominee name then to such
nominee) by The Bank of New York, as dividend paying agent. Such
participants may elect not to participate in the Plan and to receive
all distributions of dividends and capital gains in cash by sending
written instructions to The Bank of New York, as dividend paying
agent, at the address set forth below. Participation in the Plan is
completely voluntary and may be terminated or resumed at any time
without penalty by written notice if received by the Plan Agent not
less than ten days prior to any dividend record date; otherwise such
termination will be effective with respect to any subsequently
declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains
distribution (collectively referred to as "dividends") payable
either in shares or in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the
equivalent in shares of Common Stock. The shares will be acquired
by the Plan Agent for the participant's account, depending upon
the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding
shares of Common Stock on the open market ("open-market purchases")
on the New York Stock Exchange or elsewhere. If, on the payment
date for the dividend, the net asset value per share of the Common
Stock is equal to or less than the market price per share of the
Common Stock plus estimated brokerage commissions (such condition
being referred to herein as "market premium"), the Plan Agent will
invest the dividend amount in newly issued shares on behalf of the
participant. The number of newly issued shares of Common Stock to be
credited to the participant's account will be determined by dividing
the dollar amount of the dividend by the net asset value per share
on the date the shares are issued, provided that the maximum
discount from the then current market price per share on the date
of issuance may not exceed 5%. If, on the dividend payment date,
the net asset value per share is greater than the market value
(such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on
behalf of the participant in open-market purchases.
In the event of a market discount on the dividend payment date,
the Plan Agent will have until the last business day before the
next date on which the shares trade on an "ex-dividend" basis or
in no event more than 30 days after the dividend payment date
(the "last purchase date") to invest the dividend amount in shares
acquired in open-market purchases. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during
which open-market purchases can be made will exist only from the
payment date on the dividend through the date before the next
"ex-dividend" date which typically will be approximately ten days.
If, before the Plan Agent has completed its open-market purchases,
the market price of a share of Common Stock exceeds the net asset
value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares,
resulting in the acquisition of fewer shares than if the dividend
had been paid in newly issued shares on the dividend payment date.
Because of the foregoing difficulty with respect to open-market
purchases, the Plan provides that if the Plan Agent is unable to
invest the full dividend amount in open-market purchases during
the purchase period or if the market discount shifts to a market
premium during the purchase period, the Plan Agent will cease making
open-market purchases and will invest the uninvested portion of the
dividend amount in newly issued shares at the close of business on
the last purchase date determined by dividing the uninvested portion
of the dividend by the net asset value per share.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares
in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant, and
each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of shareholders such as banks, brokers or nominees
that hold shares of others who are the beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's
name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains
distributions payable either in shares or in cash. However, each
participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open-market purchases in
connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any federal, state or local income tax that
may be payable (or required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the
market price plus commissions of the Fund's shares is above the net
asset value, participants in the Plan will receive shares of the
Fund at less than they could otherwise purchase them and will have
shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants
will receive distributions in shares with a net asset value greater
than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in
the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price
on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally
be excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund
issues shares pursuant to the Plan that have a greater fair market
value than the amount of cash reinvested, it is possible that all
or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution,
it is also possible that the taxable character of this discount
would be allocable to all the shareholders, including shareholders
who do not participate in the Plan. Thus, shareholders who do not
participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable
share of the discount.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the
Plan. There is no direct service charge to participants in the Plan;
however, the Fund reserves the right to amend the Plan to include a
service charge payable by the participants.
All correspondence concerning the Plan should be directed to the
Plan Agent at The Bank of New York, Church Street Station, P.O. Box
11258, New York, NY 10286-1258, Telephone: 800-432-8224.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Robert C. Doll, Jr.* President 2005 to President of MLIM/FAM-advised funds since 114 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 150 Portfolios
Princeton, Director 2001; Co-Head (Americas Region) thereof
NJ 08543-9011 from 2000 to 2001 and Senior Vice President
Age: 50 from 1999 to 2001; President and Director
of Princeton Services, Inc. (Princeton
Services) since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and Executive
Vice President thereof from 1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Doll is an "interested person," as described
in the Investment Company Act, of the Fund based on his current
positions with MLIM, FAM, Princeton Services and Princeton
Administrators, L.P. The Director's term is unlimited. Directors
serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72. As Fund President,
Mr. Doll serves at the pleasure of the Board of Directors.
Independent Directors*
Ronald W. Forbes Director 1993 to Professor Emeritus of Finance, School of 48 Funds None
P.O. Box 9095 present Business, State University of New York at 48 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant,
Age: 64 Urban Institute from 1995 to 1999.
Cynthia A. Montgomery Director 1993 to Professor, Harvard Business School since 48 Funds Newell
P.O. Box 9095 present 1989; Associate Professor, J.L. Kellogg 48 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern (manufacturing)
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 52 Professor, Graduate School of Business
Administration, University of Michigan from
1979 to 1985; Director, Harvard Business
School of Publishing since 2005.
Jean Margo Reid Director 2004 to Self-employed consultant since 2001; 48 Funds None
P.O. Box 9095 present Counsel of Alliance Capital Management 48 Portfolios
Princeton, (investment adviser) in 2000; General
NJ 08543-9095 Counsel, Director and Secretary of
Age: 59 Sanford C. Bernstein & Co., Inc.
(investment adviser/broker-dealer) from
1997 to 2000; Secretary, Sanford C.
Bernstein Fund, Inc. from 1994 to 2000;
Director and Secretary of SCB, Inc.
since 1998; Director and Secretary of SCB
Partners, Inc. since 2000; Director of
Covenant House from 2001 to 2004.
Roscoe S. Suddarth Director 2000 to President of Middle East Institute from 48 Funds None
P.O. Box 9095 present 1995 to 2001; Foreign Service Officer, 48 Portfolios
Princeton, United States Foreign Service from 1961 to
NJ 08543-9095 1995; Career Minister, from 1989 to 1995;
Age: 69 Deputy Inspector General, U.S. Department
of State from 1991 to 1994; U.S. Ambassador
to The Hashemite Kingdom of Jordan from
1987 to 1990.
Richard R. West Director 1993 to Professor of Finance from 1984 to 1995, 48 Funds Bowne & Co.,
P.O. Box 9095 present Dean from 1984 to 1993 and since 1995 48 Portfolios Inc. (financial
Princeton, Dean Emeritus of New York University Leonard printers);
NJ 08543-9095 N. Stern School of Business Administration. Vornado Realty
Age: 67 Trust; (real estate
company);
Alexander's, Inc.
(real estate
company)
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Officers and Directors (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors* (concluded)
Edward D. Zinbarg Director 2000 to Self-employed financial consultant since 48 Funds None
P.O. Box 9095 present 1994; Executive Vice President of The 48 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; former Director of
Age: 70 Prudential Reinsurance Company and former
Trustee of the Prudential Foundation.
* The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since
P.O. Box 9011 President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999
Princeton, and and and Director since 2004; Vice President of FAMD since 1999; Vice President
NJ 08543-9011 Treasurer 1999 to of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
Age: 44 present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
Kevin J. Booth Vice 2001 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM
P.O. Box 9011 President present from 1994 to 2000.
Princeton,
NJ 08543-9011
Age: 50
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the IQ Funds since 2004; Chief Compliance Officer
P.O. Box 9011 Compliance present of the MLIM/FAM-advised funds and First Vice President and Chief Compliance
Princeton, Officer Officer of MLIM (Americas Region) since 2004; Global Director of Compliance
NJ 08543-9011 at Morgan Stanley Investment Management from 2002 to 2004; Managing Director
Age: 53 and Global Director of Compliance at Citigroup Asset Management from 2000
to 2002; Chief Compliance Officer at Soros Fund Management in 2000; Chief
Compliance Officer at Prudential Financial from 1995 to 2000; Senior Counsel
in the Commission's Division of Enforcement in Washington, D.C. from 1990
to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from
P.O. Box 9011 present 1999 to 2002; Attorney associated with MLIM since 1997; Secretary of MLIM,
Princeton, FAM, FAMD and Princeton Services since 2004.
NJ 08543-9011
Age: 44
* Officers of the Fund serve at the pleasure of the Board of Directors.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street--11 East
New York, NY 10286
NYSE Symbol
ARK
Effective January 1, 2005, Terry K. Glenn, President and Director
and Kevin A. Ryan, Director of Senior High Income Portfolio, Inc.
retired. The Fund's Board of Directors wishes Messrs. Glenn and Ryan
well in their retirements.
Effective January 1, 2005, Robert C. Doll, Jr. became President and
Director of the Fund.
SENIOR HIGH INCOME PORTFOLIO, INC., FEBRUARY 28, 2005
Item 2 - Code of Ethics - The registrant has adopted a code of
ethics, as of the end of the period covered by this report, that
applies to the registrant's principal executive officer, principal
financial officer and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's
board of directors has determined that (i) the registrant has
the following audit committee financial experts serving on its
audit committee and (ii) each audit committee financial expert
is independent: (1) Ronald W. Forbes, (2) Richard R. West, and
(3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending February 28, 2005 - $39,000
Fiscal Year Ending February 29, 2004 - $35,900
(b) Audit-Related Fees -
Fiscal Year Ending February 28, 2005 - $7,500
Fiscal Year Ending February 29, 2004 - $7,500
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending February 28, 2005 - $5,700
Fiscal Year Ending February 29, 2004 - $5,200
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending February 28, 2005 - $0
Fiscal Year Ending February 29, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending February 28, 2005 - $11,046,527
Fiscal Year Ending February 29, 2004 - $18,175,900
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following
individuals are members of the registrant's separately-designated
standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Ronald W. Forbes
Cynthia A. Montgomery
Jean Margo Reid (as of August 20, 2004)
Kevin A. Ryan (retired as of December 31, 2004)
Roscoe S. Suddarth
Richard R. West
Edward D. Zinbarg
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill
Lynch Investment Managers, L.P. and/or Fund Asset Management, L.P.
(the "Investment Adviser") authority to vote all proxies relating
to the Fund's portfolio securities. The Investment Adviser has
adopted policies and procedures ("Proxy Voting Procedures") with
respect to the voting of proxies related to the portfolio securities
held in the account of one or more of its clients, including a Fund.
Pursuant to these Proxy Voting Procedures, the Investment Adviser's
primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Investment Adviser
believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are
designed to ensure that that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests
of the Investment Adviser, when voting proxies and that real (or
perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment
professionals appointed by the CIO, portfolio managers and
investment analysts appointed by the CIO and any other personnel the
CIO deems appropriate. The Committee will also include two non-
voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel.
The Committee's membership shall be limited to full-time employees
of the Investment Adviser. No person with any investment banking,
trading, retail brokerage or research responsibilities for the
Investment Adviser's affiliates may serve as a member of the
Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information
to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser
might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy
voting authority to the Investment Adviser and seeks to ensure that
all votes are consistent with the best interests of those clients
and are free from unwarranted and inappropriate influences. The
Committee establishes general proxy voting policies for the
Investment Adviser and is responsible for determining how those
policies are applied to specific proxy votes, in light of each
issuer's unique structure, management, strategic options and, in
certain circumstances, probable economic and other anticipated
consequences of alternate actions. In so doing, the Committee may
determine to vote a particular proxy in a manner contrary to its
generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires
a case-by-case determination. In such cases, the Committee may
elect not to adopt a specific voting policy applicable to that
issue. The Investment Adviser believes that certain proxy voting
issues require investment analysis - such as approval of mergers and
other significant corporate transactions - akin to investment
decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the
Investment Adviser on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager
to make individual decisions on how best to maximize economic value
for a Fund (similar to normal buy/sell investment decisions made by
such portfolio managers). While it is expected that the Investment
Adviser will generally seek to vote proxies over which the
Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in
conjunction with a Fund's portfolio manager, may determine that the
Fund's specific circumstances require that its proxies be voted
differently.
To assist the Investment Adviser in voting proxies, the Committee
has retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address
special circumstances that can arise in connection with proxy
voting. For instance, under the Proxy Voting Procedures, the
Investment Adviser generally will not seek to vote proxies related
to portfolio securities that are on loan, although it may do so
under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a
best efforts basis and may elect not to vote at all in certain
countries where the Committee determines that the costs associated
with voting generally outweigh the benefits. The Committee may at
any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment
Adviser (each, an "Affiliate"), or a money management or other
client of the Investment Adviser (each, a "Client") is involved.
The Proxy Voting Procedures and the Investment Adviser's adherence
to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving
Affiliates and Clients. If, however, an issue representing a non-
routine matter that is material to an Affiliate or a widely known
Client is involved such that the Committee does not reasonably
believe it is able to follow its guidelines (or if the particular
proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes
of ensuring that an independent determination is reached, retain an
independent fiduciary to advise the Committee on how to vote or to
cast votes on behalf of the Investment Adviser's clients.
In the event that the Committee determines not to retain an
independent fiduciary, or it does not follow the advice of such an
independent fiduciary, the powers of the Committee shall pass to a
subcommittee, appointed by the CIO (with advice from the Secretary
of the Committee), consisting solely of Committee members selected
by the CIO. The CIO shall appoint to the subcommittee, where
appropriate, only persons whose job responsibilities do not include
contact with the Client and whose job evaluations would not be
affected by the Investment Adviser's relationship with the Client
(or failure to retain such relationship). The subcommittee shall
determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on
matters where the Investment Adviser's policy is case-by-case, does
not follow the voting recommendation of any proxy voting service or
other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies
relating to the Client may be voted unless the Secretary, or in the
Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Investment Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain
recurring proxy issues that are not expected to involve unusual
circumstances. These policies are guidelines only, and the
Investment Adviser may elect to vote differently from the
recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee
meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
* Proposals related to the composition of the Board of Directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's Board of Directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is
therefore best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation
of good corporate governance is the election of qualified,
independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of
the corporation in a manner that will seek to maximize shareholder
value over time. In individual cases, the Committee may look at a
nominee's history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
* Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the interests
of shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor,
in individual cases, the Committee may look at an auditors' history
of representing shareholder interests as auditor of other companies,
to the extent the Committee deems relevant.
* Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure of
an issuer's compensation and benefit policies and opposes excessive
compensation, but believes that compensation matters are normally
best determined by an issuer's board of directors, rather than
shareholders. Proposals to "micro-manage" an issuer's compensation
practices or to set arbitrary restrictions on compensation or
benefits will, therefore, generally not be supported.
* Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital
structure. As a general matter, the Committee will support requests
that enhance the rights of common shareholders and oppose requests
that appear to be unreasonably dilutive.
* Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee
opposes poison pill provisions.
* Routine proposals related to requests regarding the formalities of
corporate meetings.
* Proposals related to proxy issues associated solely with holdings
of investment company shares. As with other types of companies, the
Committee believes that a fund's Board of Directors (rather than its
shareholders) is best-positioned to set fund policy and oversee
management. However, the Committee opposes granting Boards of
Directors authority over certain matters, such as changes to a
fund's investment objective, that the Investment Company Act
envisions will be approved directly by shareholders.
* Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social concerns.
The Committee generally believes that annual shareholder meetings
are inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter.
While the Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and material to
the economic interests of shareholders, the Committee is generally
not supportive of proposals to require disclosure of corporate
matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment
Companies - Not Applicable at this time
Item 9 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(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.
11(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 second 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr._______
Robert C. Doll, Jr.,
Chief Executive Officer of
Senior High Income Portfolio, Inc.
Date: April 22, 2005
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/ Robert C. Doll, Jr.________
Robert C. Doll, Jr.,
Chief Executive Officer of
Senior High Income Portfolio, Inc.
Date: April 22, 2005
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Senior High Income Portfolio, Inc.
Date: April 22, 2005