UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07456
Name of Fund: BlackRock Senior High Income Fund, 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, BlackRock Senior High Income Fund, 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: 02/28/07
Date of reporting period: 03/01/06 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock Senior High Income Portfolio, Inc.
SEMI-ANNUAL REPORT AUGUST 31, 2006
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Senior High Income Portfolio, Inc. seeks to provide shareholders
with high current income by investing at least 80% of its net assets plus any
borrowings for investment purposes in senior debt obligations, including
corporate loans and both privately placed and publicly offered corporate bonds
and notes. Senior debt obligations generally include debt obligations of a
company that have a contractual right to repayment in the event of a default
or bankruptcy of the company with priority over existing or future
subordinated debt (if any), preferred stock or common stock of the same
company. Senior debt ranks equally in right of payment to all other debt of
the company other than debt that is contractually subordinated in right of
payment to such senior debt. Senior debt in which the Fund invests may be
secured by collateral or may be unsecured. Certain senior debt obligations may
be effectively junior to other debt obligations of the company that are
secured by collateral, as well as to any indebtedness of such company's
subsidiaries or affiliates. 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 obligations of comparable quality. The Fund
will generally not invest in securities rated at the time of purchase, Caa/CCC
or below by each of the major ratings agencies that rate the securities.
This report, including the financial information herein, is transmitted to
shareholders of BlackRock 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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Senior High Income Portfolio, Inc.
Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
BlackRock Senior High Income Portfolio, Inc.
The Benefits and Risks of Leveraging
BlackRock Senior High Income Portfolio, Inc. (the "Fund") utilizes leveraging
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.
Officers and Directors
Robert C. Doll, Jr., President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Donald C. Burke, Vice President and Treasurer
Kevin J. Booth, Vice President
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
The Bank of New York
101 Barclay Street - 11 East
New York, NY 10286
NYSE Symbol
ARK
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
A Discussion With Your Fund's Portfolio Manager
Senior High Income Portfolio, Inc. outpaced its benchmark return for the
period and provided an attractive yield as we sought to protect the Fund's
underlying value while enhancing the level of income provided to shareholders.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended August 31, 2006, the Common Stock of Senior
High Income Portfolio, Inc. had net annualized yields of 9.32% and 8.88%,
based on a period-end per share net asset value of $6.00 and a per share
market price of $6.30, respectively, and $.282 per share income dividends.
Over the same period, the total investment return on the Fund's Common Stock
was +4.78%, based on an unchanged per share net asset value of $6.00, and
assuming reinvestment of all distributions. The Fund's total return for the
period outpaced the +3.35% return of its benchmark, which is an equal blend of
the Credit Suisse High Yield Index and the Credit Suisse Leveraged Loan Index.
For a description of the Fund's total investment return based on a change in
the per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund'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 Fund's shares may trade in
the secondary market at a premium or discount to the Fund's net asset value.
As a result, total investment returns based on changes in the market value of
the Fund's Common Stock can vary significantly from total investment returns
based on changes in the Fund's net asset value.
Leveraged loans posted steady, positive returns for the six months ended
August 31, 2006, with the Credit Suisse Leveraged Loan Index returning +3.25%.
Despite a couple of small corrections in the high yield market, returns for
the six-month period also were well in the positive range, at +3.45% as
measured by the Credit Suisse High Yield Index.
The most important factor impacting both the high yield and leveraged loan
markets was the robust issuance pace and growing influence of collateralized
loan obligations (CLOs). CLOs are structured investment pools with various
seniority tranches ranging from AAA-rated to equity. At present, AAA tranches,
which typically represent approximately 76% of the CLO funding, are receiving
the London InterBank Offered Rate (LIBOR) plus 25 basis points - 30 basis
points (.25% - .30%). This relatively inexpensive source of funding has been
the principal driver of spread compression for leveraged bank loans over the
past few years. CLOs dominate the leveraged loan market with a roughly 65%
share. Moreover, the CLO-related demand for leveraged loans has affected the
high yield bond market. We have seen traditional high yield bond names migrate
to the leveraged loan market often and are optimistically titled "second lien"
bank loans. This bond to bank loan migration has curtailed high yield bond
supply, resulting in spreads that are tighter than they otherwise would be.
CLO issuance for the first eight months of 2006 has been very strong at
$63.2 billion. This represents a nearly 74% increase compared to the same
period in 2005, when issuance totaled $34 billion. To date, the market has
already eclipsed 2005's record full-year issuance of $60.5 billion and could
potentially exceed $90 billion for the full year 2006.
With CLOs purchasing 65% of newly issued leveraged bank loans, their success
has effectively compressed spreads in both the high yield and leveraged loan
markets, as liabilities for such products have tightened. Given that current
spreads allow for a barely double-digit return for the equity with favorable
default and recovery scenarios and that AAA-rated CLO liabilities have been
stable recently, we believe CLOs' ability to purchase bank loans at ever-
tightening spreads is at an end.
What factors most influenced Fund performance?
The Fund's outperformance of its composite benchmark stems from its reliance
on floating rate high yield notes, along with leveraged loans, to achieve its
floating rate target. Floating rate high yield notes are subordinate to bank
loans and, therefore, command higher spreads. They also have call protection,
which enables them to trade at premiums not found in the leveraged loan
market. This is because the vast majority of bank loans are callable at par
for life. The Fund's performance also was enhanced by our active use of its
leverage lines, which averaged 26.4% during the six-month period. (See page 2
of this report to shareholders for a discussion of the benefits and risks of
leveraging.)
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Specific investments that made outsized contributions to Fund performance
included Advanced Accessory Systems LLC, Charter Communications Holdings LLC
and North Atlantic Trading Company Inc. The Fund's $7.6 million investment in
auto parts supplier Advanced Accessory Systems rallied sharply from 79.5 to
102.0 during the period. The company announced a tender offer for the bonds
using asset sale proceeds. We participated in the tender to the benefit of the
Fund. Regarding Charter Communications, Inc., the Fund owned four bond
positions in this cable complex totaling $6.3 million. Charter's management
lacks a meaningful plan to address the company's overleveraged financial
structure; however, the bonds rallied an average of 15 points based on both
short covering (that is, the purchase of bonds previously sold short in order
to close the open position) and more favorable sentiment on cable valuations.
Finally, our $2.125 million bond position in cigarette paper and tobacco
company North Atlantic Trading rallied from 61.0 to 82.5 during the period.
The bond price benefited from rumors of strategic initiatives at the company.
Conversely, investments that detracted most from Fund performance during the
period included Ainsworth Lumber Co. Ltd. (ALC), James River Coal Company and
Hines Nurseries, Inc. We had a $7.4 million floating rate note exposure to ALC
that weakened roughly 18 points during the period. ALC is the fourth-largest
oriented strand board (OSB) manufacturer in North America. A slowdown in
residential construction, coupled with additional OSB capacity, resulted in
OSB price weakness, which adversely impacted the company's financial results.
Our $5 million bond position in Appalachian coal company James River Co.
slipped in price from 104.25 to 92.75 following the release of weak second
quarter financial results. The company attributes the poor performance to
production curtailments made to comply with regulatory mandates. Finally,
Hines is a commercial nursery that sells an assortment of container-grown
plants through garden centers and mass merchandisers such as Lowe's, Home
Depot and Wal-Mart. Our $4.75 million bond position declined 10 points to 89
following a sharp drop in operating income in the second quarter. The company
lost market share in the eastern United States, sending its second quarter
revenues down 12%.
What changes were made to the Fund during the period?
The Fund is currently constructed with a 41% fixed rate/59% floating rate
composition. This compared to a 50%/50% composition six months ago. The Fund's
resulting duration is roughly 2.0 years, versus 4.3 years for the Credit
Suisse High Yield Index. This means the Fund is positioned with less
sensitivity to interest rate moves, cushioning its underlying value in the
event of rising interest rates. Essentially, we have removed more than 50% of
the price risk that would result from rising long-term interest rates.
How would you characterize the Fund's position at the close of the period?
The 10-year Treasury yield retreated to approximately 4.75% at August 31,
2006, after brushing up against 5.25% last June. We continue to believe there
is a good chance that a spike in inflation could prompt a rise in long-term
interest rates. In the meantime, we are basing half of the Fund off of a three-
month LIBOR rate of 5.4%. We believe this remains an attractive proposition
given the 4.75% yield of the 10-year Treasury.
We thank you for your interest in the Fund and look forward to reviewing our
performance, strategy and outlook with you again in our next report to
shareholders.
Kevin J. Booth
Vice President and Portfolio Manager
September 15, 2006
Effective October 2, 2006, we are pleased to announce that Mark J. Williams
has joined Kevin Booth as Portfolio Manager and together they are primarily
responsible for the day-to-day management of the Fund. Mr. Williams is a
Managing Director and portfolio manager/loan originator with BlackRock. Prior
to joining BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged Finance
Group.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Portfolio Information
As of August 31, 2006
Percent of
Ten Largest Holdings Net Assets
Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 2.4%
Wellman, Inc. First Lien Term Loan, 9.489%
due 2/10/2009 2.4
Bowater, Inc. 8.329% due 3/15/2010 2.2
Nova Chemicals Corp., 8.405%
due 11/15/2013 1.8
Frontier Drilling Term Loan B, 8.68%
due 6/21/2013 1.8
Galazy Entertainment Finance Co. Ltd., 10.42%
due 12/15/2010 1.7
Advanced Accessory Systems LLC, 10.75%
due 6/15/2011 1.7
CCM Merger, Inc., 8% due 8/01/2013 1.7
Omnova Solutions, Inc., 11.25%
due 6/01/2010 1.7
NewPage Corp., 11.739% due 5/01/2012 1.7
Percent of
Five Largest Industries Net Assets
Cable--U.S. 19.2%
Chemicals 14.3
Paper 11.3
Automotive 8.6
Gaming 8.5
For Fund compliance purposes, the Fund's industry classifications
refer to 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 17.5%
B/B 66.5
CCC/Caa 9.7
CC/Ca 0.5
NR (Not Rated) 5.5
Other* 0.3
* Includes portfolio holdings in common stocks, preferred stocks,
warrants, other interests and short-term investments.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Schedule of Investments (in U.S. dollars)
Face
Amount Corporate Bonds Value
Aerospace & Defense--1.5%
$5,510,000 Vought Aircraft Industries, Inc., 8%
due 7/15/2011 $ 4,959,000
Automotive--4.0%
5,550,000 Advanced Accessory Systems LLC, 10.75%
due 6/15/2011 5,702,625
1,300,000 Cooper-Standard Automotive, Inc., 8.375%
due 12/15/2014 984,750
1,350,000 Delco Remy International, Inc., 9.507%
due 4/15/2009 (f) 1,329,750
2,425,000 Exide Technologies, 11.50% due 3/15/2013 (i) 2,134,000
2,000,000 Ford Motor Credit Co., 9.957%
due 4/15/2012 (f) 2,114,320
1,175,000 Metaldyne Corp., 11% due 6/15/2012 1,081,000
Venture Holdings Co. LLC:
700,000 12% due 6/01/2009 (c) 0
3,325,000 Series B, 9.50% due 7/01/2005 (b) 4,156
--------------
13,350,601
Broadcasting--1.3%
500,000 LIN Television Corp. Series B, 6.50%
due 5/15/2013 461,250
Paxson Communications Corp. (f)(i):
1,325,000 8.757% due 1/15/2012 1,334,937
2,625,000 11.757% due 1/15/2013 2,644,687
--------------
4,440,874
Cable--International--0.1%
350,000 NTL Cable Plc, 8.75% due 4/15/2014 363,125
Cable--U.S.--9.0%
1,800,000 CSC Holdings, Inc., 7.25% due 7/15/2008 1,820,250
2,275,000 Cablevision Systems Corp. Series B, 9.62%
due 4/01/2009 (f) 2,425,719
Charter Communications Holdings LLC:
1,750,000 10% due 4/01/2009 1,592,500
1,000,000 11.75% due 1/15/2010 840,000
2,000,000 11.125% due 1/15/2011 1,540,000
1,000,000 10% due 5/15/2011 710,000
5,000,000 EchoStar DBS Corp., 8.758% due 10/01/2008 (f) 5,062,500
Intelsat Subsidiary Holding Co. Ltd.:
1,925,000 10.484% due 1/15/2012 (f) 1,953,875
1,675,000 8.25% due 1/15/2013 1,670,812
2,400,000 8.625% due 1/15/2015 2,424,000
1,875,000 Mediacom LLC, 9.50% due 1/15/2013 1,926,562
2,600,000 PanAmSat Corp., 9% due 6/15/2016 (i) 2,639,000
5,250,000 Rainbow National Services LLC, 8.75%
due 9/01/2012 (i) 5,538,750
--------------
30,143,968
Chemicals--9.4%
1,350,000 ArCo Chemical Co., 9.80% due 2/01/2020 1,542,375
2,250,000 Compass Minerals International, Inc. Series B,
12% due 6/01/2013 (j) 2,086,875
4,382,000 GEO Specialty Chemicals, Inc.,13.981%
due 12/31/2009 (h) 3,615,150
Huntsman International, LLC:
855,000 9.875% due 3/01/2009 889,200
1,219,000 10.125% due 7/01/2009 1,243,380
1,708,000 Koppers, Inc., 9.875% due 10/15/2013 1,848,910
1,650,000 Lyondell Chemical Co., 11.125% due 7/15/2012 1,798,500
1,200,000 Millennium America, Inc., 7.625% due 11/15/2026 1,056,000
6,000,000 Nova Chemicals Corp., 8.405% due 11/15/2013 (f) 6,127,500
Face
Amount Corporate Bonds Value
Chemicals (concluded)
$5,350,000 Omnova Solutions, Inc., 11.25% due 6/01/2010 $ 5,671,000
1,000,000 PolyOne Corp., 6.89% due 9/22/2008 958,750
Rockwood Specialties Group, Inc.:
1,322,000 10.625% due 5/15/2011 1,417,845
250,000 7.50% due 11/15/2014 245,625
3,000,000 Tronox Worldwide LLC, 9.50% due 12/01/2012 3,082,500
--------------
31,583,610
Consumer--Durables--1.3%
4,450,000 Simmons Bedding Co., 7.875% due 1/15/2014 4,294,250
Consumer--Non-Durables--3.4%
4,725,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 4,205,250
2,000,000 Levi Strauss & Co., 10.258% due 4/01/2012 (f) 2,065,000
2,125,000 North Atlantic Trading Co., 9.25% due 3/01/2012 1,753,125
3,525,000 Quiksilver, Inc., 6.875% due 4/15/2015 3,287,062
--------------
11,310,437
Diversified Media--1.2%
1,350,000 Nielsen Finance LLC, 10% due 8/01/2014 (i) 1,382,062
Universal City Florida Holding Co. I:
175,000 8.375% due 5/01/2010 176,094
2,450,000 10.239% due 5/01/2010 (f) 2,505,125
--------------
4,063,281
Energy--Exploration & Production--1.3%
1,500,000 Chaparral Energy, Inc., 8.50% due 12/01/2015 1,511,250
3,000,000 Compton Petroleum Finance Corp., 7.625%
due 12/01/2013 2,925,000
--------------
4,436,250
Energy--Other--3.0%
1,000,000 Dresser, Inc., 9.375% due 4/15/2011 1,017,500
974,000 Dresser-Rand Group, Inc., 7.375%
due 11/01/2014 937,475
5,000,000 Ocean RIG ASA, 9.481% due 4/04/2011 4,962,500
3,025,000 SemGroup LP, 8.75% due 11/15/2015 (i) 3,077,938
--------------
9,995,413
Financial--1.5%
4,000,000 Highland Legacy Ltd. CLO, 11.739%
due 6/01/2011 (f)(i) 3,977,600
500,000 Investcorp SA, 7.54% due 10/21/2008 507,246
1,000,000 Pennant CBO Ltd., 13.43% due 3/14/2011 (i) 680,000
--------------
5,164,846
Food & Drug--0.2%
500,000 Stripes Acquisition LLC, 10.625%
due 12/15/2013 (i) 525,000
Food & Tobacco--0.3%
1,000,000 Dole Food Co., Inc., 8.75% due 7/15/2013 945,000
Gaming--6.1%
5,925,000 CCM Merger, Inc., 8% due 8/01/2013 (i) 5,673,187
Galaxy Entertainment Finance Co. Ltd. (i):
5,450,000 10.42% due 12/15/2010 (f) 5,708,875
550,000 9.875% due 12/15/2012 576,125
2,000,000 Inn of the Mountain Gods Resort & Casino, 12%
due 11/15/2010 2,020,000
2,000,000 Jacobs Entertainment Co., 9.75%
due 6/15/2014 (i) 1,997,500
1,550,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (i) 1,542,250
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
Gaming (concluded)
$ 300,000 Penn National Gaming, Inc., 6.75%
due 3/01/2015 $ 288,750
1,000,000 Station Casinos, Inc., 7.75% due 8/15/2016 1,031,250
1,500,000 Tunica-Biloxi Gaming Authority, 9%
due 11/15/2015 (i) 1,541,250
--------------
20,379,187
Health Care--2.6%
1,875,000 CDRV Investors, Inc., 9.75% due 1/01/2015 (j) 1,350,000
Elan Finance Plc:
1,650,000 7.75% due 11/15/2011 1,584,000
2,325,000 9.405% due 11/15/2011 (f) 2,348,250
3,000,000 Tenet Healthcare Corp., 7.375% due 2/01/2013 2,670,000
700,000 VWR International, Inc., 8% due 4/15/2014 693,000
--------------
8,645,250
Housing--2.7%
Goodman Global Holding Co., Inc.:
1,831,000 8.329% due 6/15/2012 (f) 1,831,000
4,750,000 7.875% due 12/15/2012 4,453,125
500,000 Scranton Products, Inc., 10.50% due 7/01/2013 516,250
2,500,000 Technical Olympic USA, Inc., 8.25%
due 4/01/2011 (i) 2,337,500
--------------
9,137,875
Information Technology--3.9%
3,800,000 Amkor Technology, Inc., 9.25% due 2/15/2008 3,838,000
1,375,000 MagnaChip Semiconductor SA, 8.579%
due 12/15/2011 (f) 1,175,625
SunGard Data Systems, Inc.:
5,250,000 9.125% due 8/15/2013 5,420,625
1,750,000 9.973% due 8/15/2013 (f) 1,828,750
1,075,000 Telcordia Technologies Inc., 10%
due 3/15/2013 (i) 857,313
--------------
13,120,313
Leisure--1.3%
2,475,000 FelCor Lodging LP, 9.57% due 6/01/2011 (f) 2,536,875
2,000,000 True Temper Sports, Inc., 8.375% due 9/15/2011 1,780,000
--------------
4,316,875
Manufacturing--2.0%
1,750,000 Columbus McKinnon Corp., 8.875%
due 11/01/2013 1,785,000
3,000,000 Communications & Power Industries, Inc.,
8% due 2/01/2012 3,022,500
1,838,000 Invensys Plc, 9.875% due 3/15/2011 (i) 1,985,040
--------------
6,792,540
Metal--Other--3.3%
Indalex Holding Corp.:
1,000,000 11.50% due 2/01/2014 1,065,000
2,950,000 11.50% due 2/01/2014 (i) 3,127,000
5,000,000 James River Coal Co., 9.375% due 6/01/2012 4,637,500
2,225,000 RathGibson, Inc., 11.25% due 2/15/2014 (i) 2,291,750
--------------
11,121,250
Packaging--2.1%
5,500,000 Packaging Dynamics Finance Corp., 10%
due 5/01/2016 (i) 5,500,000
2,000,000 Wise Metals Group LLC, 10.25% due 5/15/2012 1,580,000
--------------
7,080,000
Face
Amount Corporate Bonds Value
Paper--10.5%
$3,275,000 Abitibi-Consolidated, Inc., 8.829%
due 6/15/2011 (f) $ 3,225,875
Ainsworth Lumber Co. Ltd. (f):
4,975,000 9.249% due 10/01/2010 4,154,125
2,500,000 9.499% due 4/01/2013 1,950,000
Boise Cascade LLC:
1,100,000 8.382% due 10/15/2012 (f) 1,105,500
350,000 7.125% due 10/15/2014 325,500
7,475,000 Bowater, Inc., 8.329% due 3/15/2010 (f) 7,549,750
1,775,000 Domtar, Inc., 7.125% due 8/15/2015 1,650,750
625,000 Graphic Packaging International Corp.,
9.50% due 8/15/2013 628,125
5,150,000 JSG Funding Plc, 7.75% due 4/01/2015 4,686,500
5,175,000 NewPage Corp., 11.739% due 5/01/2012 (f) 5,589,000
800,000 Smurfit-Stone Container Enterprises, Inc.,
8.375% due 7/01/2012 762,000
Verso Paper Holdings LLC (i):
2,300,000 9.235% due 8/01/2014 (f) 2,317,250
1,500,000 11.375% due 8/01/2016 1,485,000
--------------
35,429,375
Retail--1.3%
Neiman Marcus Group, Inc.:
2,250,000 9% due 10/15/2015 2,390,625
2,000,000 10.375% due 10/15/2015 2,140,000
--------------
4,530,625
Service--3.7%
2,700,000 Ahern Rentals, Inc., 9.25% due 8/15/2013 2,740,500
2,325,000 MSW Energy Holdings LLC, 8.50%
due 9/01/2010 2,394,750
2,000,000 Neff Rental LLC, 11.25% due 6/15/2012 (i) 2,150,000
5,450,000 United Rentals North America, Inc., 7.75%
due 11/15/2013 5,218,375
--------------
12,503,625
Telecommunications--3.9%
1,045,000 Cincinnati Bell, Inc., 8.375% due 1/15/2014 1,048,919
1,200,000 Nordic Telephone Co. Holdings ApS, 8.875%
due 5/01/2016 (i) 1,248,000
4,000,000 Qwest Communications International, Inc.,
8.905% due 2/15/2009 (f) 4,060,000
1,025,000 Qwest Corp., 8.579% due 6/15/2013 (f) 1,103,156
Time Warner Telecom Holdings, Inc.:
3,500,000 9.405% due 2/15/2011 (f) 3,570,000
2,000,000 9.25% due 2/15/2014 2,080,000
--------------
13,110,075
Utility--1.3%
1,600,000 Dynegy Holdings, Inc., 8.375%
due 5/01/2016 (i) 1,576,000
2,000,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (i) 2,037,500
725,000 Williams Cos., Inc., 8.625% due 6/01/2010 756,725
--------------
4,370,225
Wireless Communications--0.5%
1,550,000 Digicel Ltd., 9.25% due 9/01/2012 (i) 1,615,875
Total Corporate Bonds
(Cost--$285,175,308)--82.7% 277,728,745
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
Aerospace & Defense--1.5%
$5,092,593 Standard Aero Holdings Term Loan,
7.58% - 7.61% due 8/24/2012 $ 5,095,775
Airlines--0.2%
500,000 Delta Air Lines Term Loan B, 10.023%
due 3/16/2008 506,607
Automotive--4.6%
Intermet Corp.:
1,851,852 First Lien Term Loan, 10.283%
due 11/08/2010 1,512,346
648,148 Letter of Credit, 10.25% due 11/08/2010 529,321
2,000,000 JL French Corp. First Lien Term Loan, 8.50%
due 6/05/2011 1,996,666
Metaldyne Corp. Term Loan D:
269,659 10% due 12/31/2009 273,957
1,850,213 10% due 12/31/2009 1,869,641
4,000,000 3.50% - 10.50% due 8/18/2011 3,990,000
Tenneco Automotive, Inc.:
1,092,618 Term Loan B, 7.40% due 12/12/2010 1,100,266
479,968 Tranche B-1 Credit Linked Deposit, 7.402%
due 12/12/2010 483,328
1,296,307 United Components, Inc. Term Loan D, 7.70%
due 6/30/2012 1,302,788
2,250,000 Visteon Corp. Term Loan B, 8.61%
due 6/13/2013 2,250,000
--------------
15,308,313
Broadcasting--1.2%
4,000,000 Ellis Communications Term Loan, 10%
due 12/30/2011 4,000,000
Cable--U.S.--10.2%
5,000,000 Adelphia Communications Corp. Term Loan B,
10.25% due 6/30/2009 4,868,750
Cebridge Connections:
4,040,356 Second Lien Term Loan, 11.49%
due 5/05/2014 3,919,145
2,155,172 Term Loan B, 7.739% due 11/05/2013 2,142,663
3,000,000 Century Cable Holdings LLC Discretionary Term
Loan, 10.25% due 12/31/2009 2,908,125
8,000,000 Charter Communications, Inc. Term Loan B,
8.125% due 4/28/2013 8,029,448
3,900,000 Insight Midwest Holdings LLC Term Loan C,
7.375% due 12/31/2009 3,924,578
1,997,647 Mediacom Communications Term Loan D,
7.002% - 7.37% due 1/31/2015 1,990,937
2,567,500 Mediacom LLC Term Loan C, 6.87% - 7.27%
due 1/31/2015 2,560,165
4,000,000 Olympus Cable Holdings LLC Term Loan B,
10.25% due 9/30/2010 3,879,376
--------------
34,223,187
Chemicals--4.8%
2,673,000 CII Carbon Term Loan B, 7.375% - 7.50%
due 8/23/2012 2,676,341
2,412,700 Celanese Holdings LLC Term Loan B, 7.50%
due 4/06/2011 2,423,255
1,540,673 Huntsman ICI Holdings Term Loan B, 7.076%
due 8/16/2012 1,538,747
1,576,000 Rockwood Specialties Group, Inc. Tranche D Term
Loan, 7.85% due 12/13/2012 1,585,358
8,000,000 Wellman, Inc. First Lien Term Loan, 9.489%
due 2/10/2009 8,027,504
--------------
16,251,205
Face
Amount Floating Rate Loan Interests** Value
Consumer--Non-Durables--0.8%
$1,205,930 Culligan International Co. Term Loan, 7.33%
due 9/30/2011 $ 1,207,815
1,462,500 Solo Cup Co. Term Loan, 7.61% - 7.999%
due 2/27/2011 1,465,764
--------------
2,673,579
Diversified Media--0.6%
2,000,000 Nielsen Finance Term Loan B, 8.19%
due 8/09/2013 1,993,828
Energy--Exploration & Production--1.9%
6,000,000 Frontier Drilling Term Loan B, 8.68%
due 6/21/2013 6,015,000
498,750 MEG Energy Corp. Term Loan B, 7.50%
due 4/03/2013 499,863
--------------
6,514,863
Energy--Other--3.5%
2,666,667 Alon USA Energy, Inc., 7.906% due 6/22/2013 2,698,333
2,977,500 Cheniere Energy, Inc. Term Loan B, 8.249%
due 8/30/2012 3,004,485
Dresser, Inc.:
132,270 Term Loan C, 7.83% due 4/10/2009 133,593
1,250,000 Term Loan Unsecured, 8.94%
due 2/25/2010 1,275,000
2,487,500 Key Energy Services, Inc. Term Loan B,
8.90% - 9.23% due 6/30/2012 2,501,492
2,000,000 Scorpion Drilling Ltd. Second Lien Term Loan,
13.576% due 5/05/2015 2,080,000
--------------
11,692,903
Financial--1.3%
4,250,000 JG Wentworth Manufacturing Term Loan,
8.545% due 4/12/2011 4,297,813
Food & Tobacco--3.0%
750,000 Bolthouse Farms, Inc. Second Lien Term Loan,
10.999% due 12/16/2013 764,375
1,874,500 Commonwealth Brands Term Loan, 7.75%
due 12/22/2012 1,888,090
Dole Food Co., Inc.:
465,116 Letter of Credit, 5.37% due 4/12/2013 458,947
1,043,895 Term Loan B, 7.38% - 9.25%
due 4/12/2013 1,030,049
3,479,651 Term Loan C, 7.375% - 9.25%
due 4/04/2013 3,433,497
1,426,667 Pierre Foods, Inc. Term Loan B, 6.93%
due 6/30/2010 1,431,572
1,000,000 QCE LLC First Lien Term Loan, 7.75%
due 5/05/2013 998,854
--------------
10,005,384
Gaming--2.4%
4,987,849 Resorts International First Lien Term Loan,
9.50% due 4/26/2012 5,024,635
3,000,000 Venetian Macau U.S. Finance Co. LLC Term
Loan B, 8.20% due 5/25/2013 3,015,000
--------------
8,039,635
Health Care--1.0%
3,359,633 VWR International, Inc. Tranche B Term Loan,
7.77% due 4/07/2011 3,369,084
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Floating Rate Loan Interests** Value
Housing--2.7%
$ 194,737 LIONS Gables Realty Term Loan B, 7.12%
due 9/30/2006 $ 194,960
5,000,000 LNR Property Corp. Term Loan B, 8.22%
due 7/12/2011 5,037,500
4,000,000 Stile U.S. Acquisition Corp. Bridge Loan, 11%
due 4/06/2015 3,793,332
--------------
9,025,792
Information Technology--1.5%
1,755,600 Activant Solutions Term Loan B, 7.438% - 7.50%
due 5/02/2013 1,733,655
1,730,000 Fidelity National Information Solutions, Inc. Term
Loan B, 7.08% due 3/08/2013 1,736,552
1,666,406 Telcordia Technologies, Inc. Term Loan,
7.86% - 7.90% due 9/15/2012 1,589,335
--------------
5,059,542
Manufacturing--1.0%
3,456,250 Metokote Corp. Second Lien Term Loan,
8.58% - 8.74% due 11/27/2011 3,467,051
Metal--Other--2.1%
Euramax International Plc:
2,005,263 Second Lien Term Loan, 12.489%
due 6/29/2013 2,021,556
994,737 Second Lien Term Loan, 12.49%
due 6/29/2013 1,002,819
1,700,843 Tranche 3 Term Loan B, 8.06%
due 6/29/2012 1,711,474
2,336,169 Headwaters, Inc. Term Loan B-1, 7.33% - 7.50%
due 4/30/2011 2,349,310
--------------
7,085,159
Packaging--1.2%
1,921,183 Anchor Glass Container Corp. Term Loan B,
7.65% - 7.749% due 5/03/2013 1,925,986
2,000,000 Graham Packaging Co. LP Second Lien Term
Loan, 9.75% due 4/07/2012 2,027,500
--------------
3,953,486
Paper--0.8%
2,500,000 Georgia Pacific Corp. Second Lien Term Loan C,
7.958% - 8.30% due 12/23/2013 2,525,520
Retail--0.1%
302,141 General Nutrition Centers, Inc. Tranche B Term
Loan, 8.08% - 8.15% due 12/05/2009 304,313
Service--3.4%
Allied Waste North America, Inc.:
992,832 Term Loan, 7.20% - 7.27% due 1/15/2012 992,057
385,956 Tranche A Credit Linked Deposit, 5.334%
due 1/15/2012 385,695
2,000,000 NES Rentals Holdings, Inc. Term Loan C, 12.125%
due 7/20/2013 2,019,166
United Rentals, Inc.:
1,629,167 Term Loan, 7.33% due 2/14/2011 1,634,113
333,333 Tranche B Credit Linked Deposit, 7.584%
due 2/14/2011 334,345
Waste Services, Inc. Term Loan B:
2,154,600 8.58% - 8.65% due 3/31/2011 2,170,760
3,910,000 8.58% - 10.50% due 3/31/2011 3,936,861
--------------
11,472,997
Face
Amount Floating Rate Loan Interests** Value
Telecommunications--2.2%
$5,000,000 SBA Senior Finance Term Loan, 7.33%
due 1/27/2007 $ 5,014,065
1,702,542 Winstar Communications Debtor in Possession,
6.366% due 12/31/2006 (c) 2,417,610
--------------
7,431,675
Utility--1.0%
1,500,000 Calpine Corp. Second Lien Debtor in Possession,
9.499% due 12/20/2007 1,521,875
Covanta Energy Corp.:
851,852 Delayed Draw Term Loan, 7.749%
due 6/30/2012 851,852
1,105,000 Second Lien Term Loan, 10.581% - 10.96%
due 6/24/2013 1,129,863
--------------
3,503,590
Wireless Communications--1.4%
2,750,000 Centennial Cellular Operating Co. Term Loan,
7.318% - 7.75% due 2/09/2011 2,771,852
2,000,000 Crown Castle Operating Co. Term Loan B,
7.65% due 6/01/2014 2,013,334
--------------
4,785,186
Total Floating Rate Loan Interests
(Cost--$180,688,211)--54.4% 182,586,487
Shares
Held Common Stocks
Chemicals--0.1%
142,466 GEO Specialty Chemicals, Inc. (e) 284,932
Leisure--0.1%
41,866 Lodgian, Inc. (e) 523,744
Total Common Stocks
(Cost--$2,818,936)--0.2% 808,676
Preferred Stocks
Cable--U.S.--0.0%
2,500 Adelphia Communications Corp. Series B, 13% (e) 625
Total Preferred Stocks
(Cost--$225,000)--0.0% 625
Warrants (g)
Paper--0.0%
3,500 MDP Acquisitions Plc (expires 10/01/2013) 70,000
Wireless Communications--0.1%
600 American Tower Corp. (expires 8/01/2008) 302,598
Total Warrants
(Cost--$39,036)--0.1% 372,598
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Schedule of Investments (concluded) (in U.S. dollars)
Beneficial
Interest Other Interests (d) Value
Automotive--0.0%
$4,130,972 Cambridge Industries, Inc. (Litigation Trust
Certificates) $ 41
Health Care--0.0%
10,284 MEDIQ Inc. (Preferred Stock Escrow
due 2/01/2006) 0
Total Other Interests
(Cost--$0)--0.0% 41
Beneficial
Interest Short-Term Securities Value
$ 313,923 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 5.11% (a)(k) $ 313,923
Total Short-Term Securities
(Cost--$313,923)--0.1% 313,923
Total Investments (Cost--$469,260,414*)--137.5% 461,811,095
Liabilities in Excess of Other Assets--(37.5%) (125,875,842)
--------------
Net Assets--100.0% $ 335,935,253
==============
* The cost and unrealized appreciation (depreciation) of investments
as of August 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 468,930,076
=================
Gross unrealized appreciation $ 9,212,844
Gross unrealized depreciation (16,331,825)
-----------------
Net unrealized depreciation $ (7,118,981)
=================
** Floating rate loan interests in which the Fund invests generally
pay interest at rates that are periodically redetermined by reference
to a base lending rate plus a premium. The 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 U.S. banks, or (iii) the certificate of
deposit rate.
(a) Represents the current yield as of August 31, 2006.
(b) As a result of bankruptcy proceedings, the company did not repay
the principal amount of the security upon maturity and is non-income
producing.
(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 security.
(g) 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.
(h) Convertible security.
(i) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(j) Represents a step-up bond; the interest rate shown is the effective yield
at the time of purchase by the Fund.
(k) Investments in companies considered to be an affiliate of the Fund,
for purposes of 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 $313,923 $24,408
o For Fund compliance purposes, the Fund's industry classifications
refer to 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. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Statement of Assets, Liabilities and Capital
As of August 31, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$468,946,491) $ 461,497,172
Investments in affiliated securities, at value (identified cost--$313,923) 313,923
Receivables:
Interest $ 7,324,073
Principal paydowns 57,239
Commitment fees 3,750 7,385,062
---------------
Prepaid expenses 3,968
---------------
Total assets 469,200,125
---------------
Liabilities
Loans 132,900,000
Unfunded loan committment 13,385
Payables:
Investment adviser 157,110
Interest on loans 137,988
Other affiliates 2,750 297,848
---------------
Accrued expenses 53,639
---------------
Total liabilities 133,264,872
---------------
Net Assets
Net assets $ 335,935,253
===============
Capital
Common Stock, par value $.10 per share; 200,000,000 shares authorized (56,025,646 shares
issued and outstanding) $ 5,602,565
Paid-in capital in excess of par 493,899,596
Undistributed investment income--net $ 2,409,545
Accumulated realized capital losses--net (158,514,780)
Unrealized depreciation--net (7,461,673)
---------------
Total accumulated losses--net (163,566,908)
---------------
Total capital--Equivalent to $6.00 net asset value per share of Common Stock
(market price--$6.30) $ 335,935,253
===============
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Statement of Operations
For the Six Months Ended August 31, 2006
Investment Income
Interest (including $24,408 from affiliates) $ 20,621,039
Facility and other fees 65,151
---------------
Total income 20,686,190
---------------
Expenses
Loan interest expense $ 3,276,875
Investment advisory fees 1,156,414
Borrowing costs 97,155
Accounting services 57,992
Professional fees 45,317
Transfer agent fees 39,662
Directors' fees and expenses 22,133
Printing and shareholder reports 20,899
Listing fees 17,593
Custodian fees 15,652
Pricing services 9,183
Other 14,278
---------------
Total expenses 4,773,153
---------------
Investment income--net 15,913,037
---------------
Realized & Unrealized Gain (Loss)--Net
Realized loss on investments--net (2,901,362)
Change in unrealized appreciation/depreciation on:
Investments--net 2,474,375
Unfunded corporate loans--net (26,417) 2,447,958
--------------- ---------------
Total realized and unrealized loss--net (453,404)
---------------
Net Increase in Net Assets Resulting from Operations $ 15,459,633
===============
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
August 31, February 28,
Increase (Decrease) in Net Assets: 2006 2006
Operations
Investment income--net $ 15,913,037 $ 30,664,950
Realized gain (loss)--net (2,901,362) 246,957
Change in unrealized appreciation/depreciation--net 2,447,958 (14,723,000)
--------------- ---------------
Net increase in net assets resulting from operations 15,459,633 16,188,907
--------------- ---------------
Dividends to Shareholders
Dividends to shareholders from investment income--net (15,779,850) (31,484,794)
--------------- ---------------
Capital Share Transactions
Value of shares issued to Common Stock shareholders in reinvestment of dividends 565,400 1,195,046
--------------- ---------------
Net increase in net assets resulting from capital share transactions 565,400 1,195,046
--------------- ---------------
Net Assets
Total increase (decrease) in net assets 245,183 (14,100,841)
Beginning of period 335,690,070 349,790,911
--------------- ---------------
End of period* $ 335,935,253 $ 335,690,070
=============== ===============
* Undistributed investment income--net $ 2,409,545 $ 2,276,358
=============== ===============
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Statement of Cash Flows
For the Six Months Ended August 31, 2006
Cash Provided by Operating Activities
Net increase in net assets resulting from operations $ 15,459,633
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Increase in other receivables (2,791)
Decrease in prepaid expenses and other assets 556
Increase in other liabilities 25,289
Realized and unrealized loss--net 453,404
Amortization of premium and discount (345,968)
Proceeds from sales and paydowns of long-term securities 139,623,808
Other investment-related transactions (3,703)
Purchases of long-term investments (130,506,942)
Net purchases of short-term investments (309,752)
---------------
Cash provided by operating activities 24,393,534
---------------
Cash Used for Financing Activities
Cash receipts from borrowings 107,100,000
Cash payments on borrowings (115,900,000)
Dividends paid to shareholders (15,396,859)
Decrease in bank overdraft (196,675)
---------------
Cash used for financing activities (24,393,534)
---------------
Cash
Net increase in cash 0
Cash at beginning of period 0
---------------
Cash at end of period $ 0
===============
Cash Flow Information
Cash paid for interest $ 3,276,875
===============
Non-Cash Financing Activities
Value of capital shares issued on reinvestment of dividends to shareholders $ 565,400
===============
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Financial Highlights
For the Six For the
The following per share data and ratios Months Ended For the Year Ended Year Ended For the Year Ended
have been derived from information August 31, February 28, February 29, February 28,
provided in the financial statements. 2006 2006 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 6.00 $ 6.28 $ 6.10 $ 4.82 $ 5.40 $ 6.63
----------- ----------- ----------- ----------- ----------- -----------
Investment income--net*** .28 .55 .57 .62 .63 .70
Realized and unrealized gain (loss)--net --++ (.27) .16 1.30 (.59) (1.22)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations .28 .28 .73 1.92 .04 (.52)
----------- ----------- ----------- ----------- ----------- -----------
Less dividends from investment income--net (.28) (.56) (.55) (.64) (.62) (.71)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 6.00 $ 6.00 $ 6.28 $ 6.10 $ 4.82 $ 5.40
=========== =========== =========== =========== =========== ===========
Market price per share, end of period $ 6.30 $ 5.88 $ 6.21 $ 6.11 $ 5.45 $ 5.89
=========== =========== =========== =========== =========== ===========
Total Investment Return**
Based on net asset value per share 4.78%+++ 5.07% 12.88% 41.49% 1.18% (8.03%)
=========== =========== =========== =========== =========== ===========
Based on market price per share 12.27%+++ 4.13% 11.44% 25.34% 4.88% .16%
=========== =========== =========== =========== =========== ===========
Ratios to Average Net Assets
Expenses, excluding interest expense .88%* .91% .91% .90% .97% .95%
=========== =========== =========== =========== =========== ===========
Expenses 2.82%* 2.39% 1.69% 1.42% 1.78% 2.46%
=========== =========== =========== =========== =========== ===========
Investment income--net 9.39%* 9.23% 9.28% 11.23% 12.75% 11.83%
=========== =========== =========== =========== =========== ===========
Leverage
Amount of borrowings, end of period
(in thousands) $ 132,900 $ 141,700 $ 147,500 $ 132,297 $ 104,600 $ 127,600
=========== =========== =========== =========== =========== ===========
Average amount of borrowings outstanding
during the period (in thousands) $ 122,476 $ 128,461 $ 137,934 $ 112,037 $ 110,348 $ 128,203
=========== =========== =========== =========== =========== ===========
Average amount of borrowings outstanding
per share during the period*** $ 2.19 $ 2.30 $ 2.48 $ 2.02 $ 2.02 $ 2.37
=========== =========== =========== =========== =========== ===========
Supplemental Data
Net assets, end of period
(in thousands) $ 335,935 $ 335,690 $ 349,791 $ 339,950 $ 265,423 $ 293,988
=========== =========== =========== =========== =========== ===========
Portfolio turnover 27.53% 48.41% 54.18% 63.78% 74.70% 47.93%
=========== =========== =========== =========== =========== ===========
* Annualized.
** Total investment returns based on market price, which can be significantly greater or lesser than
the net asset value, may result in substantially different returns. Total investment returns exclude
the effects of sales charges.
*** Based on average shares outstanding.
++ Amount is less than $(.01) per share.
+++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Senior High Income Portfolio, Inc. was renamed
BlackRock Senior High Income Portfolio, Inc. (the "Fund"). The Fund is
registered under the Investment Company Act of 1940, as amended, as a non-
diversified, closed-end management investment company. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period.
All such adjustments are of a normal, recurring nature. The Fund determines
and makes available for publication the net asset value of its Common Stock on
a daily basis. The Fund's Common Stock shares are 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 floating rate 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 floating rate
loans could be considered concentrated in financial institutions.
(b) Valuation of investments--Floating rate loans are valued in accordance
with guidelines established by the Fund's Board of Directors. Floating rate
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.
As of October 2, 2006, floating rate loan interests will be valued at the mean
between the last available bid price. For the limited number of floating rate
loans for which no reliable price quotes are available, such floating rate
loans will be valued by Loan Pricing Corporation through the use of pricing
matrices to determine valuations. If the pricing service does not provide a
value for a floating rate loan, Fund Asset Management, L.P. ("FAM") will value
the floating rate loan at fair value, which is intended to approximate market
value.
Debt securities are traded primarily in the over-the-counter ("OTC") markets
and are valued at the last available bid price in the OTC markets or on the
basis of values as obtained by a pricing service. Pricing services use
valuation matrixes that incorporate both dealer-supplied valuations and
valuation models. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general direction of the Board
of Directors. Such valuations and procedures will be reviewed periodically by
the Board of Directors of the Fund.
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
asked 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 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 asked 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 asked
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. Swap agreements are valued based upon quoted
fair valuations received daily by the Fund from a pricing service or
counterparty. 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 FAM believes that this
method no longer produces fair valuations. Valuation of other short-term
investment vehicles is generally based on the net asset value of the
underlying vehicle or amortized cost. Repurchase agreements will be valued at
cost plus accrued interest.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, 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. As of October 2, 2006, foreign currency exchange rates
will be determined at 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 FAM
using a pricing service and/or procedures approved by the Board of Directors.
(c) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the 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 financial futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Financial 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 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) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Fund's financial statements, if any, is currently
being assessed.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Notes to Financial Statements (continued)
(f) 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.
(g) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. The Fund may at times pay out less than the entire amount
of net investment income earned in any particular period and may at times pay
out such accumulated undistributed income in other periods to permit the Fund
to maintain a more stable level of dividends.
(h) 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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with 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, 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 Merrill Lynch Investment Managers, L.P. ("MLIM"), an affiliate
of FAM.
For the six months ended August 31, 2006, the Fund reimbursed FAM $3,363 for
certain accounting services.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including FAM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement will become effective
on September 29, 2006 and the investment advisory fee is unchanged. In
addition, the Manager has entered into a sub-advisory agreement with BlackRock
Investment Management, LLC, an affiliate, under which the Manager pays the Sub-
Adviser for services it provides a fee equal to 59% of the management fee paid
to the Manager.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Notes to Financial Statements (concluded)
In connection with the closing, MLIM, LLC, the security lending agent, will
become BlackRock Investment Management, LLC.
During the six months ended August 31, 2006, certain officers and/or directors
of the Fund are officers and/or directors of FAM, PSI, ML & Co., MLIM, and/or
MLIM, LLC.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended August 31, 2006 were $125,277,771 and
$138,569,172, respectively.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10, all of which are initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued
shares of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the six months ended August 31, 2006 and
the year ended February 28, 2006 increased by 84,338 and 200,735, respectively,
as a result of dividend reinvestment.
5. Unfunded Corporate Loans:
As of August 31, 2006, the Fund had unfunded loan commitments of approximately
$3,833,000, which would be extended at the option of the borrower, pursuant to
the following loan agreements:
(in Thousands)
Unfunded
Borrower Commitment Value
Alon USA Energy, Inc. $ 333 $1,485
Calpine Corp. $1,500 $ 337
MEG Energy Corp. $ 500 $ 499
Venetian Macau U.S. Finance Co. LLC $1,500 $1,499
6. Short-Term Borrowings:
On May 22, 2006, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citigroup North
America, Inc. ("Citigroup") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The
agreement was renewed for one year and has a maximum limit of $175,000,000.
Under the Citigroup 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 5.31% and the average borrowing
was approximately $122,476,000 for the six months ended August 31, 2006.
7. Capital Loss Carryforward:
On February 28, 2006, the Fund had a net capital loss carryforward of
$155,613,418, 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, $22,345,071 expires in 2012 and $4,906,362 expires in 2014.
This amount will be available to offset like amounts of any future taxable
gains.
8. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $.047000 per share
on September 29, 2006 to shareholders of record on September 15, 2006.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Disclosure of FAM Investment Advisory Agreement
The Board of Directors met in August 2006 to consider approval of the Fund's
investment advisory agreement with Fund Asset Management, L.P. ("FAM"), the
Fund's investment adviser at the time.
Activities and Composition of the Board of Directors
All but one member of the Board of Directors is an independent director, whose
only association with FAM or other Merrill Lynch affiliates was as a director
of the Fund and as a trustee or director of certain other funds advised by FAM
or its affiliates. The Chairman of the Board is also an independent director.
New director nominees are chosen by a Nominating Committee comprised of
independent directors. All independent directors also are members of the
Board's Audit Committee, and the independent directors meet in executive
session at each in-person Board meeting. The Board and the Audit Committee
meet in person for at least two days each quarter and conduct other in-person
and telephonic meetings throughout the year, some of which are formal Board
meetings and some of which are informational meetings. The independent counsel
to the independent directors attends all in-person Board and Audit Committee
meetings and other meetings at the independent directors' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement. The Board assesses the nature, scope and quality of the services
provided to the Fund by the personnel of the investment adviser and its
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. The Board also receives and assesses information
regarding the services provided to the Fund by certain unaffiliated service
providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the investment adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services provided by the
investment adviser and its affiliates.
The Board noted its view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. The Board also noted its view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest
financial firms. The Board works closely with the investment adviser in
overseeing the investment adviser's efforts to achieve good performance. As
part of this effort, the Board discusses portfolio manager effectiveness and,
when performance is not satisfactory, discusses with the investment adviser
taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the investment
advisory agreement, the Board requests and receives materials specifically
relating to the investment advisory agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses,
investment performance and leverage of the Fund as compared to a comparable
group of funds as classified by Lipper; (b) information comparing the Fund's
market price with its net asset value per share; (c) a discussion by the
Fund's portfolio management team regarding investment strategies used by the
Fund during its most recent fiscal year; (d) information on the profitability
to the investment adviser and its affiliates of the investment advisory
agreement and other relationships with the Fund; and (e) information provided
by the investment adviser concerning investment advisory fees charged to other
retail closed-end funds under similar investment mandates. The Board also
considers other matters it deems important to the approval process, such as
payments made for services related to the valuation and pricing of Fund
portfolio holdings, the Fund's portfolio turnover statistics, and direct and
indirect benefits to the investment adviser and its affiliates from their
relationship with the Fund. The Board did not identify any particular
information as controlling, and each member of the Board may have attributed
different weights to the various items considered.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Disclosure of FAM Investment Advisory Agreement (concluded)
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's investment advisory
agreement with FAM (the "FAM Investment Advisory Agreement") in August 2006,
the independent directors' and Board's review included the following:
Services Provided by FAM--The Board reviewed the nature, extent and quality of
services provided by FAM, including the investment advisory services and the
resulting performance of the Fund. The Board focused primarily on FAM's
investment advisory services and the Fund's investment performance. The Board
compared Fund performance - both including and excluding the effects of the
Fund's fees and expenses - to the performance of a comparable group of funds
and the performance of a relevant index or combination of indexes. While
the Board reviews performance data at least quarterly, consistent with the
investment adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time, typically three to five
years.
The Board noted that according to Lipper's ranking of all closed-end leveraged
high current yield funds for the periods ended May 31, 2006, the Fund's
performance after fees and expenses ranked in the first quintile for the one-
year period and in the second quintile for the three- and five-year periods.
The Board considered the Fund's performance based on annualized total return
and noted that the Fund's total return was in the first quintile for each of
the one-year periods ended May 31, 2006 and 2004, in the third quintile for
each of the one-year periods ended May 31, 2003 and 2002 and in the fifth
quintile for the one-year period ended May 31, 2005. The Board also considered
the Fund's performance based on annualized yield and noted that the Fund's
yield was in the fourth quintile for each of the one-year periods ended May
31, 2006, 2004 and 2003 and in the fifth quintile for each of the one-year
periods ended May 31, 2005 and 2002. The Board concluded that the Fund's
performance supported the continuation of the FAM Investment Advisory
Agreement.
FAM's Personnel and Investment Process--The Board reviewed the Fund's
investment objectives and strategies. The Board discusses with senior
management of the investment adviser responsible for investment operations and
the senior management of the investment adviser's taxable fixed-income
investing group the strategies being used to achieve the stated objectives.
Among other things, the Board considers the size, education and experience of
the investment adviser's investment staff, its use of technology, and the
investment adviser's approach to training and retaining portfolio managers and
other research, advisory and management personnel. The Board also reviews the
investment adviser's compensation policies and practices with respect to the
Fund's portfolio manager. The Board also considered the experience of the
Fund's portfolio manager. It was noted that Mr. Booth, the Fund's portfolio
manager, has more than twenty years' experience in portfolio management. The
Board considered the extensive experience of FAM and its investment staff in
analyzing and managing the types of investments used by the Fund. The Board
concluded that the Fund benefits from that experience.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by FAM to another retail closed-end fund with
a similar investment mandate. The Board noted that the investment advisory
fees charged to the Fund were somewhat less than the fees charged to the other
retail closed-end funds of FAM with a similar investment mandate. The Board
noted that the Fund's contractual and actual management fee rates and total
expense ratio were below the median fees charged by and total expense ratios
of comparable funds, as determined by Lipper. The Board concluded that the
Fund's management fee rate and overall expense ratio were reasonable compared
to those of other comparable funds.
Profitability--The Board considers the cost of the services provided to the
Fund by the investment adviser and the investment adviser's and its
affiliates' profits relating to the management and distribution of the Fund
and the funds advised by the investment adviser and its affiliates. As part of
its analysis, the Board reviewed FAM's methodology in allocating its costs to
the management of the Fund and concluded that there was a reasonable basis for
the allocation. The Board also considered federal court decisions discussing
an investment adviser's profitability and profitability levels considered to
be reasonable in those decisions. The Board concluded that the profits of FAM
and its affiliates were acceptable in relation to the nature and quality of
services provided and given the level of fees and expenses overall.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Economies of Scale--The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Fund to participate in these economies of scale. The Board considered
economies of scale to the extent applicable to the Fund's closed-end structure
and determined that no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the entire
Board, including all of the independent directors, approved the renewal of
the existing FAM Investment Advisory Agreement, concluding that the advisory
fee was reasonable in relation to the services provided and that a contract
renewal was in the best interests of the shareholders.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Fund's Board of
Directors considered and approved a new investment advisory agreement (the
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Fund's shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective
on September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including
the independent directors, approved the BlackRock Investment Advisory
Agreement at an in-person meeting held on May 12, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 12, 2006 meeting. In addition, the independent directors
consulted with their counsel and Fund counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Fund. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent directors of the Board also conferred separately and with
their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April
and May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors met in executive sessions with
their counsel to consider the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund and its shareholders by
BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
* that the Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
The directors considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
would not increase under the BlackRock Investment Advisory Agreement, but
would remain the same;
* that in August 2005, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Fund; and
that the advisory and/or management fees paid by the Fund, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the directors had
considered relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Fund in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Fund would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board
assessed the nature, quality and scope of the services to be provided to the
Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting
and assistance in meeting legal and regulatory requirements. In its review of
the BlackRock Investment Advisory Agreement, the Board also considered a range
of information in connection with its oversight of the services to be provided
by BlackRock Advisors and its affiliates. Among the matters considered were:
(a) fees (in addition to management fees) to be paid to BlackRock Advisors and
its affiliates by the Fund; (b) Fund operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group
of funds as classified by Lipper; (b) information comparing the Fund's market
price with its net asset value per share; (c) a discussion by the Fund's
portfolio management team on investment strategies used by the Fund during its
most recent fiscal year; (d) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Fund; and (e) information provided by the Previous Investment Adviser
concerning services related to the valuation and pricing of Fund portfolio
holdings, the Fund's portfolio turnover statistics, and direct and indirect
benefits to the Previous Investment Adviser and its affiliates from their
relationship with the Fund.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Previous Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the BlackRock Investment Advisory Agreement. The directors did
not identify any particular information that was all-important or controlling,
and each director attributed different weights to the various factors. The
directors, including a majority of the independent directors, concluded that
the terms of the BlackRock Investment Advisory Agreement are appropriate, that
the fees to be paid are reasonable in light of the services to be provided to
the Fund, and that the BlackRock Investment Advisory Agreement should be
approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's investment advisory services and the Fund's
investment performance, but also considered certain areas in which both the
Previous Investment Adviser and the Fund received services as part of the
Merrill Lynch complex. The Board compared the Fund's performance - both
including and excluding the effects of fees and expenses - to the performance
of a comparable group of funds, and the performance of a relevant index or
combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of New
BlackRock and how it would affect the Fund; the ability of BlackRock Advisors
to perform its duties after the Transaction; and any anticipated changes to
the current investment and other practices of the Fund. The directors
considered BlackRock's advice as to proposed changes in portfolio management
personnel of the Fund after the closing of the Transaction.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill
Lynch affiliates (for example, transactions with a Merrill Lynch broker-dealer
acting as principal) absent revised or new regulatory relief. The directors
were advised that a revision of existing regulatory relief with respect to
these restrictions was being sought from the Securities and Exchange
Commission and were advised of the possibility of receipt of such revised
regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the BlackRock Investment Advisory Agreement were expected to be as good
as or better than that provided under the Previous Investment Advisory
Agreement. It was noted, however, that changes in personnel were expected to
follow the Transaction and the combination of the operations of the Previous
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if portfolio managers or other personnel were to cease to be
available prior to the closing of the Transaction, the Board would consider
all available options, including seeking the investment advisory or other
services of BlackRock affiliates. Accordingly, the directors concluded that,
overall, they were satisfied at the present time with assurances from
BlackRock and BlackRock Advisors as to the expected nature, quality and extent
of the services to be provided to the Fund under the BlackRock Investment
Advisory Agreement.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group
selected by Lipper, and information as to the fees charged by the Previous
Investment Adviser or its affiliates to other registered investment company
clients for investment management services. The Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels - the actual rate includes advisory
fees and the effects of any fee waivers - compared to the other funds in its
Lipper category. They also compared the Fund's total expenses to those of
other comparable funds. The information showed that the Fund had fees and
expenses within the range of fees and expenses of comparable funds. The Board
considered the services to be provided by and the fees to be charged by
BlackRock Advisors to other funds with similar investment mandates and noted
that the fees charged by BlackRock Advisors in those cases, including fee
waivers and expense reimbursements, were generally comparable to those being
charged to the Fund. The Board also noted that, as a general matter, according
to the information provided by BlackRock, fees charged to institutional
clients were lower than the fees charged to the Fund, but BlackRock Advisors
provided less extensive services to such clients. The Board concluded that the
Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material respects,
including the rate of compensation, the directors determined that the
Transaction should not increase the total fees payable, including any fee
waivers and expense reimbursements, for advisory and administrative services.
The directors noted that it was not possible to predict how the Transaction
would affect BlackRock Advisors' profitability from its relationship with the
Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with
the Fund. The directors noted that they expect to receive profitability
information from BlackRock Advisors on at least an annual basis and thus be in
a position to evaluate whether any adjustments in Fund fees and/or fee
breakpoints would be appropriate.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in
order to enable the Fund to participate in these economies of scale. The Board
determined that changes were not currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory
Agreement is substantially similar to the Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
directors determined that as a result of the Transaction, the Fund's total
advisory fees would be no higher than the fees under the Previous Investment
Advisory Agreement. The directors noted that in conjunction with their most
recent deliberations concerning the Previous Investment Advisory Agreement,
they had determined that the total fees for advisory and administrative
services for the Fund were reasonable in light of the services provided. It
was noted that in conjunction with the recent review of the Previous
Investment Advisory Agreement, the directors had received, among other things,
a report from Lipper comparing the Fund's fees, expenses and performance to
those of a peer group selected by Lipper, and information as to the fees
charged by the Previous Investment Adviser or its affiliates to other
registered investment company clients for investment management services. The
directors concluded that because the rates for advisory fees for the Fund
would be no higher than the fee rates in effect at the time, the proposed
management fee structure, including any fee waivers, was reasonable and that
no additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the Previous Investment Advisory Agreement. Based on their
review of the materials provided, including materials received in connection
with their most recent continuance of the Previous Investment Advisory
Agreement, and their discussions with management of the Previous Investment
Adviser and BlackRock, the directors determined that BlackRock Advisors' fall-
out benefits could include increased ability for BlackRock to distribute
shares of its funds and other investment products. The directors noted that
any fall-out benefits were difficult to quantify with certainty at this time,
and indicated that they would continue to evaluate them going forward.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Investment Performance--The directors considered investment performance for
the Fund. The directors compared the Fund's performance - both including and
excluding the effects of fees and expenses - to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper
showed Fund performance at various levels within the range of performance of
comparable funds over different time periods. While the Board reviews
performance data at least quarterly, consistent with the Previous Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time, typically three to five years. The directors believed
the Fund's performance was satisfactory. Also, the directors took into account
the investment performance of funds advised by BlackRock Advisors. The Board
considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. The Board also
noted that, following the close of the Transaction, BlackRock Advisors
intended to implement steps to seek to improve the investment performance
of the Fund, including changes in the portfolio management personnel. The
Board noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Board
At an in-person meeting held on August 14 - 16, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Financial Management, Inc. (the "Sub-Adviser").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006,
at the same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received
by BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Fund expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of BlackRock Investment Advisory Agreement in May 2006. The Board relied on
the same information and considered the same factors as those discussed above
in connection with the approval of the BlackRock Investment Advisory
Agreement, and came to the same conclusions. In reviewing the sub-advisory fee
rate provided in the BlackRock Sub-Advisory Agreement, the Board noted the
fact that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock
Advisors remains responsible for oversight of the Fund's operations and
administration, and the Sub-Adviser provides advisory services to the Fund and
is responsible for the day-to-day management of the Fund's portfolio under the
BlackRock Sub-Advisory Agreement. The Board also took into account the fact
that there is no increase in total advisory fees paid by the Fund as a result
of the BlackRock Sub-Advisory Agreement. Under all of the circumstances, the
Board concluded that it was a reasonable allocation of fees for the Sub-
Adviser to receive 59% of the advisory fee paid by the Fund to BlackRock
Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-
Advisory Agreement, concluding that the sub-advisory fee was reasonable in
relation to the services provided and that the Sub-Advisory Agreement was in
the best interests of shareholders.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Proxy Results
During the six-month period ended August 31, 2006, BlackRock Senior High
Income Portfolio, Inc.'s shareholders voted on the following proposals.
Proposal 1, 2 and 3 were approved at a shareholders' meeting on August 15,
2006. A description of the proposals and number of shares voted were as
follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Robert C. Doll, Jr. 39,201,931 1,545,415
Ronald W. Forbes 39,190,593 1,556,753
Cynthia A. Montgomery 39,191,372 1,555,974
Jean Margo Reid 39,197,660 1,549,686
Roscoe S. Suddarth 39,174,161 1,573,185
Richard R. West 39,193,531 1,553,815
Edward D. Zinbarg 39,190,243 1,557,103
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To approve a new investment advisory agreement. 28,301,283 1,055,169 1,081,179
3. To approve a contingent subadvisory agreement. 28,263,170 1,045,325 1,129,136
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
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
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
BLACKROCK SENIOR HIGH INCOME PORTFOLIO, INC. AUGUST 31, 2006
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this semi-
annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
As of October 2, 2006
(a)(1) The Fund is managed by a team of investment professionals
that is responsible for the day-to-day management of the Fund's
portfolio. The lead members of this team are Mark J. Williams,
Managing Director at BlackRock, and Kevin J. Booth, Managing
Director at BlackRock. Mr. Williams and Mr. Booth each has been a
portfolio manager of the Fund since 2006. Mr. Williams is
responsible for setting the Fund's overall investment strategy and
overseeing the management of the Fund as of October 2, 2006. Mr.
Booth is responsible for the day-to-day management of the Fund's
portfolio and the selection of its investments.
Mr. Williams is the head of BlackRock's bank loan group and a member
of the Investment Strategy Group. His primary responsibility is
originating and evaluating bank loan investments for the firm's
collateralized bond obligations. He is also involved in the
evaluation and sourcing of mezzanine investments. Prior to joining
BlackRock in 1998, Mr. Williams spent eight years with PNC Bank's
New York office and was a founding member of the bank's Leveraged
Finance Group. In that capacity he was responsible for structuring
proprietary middle market leveraged deals and sourcing and
evaluating broadly syndicated leveraged loans in the primary and
secondary markets for PNC Bank's investment portfolio. From 1984
until 1990, Mr. Williams worked in PNC Bank's Philadelphia office in
a variety of marketing and corporate finance positions.
Mr. Booth is a member of BlackRock's bank loan group. He joined
BlackRock in 2006. Prior to joining BlackRock, Mr. Booth was a
Managing Director (Global Fixed Income) of Merrill Lynch Investment
Managers, L.P. ("MLIM") since 2006 and a member of MLIM's bank loan
group from 2000 to 2006. He was a Director of MLIM from 2000 to 2006
and was a Vice President of MLIM from 1994 to 2000. He has been
portfolio manager with BlackRock or MLIM since 2000.
(a)(2) As of October 2, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Kevin J. Booth 7 5 1 0 2 0
$ 3,068,142,140 $ 2,357,557,822 $ 25,390,431 $ 0 $ 587,029,626 $ 0
Mark Williams 9 17 7 0 10 4
$ 4,211,864,169 $ 6,368,469,951 $1,222,718,181 $ 0 $ 2,908,136,350 $ 1,030,000,000
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
and employees of any of them has any substantial economic interest
or possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for the Fund. In this connection,
it should be noted that certain portfolio managers currently manage
certain accounts that are subject to performance fees. In addition,
certain portfolio managers assist in managing certain hedge funds
and may be entitled to receive a portion of any incentive fees
earned on such funds and a portion of such incentive fees may be
voluntarily or involuntarily deferred. Additional portfolio managers
may in the future manage other such accounts or funds and may be
entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of October 2, 2006:
With respect to Mr. Williams, the following compensation structure applies:
BlackRock Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as its
Long-Term Retention and Incentive Plan and Restricted Stock Program.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with the
firm.
Discretionary compensation. In addition to base compensation,
portfolio managers may receive discretionary compensation, which can
be a substantial portion of total compensation. Discretionary
compensation can include a discretionary cash bonus as well as one
or more of the following:
Long-Term Retention and Incentive Plan ("LTIP")--The LTIP is a long-
term incentive plan that seeks to reward certain key employees. The
plan provides for the grant of awards that are expressed as an
amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash
and/or in BlackRock, Inc. common stock.
Deferred Compensation Program--A portion of the compensation paid to
each portfolio manager may be voluntarily deferred by the portfolio
manager into an account that tracks the performance of certain of
the firm's investment products. Each portfolio manager is permitted
to allocate his deferred amounts among various options, including to
certain of the firm's hedge funds and other unregistered products.
In addition, prior to 2005, a portion of the annual compensation of
certain senior managers was mandatorily deferred in a similar manner
for a number of years. Beginning in 2005, a portion of the annual
compensation of certain senior managers is paid in the form of
BlackRock, Inc. restricted stock units which vest ratably over a
number of years.
Options and Restricted Stock Awards--While incentive stock options
are not currently being awarded to BlackRock employees, BlackRock,
Inc. previously granted stock options to key employees, including
certain portfolio managers who may still hold unexercised or
unvested options. BlackRock, Inc. also has a restricted stock award
program designed to reward certain key employees as an incentive to
contribute to the long-term success of BlackRock. These awards vest
over a period of years.
Incentive Savings Plans--The PNC Financial Services Group, Inc. has
created a variety of incentive savings plans in which BlackRock
employees are eligible to participate, including an Employee Stock
Purchase Plan ("ESPP") and a 401(k) plan. The 401(k) plan may
involve a company match of the employee's contribution of up to 6%
of the employee's salary. The company match is made using BlackRock,
Inc. common stock. The firm's 401(k) plan offers a range of
investment options, including registered investment companies
managed by the firm. Each portfolio manager is eligible to
participate in these plans.
Annual incentive compensation for each portfolio manager is a
function of several components: the performance of BlackRock, Inc.,
the performance of the portfolio manager's group within BlackRock,
the investment performance, including risk-adjusted returns, of the
firm's assets under management or supervision by that portfolio
manager relative to predetermined benchmarks, and the individual's
teamwork and contribution to the overall performance of these
portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Fund, these benchmarks are the same as the benchmark or benchmarks
against which the performance of the Fund or other accounts are
measured. A group of BlackRock, Inc.'s officers determines the
benchmarks against which to compare the performance of funds and
other accounts managed by each portfolio manager. With respect to
Mr. Williams, such benchmarks will include the CSFB Leveraged Loan
Index and CSFB High Yield II Value Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. Senior
portfolio managers who perform additional management functions
within BlackRock may receive additional compensation for serving in
these other capacities.
(a)(4) Beneficial Ownership of Securities. As of October 2, 2006,
Mr. Williams does not beneficially own any stock issued
by the Fund.
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 - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and sets forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
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 last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
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.
BlackRock Senior High Income Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Senior High Income Fund, Inc.
Date: October 19, 2006
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
BlackRock Senior High Income Fund, Inc.
Date: October 19, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Senior High Income Fund, Inc.
Date: October 19, 2006