AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1994

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

Senior High Income Portfolio, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

Senior High Income Portfolio, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

- --------------------------------------------------------------------------------

(3) Filing party:

- --------------------------------------------------------------------------------

(4) Date filed:

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1 Set forth the amount on which the filing fee is calculated and state how it
was determined.

SENIOR HIGH INCOME PORTFOLIO, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF 1994 ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 9, 1994
------------------------

TO THE STOCKHOLDERS OF SENIOR HIGH INCOME PORTFOLIO, INC.:

Notice is hereby given that the 1994 Annual Meeting of Stockholders (the
"Meeting") of Senior High Income Portfolio, Inc. (the "Fund") will be held at
the offices of Merrill Lynch Asset Management, 800 Scudders Mill Road,
Plainsboro, New Jersey, on Friday, September 9, 1994 at 11:00 A.M. for the
following purposes:

(1) To elect a Board of Directors to serve for the ensuing year;

(2) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche to serve as independent auditors of the Fund for its
current fiscal year; and

(3) To transact such other business as may properly come before the
Meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on July 15, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting or any adjournment thereof.

A complete list of the stockholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any stockholder of the
Fund for any purpose germane to the Meeting during ordinary business hours from
and after August 19, 1994, at the office of the Fund, 800 Scudders Mill Road,
Plainsboro, New Jersey. You are cordially invited to attend the Meeting.
Stockholders who do not expect to attend the Meeting in person are requested to
complete, date and sign the enclosed form of proxy and return it promptly in the
envelope provided for this purpose. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.

By Order of the Board of Directors

PATRICK D. SWEENEY
Secretary

Plainsboro, New Jersey
Dated: July 25, 1994

PROXY STATEMENT
------------------------
SENIOR HIGH INCOME PORTFOLIO, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
1994 ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 9, 1994

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Senior High Income Portfolio,
Inc., a Maryland corporation (the "Fund"), to be voted at the 1994 Annual
Meeting of Stockholders of the Fund (the "Meeting"), to be held at the offices
of Merrill Lynch Asset Management ("MLAM"), 800 Scudders Mill Road, Plainsboro,
New Jersey, on Friday, September 9, 1994 at 11:00 A.M. The approximate mailing
date of this Proxy Statement is July 27, 1994.

All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted for the election of the Board of Directors to serve for the
ensuing year and for the ratification of the selection of independent auditors
to serve for the Fund's current fiscal year. Any proxy may be revoked at any
time prior to the exercise thereof by giving written notice to the Secretary of
the Fund.

The Board of Directors has fixed the close of business on July 15, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting and at any adjournment thereof. Stockholders on the
record date will be entitled to one vote for each share held, with no shares
having cumulative voting rights. As of July 15, 1994, the Fund had outstanding
25,300,482 shares of common stock, par value $.10 per share ("Common Stock"). To
the knowledge of the Fund, as of July 15, 1994 no person is the beneficial owner
of more than five percent of its outstanding shares of Common Stock.

Assuming a quorum is present, the election of the Directors and approval of
Item 2, Selection of Independent Auditors, will require a majority of the total
votes cast by the holders of the Common Stock represented at the Meeting and
entitled to vote.

The Board of Directors of the Fund knows of no business other than that
mentioned in Items 1 and 2 of the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.

ELECTION OF DIRECTORS

At the Meeting, the Board of Directors will be elected to serve until the
next Annual Meeting of Stockholders and until their successors are elected and
qualified. It is intended that all properly executed proxies will be voted
(unless such authority has been withheld in the proxy) in favor of the persons
designated as Directors to be elected by holders of Common Stock.

The Board of Directors of the Fund knows of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the Board of Directors may recommend.

Certain information concerning the nominees is set forth as follows:

PRINCIPAL OCCUPATIONS DURING SHARES
PAST FIVE YEARS DIRECTOR BENEFICIALLY OWNED
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE AT JULY 15, 1994
- -------------------------------------- ----------- -------------------------------------- ----------- ---------------------

Ronald W. Forbes(1)(2)................ 53 Professor of Finance, School of 1993 -0-
1400 Washington Avenue Business, State University of New
Albany, New York 12222 York at Albany, since 1989, and
Associate Professor prior thereto;
Member, Task Force on Municipal
Securities Markets, Twentieth
Century Fund.
Cynthia A. Montgomery(1)(2)........... 41 Professor, Harvard Business School 1993 -0-
Harvard Business School since 1989; Associate Professor,
Soldiers Field Road J.L. Kellogg Graduate School of
Boston, Massachusetts 02163 Management, Northwestern University,
1985-1989; Assistant Professor,
Graduate School of Business
Administration, the University of
Michigan, 1979-1985; Director, UNUM
Corporation.
Charles C. Reilly(1)(2)............... 63 Self-employed financial consultant 1993 11,991
9 Hampton Harbor Road since 1990; President and Chief
Hampton Bays, New York 11946 Investment Officer of Verus Capital,
Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S.
Bleichroeder, Inc. from 1973 to
1990; Adjunct Professor, Columbia
University Graduate School of
Business since 1990; Adjunct
Professor, Wharton School,
University of Pennsylvania, 1990;
Director, Harvard Business School
Alumni Association; Director, Small
Cities CableVision.
Kevin A. Ryan(1)(2)................... 61 Founder, current Director and 1993 659
127 Commonwealth Avenue Professor at the Boston University
Chestnut Hill, Massachusetts 02167 Center for the Advancement of Ethics
and Character; Professor of
Education at Boston University from
1982 until 1994; Formerly taught on
the faculties of the University of
Chicago, Stanford University and The
Ohio State University.

Richard R. West(1)(2)................. 56 Professor of Finance, and Dean from 1993 -0-
482 Tepi Drive 1984 to 1993, New York University
Southbury, Connecticut 06488 Leonard N. Stern School of Business
Administration; Professor of Finance
at the Amos Tuck School of Business
Administration from 1976 to 1984 and
Dean from 1976 to 1983; Director of
Vornado, Inc. (real estate
investment trust), Alexander's Inc.
(real estate company), Bowne & Co.,
Inc. (financial printer), Smith
Corona (manufacturer of typewriters
and word processors) and RE Capital
Corp. (reinsurance holding company).
Arthur Zeikel(1)(3)................... 62 President and Chief Investment Officer 1993 -0-
800 Scudders Mill Road of Fund Asset Management, L.P.
Plainsboro, New Jersey 08536 ("FAM") since 1977; President of
MLAM since 1977 and Chief Investment
Officer since 1976; President and
Director of Princeton Services, Inc.
("Princeton Services") since 1993;
Executive Vice President of Merrill
Lynch & Co., Inc. ("ML & Co.") since
1990; Executive Vice President of
Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S") since
1990 and Senior Vice President from
1985 to 1990; Director of Merrill
Lynch Funds Distributor, Inc.
("MLFD").

- ---------------

(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Merrill Lynch Investment Company Directorships"
below.

(2) Member of Audit Committee of the Board of Directors.

(3) Interested person, as defined in the Investment Company Act of 1940, as
amended, of the Fund.

Committee's and Board of Directors' meetings. The Board of Directors has a
standing Audit Committee, which consists of the Directors who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940, as amended (the "Investment Company Act"). The principal purpose of
the Audit Committee is to review the scope of the annual audit conducted by the
Fund's independent auditors and the evaluation by such auditors of the
accounting procedures followed by the Fund. The non-interested Directors have
retained independent legal counsel to assist them in connection with these
duties. The Board of Directors does not have a nominating committee.

During the fiscal year ended February 28, 1994, the Board of Directors held
four meetings and the Audit Committee held three meetings. With the exception of
Ms. Montgomery, each of the Directors attended at least 75% of the total number
of meetings of the Board of Directors and, if a member, the total number of
meetings of the Audit Committee held during such period. Ms. Montgomery has
3

attended each meeting of the Board of Directors and the Audit Committee
subsequent to her appointment to the Board of Directors and the Audit Committee
on December 8, 1993.

Compliance with Section 16(a) of the Securities Exchange Act of
1934. Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Fund's officers, directors and persons who own
more than ten percent of a registered class of the Fund's equity securities, to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange.
Officers, directors and greater than ten percent stockholders are required by
SEC regulations to furnish the Fund with copies of all Forms 3, 4 and 5 they
file.

Based solely on the Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Forms 5 with respect to the most recent fiscal
year, the Fund believes that all of its officers, directors, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act because of the requirements of Section 30 of the Investment Company
Act, i.e. any advisory board member, investment adviser or affiliated person of
the Fund's investment adviser, have complied with all filing requirements
applicable to them with respect to transactions during the Fund's most recent
fiscal year, except that Messrs. Reilly and Ryan both inadvertently failed to
file a timely report to disclose a purchase of shares which purchase was
accurately reflected in a subsequent filing and Ms. Montgomery and Donald C.
Burke both inadvertently filed a late report to disclose that at the time of
election to their respective positions with the fund, they owned no shares of
the Fund.

Interested Persons. The Fund considers Mr. Zeikel to be an "interested
person" of the Fund within the meaning of Section 2(a)(19) of the Investment
Company Act as a result of the position he holds with FAM and its affiliates.
Mr. Zeikel is the President of the Fund, President of FAM and the President and
a Director of MLAM.

Compensation of Directors. FAM, the investment adviser, pays all
compensation of all officers of the Fund and all Directors of the Fund who are
affiliated with ML & Co. or its subsidiaries. The Fund pays each Director not
affiliated with FAM a fee of $2,000 per year plus $400 per meeting attended,
together with such Director's actual out-of-pocket expenses relating to
attendance at meetings. The Fund also pays each member of its Audit Committee,
which consists of all of the non-affiliated Directors, a fee of $1,000 per year,
together with such Director's out-of-pocket expenses relating to attendance at
meetings. The Chairman of the Audit Committee receives an additional annual fee
of $1,000. These fees and expenses aggregated $21,851 for the fiscal year ended
February 28, 1994.

Merrill Lynch Investment Company Directorships. FAM or MLAM acts as the
investment adviser for more than 90 other registered companies. Mr. Zeikel is a
trustee or director of each of these companies except for Merrill Lynch Series
Fund, Inc., Merrill Lynch Institutional Intermediate Fund and Merrill Lynch
Funds for Institutions Series. Each of the nominees is a trustee of CMA
Government Securities Fund, CMA Money Fund, CMA Tax-Exempt Fund, CMA Multi-State
Municipal Series Trust, CMA Treasury Fund, CBA Money Fund, Merrill Lynch
Strategic Dividend Fund and Merrill Lynch Municipal Series Trust. Each of the
nominees is a director of Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Municipal Bond Fund, Inc., The Corporate Fund Accumulation Program, Inc., The
Municipal Fund Accumulation Program, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings,
Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Utility Income Fund, Inc.,
Senior High Income Portfolio II, Inc., Senior Strategic Income
Fund, Inc., MuniVest Fund, Inc. and MuniVest Fund II, Inc. In addition, Messrs.
Reilly and West are directors or trustees of Emerging Tigers Fund, Inc., Merrill
Lynch Americas Income Fund, Merrill Lynch Global Holdings, Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Technology
Fund, Inc., Merrill Lynch International
4

Equity Fund and Worldwide DollarVest Fund, Inc. Mr. Zeikel is also a director of
certain funds which are neither registered under the Investment Company Act nor
offered in the United States.

Officers of the Fund. The Board of Directors has elected eight officers of
the Fund. The following sets forth information concerning each of these
officers:

OFFICER
NAME AND PRINCIPAL OCCUPATION OFFICE AGE SINCE
- ----------------------------------------------------------------------- ------------------------- ----------- -----------

Arthur Zeikel.......................................................... President 62 1993
President and Chief Investment Officer of FAM since 1977, President
of MLAM since 1977 and Chief Investment Officer since 1976; President
and Director of Princeton Services since 1993; Executive Vice
President of ML & Co. and of MLPF&S since 1990 and Senior Vice
President from 1985 to 1990; Director of MLFD.
Terry K. Glenn......................................................... Executive Vice President 53 1993
Executive Vice President of FAM and MLAM since 1983; Director of FAM
and MLAM since 1991; Executive Vice President and Director of
Princeton Services since 1993; President of MLFD since 1986 and
Director since 1991; President of Princeton Administrators.
N. John Hewitt......................................................... Senior Vice President 59 1993
Senior Vice President of MLAM and FAM since 1980.
Donald C. Burke........................................................ Vice President 34 1993
Vice President and Director of Taxation of MLAM since 1990; Employee
of Deloitte & Touche from 1982 to 1990.
R. Douglas Henderson................................................... Vice President 36 1993
Vice President of MLAM since 1989; Vice President, Leveraged Finance
Department, Security Pacific Merchant Bank from 1987 to 1989; Vice
President, Corporate Finance and Banking Department, Security Pacific
Merchant Bank from 1983 to 1987.
John W. Fraser......................................................... Vice President 33 1994
Vice President of MLAM since 1991; Vice President, Corporate Bond
Department, Continental Bank from 1988 to 1991; Analyst, Drexel
Burnham Lambert Commercial Paper, Inc. from 1987 to 1988; Second Vice
President, Chase Manhattan Bank from 1985 to 1987.
Gerald M. Richard...................................................... Treasurer 45 1993
Senior Vice President and Treasurer of MLAM and FAM since 1984;
Senior Vice President and Treasurer of Princeton Services since 1993;
Treasurer of MLFD since 1984 and Vice President since 1981.
Patrick D. Sweeney..................................................... Secretary 40 1993
Vice President of MLAM since 1990; Vice President and Associate
Counsel of Security Pacific Merchant Bank from 1988 to 1990; Lawyer
in private practice from 1981 to 1988.

Stock Ownership. At July 15, 1994, the Directors and officers of the Fund
as a group (13 persons) owned an aggregate of less than 1/4 of 1% of the Common
Stock of the Fund outstanding at such date. At such date Mr. Zeikel, an officer
and a Director of the Fund, and the other officers of the Fund owned an
aggregate of less than 1/4 of 1% of the outstanding shares of common stock of ML
& Co.

SELECTION OF INDEPENDENT AUDITORS

The Board of Directors of the Fund, including a majority of the Directors
who are not interested persons of the Fund, has selected the firm of Deloitte &
Touche ("D&T"), independent auditors, to examine the financial statements of the
Fund for the current fiscal year. The Fund knows of no direct or indirect
financial interest of such firm in the Fund. Such appointment is subject to
ratification or rejection by the stockholders of the Fund. Unless a contrary
specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such auditors.

D&T also acts as independent auditors for ML & Co. and all of its
subsidiaries and for most other investment companies for which FAM or MLAM acts
as investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received by it from
the Fund. The Board of Directors of the Fund considered the fact that D&T has
been retained as the independent auditors for ML & Co. and the other entities
described above in its evaluation of the independence of D&T with respect to the
Fund.

Representatives of D&T are expected to be present at the Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from stockholders.

THE INVESTMENT ADVISORY AGREEMENT

On April 20, 1993, the Fund entered into an investment advisory agreement
(the "Investment Advisory Agreement") with FAM. On June 8, 1994, the Board of
Directors approved the continuance of the Investment Advisory Agreement for a
period of one year. In their consideration of this matter, the Directors
received information relating to, among other things, alternatives to the
present arrangements, the nature, quality and extent of the advisory and other
services provided to the Fund by FAM and its affiliate and comparative data with
respect to the advisory and management arrangements of other investment
companies. The Directors also received information as to the profitability of
FAM and its affiliate for providing such services.

INFORMATION CONCERNING FAM

Effective January 1, 1994, FAM was reorganized as a Delaware limited
partnership. FAM (the general partner of which is Princeton Services, a
wholly-owned subsidiary of ML & Co.) is owned and controlled by ML & Co. and is
located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. ML & Co. is
located at 250 Vesey Street, New York, New York 10281. The reorganization did
not result in a change of management of FAM, in any of its personnel, or in an
adverse change in its financial condition. Prior to the reorganization, FAM,
which was known as Fund Asset Management, Inc. ("FAMI"), was a Delaware
corporation which had been incorporated in 1976. Prior to its reorganization,
FAM was a wholly-owned subsidiary of MLAM, a Delaware corporation, which was
also reorganized as a Delaware limited partnership effective January 1, 1994.
MLAM was a wholly-owned subsidiary of ML & Co. prior to its reorganization, and
continues to be owned and controlled by ML & Co. after its reorganization. MLAM
is also located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. MLAM or
FAM acts as the investment adviser to more than 90 other registered investment
companies. In addition, MLAM offers portfolio management and portfolio analysis
services to individuals and institutions. FAMI's audited balance sheet as of its
most recent fiscal year end is appended to this Proxy Statement as Exhibit A.

Securities held by the Fund may also be held by or be appropriate
investments for other funds or clients (collectively referred to as "clients")
for which MLAM or FAM acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought for one or more
clients when one or more other clients are selling the security. If purchases or
sales of securities for the
6

Fund or other clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective clients in a manner deemed equitable to all by MLAM or FAM. To the
extent that transactions on behalf of more than one client of MLAM or FAM during
the same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.

The following table sets forth the name, title and principal occupation of
the principal executive officers of FAM and the directors of Princeton Services,
the general partner of FAM.

NAME* TITLE PRINCIPAL OCCUPATION
- ------------------------ ------------------------------------------ ------------------------------------------

Arthur Zeikel........... President and Chief Investment Officer of President and Chief Investment Officer of
FAM and Director of Princeton Services MLAM and FAM; Executive Vice President of
ML & Co.
Terry K. Glenn.......... Executive Vice President of FAM and Executive Vice President of MLAM and FAM;
Director of Princeton Services Executive Vice President of Princeton
Services
Philip L. Kirstein...... Senior Vice President and General Counsel Senior Vice President and General Counsel
of FAM and Director of Princeton Services of MLAM and FAM

- ---------------

* Mr. Zeikel is presently a Director of the Fund. The address of Messrs. Zeikel,
Glenn and Kirstein is Box 9011, Princeton, New Jersey 08543-9011.

TERMS OF INVESTMENT ADVISORY AGREEMENT

The Investment Advisory Agreement provides that, subject to the direction
of the Board of Directors of the Fund, FAM is responsible for the actual
management of the Fund's portfolio and for the review of the Fund's holdings in
light of its own research analysis and analyses from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with FAM, subject to review by the Board of Directors. FAM provides the
portfolio management for the Fund. Such portfolio management considers analyses
from various sources (including brokerage firms with which the Fund does
business), makes the necessary investment decisions and places transactions
accordingly. FAM is also obligated to perform certain administrative and
management services for the Fund and is obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties under
the Investment Advisory Agreement.

Investment Advisory Fee. The Investment Advisory Agreement provides that as
compensation for its services to the Fund, FAM receives from the Fund at the end
of each month a fee at an annual rate of 0.50% of the Fund's average weekly net
assets plus the proceeds of any outstanding borrowings used for leverage
("average weekly net assets" means the average weekly value of the total assets
of the Fund, minus the sum of accrued liabilities of the Fund, any accrued and
unpaid interest on outstanding borrowings and accumulated dividends on shares of
preferred stock). For purposes of this calculation, average weekly net assets
are determined at the end of each month on the basis of the average net assets
of the Fund for each week during the month. The assets for each weekly period
are determined by averaging the net assets at the last business day of a week
with the net assets at the last business day of the prior week. For the fiscal
year ended February 28, 1994, the investment advisory fee payable by the Fund to
FAM aggregated $1,220,882 (based upon average net assets of approximately $289.0
million), of which $305,108 was voluntarily waived by FAM. FAM also reimbursed
the Fund $28,800 for additional expenses. At June 30, 1994, the Fund had net
assets of approximately $236.0 million. At this asset level the Fund's annual
investment advisory fee would aggregate approximately $997,008.

Payment of Expenses. The Investment Advisory Agreement obligates FAM to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of

the Fund connected with the investment and economic research, trading and
investment management of the Fund, as well as the fees of all Directors of the
Fund who are affiliated persons of FAM or any of its affiliates. The Fund pays
all other expenses incurred in the operation of the Fund, including, among other
things, expenses for legal and auditing services, taxes, costs of printing
proxies, listing fees, stock certificates and shareholder reports, charges of
the Custodian and Transfer Agent, Dividend Disbursing Agent and Registrar,
Securities and Exchange Commission fees, fees and expenses of unaffiliated
Directors, accounting and pricing costs, insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, mailing and other
expenses properly payable by the Fund. Accounting services are provided to the
Fund by FAM, and the Fund reimburses FAM for its costs in connection with such
services. For the fiscal year ended February 28, 1994, the Fund reimbursed FAM
in the amount of $54,902 for such accounting services.

Duration and Termination. The Investment Advisory Agreement will continue
in effect from year to year if approved annually (a) by the Board of Directors
of the Fund or by a majority of the outstanding shares of capital stock of the
Fund and (b) by a majority of the Directors who are not parties to such
agreement or interested persons (as defined in the Investment Company Act) of
any such party. Such agreement is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the stockholders of the Fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

Subject to policies established by the Board of Directors of the Fund, FAM
is primarily responsible for the execution of the Fund's portfolio transactions
and the allocation of the brokerage. In executing such transactions, FAM seeks
to obtain the best results for the Fund, taking into account such factors as
price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved, the
firm's risk in positioning a block of securities and the provision of
supplemental investment research by the firm. While FAM generally seeks
reasonably competitive fees, commissions or spreads, the Fund does not
necessarily pay the lowest fee, commission or spread available. The portfolio
securities of the Fund generally are traded on a net basis and normally do not
involve either brokerage commissions or transfer taxes. The cost of portfolio
securities transactions of the Fund primarily consists of dealer or underwriter
spreads. The Fund did not pay any brokerage commissions in connection with
portfolio transactions for the fiscal year ended February 28, 1994.

The Fund has no obligation to deal with any broker or group of brokers in
execution of transactions in portfolio securities. Subject to obtaining the best
price and execution, securities firms which provided supplemental investment
research to FAM, including Merrill Lynch, may receive orders for transactions by
the Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by FAM under the Investment Advisory Agreement
and the expenses of FAM will not necessarily be reduced as a result of the
receipt of such supplemental information.

The Fund will purchase Corporate Loans in individually negotiated
transactions with commercial banks, thrifts, insurance companies, finance
companies and other financial institutions. In selecting such financial
institutions, FAM may consider, among other factors, the financial strength,
professional ability, level of service and research capability of the
institution. While such financial institutions generally are not required to
repurchase Corporate Loans which they have sold, they may act as principal or on
an agency basis in connection with the Fund's disposition of Corporate Loans.

Other securities in which the Fund may invest, such as publicly traded
corporate bonds and notes, are traded primarily in the over-the-counter markets,
and the Fund intends to deal directly with the dealers who make markets in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the Investment Company Act, except as
permitted by exemptive order, persons affiliated with the Fund are prohibited
from dealing with the Fund as principal
8

in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own account, the Fund will not deal with affiliated persons,
including Merrill Lynch and its affiliates, in connection with such
transactions. In addition, the Fund may not purchase securities during the
existence of any underwriting syndicate of which Merrill Lynch is a member
except pursuant to procedures approved by the Board of Directors of the Fund
which comply with rules adopted by the Securities and Exchange Commission. An
affiliated person of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis. For the fiscal year ended February
28, 1994, the Fund did not incur any charges in brokerage commissions.

The Board of Directors has considered the possibility of recapturing for
the benefit of the Fund brokerage commissions, fees, spreads and other expenses
of possible portfolio transactions, such as underwriting commissions, by
conducting portfolio transactions through affiliated entities, including Merrill
Lynch and its affiliates. For example, brokerage commissions received by Merrill
Lynch could be offset against the investment advisory fee paid by the Fund to
FAM. After considering all factors deemed relevant, the Directors made a
determination not to seek such recapture. The Directors will reconsider this
matter from time to time.

ADDITIONAL INFORMATION

The expenses of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Fund. The
Fund will reimburse banks, brokers and others for their reasonable expenses in
forwarding proxy solicitation material to the beneficial owners of the shares of
the Fund. The Fund may also hire proxy solicitors at the expense of the Fund.

In order to obtain the necessary quorum at the Meeting (i.e., a majority of
the shares of the Fund's securities entitled to vote at the Meeting, present in
person or by proxy), supplementary solicitation may be made by mail, telephone,
telegraph or personal interview by officers of the Fund. It is anticipated that
the cost of such supplementary solicitation, if any, will be nominal.

All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Director nominees and "FOR" the ratification of D&T as
independent auditors.

Broker-dealer firms, including MLPF&S, holding Fund shares in "street name"
for the benefit of their customers and clients will request the instructions of
such customers and clients on how to vote their shares on each Item before the
Meeting. The Fund understands that, under the rules of the New York Stock
Exchange, such broker-dealer firms may, without instructions from their
customers and clients, grant authority to the proxies designated to vote on the
election of Directors (Item 1) and ratification of the selection of independent
auditors (Item 2) if no instructions have been received prior to the date
specified in the broker-dealer firm's request for voting instructions.
Accordingly, the Fund will include shares held of record by broker-dealers as to
which such authority has been granted in its tabulation of the total number of
votes present for purposes of determining whether the necessary quorum of
shareholders exists. Proxies which are returned but which are marked "abstain"
or on which a broker-dealer has declined to vote on any Item ("broker
non-votes"), will be counted as present for the purposes of a quorum. MLPF&S
has advised that it intends to exercise discretion over shares held in its name
for which no instructions are received by voting such shares in the same
proportion as it has voted shares for which it has received instructions.
However, abstentions and broker non-votes will not be counted as votes cast.
Abstentions and broker non-votes, therefore, will not have an effect on the vote
on Items 1 or 2.

STOCKHOLDER PROPOSALS

If a stockholder intends to present a proposal at the 1995 Annual Meeting
of Stockholders of the Fund and desires to have the proposal included in the
Fund's proxy statement and form of proxy for that meeting, the stockholder must
deliver the proposal to the offices of the Fund by March 27, 1995.

By Order of the Board of Directors
PATRICK D. SWEENEY
Secretary

Dated: July 25, 1994

EXHIBIT A

FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
AND
INDEPENDENT AUDITORS' REPORT

A-1

INDEPENDENT AUDITORS' REPORT

FUND ASSET MANAGEMENT, INC.:

We have audited the accompanying consolidated balance sheet of Fund Asset
Management, Inc. and subsidiary (the "Company") as of December 31, 1993. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE
Parsippany, New Jersey
February 28, 1994

A-2

FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

DECEMBER 31,
1993
-----------------

ASSETS
Cash........................................................................................... $ 996,680
Receivable from affiliated companies:
Lease transactions........................................................................... 24,501,523
Sale of leased investment.................................................................... 48,312,532
Fund management fees receivable................................................................ 28,927,938
Investments in leases:
Leveraged leases............................................................................. 57,431,668
Sales-type lease............................................................................. 3,362,521
Investments in affiliated investment companies--(market: $19,731,088).......................... 18,181,262
Investment in affiliated limited partnership................................................... 31,109,264
-----------------
TOTAL ASSETS................................................................................... $ 212,823,388
-----------------
-----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to Merrill Lynch & Co., Inc. and affiliates............................................ $ 21,554,955
Deferred income taxes:
Arising from leveraged leases................................................................ 52,938,886
Arising from sales-type lease................................................................ 1,351,622
Other........................................................................................ 15,838,124
Other.......................................................................................... 8,501
-----------------
Total liabilities.............................................................................. 91,692,088
-----------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share--authorized 25,000 shares;
outstanding 1,000 shares..................................................................... 1,000
Additional paid-in capital..................................................................... 686,215,876
Retained earnings.............................................................................. 119,029,472
Proceeds receivable from Merrill Lynch & Co., Inc. from sale of subsidiary..................... (684,115,048)
-----------------
Total stockholder's equity..................................................................... 121,131,300
-----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..................................................... $ 212,823,388
-----------------
-----------------

See notes to consolidated balance sheet

A-3

FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993

ORGANIZATION

Fund Asset Management, Inc. and subsidiary (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Investment Management Inc. (the "Parent"), or "MLIM"
which is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), serves as an investment adviser to various registered open-end investment
companies. The Company is also a lessor participant in certain leveraged and
sales-type lease agreements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Income Taxes--The results of the operations of the Company are included in
the consolidated Federal and combined state and local income tax returns filed
by ML & Co. It is the policy of ML & Co. to allocate the tax associated with
such operating results to each respective subsidiary in a manner which
approximates the separate company method. In 1992, ML & Co. adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires an asset and liability method in recording income taxes on
all transactions that have been recognized in the financial statements. SFAS 109
provides that deferred taxes be adjusted to reflect tax rates at which future
tax liabilities or assets are expected to be settled or realized.

TRANSACTIONS WITH AFFILIATES

The Company serves as an investment adviser for certain affiliated
investment companies. The Company maintains investments in certain of these
investment companies. Such investments are carried at the lower of cost or
market value. Market value is determined based upon quoted market prices.

The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate which provides that the Company, which
receives revenue as an investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.

ML & Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML & Co. credits the Company for interest at
a floating rate approximating ML & Co.'s average borrowing rate, based on the
Company's average daily balances due to/from ML & Co.

The "Receivable from affiliated companies" arising from lease transactions
is summarized as follows:

Monies advanced to fund lease transactions..................................................... $ (103,476,954)
Tax benefits allocated to the Company by ML & Co............................................... 88,699,254
Other.......................................................................................... 39,279,223
-----------------
Total.......................................................................................... $ 24,501,523
-----------------
-----------------

The Company has a 49 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP") whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.

During 1992, the Company sold its investment in Merrill Lynch Interfunding,
Inc. and Merlease Leasing Corp. to an affiliate at book value, resulting in a
receivable from ML & Co. This receivable is reflected as a reduction to
stockholder's equity.

A-4

FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(CONCLUDED)
DECEMBER 31, 1993

INVESTMENTS IN LEASES

The Company is a lessor participant in leveraged leases.

Pertinent information relating to the Company's investments in leveraged
leases is summarized as follows:

ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
- ----------------------------------------------------- ----------- ----------- -----------------

Generating plant..................................... 24-25 34.06% 15.0%

Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is secured by a first lien on
the properties and related rentals. At the end of the respective lease terms,
ownership of the properties remains with the Company.

The Company's net investment in leveraged leases is summarized as follows:

Rentals receivable (net of principal and interest on nonrecourse debt)....... $ 66,075,030
Estimated residual value of leased assets.................................... 18,964,143
Less:
Unearned and deferred income............................................... (26,617,505)
Allowance for uncollectibles............................................... (990,000)
---------------
Investment in leveraged leases............................................... 57,431,668
Less deferred taxes arising from leveraged leases............................ (52,938,886)
---------------
Net investment in leveraged leases........................................... $ 4,492,782
---------------
---------------

During 1993, the Company sold its equity interest in the chemical tanker
previously accounted for as a leveraged lease. The sale resulted in an after-tax
gain of $112,000.

The Company's investment in the sales-type leases consisted of the
following elements at December 31, 1993:

Minimum lease payments receivable............................................. $ 3,672,000
Less:
Unearned income............................................................. (59,479)
Allowance for uncollectibles................................................ (250,000)
-------------
Investment in sales-type financing leases..................................... $ 3,362,521
-------------
-------------

At December 31, 1993 minimum lease payments receivable are $3,672,000 for
1994.

For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML & Co. In the later years of
A-5

FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(CONCLUDED)
DECEMBER 31, 1993

INVESTMENTS IN LEASES--(CONTINUED)
these leases, rental income will exceed the related deductions and taxes will be
payable (to the extent that net deductions arising from additional leveraged
lease transactions do not offset such net lease income). Deferred taxes have
been provided to reflect these temporary differences.

INCOME TAXES

As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to MLIM. No such amounts were due to MLIM at
December 31, 1993.

PENSION PLAN

The Company participates in the ML & Co. Comprehensive Retirement Program
(the "Program") consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Under the Program, cash
contributions made by the Company and the ML & Co. stock held by the ESOP will
be allocated quarterly to participants' accounts. Allocations will be based on
years of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.

NAME CHANGE

Effective December 28, 1991, the Company's Parent, through an amendment of
its certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc. ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management."

SUBSEQUENT EVENT

Effective January 1, 1994, Fund Asset Management, Inc. contributed certain
net investment advisory assets to Fund Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of ML & Co.) contributed 1% of the value of the net investment
advisory assets in exchange for its 1% general partnership interest. The
partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.

A-6

SENIOR HIGH INCOME PORTFOLIO, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Patrick D.
Sweeney as proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse hereof,
all the shares of common stock of Senior High Income Portfolio, Inc. (the
"Fund") held of record by the undersigned on July 15, 1994, at the annual
meeting of stockholders of the Fund to be held on September 9, 1994 or any
adjournment thereof.

THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.

1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) / / listed below / /

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)

Ronald W. Forbes, Cynthia A. Montgomery, Charles C. Reilly, Kevin A.
Ryan, Richard R. West, Arthur Zeikel

(Continued and to be signed on the reverse side)

2. Proposal to ratify the selection of Deloitte & Touche as the independent
auditors of the Fund to serve for the current fiscal year.

/ / FOR / / AGAINST / / ABSTAIN
3. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.

Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
Dated: _______________________________,
1994
____________________________________________
Signature
____________________________________________
Signature, if held jointly

Please mark boxes/fill in
completely/ or /X/ in blue or
black ink. Sign, Date and
Return the Proxy Card Promptly
Using the Enclosed Envelope.

- --------------------------------------------------------------------------------

BY SIGNING AND PROMPTLY RETURNING THE ENCLOSED PROXY YOU MAY SAVE YOUR FUND THE
EXPENSE OF ADDITIONAL SOLICITATION COSTS.

- --------------------------------------------------------------------------------

THE ENCLOSED PROXY CARD HAS BEEN FORWARDED TO YOU BECAUSE YOU WERE A SHAREHOLDER
ON THE RECORD DATE.

IT IS IMPORTANT THAT YOU VOTE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE.

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