<PAGE> 1
---------------------------------------------------------------
SALOMON BROTHERS
HIGH INCOME FUND INC
INTERIM REPORT
---------------------------------------
MARCH 31, 1996
----------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
-------------------------------
<PAGE> 2
SALOMON BROTHERS HIGH INCOME FUND INC
May 24, 1996
Dear Shareholder:
The net asset value of each of your shares at March 31, 1996 was $13.86. We are
very pleased that this represents a 5.48% net asset value return for the quarter
ended March 31, 1996 (assuming the reinvestment of dividends in additional
shares of the Fund), as compared with a return of 1.58% for the Salomon Brothers
High-Yield Market Index and a 3.56% average return for the nine high-yield
unleveraged closed-end funds tracked by Lipper Analytical Services, Inc.
U.S. high-yield investments accounted for approximately 81% of total investments
at March 31, 1996. The balance of the portfolio is substantially invested in
emerging markets sovereign debt.
U.S HIGH-YIELD BONDS
After completing a string of 16 consecutive months of positive performance for
the Salomon Brothers High-Yield Market Index, the sector posted a modest .45%
decline in March. While the volatility of the U.S. fixed-income markets in March
caused volatility in all bond markets, the high-yield sector managed to remain
somewhat insulated from the broad-based sell-off. The high-yield new issue
calendar was relatively unaffected and the forward calendar increased to roughly
$5 billion. Mutual fund inflows also continue to be strong. These factors
support our view that the fundamentals of the high-yield market remain
compelling for certain long-term investors.
While we continue to focus on non-cyclical names, with a defensive industry
posture and an aggressive credit-quality stance, we have raised our cyclical
exposure, adding steel and paper names. We remain overweighted in media, but
have pared back our holdings. We also remain underweighted in energy names, but
increased our allocations to reflect the stepped-up financing in that sector.
HIGH-YIELD SOVEREIGN DEBT MARKET
The high-yield sovereign debt market, though volatile, performed well during the
first quarter, increasing 4.46% as measured by the Salomon Brothers Brady Bond
Index. Instability in the U.S. bond market was largely responsible for the
volatility in the market during the period. We continue to believe that the
fundamental outlook for the Fund's core country holdings in the emerging debt
market continues to be positive.
We have increased our weighting in Panama and have established a position in
Venezuela in anticipation of an International Monetary Fund (IMF) agreement. Our
largest country
<PAGE> 3
SALOMON BROTHERS HIGH INCOME FUND INC
holdings, as a percentage of total investments as of March 31, 1996, were
Ecuador (3.2%), Brazil (3.1%) and Morocco (2.4%).
The Fund held its annual meeting of shareholders on April 18, 1996. At the
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors and ratified the selection of Price Waterhouse LLP as
the independent accountants of the Fund. The following table provides
information concerning the matters voted on at the meeting:
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS
---------------------
NOMINEES VOTES FOR VOTES WITHHELD UNVOTED
------------------------------------------------------------------
<C> <S> <C> <C> <C>
Charles F. Barber 4,449,589 50,477 0
Thomas W. Brock 4,455,332 44,734 0
Riordan Roett 4,450,451 49,615 0
Jeswald W. Salacuse 4,447,916 52,150 0
</TABLE>
<TABLE>
<CAPTION>
2. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE FUND
-------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
------------------------------------------------------------
<S> <C> <C> <C> <C>
4,449,374 19,520 31,173 2
</TABLE>
Shareholders of the Fund may call 1-800-SALOMON (1-800-725-6666), Monday through
Friday from 8:30 A.M. to 6:30 P.M. EST to obtain a current monthly update about
the Fund, including top holdings, net asset value, performance and other
information. For information concerning your Salomon Brothers High Income Fund
stock account, please call American Stock Transfer & Trust Company at
1-718-921-8200.
All of us at Salomon Brothers Asset Management Inc appreciate the confidence you
have demonstrated in the past and hope to continue to serve you in future years.
Cordially,
/s/ MICHAEL S. HYLAND
---------------------
MICHAEL S. HYLAND
Chairman and President
<PAGE> 4
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS -- 77.6% (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRIES -- 8.1%
$1,000 Algoma Steel Inc., 12.375%, 7/15/05....................................... $ 975,000
1,000 Berry Plastics, 12.25%, 4/15/04........................................... 1,085,000
500 Crown Paper Company, 11.00%, 9/01/05...................................... 462,500
NL Industries, Zero Coupon until 10/15/98
1,250 (13.00% thereafter), 10/15/05........................................... 937,500
1,000 Repap Wisconsin, 9.875%, 5/01/06.......................................... 915,000
1,000 Valcor Inc., 9.625%, 11/01/03............................................. 930,000
-----------
5,305,000
-----------
CONSUMER CYCLICALS -- 5.2%
1,000 Cole National Group, Inc., 11.25%, 10/01/01............................... 1,020,000
1,000 Finlay Fine Jewelry, 10.625%, 5/01/03..................................... 972,500
500 Flagstar Corp., 10.75%, 9/15/01........................................... 450,000
1,000 Specialty Retailer, 11.00%, 8/15/03....................................... 975,000
-----------
3,417,500
-----------
CONSUMER NON-CYCLICALS -- 27.8%
1,000 Bally's Grand, 10.375%, 12/15/03.......................................... 1,017,500
750 Big V Supermarkets, 11.00%, 2/15/04....................................... 660,000
1,000 Borg-Warner Security Corp., 9.125%, 5/01/03............................... 930,000
1,000 Carr-Gottstein Foods, 12.00%, 11/15/05.................................... 1,020,000
1,000 Dade International Inc., 13.00%, 2/01/05.................................. 1,120,000
1,000 Empress River Casino Finance, 10.75%, 4/01/02............................. 1,025,000
1,000 Herff Jones, Inc., 11.00%, 8/15/05........................................ 1,065,000
1,000 Hines Horticulture, 11.75%, 10/15/05...................................... 1,025,000
500 Hollywood Casino, 12.75%, 11/01/03........................................ 457,500
International Semi-Tech, Zero Coupon until 8/15/00
2,000 (11.50% thereafter), 8/15/03.............................................. 1,210,000
1,000 Norcal Waste Systems, 12.50%, 11/15/05*,#................................. 1,035,000
1,000 Penn Traffic Co., 9.625%, 4/15/05......................................... 852,500
1,000 Revlon Worldwide, Zero Coupon, 3/15/98.................................... 780,000
1,000 Samsonite Corp., 11.125%, 7/15/05......................................... 975,000
1,000 Selmer Co. Inc., 11.00%, 5/15/05.......................................... 1,057,500
1,000 Showboat Marina, 13.50%, 3/15/03#......................................... 1,020,000
1,000 Specialty Foods, 11.125%, 10/01/02........................................ 935,000
1,000 Telex Communications, Inc., 12.00%, 7/15/04............................... 1,052,500
1,049 Trump Taj Mahal, 11.35%, 11/15/99**....................................... 1,047,798
-----------
18,285,298
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 5
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS (CONTINUED) (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENERGY -- 1.5%
$1,000 KCS Energy, 11.00%, 1/15/03#.............................................. $ 1,020,000
-----------
FINANCIAL -- .8%
500 Airplanes Pass Through Trust, 10.875%, 3/15/19............................ 513,750
-----------
INDUSTRIAL/MANUFACTURING -- 14.1%
1,000 Alvey Systems, 11.375%, 1/31/03#.......................................... 1,040,000
1,000 Units Exide Electronics Group, 11.50%, 3/15/06#,(A)............................. 1,022,500
1,150 Foamex, 11.875%, 10/01/04................................................. 1,098,250
650 Inter-City Products, 9.75%, 3/01/00....................................... 575,250
1,500 Jordan Industries, 10.375%, 8/01/03....................................... 1,387,500
1,000 RBX Corporation, 11.25%, 10/15/05#........................................ 975,000
1,000 Talley Mfg. & Technology, 10.75%, 10/15/03................................ 1,005,000
1,000 Units Terex Corporation, 13.75%, 5/15/02#,(D)................................... 990,000
1,500 Venture Holdings Trust, 9.75%, 4/01/04.................................... 1,200,000
-----------
9,293,500
-----------
MEDIA/TELECOMMUNICATIONS -- 18.7%
1,000 A+ Network Inc., 11.875%, 11/01/05........................................ 1,020,000
1,000 Adelphia Communications, 12.50%, 5/15/02.................................. 1,052,500
Brooks Fiber Properties, Zero Coupon until 3/01/01
1,000 (10.875% thereafter), 3/01/06#.......................................... 580,000
CS Wireless Systems, Inc., Zero Coupon until 3/01/01
500 Units (11.375% thereafter), 3/01/06#,(C)...................................... 1,075,000
Diamond Cable Co., Zero Coupon until 12/15/00
2,000 (11.75% thereafter), 12/15/05........................................... 1,170,000
3,000 Hollinger Inc., Zero Coupon Convertible Bond, 10/05/13.................... 971,250
In Flight Phone, Zero Coupon until 5/15/98
1,500 (14.00% thereafter), 5/15/02............................................ 450,000
International Cabletel Inc., Zero Coupon until 2/01/01
1,300 (11.50% thereafter), 2/01/06#........................................... 734,500
Marcus Cable Co., Zero Coupon until 6/15/00
1,750 (14.25% thereafter), 12/15/05........................................... 1,120,000
People's Choice TV Corp., Zero Coupon until 6/01/00
2,000 Units (13.135% thereafter), 6/01/04(B)........................................ 1,285,000
1,000 Sinclair Broadcasting, 10.00%, 9/30/05.................................... 982,500
1,500 United International Holdings, Zero Coupon, 11/15/99...................... 967,500
Winstar Communications, Zero Coupon until 10/15/00
1,000 (14.00% thereafter), 10/15/05........................................... 560,000
Winstar Communications, Convertible Bond, Zero Coupon until 10/15/00
500 (14.00% thereafter), 10/15/05........................................... 305,000
-----------
12,273,250
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 6
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS (CONCLUDED) (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- 1.4%
$1,000 Petro PSC Properties, 12.50%, 6/01/02..................................... $ 955,000
-----------
TOTAL CORPORATE BONDS (cost $50,533,287).................................. 51,063,298
-----------
<CAPTION>
SOVEREIGN BONDS -- 15.1%
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,500 Republic of Argentina, FRB, 6.3125%, 3/31/05*............................. 1,080,938
1,891 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14**...................... 1,113,545
1,250 Republic of Brazil, NMB, 6.875%, 4/15/09*................................. 850,000
500 Republic of Bulgaria, Discount Bond, Tranche A, 6.25%, 7/28/24*........... 249,687
500 Republic of Bulgaria, IAB, 6.25%, 7/28/11*................................ 221,875
2,300 Costa Rica Principal Bond, Series A, 6.25%, 5/21/10....................... 1,483,500
5,221 Republic of Ecuador, PDI Bond, 6.0625%, 2/28/15*, **...................... 2,023,142
1,000 Republic of Panama, FRN, 6.75%, 5/10/02*.................................. 892,500
United Mexican States, Par Bond, Series B, 6.25%, 12/31/19 (including
1,750 1,750,000 rights)....................................................... 1,111,250
1,500 Republic of Venezuela, FLIRB, Series B, 6.625%, 3/31/07*.................. 913,125
-----------
TOTAL SOVEREIGN BONDS (cost $9,515,087)................................... 9,939,562
-----------
<CAPTION>
LOAN PARTICIPATION -- 2.4%
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Kingdom of Morocco, Tranche A, 6.5938%, 1/01/09*
2,250 (Morgan Guaranty Trust Company of New York)+ (cost $1,352,058).......... 1,566,562
-----------
<CAPTION>
PREFERRED STOCK -- 1.1%
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
7,500 Shares Cablevision Systems Corp., 11.125%, 4/01/08#,** (cost $750,000)........... 735,588
-----------
<CAPTION>
WARRANTS++ -- .2%
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Berry Plastics (exercise price of $18.797 per share expiring on 4/15/04
750 Warrants for 1.13237 shares of common stock)..................................... 11,250
In Flight Phone (exercise price of $.01 per share expiring on 8/31/02 for
2,500 Warrants one share of common stock).............................................. 0
Petro PSC Properties (exercise price of $0, expiring on 7/01/97;
exchangeable for $55,380 principal amount of Notes or an equivalent
1,000 Warrants number of shares)....................................................... 33,000
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 7
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) WARRANTS++ (CONCLUDED) (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United International Holdings (exercise price of $15 per share expiring on
2,875 Warrants 11/15/99 for common stock).............................................. $ 83,375
-----------
TOTAL WARRANTS (cost $108,830)............................................ 127,625
-----------
<CAPTION>
REPURCHASE AGREEMENT -- 1.0%
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Merrill Lynch, 5.40%, cost $661,000, dated 3/29/96, $661,297 due 4/1/96,
(collateralized by $550,000, 8.875% U.S. Treasury Bonds due 8/15/17,
$661 valued at $676,500)..................................................... 661,000
-----------
TOTAL INVESTMENTS -- 97.4% (cost $62,920,262)............................. 64,093,635
-----------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.6%.................... 1,687,652
-----------
NET ASSETS -- 100.0%
(equivalent to $13.86 per share on 4,744,962 common shares outstanding)... $65,781,287
===========
</TABLE>
- --------------------------------------------------------------------------------
* Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
** Payment-in-kind security for which all or part of the income earned is
capitalized as additional principal or shares.
# Pursuant to Rule 144A under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
(A) Each unit is comprised of a $1,000 par Senior Subordinated Note due 3/15/06
and a warrant to purchase 5.15 shares of common stock.
(B) Each unit is comprised of a $1,000 par Senior Discount Note due 6/01/04 and
a warrant to purchase 1.427 shares of common stock.
(C) Each unit is comprised of four $1,000 par amount Notes and 1.1 shares of
common stock.
(D) Each unit is comprised of a $1,000 par Senior Discount Note due 5/15/02.
+ Participation interest was acquired through the financial institution
indicated parenthetically.
++ Non-income producing security.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
IAB -- Interest in Arrears Bond.
NMB -- New Money Bond.
PDI -- Past Due Interest.
See accompanying notes to financial statements.
PAGE 4
<PAGE> 8
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $62,920,262)................................................... $64,093,635
Cash.......................................................................................... 165,654
Receivable for investments sold............................................................... 1,362,500
Interest receivable........................................................................... 1,676,444
Unamortized organization expenses............................................................. 44,412
Prepaid expenses.............................................................................. 16,514
-----------
Total assets.......................................................................... 67,359,159
-----------
LIABILITIES
Payable for investments purchased............................................................. 1,372,500
Accrued audit and tax return preparation fees................................................. 41,240
Management fee payable to SBAM (Note 3)....................................................... 38,851
Accrued printing expense...................................................................... 26,534
Accrued legal fee............................................................................. 22,921
Accrued annual meeting fee.................................................................... 18,914
Accrued custodian fee......................................................................... 3,801
Other accrued expenses........................................................................ 53,111
-----------
Total liabilities..................................................................... 1,577,872
-----------
NET ASSETS
Common Stock ($.001 par value, authorized 100,000,000 shares;
4,744,962 shares outstanding)............................................................... 4,745
Additional paid-in capital.................................................................... 65,752,412
Undistributed net investment income........................................................... 77,398
Accumulated net realized loss on investments.................................................. (1,226,641)
Net unrealized appreciation on investments.................................................... 1,173,373
-----------
Net assets............................................................................ $65,781,287
-----------
NET ASSET VALUE PER SHARE ($65,781,287 / 4,744,962 shares).................................... $13.86
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
<PAGE> 9
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1996 (unaudited)
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $547,323).......................................... $2,042,197
EXPENSES
Management fee................................................................... $114,412
Audit and tax return preparation services........................................ 12,740
Legal............................................................................ 11,921
Transfer agent................................................................... 9,100
Printing......................................................................... 8,736
Directors' fees and expenses..................................................... 7,462
Amortization of deferred organization costs...................................... 6,060
Annual meeting expense........................................................... 4,914
Listing fee...................................................................... 4,586
Custodian........................................................................ 4,095
Other............................................................................ 4,174 188,200
-------- ----------
Net investment income............................................................ 1,853,997
----------
NET REALIZED AND UNREALIZED GAIN
Net Realized Gain on Investments............................................................ 1,000,917
Change in Net Unrealized Appreciation on Investments........................................ 616,490
----------
Net realized gain and change in net unrealized appreciation................................. 1,617,407
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................................................. $3,471,404
----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 6
<PAGE> 10
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31,
(UNAUDITED) 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income................................................ $ 1,853,997 $ 7,169,795
Net realized gain (loss) on investments.............................. 1,000,917 (2,227,558)
Change in net unrealized appreciation................................ 616,490 5,513,516
-------------- ------------
Net increase in net assets from operations........................... 3,471,404 10,455,753
-------------- ------------
DIVIDENDS
From net investment income........................................... (1,776,599) (7,202,554)
From net realized gains.............................................. -- (317,263)
-------------- ------------
Net decrease in net assets from dividends............................ (1,776,599) (7,519,817)
-------------- ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(10,990 and 49,559 shares issued).................................. 155,706 650,559
-------------- ------------
Total increase in net assets......................................... 1,850,511 3,586,495
NET ASSETS
Beginning of period.................................................. 63,930,776 60,344,281
-------------- ------------
End of period (includes undistributed net investment income of
$77,398 and $0, respectively)...................................... $ 65,781,287 $63,930,776
-------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 11
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION
Salomon Brothers High Income Fund Inc (the "Fund") was incorporated in Maryland
on September 14, 1992 and is registered as a diversified, closed-end, management
investment company under the Investment Company Act of 1940, as amended. The
Fund commenced operations on January 29, 1993. The Salomon Brothers High Income
Fund Inc seeks to maintain a high level of current income by investing primarily
in a diversified portfolio of high-yield U.S. corporate debt securities and
high-yield foreign sovereign debt securities. As a secondary objective, the Fund
seeks capital appreciation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual amounts could differ
from those estimates.
(a) SECURITIES VALUATION. In valuing the Fund's assets, all securities for
which market quotations are readily available are valued (i) at the last sale
price prior to the time of determination if there were a sale on the date of
determination and (ii) at the bid price if there were no sales price on such
date. Publicly traded foreign government debt securities are typically traded
internationally in the over-the-counter market, and are valued at the mean
between the last current bid and asked price as at the close of business of that
market. However, when the spread between bid and asked price exceeds five
percent of the par value of the security, the security is valued at the bid
price. Securities may also be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost which approximates market value. Securities for which reliable
quotations are not readily available and all other securities and assets are
valued at fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
(b) INVESTMENT TRANSACTIONS. Investment transactions are recorded on the trade
date. Interest income is accrued on a daily basis. Market discount or premium on
securities purchased is accreted or amortized, respectively, on an effective
yield basis over the life of the security. The Fund uses the specific
identification method for determining realized gain or loss on investments.
Dividend income is recorded on ex-dividend date.
(c) FEDERAL INCOME TAXES. The Fund has complied and intends to continue to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated
PAGE 8
<PAGE> 12
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(unaudited)
investment companies, and to distribute all of its income to its shareholders.
Therefore, no federal income tax or excise tax provision is required.
(d) DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends to
shareholders monthly from net investment income. Net realized gains, if any, in
excess of loss carryovers are expected to be distributed annually. Dividends and
distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with federal income tax regulations, which may
differ from GAAP. To the extent these differences are permanent in nature, such
amounts are reclassified within the components of net assets. As of December 31,
1995, undistributed net investment income was decreased by $93,401, accumulated
net realized loss on investments was decreased by $113,803 and paid-in capital
was decreased by $20,402. Net investment income, net realized gain/(loss) on
investments, the change in net unrealized appreciation on investments and net
assets were not affected by these reclassifications.
(e) UNAMORTIZED ORGANIZATION EXPENSES. Organization expenses amounting to
$125,000 were incurred in connection with the organization of the Fund. These
costs have been deferred and are being amortized ratably over a five-year period
from commencement of operations.
(f) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the
Fund's policy to take possession, through its custodian, of the underlying
collateral and to monitor its value at the time the arrangement is entered into
and at all times during the term of the repurchase agreement to ensure that it
always equals or exceeds the repurchase price. In the event of default of the
obligation to repurchase, the Fund has the right to liquidate the collateral and
apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
NOTE 3. MANAGEMENT FEE AND OTHER TRANSACTIONS
The Fund has retained SBAM, an indirect wholly owned subsidiary of Salomon Inc,
to act as investment manager and administrator of the Fund subject to
supervision by the Board of Directors of the Fund. The management fee for these
services is payable monthly at an annual rate of 0.70% of the Fund's average
weekly net assets.
Certain officers and/or directors of the Fund are also officers and/or directors
of the investment manager and administrator.
The Fund pays each Director not affiliated with SBAM a fee of $5,000 per year,
plus a fee of $700 and reimbursement for travel and out-of-pocket expenses for
each board and committee meeting attended.
PAGE 9
<PAGE> 13
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
(unaudited)
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments,
for the three months ended March 31, 1996, aggregated $27,047,157 and
$26,969,471, respectively. The federal income tax cost basis of the Fund's
investments at March 31, 1996 was substantially the same as the cost basis for
financial reporting. Gross unrealized appreciation and depreciation amounted to
$2,586,540 and $1,413,167, respectively, resulting in net unrealized
appreciation for federal income tax purposes of $1,173,373.
At December 31, 1995, the Fund had a net capital loss carryover of approximately
$2,056,000 which will be available through December 31, 2003 to offset future
net realized capital gains to the extent provided by federal income tax
regulations.
NOTE 5. LOAN PARTICIPATIONS
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions. The Fund's investment in any such loan may be in the form of a
participation in or an assignment of the loan.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased the participation. As a result, the Fund will assume the credit
risk of both the borrower and the lender that is selling the participation. In
the event of the insolvency of the lender selling the participation, the Fund
may be treated as a general creditor of the lender and may not benefit from any
set-off between the lender and the borrower.
NOTE 6. CREDIT RISK
The yields of emerging markets debt obligations and high yield corporate debt
obligations reflect, among other things, perceived credit risk. The Fund's
investment in securities rated below investment grade typically involve risks
not associated with higher rated securities including, among others, overall
greater risk of timely and ultimate payment of interest and principal, greater
market price volatility and less liquid secondary market trading. The
consequences of political, social, economic or diplomatic changes may have
disruptive effects on the market prices of investments held by the Fund.
NOTE 7. DIVIDENDS SUBSEQUENT TO MARCH 31, 1996
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.125 per share payable on April 30, 1996 to shareholders
of record on April 16, 1996.
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.125 per share payable on May 31, 1996 to shareholders of
record on May 14, 1996.
PAGE 10
<PAGE> 14
SALOMON BROTHERS HIGH INCOME FUND INC
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED YEAR ENDED PERIOD ENDED
1996 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 13.50 $ 12.88 $ 15.59 $ 13.95
------------ ------------ ------------ ------------
Net investment income..................... .39 1.52 1.38 1.18
Net gain/(loss) on securities (both
realized and unrealized)................ .34 .70 (2.32) 1.94
------------ ------------ ------------ ------------
Total from investment operations.......... .73 2.22 (0.94) 3.12
------------ ------------ ------------ ------------
Less distributions
Dividends from net investment income.... (.37) (1.53) (1.39) (1.16)
Dividends from net realized gains....... -- (.07) (0.38) (0.23)
------------ ------------ ------------ ------------
Total distributions....................... (.37) (1.60) (1.77) (1.39)
------------ ------------ ------------ ------------
Offering costs on issuance of common
stock................................... -- -- -- (0.09)
------------ ------------ ------------ ------------
Net asset value, end of period............ $ 13.86 $ 13.50 $ 12.88 $ 15.59
============= ============= ============= =============
Per share market value, end of period..... $ 14.75 $ 14.125 $ 12.875 $ 15.875
============= ============= ============= =============
Total investment return based on market
price per share**....................... 7.21% 23.83% (8.04%) 25.10%#
Ratios/supplemental data:
Net assets, end of period (000)........... $ 65,781 $ 63,931 $ 60,344 $ 72,495
Ratio of expenses to average net assets... 1.15%(a) 1.22% 1.13% 1.09%(a)
Ratio of net investment income to average
net assets.............................. 11.38%(a) 11.68% 9.91% 8.64%(a)
Portfolio turnover rate................... 42.7% 128.2% 76.6% 49.6%
</TABLE>
- --------------------------------------------------------------------------------
* For the period January 29, 1993 (commencement of investment operations)
through December 31, 1993.
** For purposes of this calculation, dividends are assumed to be reinvested at
prices obtained under the Fund's dividend reinvestment plan and the broker
commission paid to purchase or sell a share is excluded.
# Return calculated based on beginning of period price of $13.95 (initial
offering price of $15.00 less sales load of $1.05) and end of period market
value of $15.875 per share. The calculated return has not been annualized.
(a) Annualized.
See accompanying notes to financial statements.
PAGE 11
<PAGE> 15
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
NET REALIZED GAIN
(LOSS) & CHANGE IN
NET UNREALIZED
NET INVESTMENT APPRECIATION
INCOME (DEPRECIATION)
------------------ -------------------
QUARTERS ENDED(a) TOTAL PER SHARE TOTAL PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1994........................................................ $1,589 $ .34 $(5,201) $ (1.12)
June 30, 1994......................................................... 1,578 .33 (1,684) (.35)
September 30, 1994.................................................... 1,620 .35 (302) (.07)
December 31, 1994..................................................... 1,702 .36 (3,666) (.78)
March 31, 1995........................................................ 1,829 .39 (1,529) (.33)
June 30, 1995......................................................... 1,789 .38 2,747 .59
September 30, 1995.................................................... 1,746 .37 877 .19
December 31, 1995..................................................... 1,806 .38 1,191 .25
March 31, 1996........................................................ 1,854 .39 1,617 .34
</TABLE>
- --------------------------------------------------------------------------------
(a) Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
PAGE 12
<PAGE> 16
SALOMON BROTHERS HIGH INCOME FUND INC
- -----------
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
THOMAS W. BROCK
Chairman and Chief
Executive Officer, Salomon
Brothers Asset Management Inc
DANIEL P. CRONIN
Vice President -- General Counsel,
Pfizer International Inc
ALLAN C. HAMILTON
Consultant, formerly
Vice President and
Treasurer, Exxon Corp.
MICHAEL S. HYLAND
Chairman and President;
Managing Director, Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
Johns Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of Commercial
Law, and formerly Dean, The Fletcher
School of Law & Diplomacy
Tufts University
- ---------
OFFICERS
MICHAEL S. HYLAND
Chairman and President
PETER J. WILBY
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
- -----------------------------------------------------
SALOMON BROTHERS HIGH INCOME FUND INC
7 World Trade Center
New York, New York 10048
TELEPHONE
1-800-725-6666
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
The Chase Manhattan Bank, N.A.
Four Metrotech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
HIF
- --------------------------------------------------------------------------------
<PAGE> 17
AMERICAN STOCK TRANSFER & TRUST COMPANY ---------------------
40 WALL STREET BULK RATE
NEW YORK, NEW YORK 10005 U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT NO.
169
---------------------
