S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
November 15, 1996
Dear Shareholder,
The net asset value of each of your shares of Salomon Brothers High Income Fund
Inc (the "Fund") on September 30, 1996 was $14.56, up from $14.07 per share on
June 30, 1996. This represents a 6.3% net asset value return for the quarter
(assuming reinvestment of dividends in additional shares of the Fund), as
compared with an increase of 4.1% for the Salomon Brothers High-Yield Market
Index.
U.S. high-yield investments accounted for approximately 82% of total investments
at September 30, 1996. The balance of the portfolio was principally invested in
emerging markets debt.
U.S. HIGH-YIELD BONDS
As mentioned above, the Salomon Brothers High-Yield Market Index gained 4.1%
during the September quarter. The high-yield market performed very well,
especially given the volatility in both the U.S. Treasury and equity markets.
High-yield market spreads to comparable U.S. Treasuries narrowed by roughly 30
basis points during the quarter.
The market's rally was fueled by strong cash flows into high-yield mutual funds
and improving credit quality among issuers. Flows into high-yield mutual funds
are currently at a record setting pace this year. Credit fundamentals have been
improving due to a stronger-than-expected economy, and default rates for
corporate bonds remain well below historical averages.
The Fund benefited from its overweighting in deferred interest bonds and single
B-rated issues, which outperformed the market index during the quarter by
roughly 300 and 100 basis points, respectively. In addition, performance was
enhanced by a heavy allocation to the consumer products sector. The Fund's
exposure to gaming and telecommunications companies has been reduced, in
recognition of both increased competition in these industries and tighter
spreads. The Fund's investment in energy companies has been increased, in view
of the stong financial performance in this sector.
EMERGING MARKETS
The Salomon Brothers Brady Bond Index jumped 10.4% in the quarter ended
September 30, 1996. This outstanding performance was driven by good fundamental
news from several key emerging market countries. Mexico continued to demonstrate
its ability to access the capital markets by issuing $1 billion in 30-year
global bonds in September. Brazil's Senate approved a plan to permit the
government to buy back its Brady bonds in the open market. In addition, strong
performances were recorded in Ecuador, Peru and Russia holdings during the
quarter.
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
In an effort to provide more timely information concerning the Fund,
shareholders may call 1-800-SALOMON (1-800-725-6666), Monday through Friday from
8:30 am to 6:00 pm EST for a recorded periodic update of the developments
affecting the markets in which the Fund invests, as well as the Fund's current
net asset value, portfolio manager comments and other information regarding the
Fund's portfolio holdings and allocations. Although the Fund will continue to
issue a semi-annual and annual report to shareholders, a press release
containing financial highlights and other Fund information will be issued in
lieu of a first and third quarter interim report. This will result in some cost
savings for the Fund while still providing shareholders with current information
about the Fund. For information concerning your Salomon Brothers High Income
Fund stock account, please call American Stock Transfer & Trust Company at
1-800-937-5449 (1-718-921-8200 if you are calling from within New York City).
All of us at Salomon Brothers Asset Management appreciate the confidence you
have demonstrated in the past and hope to continue to serve you in future years.
Cordially,
MICHAEL S. HYLAND
Chairman and President
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Investments September 30,
1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds-- 80.9% (Note 2)
- ---------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES - 12.2%
<S> <C> <C>
$ 750 AES Corp., 10.25%, 7/15/06 ................................................ $ 789,375
1,000 Algoma Steel Inc., 12.375%, 7/15/05 ....................................... 1,045,000
1,000 Americold Corp., 12.875%, 5/01/08 ......................................... 1,037,500
1,000 Berry Plastics, 12.25%, 4/15/04 ........................................... 1,080,000
500 Crown Paper Company, 11.00%, 9/01/05 ...................................... 493,750
500 Florida Coast Paper, LLC, 12.75%, 6/01/03# ................................ 538,750
500 Harris Chemical, 10.25%, 7/15/01 .......................................... 510,000
NL Industries, Zero Coupon until 10/15/98
1,250 (13.00% thereafter), 10/15/05 ......................................... 1,053,125
1,000 Repap Wisconsin, 9.875%, 5/01/06 .......................................... 980,000
1,000 Valcor Inc., 9.625%, 11/01/03. ............................................ 905,000
-----------
8,432,500
-----------
CONSUMER CYCLICALS -- 5.1%
1,000 Finlay Fine Jewelry, 10.625%, 5/01/03 ..................................... 1,012,500
1,000 Guitar Center Management, 11.00%, 7/01/06# ................................ 1,047,500
500 Hills Stores, 12.50%, 7/01/03 ............................................. 450,000
1,000 Specialty Retailer, 11.00%, 8/15/03 ....................................... 1,025,000
-----------
3,535,000
-----------
CONSUMER NON-CYCLICALS -- 26.7%
1,000 Big V Supermarkets, 11.00%, 2/15/04 ....................................... 965,000
1,000 Borg-Warner Security Corp., 9.125%, 5/01/03 ............................... 960,000
1,000 Carr-Gottstein Foods, 12.00%, 11/15/05 .................................... 1,057,500
750 Dade International Inc., 11.125%, 5/01/06# ................................ 802,500
500 Ekco Group Inc., 9.25%, 4/01/06 ........................................... 480,000
1,000 Harvey Casinos Resorts, 10.625%, 6/01/06 .................................. 1,045,000
1,000 Hines Horticulture, 11.75%, 10/15/05 ...................................... 1,055,000
500 Hollywood Casino, 12.75%, 11/01/03 ........................................ 495,000
International Semi-Tech, Zero Coupon until 8/15/00
2,000 (11.50% thereafter), 8/15/03 .......................................... 1,215,000
500 Iron Mountain Inc., 10.125%, 10/01/06 ..................................... 509,375
325 Muzak Limited Partnership, 10.00%, 10/01/03 ............................... 327,031
1,000 Norcal Waste Systems, 12.75%, 11/15/05* ................................... 1,085,000
500 Paracelsus Healthcare, 10.00%, 8/15/06 .................................... 512,500
500 Penn Traffic Co., 9.625%, 4/15/05 ......................................... 337,500
500 Pierce Leahy Corp., 11.125%, 7/15/06# ..................................... 531,250
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 1
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Investments (continued)
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (continued) (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,000 Remington Product Co. LLC, 11.00%, 5/15/06# ............................... $ 1,015,000
1,000 Samsonite Corp., 11.125%, 7/15/05 ......................................... 1,060,000
1,000 Selmer Co. Inc., 11.00%, 5/15/05 .......................................... 1,050,000
500 Smiths Food & Drug, 11.25%, 5/15/07 ....................................... 531,250
1,000 Specialty Foods, 11.125%, 10/01/02 ........................................ 930,000
500 Stroh Brewery, 11.10%, 7/01/06 ............................................ 520,000
1,000 Telex Communications, Inc., 12.00%, 7/15/04 ............................... 1,077,500
500 Trump Atlantic City Associates, 11.25%, 5/01/06 ........................... 492,500
500 Twin Laboratories Inc., 10.25%, 5/15/06# .................................. 502,500
-----------
18,556,406
-----------
ENERGY -- 4.1%
750 Benton Oil & Gas, 11.625%, 5/01/03 ........................................ 811,875
500 Chesapeake Energy Corporation, 9.125%, 4/15/06 ............................ 496,250
1,000 Cliffs Drilling, 10.25%, 5/15/03 .......................................... 1,040,000
500 Flores & Rucks, 9.75%, 10/01/06 ........................................... 506,875
-----------
2,855,000
-----------
FINANCIAL -- 1.5%
500 Airplanes Pass Through Trust, 10.875%, 3/15/19 ............................ 541,250
500 First Nationwide Bank, 10.625%, 10/01/03# ................................. 523,750
-----------
1,065,000
-----------
INDUSTRIAL/MANUFACTURING -- 10.7%
1,000 Alvey Systems, 11.375%, 1/31/03 ........................................... 1,050,000
1,000 Clark-Schwebel Inc., 10.50%, 4/15/06 ...................................... 1,045,000
1,000 Exide Electronics Group, 11.50%, 3/15/06 .................................. 1,045,000
1,150 Foamex, 11.875%, 10/01/04 ................................................. 1,213,250
1,000 Jordan Industries, 10.375%, 8/01/03 ....................................... 965,000
1,000 Units Terex Corporation, 13.75%, 5/15/02#,(A) ................................... 1,055,000
1,171 Venture Holdings Trust, 9.75%, 4/01/04 .................................... 1,018,770
-----------
7,392,020
-----------
MEDIA/TELECOMMUNICATIONS -- 19.2%
750 Adelphia Communications, 12.50%, 5/15/02 .................................. 791,250
1,000 Cablevision Systems Corp., 10.50%, 5/15/16 ................................ 1,015,000
CS Wireless Systems, Inc., Zero Coupon until 3/01/01
500 Units (11.375% thereafter), 3/01/06#,(B) .................................... 1,032,500
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
Page 2
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Investments (continued)
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (concluded) (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diamond Cable Co., Zero Coupon until 12/15/00
$2,000 (11.75% thereafter), 12/15/05 ......................................... $ 1,290,000
3,000 Hollinger Inc., Zero Coupon Convertible Bond, 10/05/13 .................... 1,008,750
In Flight Phone, Zero Coupon until 5/15/98
1,500 (14.00% thereafter), 5/15/02 .......................................... 510,000
Intelcom Group Inc., Zero Coupon until 9/15/00
1,500 (13.50% thereafter), 9/15/05 .......................................... 986,250
International Cabletel Inc., Zero Coupon until 2/01/01
1,300 (11.50% thereafter), 2/01/06 .......................................... 780,000
Marcus Cable Co., Zero Coupon until 6/15/00
1,750 (14.25% thereafter), 12/15/05 ......................................... 1,190,000
People's Choice TV Corp., Zero Coupon until 6/01/00
2,000 Units (13.125% thereafter), 6/01/04(C) ...................................... 1,238,000
1,000 SFX Broadcasting, 10.75%, 5/15/06 ......................................... 1,040,000
1,500 United International Holdings, Zero Coupon, 11/15/99 ...................... 1,050,000
500 Western Wireless Corp., 10.50%, 6/01/03 ................................... 507,500
Winstar Communications, Zero Coupon until 10/15/00
1,000 (14.00% thereafter), 10/15/05 ......................................... 550,000
Winstar Communications, Convertible Bond, Zero Coupon until 10/15/00
500 (14.00% thereafter), 10/15/05# ........................................ 302,500
-----------
13,291,750
-----------
TRANSPORTATION -- 1.4%
1,000 Petro PSC Properties, 12.50%, 6/01/02 .................................... 990,000
-----------
Total Corporate Bonds (cost $54,931,942) ................................. 56,117,676
-----------
Sovereign Bonds -- 13.2%
- ---------------------------------------------------------------------------------------------------------
1,470 Republic of Argentina, FRB, 6.625%, 3/31/05* .............................. 1,232,963
825 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14** ...................... 583,639
1,250 Federal Republic of Brazil, NMB, Series L, 6.5625%, 4/15/09* .............. 1,017,187
500 Republic of Bulgaria, Discount Bond, Tranche A, 6.6875%, 7/28/24* ......... 254,375
1,300 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10 ...................... 1,001,000
2,652 Republic of Ecuador, PDI Bond, 6.50%, 2/27/15*, ** ........................ 1,359,285
1,750 United Mexican States, Par Bond, Series A, 6.25%, 12/31/19
(including 1,750,000 rights) .......................................... 1,214,063
2,000 Republic of Panama, IRB, 3.50%, 7/17/14* .................................. 1,260,000
1,500 Republic of Venezuela, FLIRB, Series B, 6.50%, 3/31/07* ................... 1,265,625
-----------
Total Sovereign Bonds (cost $7,904,134) ................................... 9,188,137
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Investments (concluded)
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Loan Participation-- 2.6% (Note 2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kingdom of Morocco, Tranche A, 6.4375%, 1/01/09*
$2,250 (Morgan Guaranty Trust Company of New York)+ (cost $1,399,166) ................. $ 1,771,875
-----------
Warrants++ -- .2%
- ---------------------------------------------------------------------------------------------------------------------
Berry Plastics (Exercise price of $18.797 per share expiring on 4/15/04. Each warrant
750 Warrants exercisable for 1.13237 shares of common stock.) ................................. 33,765
Exide Electronics Group (Exercise price of $13.475 per share expiring on 3/15/06.
1,000 Warrants Each warrant exercisable for 5.15 shares of common stock.) ...................... 30,000
In Flight Phone (Exercise price of $.01 per share expiring on 8/31/02. Each warrant
2,500 Warrants exercisable for one share of common stock.) ...................................... 0
Petro PSC Properties (Exercise price of $0 expiring on 7/01/97. Warrants are
1,000 Warrants exchangeable for $55,380 principal amount of Notes or an equivalent number
of shares.) ...................................................................... 36,000
United International Holdings (Exercise price of $15 per share expiring on 11/15/99.
2,875 Warrants Each warrant exercisable for 4.535 shares of common stock.) ...................... 63,250
-----------
Total Warrants (cost $108,830) 163,015
-----------
Repurchase Agreement -- 1.7%
- ---------------------------------------------------------------------------------------------------------------------
Union Bank of Switzerland, 5.72%, cost $1,187,000, dated 9/30/96, $1,187,189 due
10/01/96, (collateralized by $1,183,000 U.S. Treasury Notes, 6.125%, due 5/15/98,
$1,187 valued at $1,211,096) ............................................................ 1,187,000
-----------
Total Investments-- 98.6% (cost $65,531,072) ....................................... 68,427,703
-----------
Cash and Other Assets in Excess of Liabilities-- 1.4% ............................... 944,573
-----------
Net Assets -- 100.0%
(equivalent to $14.56 per share on 4,765,750 common shares outstanding) ............. $69,372,276
===========
- ---------------------------------------------------------------------------------------------------------------------
<FN>
* Rate shown reflects current rate on instrument with variable rate or step coupon rates.
** Payment-in-kind security for which part of the income earned is capitalized as additional principal.
# 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 Discount Note due 5/15/02.
(B) Each unit is comprised of four $1,000 par Notes and 1.1 shares of common stock.
(C) 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.
+ Participation interest was acquired through the financial institution indicated parenthetically.
++ Non-income producing security.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
IRB -- Interest Reduction Bond.
NMB -- New Money Bond.
PDI -- Past Due Interest.
</FN>
See accompanying notes to financial statements.
</TABLE>
Page 4
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Assets and Liabilities
September 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost-- $65,531,072) .................................................. $68,427,703
Cash ........................................................................................ 157,831
Interest receivable ......................................................................... 1,736,654
Unamortized organization expenses ........................................................... 32,226
Prepaid expenses ............................................................................ 1,850
-----------
Total assets .................................................................... 70,356,264
-----------
Liabilities
Payable for investments purchased ........................................................... 831,250
Accrued audit and tax return preparation fees ............................................... 48,625
Management fee payable to SBAM (Note 3) ..................................................... 38,980
Accrued printing expense .................................................................... 23,808
Accrued legal fee ........................................................................... 19,481
Other accrued expenses ...................................................................... 21,844
-----------
Total liabilities ............................................................... 983,988
-----------
Net Assets
Common Stock ($.001 par value, authorized 100,000,000 shares; 4,765,750 shares outstanding) . 4,766
Additional paid-in capital .................................................................. 66,049,965
Undistributed net investment income ......................................................... 152,762
Accumulated net realized gain on investments ................................................ 268,152
Net unrealized appreciation on investments .................................................. 2,896,631
-----------
Net assets ...................................................................... $69,372,276
-----------
Net Asset Value Per Share ($69,372,276 d/b 4,765,750 shares) ................................ $14.56
-----------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Operations
For the Nine Months Ended September 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Income
Interest (includes discount accretion of $1,585,688) ................................... $ 6,062,408
Expenses
Management fee ............................................................... $348,428
Audit and tax return preparation services .................................... 37,842
Transfer Agent ............................................................... 37,757
Directors' fees and expenses ................................................. 36,314
Legal ........................................................................ 33,657
Printing ..................................................................... 25,652
Amortization of deferred organization costs................................... 18,246
Custodian..................................................................... 13,757
Other ........................................................................ 15,960 567,613
-------- -----------
Net investment income......................................................... 5,494,795
-----------
Net Realized and Unrealized Gain
Net Realized Gain on Investments........................................................ 2,495,710
Change in Net Unrealized Appreciation on Investments.................................... 2,339,748
-----------
Net realized gain and change in net unrealized appreciation ............................ 4,835,458
-----------
Net Increase in Net Assets from Operations.............................................. $10,330,253
-----------
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
Page 6
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended
1996 December 31,
(unaudited) 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ........................................................... $ 5,494,795 $ 7,169,795
Net realized gain (loss) on investments ......................................... 2,495,710 (2,227,558)
Change in net unrealized appreciation ........................................... 2,339,748 5,513,516
----------- -----------
Net increase in net assets from operations ...................................... 10,330,253 10,455,753
----------- -----------
Dividends
From net investment income ...................................................... (5,342,033) (7,202,554)
From net realized gain .......................................................... -- (317,263)
----------- -----------
Net decrease in net assets from dividends ....................................... (5,342,033) (7,519,817)
----------- -----------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(31,778 and 49,559 shares issued) ........................................ 453,280 650,559
----------- -----------
Total increase in net assets .................................................... 5,441,500 3,586,495
Net Assets
Beginning of period ............................................................. 63,930,776 60,344,281
----------- -----------
End of period (includes undistributed net investment income of $152,762 and $0,
respectively) ........................................................... $69,372,276 $63,930,776
----------- -----------
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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 investment companies, and to distribute all of its
income to its shareholders. Therefore, no federal income tax or excise tax
provision is required.
Page 8
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Notes to Financial Statements (continued)
(unaudited)
(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>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Notes to Financial Statements (concluded)
(unaudited)
Note 4. Portfolio Activity
Purchases and sales of investment securities, other than short-term investments,
for the nine months ended September 30, 1996, aggregated $58,943,623 and
$59,305,275, respectively. The federal income tax cost basis of the Fund's
investments at September 30, 1996 was substantially the same as the cost basis
for financial reporting. Gross unrealized appreciation and depreciation amounted
to $4,021,564 and $1,124,933, respectively, resulting in net unrealized
appreciation for federal income tax purposes of $2,896,631.
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 September 30, 1996
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.125 per share payable on October 31, 1996 to
shareholders of record on October 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 November 29, 1996 to
shareholders of record on November 13, 1996.
Page 10
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Financial Highlights
Data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 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......................... 1.16 1.52 1.38 1.18
Net gain/(loss) on securities (both realized
and unrealized)............................ 1.02 .70 (2.32) 1.94
------ ------ ------ ------
Total from investment operations.............. 2.18 2.22 (0.94) 3.12
------ ------ ------ ------
Less distributions
Dividends from net investment income....... (1.12) (1.53) (1.39) (1.16)
Dividends from net realized gains.......... -- (.07) (0.38) (0.23)
------ ------ ------ ------
Total distributions. ......................... (1.12) (1.60) (1.77) (1.39)
------ ------ ------ ------
Offering costs on issuance of common stock.... -- -- -- (0.09)
------ ------ ------ ------
Net asset value, end of period................ $14.56 $13.50 $12.88 $15.59
------ ------ ------ ------
Per share market value, end of period......... $15.25 $14.125 $12.875 $15.875
------ ------ ------ ------
Total investment return based on market
price per share**.......................... 16.78% 23.83% (8.04%) 25.10%#
Ratios/supplemental data:
Net assets, end of period (000)............ $69,372 $63,931 $60,344 $72,495
Ratio of expenses to average net assets.... 1.14%(a) 1.22% 1.13% 1.09%(a)
Ratio of net investment income to average
net assets............................... 11.01%(a) 11.68% 9.91% 8.64%(a)
Portfolio turnover rate.................... 90.92% 128.2% 76.6% 49.6%
- -------------------------------------------------------------------------------------------------------------
<FN>
* 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.
</FN>
See accompanying notes to financial statements.
Page 11
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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
June 30, 1996....................................... 1,838 .39 903 .19
September 30, 1996.................................. 1,803 .38 2,315 .49
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
Page 12
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
(left column)
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
and General Counsel
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
(right column)
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>
(left column)
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
---------------------
BULK RATE
U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT No.
169
---------------------
(right column)
Salomon Brothers
High Income Fund Inc
Interim Report
SEPTEMBER 30, 1996
-----------------------------------------
Salomon Brothers Asset Management
---------------------------------------------
