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
August 16, 1996
Dear Shareholder,
The net asset value of each of your shares of Salomon Brothers High Income Fund
on June 30, 1996 was $14.07, up from $13.86 per share at March 31, 1996. This
represents a 4.28% net asset value return for the quarter ended June 30, 1996
(assuming the reinvestment of dividends in additional shares of the Fund), as
compared with an increase of 1.30% for the Salomon Brothers High-Yield Market
Index and a 2.72% average return for closed-end, unleveraged high-yield funds as
measured by Lipper Analytical Services, Inc*. This performance ranked the High
Income Fund #1 of 8 closed-end, unleveraged high-yield funds in Lipper's
investment category. The Fund continues to be rated "Four Star" by Morningstar
Inc., a widely recognized closed-end fund rating service.**
U.S. high-yield investments accounted for approximately 86% of total investments
at June 30, 1996. The balance of the portfolio is substantially invested in
emerging markets debt.
U.S. HIGH-YIELD BONDS
During the quarter ended June 30, 1996, the Salomon Brothers High-Yield Market
Index gained 1.30%, and continued to outpace U.S. Treasuries in each of the last
three months. The average market yield finished the quarter at 10.14%. The
market has been stable as both mutual fund inflows and new issues of high-yield
bonds remain strong. We expect yield spreads over Treasuries to remain near
current levels. One sector of the high-yield market that outperformed the market
index was junior subordinate bonds. Sectors of the market that underperformed
included BB and BBB/BB bonds. Our fundamental outlook is unchanged, and we
continue to believe that selective buying is the best approach in this market.
EMERGING MARKETS
In the second quarter, the Salomon Brothers Brady Bond Index gained 9.16%. After
a difficult start, emerging markets turned in a strong performance for the
quarter. The completion of Mexico's 30-year Brady bond swap for Eurobonds, along
with speculation over the likelihood of similar deals for other Brady countries,
lent a positive tone to the market by the end of May.
In the past several months, emerging debt markets have been focused on elections
in Russia and Ecuador. As expected, pro-reform, free market candidates were
elected in each country. This outcome
<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
continued the trend of positive political developments in emerging markets
countries. In other areas, fundamental economic developments have been very
positive in Argentina and Mexico, as both countries struggle to recover from
deep recessions.
Shareholders of the Fund may call 1-800-SALOMON (1-800-725-6666), Monday through
Friday from 8:30 A.M. to 6:00 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
1-800-937-5449 (1-718-921-8200 if you are calling from within New York City).
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,
MICHAEL S. HYLAND
Chairman and President
* Lipper rankings change monthly and do not reflect the effects of sales
charges. Lipper performance results represent changes in net asset value,
adjusted to reflect reinvestment of dividends and capital gain
distributions.
** Morningstar proprietary ratings reflect historical risk-adjusted
performance, are subject to change monthly and are calculated from the
Fund's 3 year average annual returns in excess of 90-day T-bill returns
with appropriate fee adjustments and a risk factor that reflects Fund
performance below 90-day T-bill returns. 10% of funds in an investment
category receive a 5-star rating, 22.5% receive 4-stars and 35% receive
3-stars.
<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
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds-- 82.6% (Note 2)
- -------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES - 12.1%
<S> <C> <C>
$ 750 AES Corp., 10.25%, 7/15/06 .................................................................. $ 755,625
1,000 Algoma Steel Inc., 12.375%, 7/15/05 ......................................................... 970,000
1,000 Americold Corp., 12.875%, 5/01/08 ........................................................... 1,020,000
1,000 Berry Plastics, 12.25%, 4/15/04 ............................................................. 1,062,500
500 Crown Paper Company, 11.00%, 9/01/05 ........................................................ 476,250
500 Florida Coast Paper, LLC, 12.75%, 6/01/03# .................................................. 520,000
500 Harris Chemical, 10.25%, 7/15/01 ............................................................ 501,250
NL Industries, Zero Coupon until 10/15/98
1,250 (13.00% thereafter), 10/15/05 ............................................................. 970,313
1,000 Repap Wisconsin, 9.875%, 5/01/06 ............................................................ 890,000
1,000 Valcor Inc., 9.625%, 11/01/03. .............................................................. 900,000
-----------
8,065,938
-----------
CONSUMER CYCLICALS -- 4.4%
1,000 Finlay Fine Jewelry, 10.625%, 5/01/03 ....................................................... 1,000,000
500 Flagstar Corp., 10.75%, 9/15/01 ............................................................. 435,000
500 Hills Stores, 12.50%, 7/01/03# .............................................................. 491,250
1,000 Specialty Retailer, 11.00%, 8/15/03 ......................................................... 1,040,000
-----------
2,966,250
-----------
CONSUMER NON-CYCLICALS -- 26.0%
500 American Skiing Corp., 12.00%, 7/15/06# ..................................................... 492,500
1,000 Big V Supermarkets, 11.00%, 2/15/04 ......................................................... 935,000
1,000 Borg-Warner Security Corp., 9.125%, 5/01/03 ................................................. 940,000
1,000 Carr-Gottstein Foods, 12.00%, 11/15/05 ...................................................... 1,025,000
750 Dade International Inc., 11.125%, 5/01/06# .................................................. 776,250
900 Harvey Casinos Resorts, 10.625%, 6/01/06 .................................................... 913,500
1,000 Hines Horticulture, 11.75%, 10/15/05 ........................................................ 1,045,000
500 Hollywood Casino, 12.75%, 11/01/03 .......................................................... 500,000
International Semi-Tech, Zero Coupon until 8/15/00
2,000 (11.50% thereafter), 8/15/03 .............................................................. 1,145,000
1,000 Norcal Waste Systems, 12.70%, 11/15/05*,# ................................................... 1,040,000
500 Penn Traffic Co., 9.625%, 4/15/05 ........................................................... 362,500
1,000 Remington Product Co. LLC, 11.00%, 5/15/06# ................................................. 1,000,000
1,000 Samsonite Corp., 11.125%, 7/15/05 ........................................................... 1,015,000
1,000 Selmer Co. Inc., 11.00%, 5/15/05 ............................................................ 1,055,000
1,000 Showboat Marina, 13.50%, 3/15/03# ........................................................... 1,085,000
- -------------------------------------------------------------------------------------------------------------------------
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)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (continued) (Note 2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 500 Smiths Food & Drug, 11.25%, 5/15/07 ......................................................... $ 503,750
1,000 Specialty Foods, 11.125%, 10/01/02 .......................................................... 950,000
1,000 Telex Communications, Inc., 12.00%, 7/15/04 ................................................. 1,073,750
1,000 Trump Atlantic City Associates, 11.25%, 5/01/06 ............................................. 1,002,500
500 Twin Laboratories Inc., 10.25%, 5/15/06# .................................................... 507,500
-----------
17,367,250
-----------
ENERGY -- 4.1%
750 Benton Oil & Gas, 11.625%, 5/01/03# ......................................................... 772,500
500 Chesapeake Energy Corporation, 9.125%, 4/15/06 .............................................. 487,500
1,500 Cliffs Drilling, 10.25%, 5/15/03# ........................................................... 1,485,000
-----------
2,745,000
-----------
FINANCIAL -- .8%
500 Airplanes Pass Through Trust, 10.875%, 3/15/19 .............................................. 520,625
-----------
INDUSTRIAL/MANUFACTURING -- 13.3%
1,000 Alvey Systems, 11.375%, 1/31/03 ............................................................. 1,035,000
1,000 Clark-Schwebel Inc., 10.50%, 4/15/06# ....................................................... 1,035,000
1,000 Exide Electronics Group, 11.50%, 3/15/06# ................................................... 1,000,000
1,150 Foamex, 11.875%, 10/01/04 ................................................................... 1,081,000
1,500 Jordan Industries, 10.375%, 8/01/03 ......................................................... 1,425,000
1,000 Talley Mfg. & Technology, 10.75%, 10/15/03 .................................................. 1,025,000
1,000 Units Terex Corporation, 13.75%, 5/15/02#,(A) ..................................................... 1,040,000
1,500 Venture Holdings Trust, 9.75%, 4/01/04 ..................................................... 1,275,000
-----------
8,916,000
-----------
MEDIA/TELECOMMUNICATIONS -- 20.5%
1,000 A+ Network Inc., 11.875%, 11/01/05 .......................................................... 1,027,500
1,000 Adelphia Communications, 12.50%, 5/15/02 .................................................... 1,015,000
750 Cablevision Systems Corp., 10.50%, 5/15/16 .................................................. 727,500
CS Wireless Systems, Inc., Zero Coupon until 3/01/01
500 Units (11.375% thereafter), 3/01/06#,(B) ........................................................ 1,030,000
Diamond Cable Co., Zero Coupon until 12/15/00
2,000 (11.75% thereafter), 12/15/05 ............................................................. 1,175,000
3,000 Hollinger Inc., Zero Coupon Convertible Bond, 10/05/13 ...................................... 986,250
In Flight Phone, Zero Coupon until 5/15/98
1,500 (14.00% thereafter), 5/15/02 .............................................................. 540,000
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 2
</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)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (concluded) (Note 2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intelcom Group Inc., Zero Coupon until 9/15/00
$1,500 (13.50% thereafter), 9/15/05 .............................................................. $ 901,875
International Cabletel Inc., Zero Coupon until 2/01/01
1,300 (11.50% thereafter), 2/01/06 .............................................................. 723,125
Marcus Cable Co., Zero Coupon until 6/15/00
1,750 (14.25% thereafter), 12/15/05 ............................................................. 1,076,250
People's Choice TV Corp., Zero Coupon until 6/01/00
2,000 Units (13.135% thereafter), 6/01/04(C) .......................................................... 1,158,000
1,000 SFX Broadcasting, 10.75%, 5/15/06# .......................................................... 990,000
1,500 United International Holdings, Zero Coupon, 11/15/99 ........................................ 990,000
500 Western Wireless Corp., 10.50%, 6/01/03 ..................................................... 495,000
Winstar Communications, Zero Coupon until 10/15/00
1,000 (14.00% thereafter), 10/15/05 ............................................................. 565,000
Winstar Communications, Convertible Bond, Zero Coupon until 10/15/00
500 (14.00% thereafter), 10/15/05 ............................................................. 340,000
-----------
13,740,500
-----------
TRANSPORTATION -- 1.4%
1,000 Petro PSC Properties, 12.50%, 6/01/02 ....................................................... 965,000
-----------
Total Corporate Bonds (cost $55,365,670) .................................................... 55,286,563
-----------
Sovereign Bonds -- 11.4%
- -------------------------------------------------------------------------------------------------------------------------
1,485 Republic of Argentina, FRB, 6.3125%, 3/31/05* ............................................... 1,160,156
818 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14** ........................................ 510,120
1,250 Federal Republic of Brazil, NMB, 6.5625%, 4/15/09* .......................................... 906,250
500 Republic of Bulgaria, Discount Bond, Tranche A, 6.25%, 7/28/24* 259,375
1,300 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10 ........................................ 871,000
3,683 Republic of Ecuador, PDI Bond, 6.0625%, 2/28/15*, ** ........................................ 1,671,132
1,261 United Mexican States, Global Bond, 11.50%, 5/15/26 ......................................... 1,156,179
1,500 Republic of Venezuela, FLIRB, Series B, 6.50%, 3/31/07* ..................................... 1,085,625
-----------
Total Sovereign Bonds (cost $6,862,082) ..................................................... 7,619,837
-----------
Loan Participation -- 2.4%
- -------------------------------------------------------------------------------------------------------------------------
Kingdom of Morocco, Tranche A, 6.4375%, 1/01/09*
2,250 (Morgan Guaranty Trust Company of New York)+ (cost $1,375,209) ............................ 1,617,188
-----------
- -------------------------------------------------------------------------------------------------------------------------
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)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Warrant++ - .3% (Note 2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Berry Plastics (exercise price of $18.797 per share expiring on 4/15/04 for 1.13237
750 Warrants shares of common stock) ................................................................... $ 33,765
Exide Electronics Group (exercise price of $13.475 per share expiring on 3/15/06 for
1,000 Warrants 5.15 shares of common stock) .............................................................. 20,000
In Flight Phone (exercise price of $.01 per share expiring on 8/31/02 for one share of
2,500 Warrants common stock) ............................................................................. 0
Petro PSC Properties (exercise price of $0, expiring on 7/01/97; exchangeable for
1,000 Warrants $55,380 principal amount of Notes or an equivalent number of shares) ...................... 33,000
United International Holdings (exercise price of $15 per share expiring on 11/15/99 for
2,875 Warrants common stock) ............................................................................. 83,375
-----------
Total Warrants (cost $108,830) .............................................................. 170,140
-----------
Total Investments-- 96.7% (cost $63,711,791) ............................................... 64,693,728
-----------
Cash and Other Assets in Excess of Liabilities-- 3.3% ....................................... 2,201,417
-----------
Net Assets -- 100.0%
(equivalent to $14.07 per share on 4,755,774 common shares outstanding) ..................... $66,895,145
===========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
NMB --New Money Bond.
PDI --Past Due Interest.
See accompanying notes to financial statements.
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
June 30, 1996 (unaudited)
<TABLE>
Assets
<S> <C>
Investments, at value (cost-- $63,711,791) ............................................................ $64,693,728
Receivable for investments sold ....................................................................... 2,965,163
Interest receivable ................................................................................... 1,246,799
Unamortized organization expenses ..................................................................... 38,353
Prepaid expenses ...................................................................................... 10,284
-----------
Total assets 68,954,327
-----------
Liabilities
Payable for investments purchased ..................................................................... 1,914,300
Management fee payable to SBAM (Note 3) ............................................................... 38,230
Accrued audit and tax return preparation fees ......................................................... 35,250
Accrued printing expense .............................................................................. 26,867
Accrued legal fee ..................................................................................... 21,298
Other accrued expenses ................................................................................ 23,237
-----------
Total liabilities ............................................................................... 2,059,182
-----------
Net Assets
Common Stock ($.001 par value, authorized 100,000,000 shares; 4,755,774 shares outstanding) ........... 4,756
Additional paid-in capital ............................................................................ 65,906,414
Undistributed net investment income ................................................................... 134,546
Accumulated net realized loss on investments .......................................................... (132,508)
Net unrealized appreciation on investments ............................................................ 981,937
-----------
Net assets ...................................................................................... $66,895,145
-----------
Net Asset Value Per Share ($66,895,145 / 4,755,774 shares) ............................................ $14.07
-----------
- --------------------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30, 1996 (unaudited)
<TABLE>
Income
<S> <C> <C>
Interest (includes discount accretion of $1,065,832) ................................... $4,059,627
Expenses
Management fee ............................................................... $230,111
Transfer Agent ............................................................... 26,162
Directors' fees and expenses ................................................. 24,215
Audit and tax return preparation services .................................... 22,467
Legal ........................................................................ 22,315
Printing ..................................................................... 17,586
Amortization of deferred organization costs................................... 12,119
Custodian..................................................................... 9,219
Other ........................................................................ 3,519 367,713
-------- ----------
Net investment income......................................................... 3,691,914
----------
Net Realized and Unrealized Gain
Net Realized Gain on Investments........................................................ 2,095,050
Change in Net Unrealized Appreciation on Investments.................................... 425,054
----------
Net realized gain and change in net unrealized appreciation ............................ 2,520,104
----------
Net Increase in Net Assets from Operations.............................................. $6,212,018
----------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 6
</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 Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
- ----------------------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income ............................................................ $ 3,691,914 $ 7,169,795
Net realized gain (loss) on investments........................................... 2,095,050 (2,227,558)
Change in net unrealized appreciation............................................. 425,054 5,513,516
----------- -----------
Net increase in net assets from operations ....................................... 6,212,018 10,455,753
----------- -----------
.
Dividends
From net investment income ....................................................... (3,557,368) (7,202,554)
From net realized gain............................................................ -- (317,263)
----------- -----------
Net decrease in net assets from dividends......................................... (3,557,368) (7,519,817)
----------- -----------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(21,802 and 49,559 shares issued) ............................................ 309,719 650,559
----------- -----------
Total increase in net assets...................................................... 2,964,369 3,586,495
Net Assets
Beginning of period.................................................. 63,930,776 60,344,281
----------- -----------
End of period (includes undistributed net investment income of $134,546 and $0,
respectively) ............................................................... $66,895,145 $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 six months ended June 30, 1996, aggregated $46,997,182 and $47,053,016,
respectively. The federal income tax cost basis of the Fund's investments at
June 30, 1996 was substantially the same as the cost basis for financial
reporting. Gross unrealized appreciation and depreciation amounted to $2,458,752
and $1,476,815, respectively, resulting in net unrealized appreciation for
federal income tax purposes of $981,937.
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 June 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 July 31, 1996 to shareholders
of record on July 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 August 30, 1996 to shareholders
of record on August 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>
Six Months
Ended
June 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......................... .79 1.52 1.38 1.18
Net gain/(loss) on securities (both realized
and unrealized)............................ .53 .70 (2.32) 1.94
------- ------- ------- -------
Total from investment operations.............. 1.32 2.22 (0.94) 3.12
------- ------- ------- -------
Less distributions
Dividends from net investment income....... (.75) (1.53) (1.39) (1.16)
Dividends from net realized gains.......... -- (.07) (0.38) (0.23)
------- ------- ------- -------
Total distributions. ......................... (.75) (1.60) (1.77) (1.39)
------- ------- ------- -------
Offering costs on issuance of common stock.... -- -- -- (0.09)
------- ------- ------- -------
Net asset value, end of period................ $ 14.07 $ 13.50 $ 12.88 $ 15.59
------- ------- ------- -------
Per share market value, end of period......... $15.125 $14.125 $12.875 $15.875
------- ------- ------- -------
Total investment return based on market
price per share**.......................... 12.86% 23.83% (8.04%) 25.10%#
Ratios/supplemental data:
Net assets, end of period (000)............ $66,895 $63,931 $60,344 $72,495
Ratio of expenses to average net assets.... 1.12%(a) 1.22% 1.13% 1.09%(a)
Ratio of net investment income to average
net assets............................... 11.23%(a) 11.68% 9.91% 8.64%(a)
Portfolio turnover rate.................... 73.44% 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>
</TABLE>
See accompanying notes to financial statements.
Page 11
<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):
Net Realized Gain
(Loss) & Change
in Net Unrealized
Net Investment Appreciation
Income (Depreciation)
------------------ ----------------------
Quarters Ended(a) Total Per Share Total Per Share
- -----------------------------------------------------------------------------
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 .40 903 .19
- ------------------------------------------------------------------------------
(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
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>
(Right Column)
- ---------------------------------
Salomon Brothers
High Income Fund Inc
Semi-Annual Report
JUNE 30, 1996
- -----------------------------------------------
Salomon Brothers Asset Management
----------------------------------------------------
(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
-------------------
