<PAGE> 1
SALOMON BROTHERS
HIGH INCOME FUND INC
ANNUAL REPORT
DECEMBER 31, 1995
______________________________________
SALOMON BROTHERS ASSET MANAGEMENT
_______________________________________
<PAGE> 2
SALOMON BROTHERS HIGH INCOME FUND INC
February 20, 1996
Dear Shareholder:
The net asset value of each of your shares at December 31, 1995 was $13.50. We
are very pleased that this represents an 18.3% net asset value return for the
year ended December 31, 1995 (assuming the reinvestment of dividends in
additional shares of the Fund) as compared with a return of 19.7% for the
Salomon Brothers High-Yield Market Index and a 16.2% average return of the nine
unleveraged high-yield closed-end funds tracked by Lipper Analytical Services,
Inc.
On the following pages, you will find audited financial statements for the year
ended December 31, 1995, the related report of independent accountants and other
information about the Fund.
U.S. high-yield investments accounted for between 75% and 80% of total
investments during the year. The balance of the portfolio is substantially
invested in emerging markets debt.
U.S. HIGH-YIELD BONDS
The high-yield market's performance was driven largely by the interest rate
rally experienced during 1995. A perceived slowing of the economy caused spreads
between high-yield bonds and Treasuries to widen by about 70 basis points during
the year causing the high-yield market to perform roughly in line with higher
quality fixed income securities.
Contributing to the Fund's strong performance in 1995 was a rotation in the
portfolio to more defensive, non-cyclical corporate debt issues. Non-cyclical
debt issues totaled approximately 63% of the corporate bond portion of the
portfolio at December 31, 1995, compared to 45% at the beginning of the year. As
U.S. economic growth slowed, non-cyclical issues outperformed cyclical corporate
debt issues significantly. Top performing sectors for the year included
airlines, telecommunications, gaming and media, while retailers, restaurants,
transportation and textile companies underperformed the market average.
Technical conditions in the U.S. high-yield market continued to be strong
through the end of 1995. Approximately $47 billion of new issues were priced
during 1995, compared to $43 billion in 1994. Net investments in high-yield
mutual funds reached approximately $11 billion in 1995, well above the $1.0
billion recorded in 1994.
HIGH-YIELD SOVEREIGN DEBT MARKET
The Fund also benefited from its portfolio allocation to emerging markets debt
securities. The Salomon Brothers Brady Bond Index, an indicator of the
performance of emerging markets debt, appreciated 26.7% during 1995. After
declining early in the year as a result of the sell-off that followed the
devaluation of the Mexican peso, emerging markets debt recovered over the last
three quarters of 1995. The recovery in emerging markets debt was driven by the
continued improvement of fundamentals in the major Latin American countries,
easing of interest rates by the U.S. Federal Reserve and the entry of new money
into the market.
<PAGE> 3
SALOMON BROTHERS HIGH INCOME FUND INC
All of our emerging markets debt investments are U.S. dollar-denominated
securities, principally Brady bonds. The Fund's largest holdings in emerging
markets debt, as a percentage of total investments at December 31, 1995, were in
the government debt of Brazil (4.4%), Poland (4.2%) and Morocco (2.4%). We
believe the fundamental outlook for these countries is positive. The emerging
markets debt asset class, in our view, continues to offer attractive total
return opportunities and the Fund's holdings will continue to have an allocation
to emerging markets debt.
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,
[SIG]
MICHAEL S. HYLAND
Chairman and President
<PAGE> 4
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS -- 74.42% (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 9.14%
$1,000 Berry Plastics, 12.25%, 4/15/04........................................... $ 1,070,000
1,000 Crown Paper Company, 11.00%, 9/01/05...................................... 875,000
1,000 Harris Chemical, Zero Coupon until 1/15/96
(10.25% thereafter), 7/15/01............................................ 950,000
1,000 Renco Metals Inc., 12.00%, 7/15/00........................................ 1,080,000
1,000 Repap Wisconsin, 9.875%, 5/01/06.......................................... 945,000
1,000 Valcor Inc., 9.625%, 11/01/03............................................. 920,000
-----------
5,840,000
-----------
CONSUMER CYCLICALS -- 5.29%
1,000 Cole National Group, Inc., 11.25%, 10/01/01............................... 1,002,500
1,000 Family Restaurants, 9.75%, 2/01/02........................................ 560,000
1,000 Flagstar Corp., 10.75%, 9/15/01........................................... 910,000
1,000 Specialty Retailer, 11.00%, 8/15/03....................................... 910,000
-----------
3,382,500
-----------
CONSUMER NON-CYCLICALS -- 27.96%
1,000 American Safety Razor, 9.875%, 8/01/05.................................... 1,017,500
1,000 Bally's Grand, 10.375%, 12/15/03.......................................... 1,020,000
1,000 Borg-Warner Security Corp., 9.125%, 5/01/03............................... 900,000
1,000 Carr-Gottstein Foods, 12.00%, 11/15/05(A)................................. 1,010,000
1,000 Dade International Inc., 13.00%, 2/01/05.................................. 1,130,000
1,000 Herff Jones, Inc., 11.00%, 8/15/05........................................ 1,070,000
1,000 Hines Horticulture, 11.75%, 10/15/05(A)................................... 1,040,000
1,000 Hollywood Casino, 12.75%, 11/01/03........................................ 915,000
2,000 International Semi-Tech, Zero Coupon until 8/15/00
(11.50% thereafter), 8/15/03............................................ 1,072,500
1,000 Norcal Waste Systems, 12.50%, 11/15/05*,(A)............................... 1,010,000
1,000 Pathmark Stores, 9.625%, 5/01/03.......................................... 972,500
1,000 Penn Traffic Co., 9.625%, 4/15/05......................................... 780,000
1,000 Revlon Worldwide, Zero Coupon, 3/15/98.................................... 742,500
1,000 Samsonite Corp., 11.125%, 7/15/05......................................... 960,000
1,000 Selmer Co. Inc., 11.00%, 5/15/05.......................................... 985,000
1,000 Specialty Foods, 11.125%, 10/01/02........................................ 970,000
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 5
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS (CONTINUED) (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,250 Telex Communications, Inc., 12.00%, 7/15/04............................... $ 1,284,375
1,049 Trump Taj Mahal, 11.35%, 11/15/99**....................................... 994,808
-----------
17,874,183
-----------
ENERGY -- 3.12%
3,000 Clark R&M Holdings, Zero Coupon, 2/15/00.................................. 1,995,000
-----------
INDUSTRIAL/MANUFACTURING -- 8.71%
1,150 Foamex, 11.875%, 10/01/04................................................. 1,127,000
1,500 Jordan Industries, 10.375%, 8/01/03....................................... 1,335,000
1,000 RBX Corporation, 11.25%, 10/15/05(A)...................................... 990,000
1,000 Terex Corporation, 13.75%, 5/15/02........................................ 870,000
1,500 Venture Holdings Trust, 9.75%, 4/01/04.................................... 1,245,000
-----------
5,567,000
-----------
MEDIA/TELECOMMUNICATIONS -- 18.70%
1,000 A+ Network Inc., 11.875%, 11/01/05........................................ 1,010,000
1,000 Adelphia Communications, 12.50%, 5/15/02.................................. 980,000
1,300 Comcast UK Cable, Zero Coupon until 11/15/00
(11.20% thereafter), 11/15/07........................................... 760,500
2,000 Diamond Cable Co., Zero Coupon until 12/15/00
(11.75% thereafter), 12/15/05........................................... 1,175,000
2,500 In Flight Phone, Zero Coupon until 5/15/98
(14.00% thereafter), 5/15/02............................................ 787,500
1,000 Katz Corporation, 12.75%, 11/15/02........................................ 1,070,000
1,750 Marcus Cable Co., Zero Coupon until 6/15/00
(14.25% thereafter), 12/15/05........................................... 1,190,000
2,000 Units People's Choice TV Corp., Zero Coupon until 6/01/00
(13.135% thereafter), 6/01/04#.......................................... 1,165,000
1,000 Rogers Cable Systems, 10.00%, 12/01/07.................................... 1,077,500
1,000 Sinclair Broadcasting, 10.00%, 9/30/05.................................... 1,020,000
1,500 United International Holdings, Zero Coupon, 11/15/99...................... 930,000
500 Units Winstar Communications, Zero Coupon until 10/15/00
(14.00% thereafter), 10/15/05(A),##..................................... 790,000
-----------
11,955,500
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 6
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) CORPORATE BONDS (CONCLUDED) (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION -- 1.50%
$1,000 Petro PSC Properties, 12.50%, 6/01/02..................................... $ 960,000
-----------
TOTAL CORPORATE BONDS (cost $48,216,817).................................. 47,574,183
-----------
</TABLE>
<TABLE>
<CAPTION>
SOVEREIGN BONDS -- 18.66%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,500 Republic of Argentina, FRB, 6.8125%, 3/31/05*............................. 1,070,625
3,478 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14**...................... 1,995,535
1,250 Republic of Brazil, "New" New Money, 6.875%, 4/15/09*..................... 759,375
500 Republic of Bulgaria, Discount Bond, Tranche A, 6.75%, 7/28/24*........... 266,563
2,500 Republic of Bulgaria, FLIRB, Series A, 2.00%, 7/28/12*.................... 764,062
2,300 Costa Rica Series A, Principal Bond, 6.25%, 5/21/10....................... 1,426,000
3,105 Republic of Ecuador, PDI Bond, 6.8125%, 2/28/15*, **...................... 1,040,177
1,000 Republic of Panama, FRN, 6.75%, 5/10/02*.................................. 852,500
4,000 Republic of Poland, PDI Bond, 3.75%, 10/27/14*............................ 2,605,000
1,750 United Mexican States, Par Bond, Series B, 6.25%, 12/31/19 (including
1,750,000 rights)....................................................... 1,150,625
-----------
TOTAL SOVEREIGN BONDS (cost $10,913,271).................................. 11,930,462
-----------
</TABLE>
<TABLE>
<CAPTION>
LOAN PARTICIPATION -- 2.34%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,250 Kingdom of Morocco, Tranche A, 6.5938%, 1/01/09*
(Morgan Guaranty Trust Company of New York)+ (cost $1,328,907).......... 1,499,063
-----------
WARRANTS(B) -- .19%
- ----------------------------------------------------------------------------------------------------------------
750 Warrants Berry Plastics (exercise price of $18.797 per share expiring on 4/15/04
for 1.13237 shares of common stock)..................................... 9,375
2,500 Warrants In Flight Phone (exercise price of $.01 per share expiring on 8/31/02 for
one share of common stock).............................................. 0
1,000 Warranhts Petro PSC Properties (exercise price of $0, expiring on 7/01/97;
exchangeable for $55,380 principal amount of Notes or an equivalent
number of shares)....................................................... 34,000
2,875 Warrants United International Holdings (exercise price of $15 per share expiring on
11/15/99 for common stock).............................................. 77,625
-----------
TOTAL WARRANTS (cost $108,830)............................................ 121,000
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 3
<PAGE> 7
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) REPURCHASE AGREEMENT -- 2.54% (NOTE 2)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$1,623 Chase Manhattan Bank, 5.55%, cost $1,623,000, dated 12/29/95, $1,624,001
due 1/2/96, (collateralized by $1,405,000, 7.25% U.S. Treasury Bonds due
8/15/22, valued at $1,656,144).......................................... $ 1,623,000
-----------
TOTAL INVESTMENTS -- 98.15% (cost $62,190,825)............................ 62,747,708
-----------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.85%................... 1,183,068
-----------
NET ASSETS -- 100.00%
(equivalent to $13.50 per share on 4,733,972 common shares outstanding)... $63,930,776
===========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
** Payment-in-kind security for which part of the interest earned is
capitalized as additional principal.
(A) Pursuant to Rule 144A under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
# 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.
## Each unit is comprised of two $1,000 par Senior Discount Notes and one
$1,000 par Convertible Senior Subordinated Discount Note, all due 10/15/05.
+ Participation interest was acquired through the financial institution
indicated parenthetically.
(B) Non-income producing security.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
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
December 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $62,190,825)................................................... $62,747,708
Cash.......................................................................................... 5,616
Interest receivable........................................................................... 1,290,884
Unamortized organization expenses............................................................. 50,472
Prepaid expenses.............................................................................. 584
-----------
Total assets.......................................................................... 64,095,264
-----------
LIABILITIES
Accrued audit and tax return preparation fees................................................. 63,500
Management fee payable to SBAM (Note 3)....................................................... 37,596
Accrued printing expense...................................................................... 17,798
Accrued annual meeting fee.................................................................... 14,000
Accrued legal fee............................................................................. 11,000
Accrued custodian fee......................................................................... 4,500
Other accrued expenses........................................................................ 16,094
-----------
Total liabilities..................................................................... 164,488
-----------
NET ASSETS
Common Stock ($.001 par value, authorized 100,000,000 shares;
4,733,972 shares outstanding)............................................................... 4,734
Additional paid-in capital.................................................................... 65,596,717
Accumulated net realized loss on investments.................................................. (2,227,558)
Net unrealized appreciation on investments.................................................... 556,883
-----------
Net assets............................................................................ $63,930,776
-----------
NET ASSET VALUE PER SHARE ($63,930,776 divided by 4,733,972 shares)........................... $13.50
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
<PAGE> 9
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $1,916,049)....................................... $ 7,918,262
EXPENSES
Management fee.................................................................. $428,343
Audit and tax return preparation services....................................... 66,960
Printing........................................................................ 44,400
Legal........................................................................... 39,105
Transfer agent.................................................................. 36,761
Directors' fees and expenses.................................................... 32,728
Amortization of deferred organization costs..................................... 24,747
Annual meeting expense.......................................................... 18,683
Listing fee..................................................................... 18,396
Custodian....................................................................... 15,208
Other........................................................................... 23,136 748,467
-------- -----------
Net investment income........................................................... 7,169,795
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Loss on Investments........................................................... (2,227,558)
Change in Net Unrealized Appreciation on Investments....................................... 5,513,516
-----------
Net realized loss and change in net unrealized appreciation................................ 3,285,958
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................. $10,455,753
-----------
</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>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income................................................ $ 7,169,795 $ 6,488,619
Net realized gain (loss) on investments.............................. (2,227,558) 1,167,548
Change in net unrealized appreciation (depreciation)................. 5,513,516 (12,020,441)
----------- -----------
Net increase (decrease) in net assets from operations................ 10,455,753 (4,364,274)
----------- -----------
DIVIDENDS
From net investment income........................................... (7,202,554) (6,465,962)
From net realized gains.............................................. (317,263) (1,797,896)
----------- -----------
Net decrease in net assets from dividends............................ (7,519,817) (8,263,858)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(49,559 and 34,248 shares issued).................................. 650,559 490,196
Additional offering expenses......................................... -- (13,000)
----------- -----------
Net increase in net assets from capital share transactions........... 650,559 477,196
----------- -----------
Total increase (decrease) in net assets.............................. 3,586,495 (12,150,936)
NET ASSETS
Beginning of period.................................................. 60,344,281 72,495,217
----------- -----------
End of period (includes undistributed net investment income of
$0 and $126,160, respectively)..................................... $63,930,776 $60,344,281
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
<PAGE> 11
SALOMON BROTHERS HIGH INCOME FUND INC
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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)
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)
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments,
for the year ended December 31, 1995, aggregated $75,875,054 and $78,518,277,
respectively. The federal income tax cost basis of the Fund's investments at
December 31, 1995 was substantially the same as the cost basis for financial
reporting. Gross unrealized appreciation and depreciation amounted to $2,821,765
and $2,264,882, respectively, resulting in net unrealized appreciation for
federal income tax purposes of $556,883.
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 DECEMBER 31, 1995
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.125 per share payable on January 31, 1996 to
shareholders of record on January 12, 1996.
The Board of Directors of the Fund declared a common stock dividend from net
investment income of $0.125 per share payable on February 29, 1996 to
shareholders of record on February 12, 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>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period...................... $12.88 $15.59 $13.95
------ ------ ------
Net investment income..................................... 1.52 1.38 1.18
Net gain/(loss) on securities (both realized and
unrealized)............................................. .70 (2.32) 1.94
------ ------ ------
Total from investment operations.......................... 2.22 (0.94) 3.12
------ ------ ------
Less distributions
Dividends from net investment income.................... (1.53) (1.39) (1.16)
Dividends from net realized gains....................... (.07) (0.38) (0.23)
------ ------ ------
Total distributions....................................... (1.60) (1.77) (1.39)
------ ------ ------
Offering costs on issuance of common stock................ -- -- (0.09)
------ ------ ------
Net asset value, end of period............................ $13.50 $12.88 $15.59
====== ====== ======
Per share market value, end of period..................... $14.125 $12.875 $15.875
======= ======= =======
Total investment return based on market price per
share**................................................. 23.83% (8.04%) 25.10%#
Ratios/supplemental data:
Net assets, end of period (000)........................... $63,931 $60,344 $72,495
Ratio of expenses to average net assets................... 1.22% 1.13% 1.09%(a)
Ratio of net investment income to average net assets...... 11.68% 9.91% 8.64%(a)
Portfolio turnover rate................................... 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
</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
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Salomon Brothers High Income Fund Inc
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Salomon Brothers High Income
Fund Inc (the "Fund") at December 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audits,
which included confirmation of securities at December 31, 1995 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, N.Y.
February 15, 1996
PAGE 13
<PAGE> 17
SALOMON BROTHERS HIGH INCOME FUND INC
- ---------------------------------------------------------------------------
OTHER INFORMATION
Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan")
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
American Stock Transfer & Trust Company (the "Plan Agent") in Fund shares
pursuant to the Plan, unless such shareholders elect to receive distributions in
cash. Shareholders who elect to receive distributions in cash will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by American Stock Transfer & Trust Company, as dividend paying
agent. In the case of shareholders, such as banks, brokers or nominees, that
hold shares for others who are beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholders as representing the total amount registered in such shareholders'
names and held for the account of beneficial owners that have not elected to
receive distributions in cash. Investors that own shares registered in the name
of a bank, broker or other nominee should consult with such nominee as to
participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in
the open market, as provided below. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value; provided,
however, if the net asset value is less than 95% of the market price on the
valuation date, then such shares will be issued at 95% of the market price. The
valuation date will be the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If net asset value exceeds the market price of Fund shares at such time, or
if the Fund should declare an income dividend or capital gains distribution
payable only in cash, the Plan Agent will, as agent for the participants, buy
Fund shares in the open market, on the New York Stock Exchange or elsewhere, for
the participants' accounts on, or shortly after, the payment date. If, before
the Plan Agent has completed its purchases, the market price exceeds the net
asset value of a Fund share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the distribution had been paid in shares
issued by the Fund on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if the
Plan Agent is unable to invest the full dividend amount in open-market purchases
during the purchase period or if the market discount shifts to a market premium
during the purchase period, the Plan Agent will cease making open-market
purchases and will
PAGE 14
<PAGE> 18
SALOMON BROTHERS HIGH INCOME FUND INC
- ---------------------------------------------------------------------------
OTHER INFORMATION (continued)
receive the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent will use all such funds received from participants to
purchase Fund shares in the open market on or about the first business day of
each month. Any voluntary cash payments received more than 30 days prior to
these dates will be returned by the Plan Agent, and interest will not be paid on
any uninvested cash payments. To avoid unnecessary cash accumulations, and also
to allow ample time for receipt and processing by the Plan Agent, it is
suggested that participants send in voluntary cash payments to be received by
the Plan Agent approximately ten days before an applicable purchase date
specified above. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant or any dividends or capital gains distributions
payable only in cash. Brokerage charges for purchasing small amounts of stock
for individual accounts through the Plan are expected to be less than the usual
brokerage charges for such transactions, because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Participants may terminate their accounts under the Plan by notifying the Plan
Agent in writing. Such termination will be effective immediately if notice is
received by the Plan Agent not less than ten days prior to any dividend or
distribution record date. Upon termination, the Plan Agent will send the
participant a certificate for the full shares held in the account and a cash
adjustment for any fractional shares to be delivered to each shareholder without
charge.
PAGE 15
<PAGE> 19
SALOMON BROTHERS HIGH INCOME FUND INC
- ---------------------------------------------------------------------------
OTHER INFORMATION (concluded)
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
40 Wall Street, 46th floor, New York, New York 10005.
PAGE 16
<PAGE> 20
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;
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
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
HIF
- --------------------------------------------------------------------------------
<PAGE> 21
<TABLE>
<S> <C>
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
---------------------
</TABLE>
