<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
August 22, 1997
Dear Shareholders:
The net asset value of each of your shares of Salomon Brothers High Income Fund
(the "Fund") on June 30, 1997 was $15.08, up from $14.72 per share at December
31, 1996. This represents a 7.76% net asset value return for the six months
ended June 30, 1997 (assuming the reinvestment of dividends in additional shares
of the Fund), as compared with an increase of 5.96% for the Salomon Brothers
High-Yield Market Index and a 6.13% 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.
U.S. high-yield investments accounted for approximately 80% of total investments
at June 30, 1997. The balance of the portfolio is primarily invested in emerging
markets debt.
HIGH-YIELD MARKET
The U.S. corporate high-yield market continued to post strong performance,
buoyed by both fundamental and technical factors. The combination of solid
economic growth and low inflation in the United States served to improve credit
quality among a broad spectrum of issuers, and new issuance remained on track to
surpass record levels this year. Meanwhile, mutual fund cash inflows continued
at a healthy pace, creating strong demand for new issues. And, despite some
widening of yield spreads to Treasuries in March and April, spreads contracted
in May and June.
EMERGING MARKETS
During the past six months, the emerging debt markets benefited from favorable
market conditions, attractive yields and positive economic and political
settings in many key countries. Brazil's $3 billion Mexican-style Brady swap
against a 30-year global bond was the largest amount ever issued by an emerging
market borrower. The upgrading by Standard & Poor's of 12 Argentine corporates
to investment grade and the victory of the pro-reform UDF party in Bulgaria and
that government's efforts regarding the implementation of a currency board on
July 1, had a positive impact on the market. In Russia, the government's reform
efforts were well-received by the market, and macroeconomic indicators appear
quite favorable.
ANNUAL SHAREHOLDERS MEETING
The Fund held its annual meeting of shareholders on April 17, 1997. At the
meeting, shareholders elected the nominees proposed for election to the Fund's
Board of Directors and ratified the selection of Price Waterhouse LLP as the
independent accountants of the Fund. The following table provides information
concerning the matters voted on at the meeting:
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
1. Election of Directors
Nominees Votes For Votes Withheld
------------------------------------------------------------------------------------------
<S> <C> <C>
Allan C. Hamilton 4,168,778 43,318
Michael S. Hyland 4,170,034 42,062
</TABLE>
<TABLE>
<CAPTION>
2. Ratification of Price Waterhouse LLP as the Independent Accountants of the Fund
Votes For Votes Against Votes Abstained
-------------------------------------------------------------------------------------------
<S> <C> <C>
4,174,266 18,270 19,560
</TABLE>
In July, Allan C. Hamilton announced that he had decided to resign as a director
of the Fund. We appreciate his contribution to the Fund since its inception.
* * *
In a continuing effort to provide timely information concerning the Fund,
shareholders may call 1-888-777-0102 (a toll-free number), Monday though Friday
from 8:00 am to 6:00 pm EST for the Fund's current net asset value, market price
and other information regarding the Fund's portfolio holdings and allocations.
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
* Lipper rankings change monthly and do not reflect the effects of transaction
charges. Lipper performance results represent changes in net asset value,
adjusted to reflect reinvestment of dividends and capital gain distributions.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds-- 78.6% (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 7.7%
$1,000 Algoma Steel Inc., 12.375%, 7/15/05.................... $ 1,105,000
1,000 Berry Plastics, 12.25%, 4/15/04........................ 1,107,500
500 Doman Industries Limited, 8.75%, 3/15/04............... 482,500
NL Industries, Zero Coupon until 10/15/98
1,250 (13.00% thereafter), 10/15/05........................ 1,168,750
600 Radnor Holdings, 10.00%, 12/01/03...................... 624,000
500 Units Stone Container Corp., 12.25%, 4/01/02(A).............. 510,000
500 Tekni-Plex Inc., 11.25%, 4/01/07#...................... 542,500
----------
5,540,250
----------
CONSUMER CYCLICALS -- 2.8%
200 Units Anvil Holdings, Inc., 13.00%, 3/15/09(B)#**............ 206,572
1,000 CSK Auto, Inc., 11.00%, 11/01/06....................... 1,040,000
1,000 Hills Stores, 12.50%, 7/01/03.......................... 777,500
----------
2,024,072
----------
CONSUMER NON-CYCLICALS -- 24.0%
1,000 Carr-Gottstein Foods, 12.00%, 11/15/05................. 1,110,000
1,500 Coleman Escrow Corp., Zero Coupon, 5/15/01#............ 873,750
750 Dade International Inc., 11.125%, 5/01/06.............. 836,250
500 Fresenius Medical Care Capital Trust, 9.00%, 12/01/06.. 506,875
1,000 Hines Horticulture, 11.75%, 10/15/05................... 1,065,000
500 Imed Corp., 9.75%, 12/01/06#........................... 515,000
International Semi-Tech, Zero Coupon until 8/15/00
1,000 (11.50% thereafter), 8/15/03......................... 595,000
750 Mettler Toledo Inc., 9.75%, 10/01/06................... 787,500
1,000 North Atlantic Trading, 11.00%, 6/15/04#............... 1,017,500
1,000 Pueblo XTRA International, 9.50%, 8/01/03.............. 970,000
1,000 Rayovac Corp., 10.25%, 11/01/06........................ 1,050,000
1,500 Revlon Worldwide, Zero Coupon, 3/15/01#................ 1,016,250
750 Riddell Sports Inc., 10.50%, 7/15/07#.................. 770,625
1,000 Selmer Co. Inc., 11.00%, 5/15/05....................... 1,090,000
500 Stroh Brewery, 11.10%, 7/01/06......................... 525,000
1,000 Sun International Hotels, 9.00%, 3/15/07............... 1,018,750
1,000 Trump Atlantic City Associates, 11.25%, 5/01/06........ 977,500
500 Twin Laboratories Inc., 10.25%, 5/15/06................ 527,500
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 1
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (continued) (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,000 Units Urohealth Systems Inc., 12.50%, 4/01/04(C)#.................. $ 975,000
$1,000 Waterford Gaming LLC, 12.75%, 11/15/03#...................... 1,110,000
----------
17,337,500
----------
ENERGY -- 8.2%
1,000 Bellwether Exploration, 10.875%, 4/01/07..................... 1,077,500
750 Benton Oil &Gas, 11.625%, 5/01/03............................ 825,938
500 Cliffs Drilling, 10.25%, 5/15/03............................. 532,500
400 Dawson Product Services, 9.375%, 2/01/07..................... 408,000
500 Flores & Rucks, 9.75%, 10/01/06.............................. 522,500
1,000 National Energy Group, 10.75%, 11/01/06...................... 1,042,500
500 Snyder Oil Corp., 8.75%, 6/15/07............................. 501,250
1,000 United Refining, 10.75%, 6/15/07#............................ 1,010,000
----------
5,920,188
----------
FINANCIAL -- 3.5%
500 Airplanes Pass Through Trust, 10.875%, 3/15/19............... 578,750
1,000 Central Transport Rental, 9.50%, 4/30/03..................... 965,000
1,000 Cityscape Financial Corp., 12.75%, 6/01/04#.................. 990,000
----------
2,533,750
----------
HOUSING RELATED -- 1.2%
Waxman Industries Inc., Zero Coupon until 6/01/99
1,000 (12.75% thereafter), 6/01/04............................... 855,000
----------
INDUSTRIAL/MANUFACTURING -- 8.4%
500 Alvey Systems, 11.375%, 1/31/03.............................. 517,500
1,000 Clark-Schwebel Inc., 10.50%, 4/15/06......................... 1,070,000
500 HCC Industries, 10.75%, 5/15/07#............................. 531,250
1,000 Jordan Industries, 10.375%, 8/01/03.......................... 1,060,000
1,000 Talley Mfg. & Technology, 10.75%, 10/15/03................... 1,050,000
1,000 Terex Corporation, 13.25%, 5/15/02........................... 1,130,000
750 Venture Holdings Trust, 9.75%, 4/01/04....................... 735,000
----------
6,093,750
----------
MEDIA/TELECOMMUNICATIONS -- 12.6%
750 Adelphia Communications, 12.50%, 5/15/02..................... 795,000
1,000 Cablevision Systems Corp., 10.50%, 5/15/16................... 1,090,000
Diamond Cable Co., Zero Coupon until 12/15/00
1,000 (11.75% thereafter), 12/15/05.............................. 692,500
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 2
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Corporate Bonds (continued) (Note 2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
$3,000 Hollinger Inc., Zero Coupon Convertible Bond, 10/05/13...... $ 1,125,000
ICG Holdings, Zero Coupon until 9/15/00
1,500 (13.50% thereafter), 9/15/05.............................. 1,095,000
International Cabletel Inc., Zero Coupon until 2/01/01
1,300 (11.50% thereafter), 2/01/06.............................. 903,500
Marcus Cable Co., Zero Coupon until 6/15/00
1,250 (14.25% thereafter), 12/15/05............................. 987,500
1,000 SFX Broadcasting, 10.75%, 5/15/06........................... 1,080,000
1,500 United International Holdings, Zero Coupon, 11/15/99........ 1,155,000
200 Western Wireless Corp., 10.50%, 6/01/06..................... 206,500
----------
9,130,000
----------
SERVICES/OTHER -- 5.6%
Allied Waste Industries, Zero Coupon until 6/01/02
1,500 (11.30% thereafter), 6/01/07#............................. 922,500
1,000 Borg-Warner Security Corp., 9.125%, 5/01/03................. 1,000,000
500 Iron Mountain Inc., 10.125%, 10/01/06....................... 535,000
500 Loomis Fargo & Co., 10.00%, 1/15/04#........................ 501,250
500 Norcal Waste Systems, 13.00%, 11/15/05*..................... 560,000
500 Pierce Leahy Corp., 11.125%, 7/15/06........................ 545,000
----------
4,063,750
----------
TECHNOLOGY/ELECTRONICS -- 2.0%
400 Amphenol Corp., 9.875%, 5/15/07............................. 412,000
1,000 Exide Electronics Group, 11.50%, 3/15/06.................... 1,045,000
----------
1,457,000
----------
TRANSPORTATION -- 1.4%
1,000 Ryder TRS Inc., 10.00%, 12/01/06............................ 1,035,000
----------
UTILITIES -- 1.2%
750 AESCorp., 10.25%, 7/15/06................................... 823,125
----------
Total Corporate Bonds (cost $54,180,001).................... 56,813,385
----------
Sovereign Bonds -- 15.7%
- ---------------------------------------------------------------------------------------------------------
1,455 Republic of Argentina, FRB, Series L, 6.75%, 3/31/05*....... 1,368,609
847 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14**........ 680,537
75 Federal Republic of Brazil, Global Bond, 10.125%, 5/15/27... 72,300
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Sovereign Bonds (concluded) (Note 2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,250 Federal Republic of Brazil, NMB, Series L, 6.9375%, 4/15/09*..... $ 1,093,750
500 Republic of Bulgaria, Discount Bond, Tranche A, 6.5625%, 7/28/24* 368,750
1,300 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10............. 1,118,000
3,808 Republic of Ecuador, PDI Bond, 6.4375%, 2/27/15*,**.............. 2,456,254
United Mexican States, Par Bond, Series A, 6.25%, 12/31/19
1,750 (including 1,750,000 rights)................................... 1,352,969
2,000 Republic of Panama, IRB, 3.50%, 7/17/14*......................... 1,545,000
1,429 Republic of Venezuela, FLIRB, Series B, 6.75%, 3/31/07*.......... 1,332,143
----------
Total Sovereign Bonds (cost $8,914,508).......................... 11,388,312
----------
Loan Participations -- 3.4%
- ---------------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria,
1,000 Tranche A, 6.91%, 9/04/06* (Chase Manhattan)+.................. 876,250
Kingdom of Morocco, Tranche A, 6.8125%, 1/01/09*
1,750 (Morgan Guaranty Trust Company of New York)+................... 1,597,969
----------
Total Loan Participations (cost $1,976,191)...................... 2,474,219
----------
Common Stock -- 0.1%
- ---------------------------------------------------------------------------------------------------------
500 Shares AmeriKing, Inc. (cost $22,000)................................... 25,000
----------
Warrants & Rights++ -- 0.1%
- ---------------------------------------------------------------------------------------------------------
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.)..... 25,000
In Flight Phone (Exercise price of $.01 per share expiring on
8/31/02. Each warrant exercisble for one share of
2,500 Warrants common stock.)................................................. 0
4,000 Rights Terex Corporation Stock Appreciation Rights...................... 44,500
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.).... 14,375
----------
Total Warrants & Rights (cost $73,295)........................... 83,875
----------
Total Investments-- 97.9% (cost $65,165,995).................... 70,784,791
----------
Cash and Other Assets in Excess of Liabilities-- 2.1%............ 1,538,098
----------
Net Assets -- 100.0%
(equivalent to $15.08 per share on 4,795,204 common shares
oustanding)................................................... $72,322,889
===========
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 4
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (concluded)
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
* 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 10.75% Senior Debenture Note and
1.50% Supplemental Interest Certificate.
(B) Each unit is comprised of 40 shares of $25 par Senior Exchangeable
Preferred Stock and 13 shares of Class B common stock.
(C) Each unit is comprised of a $1,000 par Senior Note due 4/01/04 and a
warrant to purchase 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.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost-- $65,165,995)........................ $70,784,791
Cash.............................................................. 450,937
Interest receivable............................................... 1,191,688
Unamortized organization expenses................................. 14,047
Prepaid expenses.................................................. 13,734
-----------
Total assets................................................ 72,455,197
-----------
Liabilities
Management fee payable to SBAM (Note 3)........................... 41,595
Accrued audit and tax return preparation fees..................... 36,927
Accrued printing expense.......................................... 16,002
Accrued legal fee................................................. 11,131
Other accrued expenses............................................ 26,653
-----------
Total liabilities........................................... 132,308
-----------
Net Assets
Common Stock ($.001 par value, authorized 100,000,000 shares;
4,795,204 shares outstanding).................................... 4,795
Additional paid-in capital......................................... 66,493,251
Distributions in excess of net investment income................... (36,383)
Accumulated net realized gain on investments....................... 242,430
Net unrealized appreciation on investments......................... 5,618,796
-----------
Net assets................................................... $72,322,889
-----------
Net Asset Value Per Share ($72,322,889 / 4,795,204 shares) $15.08
-----------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 6
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Operations
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Income
Interest (includes discount accretion of $833,621) .................................... $3,834,890
Expenses
Management fee ............................................................ $246,291
Audit and tax return preparation services ................................. 30,249
Directors' fees and expenses .............................................. 23,803
Transfer Agent ............................................................ 22,811
Legal ..................................................................... 22,315
Printing .................................................................. 15,868
Amortization of deferred organization costs................................ 12,053
Custodian.................................................................. 8,927
Other ..................................................................... 20,760 403,077
-------- ----------
Net investment income...................................................... 3,431,813
----------
Net Realized and Unrealized Gain
Net Realized Gain on Investments........................................... 983,741
Change in Net Unrealized Appreciation on Investments....................... 898,064
----------
Net realized gain and change in net unrealized appreciation ............... 1,881,805
----------
Net Increase in Net Assets from Operations................................. $5,313,618
----------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended
1997 December 31,
(unaudited) 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ............................................... $ 3,431,813 $ 7,249,995
Net realized gain on investments..................................... 983,741 1,605,972
Change in net unrealized appreciation................................ 898,064 4,163,849
----------- -----------
Net increase in net assets from operations .......................... 5,313,618 13,019,816
----------- -----------
Dividends
From net investment income .......................................... (3,468,448) (7,249,743)
From net realized gain............................................... (119,725) --
----------- -----------
Net decrease in net assets from dividends............................ (3,588,173) (7,249,743)
----------- -----------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(18,929 and 42,303 shares issued) ............................ 289,135 607,460
----------- -----------
Total increase in net assets......................................... 2,014,580 6,377,533
Net Assets
Beginning of period.................................................. 70,308,309 63,930,776
----------- -----------
End of period (includes distributions in excess of net investment income
of $36,383 and undistributed net investment income of $252, respectively) $72,322,889 $70,308,309
----------- -----------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements
(unaudited)
Note 1. Organization
Salomon Brothers High Income Fund Inc (the "Fund") was incorporated in Maryland
on September 14, 1992 and is registered as a diversified, closed-end, management
investment company under the Investment Company Act of 1940, as amended. The
Fund commenced operations on January 29, 1993. The Salomon Brothers High Income
Fund Inc seeks to maintain a high level of current income by investing primarily
in a diversified portfolio of high-yield U.S. corporate debt securities and
high-yield foreign sovereign debt securities. As a secondary objective, the Fund
seeks capital appreciation.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual amounts could differ
from those estimates.
(a) SECURITIES VALUATION. In valuing the Fund's assets, all securities for which
market quotations are readily available are valued (i) at the last sale price
prior to the time of determination if there were a sale on the date of
determination, (ii) at the mean between the last current bid and asked prices if
there were no sales on such date and bid and asked quotations are available, and
(iii) at the bid price if there were no sales price on such date and only bid
quotations are available. 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.
Page 8
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (continued)
(unaudited)
(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.
(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.
(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>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements(concluded)
(unaudited)
Note 4. Portfolio Activity
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 1997, aggregated $31,078,375 and $32,029,404,
respectively. The federal income tax cost basis of the Fund's investments at
June 30, 1997 was substantially the same as the cost basis for financial
reporting. Gross unrealized appreciation and depreciation amounted to $5,973,967
and $355,171, respectively, resulting in net unrealized appreciation for federal
income tax purposes of $5,618,796.
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, 1997
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, 1997 to shareholders
of record on July 15, 1997. The Board of Directors of the Fund declared a common
stock dividend from net investment income of $0.125 per share payable on August
29, 1997 to shareholders of record on August 12, 1997.
Page 10
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Financial Highlights
Data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended Year Ended Year Ended Period Ended
1997 December 31, December 31, December 31, December 31,
(unaudited) 1996 1995 1994 1993*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.72 $ 13.50 $ 12.88 $ 15.59 $ 13.95
------ ------- ------- ------- -------
Net investment income............... .72 1.52 1.52 1.38 1.18
Net gain/(loss) on securities (both
realized and unrealized)......... .39 1.22 .70 (2.32) 1.94
------ ------- ------- ------- -------
Total from investment operations.... 1.11 2.74 2.22 (0.94) 3.12
------ ------- ------- ------- -------
Less distributions
Dividends from net investment
income......................... (.72) (1.52) (1.53) (1.39) (1.16)
Dividends from net realized gains (.03) -- (.07) (0.38) (0.23)
------ ------- ------- ------- -------
Total distributions. ............... (.75) (1.52) (1.60) (1.77) (1.39)
------ ------- ------- ------- -------
Offering costs on issuance of common
stock.......................... -- -- -- -- (0.09)
------ ------- ------- ------- -------
Net asset value, end of period...... $15.08 $ 14.72 $ 13.50 $ 12.88 $ 15.59
------ ------- ------- ------- -------
Per share market value, end of period $16.50 $15.375 $14.125 $12.875 $15.875
------ ------- ------- ------- -------
Total investment return based on
market price per share**......... 12.69% 20.98% 23.83% (8.04%) 25.10%#
Ratios/supplemental data:
Net assets, end of period (000).. $72,323 $70,301 $63,931 $60,344 $72,495
Ratio of expenses to average net
assets......................... 1.14%(a) 1.16% 1.22% 1.13% 1.09%(a)
Ratio of net investment income to
average net assets............. 9.74%(a) 10.76% 11.68% 9.91% 8.64%(a)
Portfolio turnover rate.......... 45.1% 110.4% 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.
See accompanying notes to financial statements.
Page 11
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
<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 .48
December 31, 1996............................................ 1,755 .36 935 .21
March 31, 1997............................................... 1,708 .36 (565) (.12)
June 30, 1997................................................ 1,724 .36 2,447 .51
<FN>
- --------------------------------------------------------------------------------------------------------------
(a) Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
Page 12
</TABLE>
<PAGE>
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
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
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
Salomon Brothers High Income Fund Inc
7 World Trade Center
New York, New York 10048
TELEPHONE
1-800-725-6666
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
The Chase Manhattan Bank, N.A.
Four Metrotech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer &Trust Company
40 Wall Street
New York, New York 10005
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
HIF
<PAGE>
Salomon Brothers
High Income Fund Inc
Semi-Annual Report
JUNE 30, 1997
- ----------------------------------------------------------
Salomon Brothers Asset Management
- ----------------------------------------------------------
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
