<PAGE>
SALOMON BROTHERS
HIGH INCOME FUND INC
August 3, 1998
Dear Shareholders:
We are pleased to provide this semi-annual report for Salomon Brothers High
Income Fund ("Fund") as of June 30, 1998. Included are a market commentary, a
statement of the Fund's investments as of June 30, 1998 and financial statements
for the six month period ended June 30, 1998.
During the six month period ended June 30, 1998, the net asset value for the
Fund decreased from $14.92 per share to $14.53 per share at June 30, 1998.
Dividends totaling $0.75 per share were paid from net investment income during
this period. Assuming the reinvesment of these dividends in additional shares of
the Fund, the net asset value return for the six months ended June 30, 1998 was
2.40%. During the same period, the JP Morgan Emerging Markets Bond Index Plus,
which we use as a measure of the return of the overall market for emerging
markets debt, returned -1.08%.
U.S. HIGH YIELD MARKET
In the first quarter of 1998, corporate earnings and credit quality were
generally solid and supported spread tightening. The market's firmness appeared
to be due to several factors including a high level of cash in the market and a
strong rally in the U.S. Treasury market. The high yield market's increase was
also fueled by strong demand from both retail and institutional buyers. High
yield mutual funds were aggressive buyers, as they experienced record inflows
during the period. Collateralized Bond Obligations (CBOs), insurance companies,
pension funds and other institutional buyers have also been active participants.
The high yield market reversed its positive trend in the second quarter of 1998.
Investors became increasingly concerned with the impact of fundamental problems
in Japan, Russia and Southeast Asia, and a "flight-to-quality" ensued. Technical
conditions were also weak, due to heavy new issuance. Toward quarter-end,
however, new issuance began to slow, bringing supply and demand closer to
equilibrium. In addition, the proposed buyout of TCI by AT&T and continued
merger and acquisition activity in the cable/media sector helped provide a more
positive tone to the market. During the period, the performance of the Fund was
helped by its significant underexposure to the telecommunications industry and
its overweighting in diversified services. However, these benefits were offset
by the Fund's overweighting in energy, which underperformed due to lower energy
prices. The Fund has maintained its underweighting in telecommunications and
basic industries such as paper and chemicals which are currently suffering from
lower commodity prices. In addition, the overall credit quality of the portfolio
continues to be modestly upgraded.
Leisure/lodging, retail stores, technology, cable and media and gaming were
outperforming industries during the six months ended June 30, 1998.
Underperformers included auto manufacturing, energy, publishing, supermarkets
and textile and apparel.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
EMERGING MARKETS DEBT SECURITIES
The emerging debt market stabilized in the six months ended June 30, 1998
despite the volatility surrounding the Asian stock, bond and currency crisis in
October 1997. The asset class posted a return of -1.08% as measured by the JP
Morgan Emerging Markets Bond Index Plus during that time period. By comparison,
the Salomon Brothers Broad Investment Grade index, which is a proxy for
investment grade fixed income securities, posted a return of 3.97%.
During the six months ended June 30, 1998, we continued to believe that the
market risk in Asia had not disappeared. Events leading up to January, 1998,
however, increased our confidence in global emerging market bond prospects. It
seemed Asian countries were beginning to take steps to combat the weakness in
their currencies: Korea exchanged over $20 billion in maturing short-term debt
for longer-term bonds and subscribed to an International Monetary Fund (IMF)
reform package; Thailand and Malaysia began to implement many IMF reforms; and
China reaffirmed its commitment to maintaining Hong Kong's U.S. dollar currency
peg. Consequently, we began to increase our exposure to the market. Our
increased exposure was concentrated in those countries that had solid
fundamentals and were not excessively reliant on the international capital
markets, but were sold off in sympathy with Asia. Additionally, we continued to
focus our investing in the U.S. dollar debt sector of the market, as opposed to
the local currency markets. In this volatile environment, a better risk/reward
profile was afforded via external debt relative value trading, rather than
outright foreign exchange exposure.
For the six months ended June 30, 1998, outperformers in the emerging debt
market included Argentina, Brazil, Mexico, Panama, The Philippines, Morocco,
Bulgaria and Poland. Underperformers for the period included Ecuador, Venezuela,
Peru and Russia.
In a continuing effort to provide timely information concerning the Fund,
shareholders may call our toll free number at 1-888-777-0102, Monday through
Friday from 8:00 am to 6:00 pm EST for the Fund's net asset value, market price
and other information regarding the Fund's portfolio holdings and allocations.
For information regarding the Fund's Dividend Reinvestment Plan, 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,
/s/ Heath B. McLendon /s/ Peter J. Wilby
Heath B. McLendon Peter J. Wilby
Chairman Executive Vice President
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Corporate Bonds-- 72.1% Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Industries -- 7.6%
$ 500 AEI Holding Co., 10.000% due 11/15/07 (a)................................ $ 495,000
1,000 Berry Plastics, 12.250% due 4/15/04...................................... 1,090,000
500 Envirosource Inc., 9.750% due 6/15/03 (a)................................ 505,000
1,000 Glencore Nickel, 9.000% due 12/1/14 ..................................... 972,500
1,000 PCI Chemicals Canada Inc., 9.250% due 10/15/07........................... 975,000
Radnor Holdings:
600 10.000% due 12/1/03................................................... 627,000
150 Series B, 10.000% due 12/1/03......................................... 156,750
500 Tekni-Plex Inc., 11.250% due 4/1/07...................................... 552,500
----------
5,373,750
----------
Consumer Cyclicals -- 1.4%
1,000 Cole National Group, 8.625% due 8/15/07.................................. 1,010,000
----------
Consumer Non-Cyclicals -- 15.5%
500 Alaris Medical Systems, Inc., 9.750% due 12/1/06......................... 516,250
1,000 B&G Foods Inc., 9.625% due 8/1/07........................................ 1,017,500
1,000 Carr-Gottstein Foods Co., 12.000% due 11/15/05........................... 1,110,000
750 Dade International Inc., 11.125% due 5/1/06.............................. 847,500
500 Fresenius Medical Care Capital Trust, 9.000% due 12/1/06 ................ 516,250
1,000 Hines Horticulture, 11.750% due 10/15/05 ................................ 1,100,000
1,000 North Atlantic Trading, 11.000% due 6/15/04.............................. 1,005,000
1,500 Revlon Worldwide, zero coupon due 3/15/01................................ 1,166,250
750 Riddell Sports Inc., 10.500% due 7/15/07................................. 759,375
500 Stroh Brewery, 11.100% due 7/1/06........................................ 303,125
500 Sun International Hotels, 9.000% due 3/15/07............................. 523,750
1,000 Vencor Inc., 9.875% due 5/1/05 (a)....................................... 985,000
946 Waterford Gaming LLC, 12.750% due 11/15/03............................... 1,046,513
----------
10,896,513
----------
Energy -- 6.8%
500 Benton Oil & Gas, 11.625% due 5/1/03..................................... 532,500
500 Cliffs Drilling, 10.250% due 5/15/03..................................... 535,000
1,000 Dailey International Inc., 9.500% due 8/15/08............................ 985,000
400 Dawson Product Services, 9.375% due 2/1/07............................... 404,000
500 Hvide Marine Inc., 8.375% due 2/15/08.................................... 477,500
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 3
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited)(continued)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Corporate Bonds (continued) Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy -- 6.8% (concluded)
$ 1,000 National Energy Group, 10.750% due 11/1/06............................... $ 910,000
500 Pool Energy Services Co., 8.625% due 4/1/08 (a).......................... 490,000
500 TransAmerican Energy, zero coupon until 6/15/99 (13.000% thereafter),
due 6/15/02............................................................ 410,000
----------
4,744,000
----------
Financial -- 2.2%
500 Airplanes Pass Through Trust, 10.875% due 3/15/19........................ 564,770
1,000 Morgan Stanley Aircraft Finance, Series 1A, Class D1, 8.700%
due 3/15/23 (a)........................................................ 1,005,000
----------
1,569,770
----------
Industrial/Manufacturing -- 10.1%
500 Alvey Systems, 11.375% due 1/31/03....................................... 537,500
750 Axiohm Transaction Solution, 9.750% due 10/1/07.......................... 757,500
500 Burke Industries Inc., 10.000% due 8/15/07............................... 507,500
750 Foamex L.P., 9.875% due 6/15/07 ......................................... 825,000
750 High Voltage Engineering, 10.500% due 8/15/04............................ 778,125
1,000 International Knife & Saw Inc., 11.375% due 11/15/06..................... 1,065,000
500 JH Heafner Co., 10.000% due 5/15/08 (a).................................. 510,000
1,000 Motors & Gears Inc., 10.750% due 11/15/06................................ 1,077,500
Venture Holdings Trust:
750 9.750% due 4/1/04 ..................................................... 757,500
250 9.500% due 7/1/05 ..................................................... 254,375
----------
7,070,000
----------
Media/Telecommunications -- 17.0%
Adelphia Communications:
450 9.250% due 10/1/02..................................................... 465,750
550 9.875% due 3/1/07...................................................... 595,375
1,000 CSC Holdings Inc., 10.500% due 5/15/16 .................................. 1,173,750
2,000 Century Communications, zero coupon due 1/15/08.......................... 907,500
500 Diamond Cable Co., zero coupon until 12/15/00 (11.750%
thereafter), due 12/15/05 ............................................. 415,000
3,000 Hollinger Inc., Convertible Bond, zero coupon due 10/5/13................ 1,245,000
1,500 ICG Holdings, zero coupon until 9/15/00 (13.500% thereafter),
due 9/15/05 ........................................................... 1,282,500
</TABLE>
- ------------------------------------------------------------------------
See accompanying notes to financial tatements.
Page 4
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited)(continued)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Corporate Bonds (concluded) Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media/Telecommunications -- 17.0% (concluded)
$ 1,500 Intermedia Communications of Florida, zero coupon until 7/15/02
(11.250% thereafter), due 7/15/07...................................... $ 1,095,000
500 Liberty Group Operating Corp., 9.375% due 2/1/08......................... 508,750
750 Nextel Communications, zero coupon until 2/15/99 (9.750% thereafter),
due 8/15/04............................................................ 729,375
500 Nextel Communications, zero coupon until 2/15/03 (9.950% thereafter),
due 8/15/08 (a)........................................................ 318,750
1,300 NTL Inc., zero coupon until 2/1/01 (11.500% thereafter), due 2/1/06 1,072,500
500 Perry Judd, 10.625% due 12/15/07 (a)................................... 527,500
1,000 SFX Broadcasting, 10.750% due 5/15/06.................................. 1,102,500
500 Transwestern Publishing, 9.625% due 11/15/07 ............................ 521,500
----------
11,951,750
----------
Services/Other -- 6.7%
1,500 Allied Waste Industries, zero coupon until 6/1/02 (11.300% thereafter),
due 6/1/07............................................................. 1,102,500
500 APCOA Inc., 9.250% due 3/15/08 (a)....................................... 500,000
500 La Petite Academy, 10.000% due 5/15/08 (a)............................... 506,250
1,000 Loomis Fargo & Co., 10.000% due 1/15/04.................................. 1,000,000
1,000 Millar Western Forest, 9.875% due 5/15/08 (a)............................ 982,500
500 Norcal Waste Systems, 13.500% due 11/15/05............................... 585,000
----------
4,676,250
----------
Technology/Electronics -- 2.2%
1,000 Amphenol Corp., 9.875% due 5/15/07....................................... 1,067,500
500 Unisys Corp., 7.875% due 4/1/08.......................................... 512,500
----------
1,580,000
----------
Transportation -- 1.4%
850 Ryder Inc., 10.000% due 12/1/06.......................................... 986,000
----------
Utilities -- 1.2%
750 AESCorp., 10.250% due 7/15/06............................................ 819,375
----------
Total Corporate Bonds (Cost -- $48,788,960).............................. 50,677,408
----------
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 5
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited)(continued)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Sovereign Bonds-- 17.0% Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Republic of Argentina:
$ 475 FRB, Series L, 6.625% due 3/31/05 (b)................................. $ 420,078
250 Global Bond, 11.375% due 1/30/17...................................... 266,250
Federal Republic of Brazil:
1,488 C Bond, 8.000% due 4/15/14 (c)........................................ 1,077,974
875 Global Bond, 9.375% due 4/7/08........................................ 806,094
Republic of Bulgaria:
2,000 FLIRB, Series A, 2.250% due 7/28/12 (b)............................... 1,208,750
500 Discount Bond, Tranche A, 6.5625% due 7/28/24 (b)..................... 379,062
1,000 Costa Rica, Principal Bond, Series A, 6.250% due 5/21/10................ 900,000
Export-Import Bank of Korea Global Bond:
100 7.250% due 6/25/01.................................................... 88,870
125 6.500% due 2/10/02.................................................... 107,619
Korea Development Bank, Global Bond:
175 7.900% due 2/1/02..................................................... 158,148
400 6.625% due 11/21/03................................................... 320,800
250 7.375% due 9/17/04.................................................... 201,875
2,138 Republic of Ecuador, PDI Bond, 6.625% due 2/27/15 (b)(c)................ 1,232,078
750 Republic of Korea, 8.875% due 4/15/08................................... 679,688
500 Republic of Panama, IRB, 3.750% due 7/17/14 (b) ........................ 373,750
Republic of Peru:
2,000 FLIRB, 3.250% due 3/7/17 (b).......................................... 1,115,000
1,000 PDI, 4.000% due 3/7/17 (b)............................................ 618,750
750 Republic of Philippines, 8.875% due 4/15/08............................. 720,937
Republic of Venezuela:
643 FLIRB, Series B, 6.625% due 3/31/07 (b)............................... 534,777
400 Global Bond, 9.250% due 9/15/27....................................... 310,500
79 Russia, IAN, 6.625% due 12/15/15 (a)(b)................................. 44,103
450 Russia Ministry of Finance, Global Bond, 11.750% due 6/10/03 (a)........ 388,125
----------
Total Sovereign Bonds (Cost -- $11,985,555)............................. 11,953,228
----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 6
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited) (continued)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Loan Participations (d)-- 5.0% Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
The People's Democratic Republic of Algeria:
$ 364 Tranche A, 7.3125% due 3/6/00 (Chase Manhattan) (b).................. $ 341,818
545 Tranche 1, 6.625% due 9/4/06 (Chase Manhattan) (b)................... 413,864
1,000 Kingdom of Morocco, Tranche A, 6.5625% due 1/01/09 (b).................
(Morgan Guaranty Trust Company of New York).......................... 855,625
4,000 Russia Principal Loan, 6.625% due 12/15/20 (J.P. Morgan) (b) (e)....... 1,889,268
----------
Total Loan Participations (Cost -- $3,876,047)......................... 3,500,575
----------
Preferred Stock -- 1.4%
- ---------------------------------------------------------------------------------------------------------
10,000 Shares Nebco Evans Holding Corp., 11.250% (f) (Cost -- $1,000,000)............ 1,035,000
----------
Common Stock (g) -- 0.1%
- ---------------------------------------------------------------------------------------------------------
500 Shares AmeriKing, Inc. ..................................................... 25,000
2,875 Shares United International Holdings........................................ 31,625
----------
Total Common Stock (Cost -- $95,295)................................... 56,625
----------
Warrants & Rights (g) -- 0.1%
- ---------------------------------------------------------------------------------------------------------
2,500 Warrants In Flight Phone (Exercise price of $.01 per share expiring on 8/31/02,
Each warrant exercisable for one share of common stock.)............. 0
4,000 Warrants Terex Corporation Stock Appreciation Rights............................ 88,000
----------
Total Warrants & Rights (Cost -- $0)................................... 88,000
----------
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 7
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Investments (unaudited)(concluded)
June 30, 1998
<TABLE>
<CAPTION>
Principal
Amount
(000) Repurchase Agreement-- 2.9% Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 2,043 Chase Manhattan Bank, 5.480% due 7/1/98; Proceeds at maturity -- $2,043,311;
(Fully collateralized by U.S. Treasury Bond, 5.875% due 2/28/99;
Market value -- $2,083,860) (Cost -- $2,043,000)....................... $ 2,043,000
-----------
Total Investments -- 98.6% (Cost -- $67,788,857*)........................ 69,353,836
-----------
Cash and Other Assets in Excess of Liabilities -- 1.4%................... 969,213
-----------
Net Assets -- 100.0%
(equivalent to $14.53 per share on 4,839,158 common shares outstanding).. $70,323,049
===========
- -------------------------------------------------------------------------------
<FN>
(a) Pursuant to Rule 144A under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
(b) Rate shown reflects rate in effect on June 30, 1998 on instrument with
variable rate or step coupon rates.
(c) Payment-in-kind security for which all or part of the income earned is
capitalized as additional principal.
(d) Participation interest was acquired through the financial institution
indicated parenthetically.
(e) Portion of income earned is capitalized as Russia Interest in Arrears Notes.
(f) Payment-in-kind security for which income is capitalized as additional
shares.
(g) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
IAN -- Interest in Arrears Notes.
IRB -- Interest Reduction Bond.
PDI -- Past Due Interest.
</FN>
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 8
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Assets and Liabilities (unaudited)
June 30, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost--$67,788,857)................................................ $69,353,836
Cash .................................................................................... 175
Interest receivable...................................................................... 1,189,450
Prepaid expenses......................................................................... 6,345
----------
Total assets ...................................................................... 70,549,806
----------
Liabilities
Accrued professional fees................................................................ 55,926
Dividends payable ....................................................................... 53,897
Management fee payable (Note 2).......................................................... 40,963
Accrued expenses......................................................................... 75,971
----------
Total liabilities ................................................................. 226,757
----------
Total net assets .................................................................. $70,323,049
==========
Net Assets
Common stock ($0.001 par value, authorized 100,000,000 shares;
4,839,158 shares outstanding)......................................................... $ 4,839
Additional paid-in capital............................................................... 67,193,387
Overdistributed net nvestment income..................................................... (408,145)
Accumulated net realized gain on investments ............................................ 1,967,989
Net unrealized appreciation on investments .............................................. 1,564,979
----------
Total net assets................................................................... $70,323,049
==========
Net Asset Value, Per Share ($70,323,049 / 4,839,158 shares).............................. $14.53
======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 9
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Operations (unaudited)
For the Six Months Ended June 30, 1998
<TABLE>
<S> <C> <C>
Income
Interest (includes discount accretion of $780,492) ......................................... $ 3,608,388
Expenses
Management fees (Note 2) .................................................. $250,046
Audit and tax services .................................................... 30,249
Directors' fees and expenses .............................................. 23,803
Transfer agent ............................................................ 22,811
Legal ..................................................................... 23,315
Printing .................................................................. 15,868
Custodian.................................................................. 8,927
Amortization of deferred organization costs (Note 1)....................... 1,795
Other ..................................................................... 23,785 399,599
-------- ----------
Net investment income....................................................................... 3,208,789
----------
Net Realized and Unrealized Gain on Investments
Net realized gain on investments............................................................ 1,428,533
Change in net unrealized appreciation on investments........................................ (2,888,515)
----------
Net realized gain and change in net unrealized appreciation ................................ (1,459,982)
----------
Net Increase in Net Assets from Operations.................................................. $ 1,748,807
==========
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 10
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ............................................... $ 3,208,789 $6,862,065
Net realized gain on investments..................................... 1,428,533 3,611,923
Change in net unrealized appreciation................................ (2,888,515) (267,238)
---------- ----------
Net increase in net assets from operations .......................... 1,748,807 10,206,750
---------- ----------
Dividends and Distributions
From net investment income .......................................... (3,623,532) (6,853,996)
From net realized gain............................................... -- 2,452,604)
---------- ----------
Net decrease in net assets from dividends and distributions (3,623,532) (9,306,600)
---------- ----------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(15,353 and 47,530 shares issued, respectively) .............. 246,881 742,434
---------- ----------
Total increase (decrease) in net assets.............................. (1,627,844) 1,642,584
Net Assets
Beginning of period.................................................. 71,950,893 70,308,309
----------- -----------
End of period (includes undistributed (overdistributed) net investment
income of ($408,145) and $6,598, respectively)................ $70,323,049 $71,950,893
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Page 11
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (unaudited)
Note 1. Significant Accounting Policies
Salomon Brothers High Income Fund Inc ("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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. 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.
(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 12
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (unaudited) (continued)
(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 in January 1993. As of June 30, 1998, the
amortization of the deferred organization costs had been completed.
(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 during the term of the repurchase agreement to ensure that it 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 2. Management Fee and Other Transactions
The Fund has entered into an investment management and administration agreement
with Salomon Brothers Asset Management Inc ("Investment Manager"), an indirect
wholly-owned subsidiary of Travelers Group Inc. ("Travelers"), pursuant to which
the Investment Manager provides investment advisory and administrative services
to the Fund. The Investment Manager is responsible on a day-to-day basis for the
management of the Fund's portfolio in accordance with the Fund's investment
objectives and policies and for making decisions to buy, sell, or hold
particular securities and is responsible for day-to-day administration of the
Fund. The Investment Manager has delegated certain administrative
responsibilities to Mutual Management Corp. ("MMC"), an affiliate of the
Investment Manager pursuant to a Sub-Administration Agreement between the
Investment Manager and MMC. The management fee for these services is payable
monthly at an annual rate of 0.70% of the Fund's average weekly net assets. The
agreement with the Investment Manager was most recently approved by shareholders
at a special meeting held on January 15, 1998. Approval of the agreement was
necessary due to the merger of Salomon Inc, which had been the ultimate parent
company of the Investment Manager, with and into Salomon Smith Barney Holdings
Inc., a subsidiary of Travelers, which occurred on November 28, 1997. On such
date, Travelers became the ultimate parent company of the Investment Manager.
Certain officers and/or directors of the Fund are also officers and/or directors
of the investment manager.
Page 13
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (unaudited) (continued)
The Fund pays each Director not affiliated with the Investment Manager 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.
Note 3. Portfolio Activity
Purchases and sales of investment securities, other than
short-term investments, for the six months ended June 30, 1998, aggregated
$37,356,361 and $38,323,069, respectively. The Federal income tax cost basis of
the Fund's investments at June 30, 1998 was substantially the same as the cost
basis for financial reporting. Gross unrealized appreciation and depreciation
amounted to $3,270,168 and $1,705,189, respectively, resulting in net unrealized
appreciation for Federal income tax purposes of $1,564,979.
Note 4. 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 5. 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 6. Dividends Subsequent to June 30, 1998
The Board of Directors of the Fund declared a common stock dividend from
net investment income of $0.125 per share for the months of August, September
and October 1998, payable on August 28, 1998, September 25, 1998 and October 30,
1998 to shareholders of record on August 18, 1998, September 15, 1998 and
October 13, 1998, respectively.
Page 14
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (unaudited) (concluded)
Note 7. Bylaw Amendment
The Board of Directors of the Fund recently reviewed and approved various
amendments to the Fund's bylaws. For example, the bylaws provisions relating
to timely notice for proposals to be brought before an annual meeting of
stockholders (other than a proposal under Rule 14a-8 of the Securities Exchange
Act of 1934 to be included in the Fund's proxy statement) have been amended. As
amended, a stockholder's notice must be delivered to the Fund not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting. An exception applies in the event the date of the annual
meeting is substantially advanced or delayed from the anniversary date. The
Board believes that the amended timely notice provisions will provide greater
certainty to stockholders because previously, timely notice keyed off the date
of the current year's meeting or the date public disclosure of the current
year's meeting is made. In addition, the provisions provide that any business to
be brought before a special meeting of stockholders must be specified in the
notice of meeting or otherwise properly brought before the meeting by or at the
direction of the Board of Directors. Finally, upon recommendation of the Fund's
Maryland counsel, other changes to certain bylaw provisions were made to conform
to the bylaw provisions of more recently organized Maryland companies.
Page 15
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Financial Highlights
Data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
1998(1) 1997 1996 1995 1994 1993(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.92 $ 14.72 $13.50 $12.88 $15.59 $13.95
------- ------- ------- ------- ------- -------
Net investment income............... 0.66 1.43 1.52 1.52 1.38 1.18
Net realized and unrealized gain (loss)
on securities.................... (0.30) 0.71 1.22 0.70 (2.32) 1.94
------- ------- ------- ------- ------- -------
Total from investment operations.... 0.36 2.14 2.74 2.22 (0.94) 3.12
------- ------- ------- ------- ------- -------
Less distributions
From net investment income....... (0.75) (1.43) (1.52) (1.53) (1.39) (1.16)
From net realized gains.......... -- (0.51) -- (0.07) (0.38) (0.23)
------- ------- ------- ------- ------- -------
Total distributions................. (0.75) (1.94) (1.52) (1.60) (1.77) (1.39)
------- ------- ------- ------- ------- -------
Offering costs on issuance of
common stock.................... -- -- -- -- -- (0.09)
------- ------- ------- ------- ------- -------
Net asset value, end of period...... $ 14.53 $ 14.92 $14.72 $13.50 $12.88 $15.59
======= ======= ======= ======= ======= =======
Per share market value, end of period $16.938 $16.438 $15.375 $14.125 $12.875 $15.875
======= ======= ======= ======= ======= =======
Total investment return based on
market price per share(3)........ 7.94%++ 20.93% 20.98% 23.83% (8.04%) 25.10%#
Ratios to average net assets:
Operating expenses............... 1.12%+ 1.10% 1.16% 1.22% 1.13% 1.09%+
Net investment income............ 9.00%+ 9.53% 10.76% 11.68% 9.91% 8.64%+
Net assets, end of period (000)..... $70,323 $71,951 $70,301 $63,931 $60,344 $72,495
Portfolio turnover rate............. 53.1% 112.2% 110.4% 128.2% 76.6% 49.6%
<FN>
- --------------------------------------------------------------------------------
(1) For the six months ended June 30, 1998 (unaudited).
(2) For the period January 29, 1993 (commencement of investment operations)
through December 31, 1993.
(3) 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.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
</FN>
</TABLE>
Page 16
<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(1) Total Per Share Total Per Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1996............................................... $1,854 $0.39 $1,617 $0.34
June 30, 1996................................................ 1,838 0.39 903 0.19
September 30, 1996........................................... 1,803 0.38 2,315 0.48
December 31, 1996............................................ 1,755 0.36 935 0.21
March 31, 1997............................................... 1,708 0.35 (565) (0.11)
June 30, 1997................................................ 1,724 0.36 2,447 0.51
September 30, 1997........................................... 1,713 0.36 1,569 0.33
December 31, 1997............................................ 1,717 0.36 (106) (0.02)
March 31, 1998............................................... 1,663 0.34 959 0.20
June 30, 1998................................................ 1,546 0.32 (2,419) (0.50)
- ---------------------------------------------------------------------
(1) Totals expressed in thousands of dollars except per share amounts.
</TABLE>
Page 17
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Additional Shareholder Information (unaudited)
On January 15, 1998, a Special Meeting of the Fund's Stockholders was held for
the purpose of voting on the following matter:
1. The approval of a new investment advisory agreement between Salomon
Brothers Asset Management and the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
% of Shares % of Shares Votes % of Shares
Votes For Voted Votes Against Voted Abstained Abstained
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,271,090 97.4% 56,093 1.3% 56,398 1.3%
- -------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
On April 16, 1998, the Annual Meeting of the Fund's Stockholders was held for
the purpose of voting on the following matters:
1. The election of Daniel P. Cronin, Jeswald W. Salacuse and
Heath B. McLendon as Directors of the Fund; and
2. The ratification of the selection of Pricewaterhouse Coopers LLP as
the Fund's independent auditors for the fiscal year ending
December 31, 1998.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Votes Percentage
Name of Directors For Shares Voted Against Shares Voted
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel C. Cronin 4,564,869 99.1% 40,868 0.8%
Jeswald W. Salacuse 4,580,703 99.4% 25,039 0.5%
Heath B. McLendon 4,580,703 99.4% 25,039 0.5%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% of Shares % of Shares Votes % of Shares
Votes For Voted Votes Against Voted Abstained Abstained
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,543,905 98.8% 11,458 0.2% 39,886 0.8%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Page 18
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Other Information (unaudited)
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 19
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Other Information (unaudited) (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 20
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Other Information (unaudited) (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 21
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
DANIEL P. CRONIN
Vice President -- General Counsel,
Pfizer International Inc
HEATH B. MCLENDON
Managing Director, Smith Barney Inc.;
President and Director, Mutual Management Corp.
and Travelers Investment Advisors, Inc.;
Chairman, Smith Barney Strategy Advisors 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
HEATH B. MCLENDON
Chairman and President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
MAUREEN O'CALLAGHAN
Executive Vice President
JAMES E. CRAIGE
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
BETH A. SEMMEL
Executive Vice President
PETER J. WILBY
Executive Vice President
ALAN M. MANDEL
Controller
ANTHONY PACE
Assistant Controller
NOEL B. DAUGHERTY
Secretary
Salomon Brothers High Income Fund Inc
7 World Trade Center
New York, New York 10048
Telephone 1-888-777-0102
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>
Salomon Brothers
High Income Fund Inc
Semi-Annual Report
JUNE 30, 1998
- ---------------------------------------------
Salomon Brothers Asset Management
---------------------------------------------------
<PAGE>
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
BULK RATE
U.S. POSTAGE
PAID
STATENISLAND, NY
PERMIT No. 169
