SALOMON BROTHERS HIGH INCOME FUND INC
August 17, 1999
Dear Shareholders:
We are pleased to provide this semi-annual report for the Salomon Brothers High
Income Fund Inc ("Fund") as of June 30, 1999. Included are market commentary, a
schedule of the Fund's investments as of June 30, 1999 and financial statements
for the period ended June 30, 1999. The Fund distributed income dividends
totaling $0.75 per share during the period. The table below shows the annualized
distribution rate and the total return for the period covered by this report
based on the Fund's June 30, 1999, net asset value ("NAV") per share and its New
York Stock Exchange ("NYSE") closing price:
Price Annualized Six-Month
Per Share Distribution Rate* Total Return
- -------------------------- ------------------------ ----------------------
$12.55 (NAV) 11.95% 4.31%
$13.9375 (NYSE) 10.76% 0.75%
In comparison, during the same period, the Salomon Smith Barney High Yield
Market Index returned 1.77% and the JP Morgan Emerging Markets Bond Index Plus
("EMBI+") had a return of 10.58%. On June 30, 1999, 66% of the Fund's long-term
investments were in U.S. high-yield corporate bonds. The remaining 34% were
invested in securities of emerging market issuers, including both obligations of
sovereign and corporate issuers.
U.S. HIGH YIELD MARKET
While benefiting from a strong economy and a booming U.S. equity market, high
yield bonds suffered from the following:
1. A back-up in U.S. Treasuries due to concern about rising inflation;
2. slowing mutual fund inflows;
3. a heavy new issue calendar;
4. a reduction in broker/dealer liquidity; and,
5. a rise in default rates, especially among marginal commodity producers.
The period began with concerns that a weak recovery in Asia and recession in
Latin America would trigger a slowdown in the U.S. economy.
Stronger-than-expected economic growth in the U.S., particularly in the second
calendar quarter, led to concerns about rising inflation. These inflation fears
caused interest rates to trend higher over the course of the period.
In June, concerns over higher inflation and the potential for the Federal
Reserve Board ("Fed") to raise U.S. interest rates caused the high yield bond
market to trade off with Treasuries. As expected, the Fed raised rates by 0.25%
at their June meeting. The market correctly anticipated this 25 basis point rate
hike and rallied in advance of the meeting. The Fed's adoption of a neutral bias
positively surprised the market and helped continue the rally through the end of
June.
- --------------------------------------------------------------------------------
* The annualized distribution rate assumes a current monthly income dividend
rate of $0.125 per share for twelve months.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
For the period, the high yield market's top performers included Basic Industries
such as Metals/Mining and Paper & Forest Products, Gaming, Consumer Products and
Cable & Media. Energy also outperformed, driven by increases in oil prices. The
worst performers included Healthcare, due to the industry's troubles with the
recently imposed Medicare reimbursement system, Textile/Apparel, which is
suffering from cheaper imports, Automotive, Restaurants and Services. In terms
of credit quality, investors favored the lower tiers: BB, B and CCC issues
showed returns of 0.70%, 1.60% and 7.57%, respectively.
On June 30, 1999, the high yield market was yielding 10.70% up from 10.28% at
year-end. The excess yield over Treasuries was 4.97% down from 5.66% at
year-end.
EMERGING DEBT MARKET
Emerging markets debt returned 10.57% for the period ended June 30, 1999 as
measured by the JP Morgan EMBI+. Market performance during the first half of the
fiscal year was influenced by returns from Russia, continued recovery in Brazil
and strength in oil prices.
Russia made substantial progress toward a new agreement with the IMF over the
period. A new agreement will permit other sources of aid to flow to Russia. In
addition to a more promising outlook for financial assistance, the Russian
economy has started to grow for the first time in years. Industrial production
and oil prices are up, which in turn are funding higher tax revenues. Russian
debt prices have returned 102% for the first six months of 1999.
Oil prices rose 60% during the period. Higher oil prices have improved the
credit quality of many emerging market countries including Russia, Mexico,
Ecuador, Venezuela and Algeria.
Brazil continued to make progress in resolving the underlying causes of its
currency crisis. The Brazilian devaluation in January caused the entire market
to trade down in January. Brazil's prompt and decisive steps to resolve the
crisis were a primary cause of the market rebound in March. Brazilian monetary
policy has helped limit the inflationary impact of the currency devaluation
while fiscal policy has been improved through Congressional passage of some key
reform measures.
Overall market performance for the first half of the fiscal year has been skewed
with Russia, Brazil and Venezuela out-performing the Index and the other eleven
Index countries under-performing. The Index ended the first half of the year at
1,070 basis points over Treasuries, 81 basis points tighter than year-end
levels.
# # #
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
In a continuing effort to provide timely information concerning the Salomon
Brothers High Income Fund Inc, shareholders may call 1-888-777-0102 (toll free),
Monday through Friday from 8:00 am to 6:00 pm eastern standard time (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 Inc 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).
We at Salomon Brothers Asset Management appreciate your investment in the
Salomon Brothers High Income Fund Inc. We look forward to helping you pursue
your financial goals in the years ahead.
Sincerely,
/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
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 1999
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds -- 66.2%
BASIC INDUSTRIES -- 10.6%
$ 500,000 AEI Holding Co., Inc., Company Guaranteed, 10.500% due 12/15/05(a) .................. $ 490,000
800,000 Berry Plastics Corp., Sr. Sub. Notes, 12.250% due 4/15/04 .............................. 842,000
1,000,000 Breed Technologies, Inc., Sr. Sub. Notes, 9.250% due 4/15/08 ........................... 150,000
500,000 Doman Industries Ltd., Secured Notes, 12.000% due 7/1/04 ............................... 482,500
500,000 Envirosource Inc., Sr. Notes, 9.750% due 6/15/03 ....................................... 315,000
500,000 Glencore Nickel Ltd., Company Guaranteed, 9.000% due 12/1/14 ........................... 425,000
1,000,000 PCI Chemicals Canada Inc., Company Guaranteed, 9.250% due 10/15/07 ..................... 850,000
Radnor Holdings Corp.:
150,000 Series B, Company Guaranteed, 10.000% due 12/1/03 .................................... 151,125
600,000 Sr. Notes, 10.000% due 12/1/03 ....................................................... 603,000
1,000,000 Teekay Shipping Corp., Company Guaranteed, 8.320% due 2/1/08 ........................... 948,750
750,000 ZSC Specialty Chemicals PLC, Sr. Notes, 11.000% due 7/1/99(a) .......................... 757,500
-------------
6,014,875
-------------
CONSUMER CYCLICALS -- 4.3%
750,000 Avis Rent-A-Car, Sr. Sub. Notes, 11.000% due 5/1/09(a) ................................. 752,813
1,000,000 Cole National Group, Sr. Sub. Notes, 8.625% due 8/15/07 ................................ 930,000
750,000 Musicland Group, Company Guaranteed, 9.875% due 3/15/08(a) ............................. 756,563
-------------
2,439,376
-------------
CONSUMER NON-CYCLICALS -- 13.5%
500,000 Alaris Medical Systems Inc., Company Guaranteed, 9.750% due 12/1/06 .................... 510,625
750,000 Express Script Inc., Sr. Notes, 9.625% due 6/15/09(a) .................................. 753,750
651,000 Hines Horticulture, Inc., Sr. Sub. Notes, 11.750% due 10/15/05 ......................... 694,942
750,000 Isles of Capri, Sr. Sub. Notes, 8.750% due 4/15/09(a) .................................. 705,000
1,400,000 Nebco Evans Holding Co., Sr. Discount Notes, zero coupon until 7/15/02,
(12.375% thereafter) due 7/15/07 ..................................................... 700,000
750,000 North Atlantic Trading, Company Guaranteed, 11.000% due 6/15/04 ........................ 755,625
500,000 Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 ......................................... 525,000
750,000 Pueblo Xtra International, Inc., Sr. Notes, 9.500% due 8/1/03 .......................... 695,625
330,000 Purina Mills, Inc., Sr. Sub. Notes, 9.000% due 3/15/10(a) .............................. 260,700
1,125,000 Revlon Worldwide Corp., Sr. Discount Notes, zero coupon due 3/15/01 .................... 767,813
500,000 Sun International Hotels Ltd., Sr. Sub. Notes, 9.000% due 3/15/07 ...................... 500,000
750,000 Waterford Gaming LLC, Sr. Notes, 9.500% due 3/15/10 .................................... 750,000
-------------
7,619,080
-------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements
Page 4
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 1999
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 1.7%
$ 500,000 Benton Oil & Gas Co., Sr. Notes, 11.625% due 5/1/03 .................................... $ 365,000
500,000 PennzEnergy Co., Debentures, 10.250% due 11/1/05 ....................................... 518,750
500,000 TransAmerican Energy, Sr. Discount Notes, 13.000% due 6/15/02(b)(c) .................... 52,500
-------------
936,250
-------------
FINANCIAL -- 3.6%
500,000 Airplanes Pass Through Trust, 10.875% due 3/15/19 ...................................... 499,650
Contifinancial Corp., Sr. Notes:
500,000 7.500% due 3/15/02 ................................................................... 415,000
500,000 8.375% due 8/15/03 ................................................................... 415,000
750,000 Morgan Stanley Aircraft Finance, Series 1A, Class D1, 8.700% due 3/15/23 ............... 678,750
-------------
2,008,400
-------------
HOUSING RELATED -- 1.8%
1,000,000 Panolam Industries International Inc., Sr. Sub. Notes, 11.500% due 2/15/09(a) 1,030,000
--------------
INDUSTRIAL/MANUFACTURING -- 10.6%
500,000 Alvey Systems Inc., Sr. Sub. Notes, 11.375% due 1/31/03 ................................ 503,750
750,000 Axiohm Transaction Solutions Inc., Company Guaranteed, 9.750% due 10/1/07 .............. 375,000
750,000 Foamex L.P., Company Guaranteed, 9.875% due 6/15/07 .................................... 641,250
750,000 High Voltage Engineering Corp., Sr. Notes, 10.500% due 8/15/04 ......................... 701,250
500,000 International Knife & Saw Inc., Sr. Sub. Notes, 11.375% due 11/15/06 ................... 472,500
500,000 JH Heafner Co., Sr. Notes, 10.000% due 5/15/08 ......................................... 513,125
1,000,000 JL French Auto Casting, Sr. Sub. Notes, 11.500% due 6/1/09(a) .......................... 1,012,500
750,000 Motors & Gears, Inc., Sr. Notes, 10.750% due 11/15/06 .................................. 763,125
1,000,000 Neenah Corp., Sr. Discount Notes, 11.125% due 5/1/07 ................................... 991,250
-------------
5,973,750
-------------
MEDIA/TELECOMMUNICATIONS -- 13.3%
170,970 Adelphia Communications, Sr. Notes, 9.500% due 2/15/04(d) .............................. 179,305
500,000 Century Communications Corp., Sr. Discount Notes, zero coupon due 1/15/08 .............. 225,000
350,000 Charter Communications Inc., Sr. Discount Notes, zero coupon until 4/1/04
(9.920% thereafter) due 4/1/11(a) .................................................... 217,875
500,000 Diamond Cable Co., Sr. Discount Notes, zero coupon until 12/15/00
(11.750% thereafter) due 12/15/05 .................................................... 442,500
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements
Page 5
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 1999
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA/TELECOMMUNICATIONS -- 13.3% (CONTINUED)
$ 750,000 Granite Broadcasting Corp., Sr. Sub. Notes, 10.375% due 5/15/05 ........................ $ 761,250
1,500,000 Intelcom Group, Sr. Discount Notes, zero coupon until 9/15/00
(13.500% thereafter) due 9/15/05 ..................................................... 1,350,000
1,000,000 Intermedia Communications of Florida, Sr. Discount Notes,
zero coupon until 7/15/02 (11.250% thereafter) due 7/15/07 ........................... 715,000
Nextel Communications, Inc., Sr. Discount Notes:
750,000 9.750% due 8/15/04 ................................................................... 765,000
500,000 Zero coupon until 2/15/03 (9.950% thereafter) due 2/15/08 .............................. 346,250
1,250,000 NTL Inc., Sr. Notes, zero coupon until 2/1/01 (11.500% thereafter) due 2/15/06 ......... 1,062,500
500,000 Transwestern Publishing Co., Sr. Sub. Notes, 9.625% due 11/15/07 ....................... 491,250
1,000,000 World Color Press Inc., Sr. Sub. Notes, 8.375% due 11/15/08 ............................ 977,500
-------------
7,533,430
-------------
SERVICES/OTHER -- 5.6%
500,000 Iron Mountain Inc., Sr. Sub. Notes, 8.250% due 6/26/07(a) .............................. 486,250
500,000 La Petite Academy Inc., Company Guaranteed, 10.000% due 5/15/08 ........................ 491,874
1,000,000 Loomis Fargo & Co., Company Guaranteed, 10.000% due 1/15/04 ............................ 1,020,000
500,000 Millar Western Forest, Sr. Notes, 9.875% due 5/15/08 ................................... 482,500
750,000 Protection One Alarm Co., Sr. Sub. Notes, 8.125% due 1/15/09(a) ........................ 712,500
-------------
3,193,124
-------------
TRANSPORTATION -- 1.2%
1,000,000 Holt Group, Sr. Notes, 9.750% due 1/15/06(a) ........................................... 700,000
-------------
TOTAL CORPORATE BONDS (Cost-- $40,353,862) ............................................. 37,448,285
-------------
SOVEREIGN BONDS -- 29.6%
Republic of Argentina:
1,300,000 Global Bond, 11.375% due 1/30/17 ..................................................... 1,119,625
1,500,000 Global Bond, 12.125% due 2/25/19 ..................................................... 1,365,000
500,000 Government Bond, 9.750% due 9/19/27 .................................................. 382,500
75,000 Variable Bond, 12.142% due 4/10/05 ................................................... 67,500
4,689,568 Federal Republic of Brazil, C Bond, 8.000% due 4/15/14(d)(e) ........................... 3,058,480
1,750,000 Republic of Bulgaria, FLIRB, Series A, 2.500% due 7/28/12(e) ........................... 1,058,750
Republic of Colombia:
600,000 9.705% due 8/13/05(e) ................................................................ 516,000
450,000 9.750% due 4/23/09(e) ................................................................ 371,813
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements
Page 6
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 1999
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SOVEREIGN BONDS -- 29.6% (CONTINUED)
$ 500,000 Croatia, Series A, 5.8125% due 7/31/10(e) .............................................. $ 398,125
1,068,750 Republic of Ecuador, Bearer, Series IE, 6.1875%, due 12/21/04(e) ....................... 657,655
United Mexican States, Global Bond:
1,550,000 10.375% due 2/17/09 .................................................................. 1,575,187
800,000 11.375% due 9/15/16 .................................................................. 855,496
500,000 Republic of Panama, 8.250% due 4/22/08 ................................................. 440,000
1,300,000 Republic of Peru, PDI, 4.500% due 3/7/17(e) ............................................ 806,000
840,000 Republic of Philippines, DCB, 6.000% due 12/1/09(e) .................................... 773,850
Russia:
1,125,000 Federation, Global Bond, 11.750% due 6/10/03 ......................................... 683,438
575,000 Ministry of Finance, Global Bond, 12.750% due 6/24/28 ................................ 327,031
Republic of Venezuela:
571,430 FLIRB, Series B, 6.000% due 3/31/07(e) ............................................... 439,466
2,050,000 Global Bond, 13.625% due 8/15/18 ..................................................... 1,850,125
-------------
TOTAL SOVEREIGN BONDS (Cost-- $16,347,490) ............................................. 16,746,041
-------------
Loan Participations (f) -- 2.9%
619,047 Kingdom of Morocco, Tranche A, 6.000% due 1/1/09
(Chase Manhattan, Morgan Guaranty Trust Company of New York)(e) ...................... 499,880
The People's Democratic Republic of Algeria:
181,818 Tranche A, 6.750% due 3/4/00 (Chase Manhattan)(e) .................................... 173,182
1,545,454 Tranche 1, 6.000% due 9/4/06 (Chase Manhattan)(e) .................................... 965,909
-------------
TOTAL LOAN PARTICIPATIONS (Cost -- $1,701,155) ......................................... 1,638,971
-------------
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock (b) -- 0.4%
500 AmeriKing, Inc. ........................................................................ 20,000
2,875 United International Holdings, Inc. .................................................... 191,188
-------------
TOTAL COMMON STOCK (Cost -- $95,295).................................................... 211,188
-------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements
Page 7
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 1999
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock (b) -- 0.0%
TCR Holding Corp.:
803 Class B .............................................................................. $ 48
442 Class C .............................................................................. 25
1,165 Class D .............................................................................. 62
2,410 Class E .............................................................................. 152
-------------
TOTAL PREFERRED STOCK (Cost-- $287) .................................................... 287
-------------
Warrants (b) -- 0.6%
1,225 Republic of Argentina, expire 12/3/99 .................................................. 10,718
2,500 In Flight Phone (Exercise price of $.01 per share expiring 8/31/02,
each warrant exercisable for one share of common stock) .............................. 0
4,963 United Mexican States, expire 2/18/00 .................................................. 322,595
-------------
TOTAL WARRANTS (Cost-- $231,889) ....................................................... 333,313
-------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement -- 0.3%
$182,000 State Street Bank & Trust Co., 4.700% due 7/1/99; Proceeds at maturity --
$182,024; (Fully collateralized by U.S. Treasury Notes, 8.875% due 8/15/17;
Market value -- $190,848) (Cost -- $182,000) 182,000
-------------
TOTAL INVESTMENTS -- 100% (Cost -- $58,911,978*)........................................ $56,560,085
=============
</TABLE>
- --------------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Non-income producing securities.
(c) Security is currently in default.
(d) Payment-in-kind security for which part of the income earned may be paid as
additional principal.
(e) Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(f) Participation interest was acquired through the financial institution
indicated parenthetically.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in schedule:
- -------------------------------
DCB -- Debt Conversion Bond.
EI -- Eligible Interest Bond.
FLIRB -- Front-Loaded Interest Reduction Bond.
IE -- Interest Equalization.
PDI -- Past Due Interest.
- -------------------------------------------------------------------------------
See Notes to Financial Statements
Pae 8
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
June 30, 1999
ASSETS:
Investments, at value (Cost -- $58,911,978) ............... $ 56,560,085
Cash ....................................................... 822
Receivable for securities sold ............................. 3,824,268
Interest receivable ........................................ 1,246,917
Prepaid expenses ........................................... 3,406
-----------
Total Assets ............................................... 61,635,498
-----------
LIABILITIES:
Management fees payable .................................... 35,462
Accrued expenses ........................................... 144,452
-----------
Total Liabilities .......................................... 179,914
-----------
Total Net Assets ................................................ $61,455,584
===========
NET ASSETS:
Par value of capital shares ($0.001 par value,
authorized 100,000,000 shares;
4,897,800 shares outstanding) ............................ 4,898
Capital paid in excess of par value ........................ 67,407,350
Overdistributed net investment income ...................... (562,950)
Accumulated net realized loss on investments ............... (3,041,821)
Net unrealized depreciation on investments ................. (2,351,893)
-----------
Total Net Assets ........................................... $61,455,584
===========
Net Asset Value, Per Share ($61,455,584 / 4,897,800 shares) 12.55
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 9
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
STATEMENT OF OPERATIONS (unaudited)
For the Six Months Ended June 30, 1999
INVESTMENT INCOME:
Interest ................................................... $ 3,462,550
-----------
EXPENSES:
Management fee (Note 2) .................................... 215,520
Audit ...................................................... 30,249
Directors' fees & expenses ................................. 23,803
Transfer agent ............................................. 22,811
Printing and mailing ....................................... 22,811
Legal ...................................................... 22,316
Registration fees .......................................... 10,742
Custody .................................................... 8,927
Other ...................................................... 7,450
-----------
Total Expenses ............................................. 364,629
-----------
Net Investment Income .......................................... 3,097,921
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Loss From Securities Transactions
(excluding short-term securities):
Proceeds from sales ...................................... 36,662,594
Cost of securities sold .................................. 39,051,973
-----------
Net Realized Loss .......................................... (2,389,379)
-----------
Change in Net Unrealized Depreciation on Investments:
Beginning of period ...................................... (4,262,632)
End of period ............................................ (2,351,893)
-----------
Decrease in Net Unrealized Depreciation .................. 1,910,739
-----------
Net Loss on Investments ........................................ (478,640)
-----------
Increase in Net Assets From Operations ......................... $ 2,619,281
===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements
Page 10
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999 (unaudited)
and the Year Ended December 31, 1998
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ....................................... $ 3,097,921 $ 6,510,806
Net realized loss ........................................... (2,389,379) (499,892)
Increase (decrease) in net unrealized depreciation .......... 1,910,739 (8,716,126)
----------- -----------
Increase (Decrease) in Net Assets From Operations ........... 2,619,281 (2,705,212)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................................... (3,660,871) (6,480,394)
Net realized gains .......................................... -- (729,016)
Capital ..................................................... -- (595,795)
----------- -----------
Decrease in Net Assets From Distributions to Shareholders ... (3,660,871) (7,805,205)
----------- -----------
FUND SHARE TRANSACTIONS:
Proceeds from shares issued in reinvestment of dividends
(28,488 and 45,507 shares issued) ....................... 382,357 674,341
----------- -----------
Decrease in Net AssetS ...................................... (659,233) (9,836,076)
NET ASSETS:
Beginning of period ......................................... 62,114,817 71,950,893
----------- -----------
End of Period* .............................................. $61,455,584 $62,114,817
=========== ===========
* Includes overdistributed net investment income of ......... $ (562,950) --
=========== ===========
</TABLE>
- -------------------------------------------------------------------------------
See 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 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.
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.
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 was 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 was 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.
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.
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 and capital gains, if any, 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)
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. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
distributions in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as distributions
from capital.
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.
YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1998,
reclassifications were made to the capital accounts of the Fund to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change.
NOTE 2. MANAGEMENT FEE AND OTHER TRANSACTIONS
Salomon Brothers Asset Management Inc. ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which in turn is wholly owned by Salomon
Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager 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 management fee
for these services is payable monthly at an annual rate of 0.70% of the Fund's
average weekly net assets.
The Investment Manager has delegated certain administrative responsibilities to
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp.,
an affiliate of the Investment Manager pursuant to a Sub-Administration
Agreement between the Investment Manager and SSBC.
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)
NOTE 3. PORTFOLIO ACTIVITY AND FEDERAL INCOME TAX STATUS
For the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
Purchases ................................................... $ 33,214,903
=============
Sales ....................................................... $ 36,662,594
=============
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
Gross unrealized appreciation ............................... $ 1,616,599
Gross unrealized depreciation ............................... (3,968,492)
-------------
Net unrealized depreciation ................................. $ (2,351,893)
=============
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. The cost of the Fund's loan
participations was $1,701,155.
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.
Page 14
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOTE 6. DIVIDENDS SUBSEQUENT TO JUNE 30, 1999
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 July and August 1999,
payable on July 30, 1999 and August 27, 1999 to shareholders of record on July
13, 1999 and August 17, 1999, respectively.
Page 15
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
FINANCIAL HIGHLIGHTS
Data for a share of capital stock outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $12.76 $14.92 $14.72 $13.50 $12.88 $15.59
-------- ------- ------- ------- ------- -------
Income (Loss) From Operations:
Net investment income...................... 0.64 1.34 1.43 1.52 1.52 1.38
Net realized and unrealized gain (loss).... (0.10) (1.89) 0.71 1.22 0.70 (2.32)
-------- ------- ------- ------- ------- -------
Total Income (Loss) From Operations........... 0.54 (0.55) 2.14 2.74 2.22 (0.94)
-------- ------- ------- ------- ------- -------
Less Distributions From:
Net investment income...................... (0.75) (1.34) (1.43) (1.52) (1.53) (1.39)
Net realized gains......................... -- (0.15) (0.51) -- (0.07) (0.38)
Capital.................................... -- (0.12) -- -- -- --
-------- ------- ------- ------- ------- -------
Total Distributions........................... (0.75) (1.61) (1.94) (1.52) (1.60) (1.77)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of Period................ $12.55 $12.76 $14.92 $14.72 $13.50 $12.88
======== ======= ======= ======= ======= =======
Per Share Market Value, End of Period......... $13.9375 $14.625 $16.438 $15.375 $14.125 $12.875
======== ======= ======= ======= ======= =======
Total Return, Based on Market Price(2)........ 0.75%++ (0.89)% 20.93% 20.98% 23.83% (8.04)%
======== ======= ======= ======= ======= =======
Ratios to Average Net Assets:
Operating expenses......................... 1.18%+ 1.08% 1.10% 1.16% 1.22% 1.13%
Net investment income...................... 10.06%+ 9.62% 9.53% 10.76% 11.68% 9.91%
Net Assets, End of Period (000s).............. $61,456 $62,115 $71,951 $70,301 $63,931 $60,344
Portfolio Turnover Rate....................... 56.1% 110.8% 112.2% 110.4% 128.2% 76.6%
</TABLE>
[FN]
- --------------------------------------------------------------------------------
(1) For the six months ended June 30, 1999 (unaudited).
(2) 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.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
</FN>
Page 16
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
Summary of quarterly results of operations:
NET REALIZED
NET INVESTMENT & UNREALIZED
INCOME GAIN (LOSS)
------------------ --------------------
QUARTERS ENDED* TOTAL PER SHARE TOTAL PER SHARE
- ------------------------------------------------------------------------
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)
September 30, 1998......... 1,651 0.34 (9,027) (1.86)
December 31, 1998.......... 1,651 0.34 1,271 0.27
March 31, 1999............. 1,593 0.33 166 0.03
June 30, 1999.............. 1,505 0.31 (645) (0.13)
- --------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
Page 17
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
OTHER INFORMATION (unaudited)
YEAR 2000. The investment management services provided to the Fund by the
Investment Adviser depend in large part on the smooth functioning of its
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
the dates were encoded or calculated. The capability of these systems to
recognize the year 2000 could have a negative impact on the Investment Adviser's
provision of investment advisory services, including handling of securities
trades, pricing and account services. The Investment Adviser has advised the
Fund that it has been reviewing all of their computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expects that given the extensive testing which it is undertaking, its systems
will be year 2000 compliant before such date. In addition, the Investment
Adviser has been advised by certain of the Fund's service providers that they
are also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the Investment Adviser or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the Fund at that time.
Page 18
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
ADDITIONAL SHAREHOLDER INFORMATION (unaudited)
On March 11, 1999, the Annual Meeting of the Fund's Stockholders was held for
the purpose of voting on the following matters:
1. The election of Charles F. Barber and Riordan Roett as Directors of the Fund
until the year 2002; and
2. The ratification of the selection of PricewaterhouseCoopers LLP as the
Fund's independent accountants for the fiscal year ended December 31, 1999.
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>
Charles F. Barber 4,557,546 98.3% 77,140 1.7%
Riordan Roett 4,556,415 98.3% 78,271 1.7%
- -------------------------------------------------------------------------------------------------------
</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>
4,552,872 98.2% 29,840 0.6% 51,974 1.2%
- -------------------------------------------------------------------------------------------------------
</TABLE>
Page 19
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
DIVIDEND REINVESTMENT PLAN (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 20
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
DIVIDEND REINVESTMENT PLAN (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.
Paage 21
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
DIVIDEND REINVESTMENT PLAN (unaudited) (continued)
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 22
<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, Salomon Smith Barney Inc.;
President and Director,
SSBC Fund Management Inc.
and Travelers Investment 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
ANTHONY PACE
CONTROLLER
CHRISTINA T. SYDOR
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
PricewaterhouseCoopers 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, 1999
- ----------------------------------------------------------
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
HIFSEMI 6/99
