<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
February 16, 1999
Dear Shareholders:
We are pleased to provide this annual report for the Salomon Brothers High
Income Fund Inc ("Fund") as of December 31, 1998. Included are market
commentary, a schedule of the Fund's investments as of December 31, 1998 and
financial statements for the year ended December 31, 1998. Dividends totaling
$1.61 per share were paid during this year. This total represents $1.34, $0.15
and $0.12 per share from net investment income, net realized long-term capital
gains and capital, respectively. The following table shows the annualized
distribution rate and twelve-month total return for the period based on the
Fund's December 31, 1998 net asset value ("NAV") per share and its New York
Stock Exchange ("NYSE") closing price:
Price Annualized Twelve-Month
Per Share Distribution Rate* Total Return
--------- ------------------ ------------
$12.76 (NAV) 11.76% (3.88)%
$14.625 (NYSE) 10.26% (0.89)%
In comparison, during the same period, the Salomon Smith Barney High Yield
Market Index ("Index") showed a return of 3.60% and the JP Morgan Emerging
Markets Bond Index Plus ("EMBI+") showed a return of negative 14.35%.
On December 31, 1998, 77% of the Fund's long-term investments was in U.S. high
yield corporate bonds. The remaining 23% was invested in securities of emerging
market issuers, including both obligations of sovereign governments and
corporate issuers.
On December 31, 1998, the top ten country and industry allocations (as a
percentage of total investments) for the Fund were as follows:
* Media/Telecommunications 18.6%
* Basic Industries 15.9
* Consumer Non-Cyclicals 12.3
* Industrial/Manufacturing 12.0
* Services/Other 7.3
* Morocco 3.7
* Financial 3.6
* Argentina 3.4
* Consumer Cyclical 3.3
* Venezuela 2.4
U.S. HIGH YIELD MARKET
The U.S. high yield bond market experienced a volatile year in 1998 in
comparison with recent years. Weakened global economies and financial markets
negatively affected the high yield market for both fundamental and technical
reasons. The high yield market performed reasonably well until August, when it
experienced a 6.8% drop, according to the Salomon Smith Barney High Yield Market
Index. This correction was due to Russia's debt crisis, which triggered a
downturn for all global assets. For the year ended December 31, 1998, the U.S.
high yield market returned 3.6%.
- ----------------
* 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
The first seven months of the year were characterized by relative calm in both
underlying credit quality and market conditions, as reflected by the U.S. high
yield market's return of 5.99%. Market default statistics were consistent with
1997 and were at relatively low levels, characterizing reasonable credit quality
for broad sectors of the market.
The first part of the year was also driven by strong technical market conditions
in high yield. A large financing calendar (691 new issues for the year
representing $138.9 billion versus 706 new issues representing $126 billion in
1997) was comfortably absorbed by the mutual fund inflows and asset allocations
to high yield by institutional investors and structured finance investments.
Credit spreads (the yield premium above U.S. Treasury bonds which the high yield
market pays) were 3.60% on average on January 1, 1998, gradually widening to
3.74% by July 31, 1998 as treasury markets rallied. The average yield in the
market declined from 9.31% to 9.23% during this period.
In August, extreme volatility hit the world's financial markets, including the
U.S. high yield bond market. Precipitated by the inability of Russia to
refinance its local treasury bills, a global "flight-to-quality" ensued, with
panicked investors exiting riskier asset classes and flocking to U.S. treasury
bonds. U.S. equities, high yield bonds, U.S. investment grade corporates,
mortgage bonds, and most notably emerging market bonds, declined materially in
price. This "flight-to-quality" was magnified by forced selling of leveraged
investment vehicles, commonly known as "hedge funds", which had to sell these
investments to meet margin calls on borrowings.
At the same time, the market started to experience a significant weakening in
operating results and credit quality from companies most vulnerable to the
global economic slowdown emanating from the Asian economic crisis. Driven by
global overcapacity and slackened demand, commodity prices worldwide tumbled,
severely affecting companies in industries such as Energy and Oil, Paper and
Forest Products, Steel and Other Metals and Chemicals.
By October, things had calmed down somewhat and the U.S. high yield market
returned 3.50% for the fourth quarter, as pressure to sell abated and credit
spreads declined from 6.30% on September 30 to 5.66% on December 31, 1998. After
two very slow, almost dormant months for financing, better quality companies
were able to re-enter the market for financing, although commodity-based
cyclical companies still faced difficulty.
For the year ended December 31, 1998, the strongest performing sectors in the
U.S. high yield market included higher-quality (BB-rated) bonds, Utilities,
Leisure/Lodging, Aerospace and Cable & Media. The worst performers included
lower-quality (CCC-rated) bonds, Energy, Consumer Products, Metals/Mining and
Textile/Apparel.
The Fund continued to upgrade credit quality during 1998 and maintain a low
exposure to basic industries such as Chemicals, Papers and Steels. While this
benefited performance, the Fund was hurt by its overweighting in Energy and
underweighting in Utilities. During the fourth quarter the Fund reduced its
exposure to Energy, as it appears that energy prices could remain depressed for
the foreseeable future.
Going forward, our focus in high yield will continue to be on stronger
credit-quality companies and selected opportunities that are compelling on a
risk/reward basis.
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
EMERGING DEBT MARKET
The collapse in the emerging bond markets in 1998 was triggered by a variety of
events, some related to declines in fundamental creditworthiness and others
related to technical factors. Fundamentally, sovereign credit quality was
adversely affected by declining commodity prices during the year, which caused
lower fiscal revenues for many emerging markets economies. In addition,
subsequent to the debt restructuring problems experienced by Asia in 1997, a
significant decline in financing available to emerging market economies,
typically called a "credit crunch", developed, hindering many countries'
abilities to finance short term obligations. This problem peaked with the
Russian government forcing a restructuring of its short term domestic ruble
denominated debt after being unable to refinance it in the face of limited
investor demand. This decline in fundamental creditworthiness caused a technical
decline as leveraged speculators were forced to liquidate holdings in the face
of margin calls.
At the end of the period, however, market concerns of global contagion lessened
in the emerging debt market due to a number of positive world events including
the Clinton administration and the U.S. Congress reaching an agreement on
funding for the International Monetary Fund ("IMF") which totaled U.S.$17.9
billion. This funding is crucial for the IMF to play a major role in preventing
financial meltdown in Latin America. This agreement along with a lack of forced
selling by non-dedicated investors, caused the market to rise from September
through the end of the year.
In conclusion, despite improved performance at the end of the period, the
emerging debt market will continue to be impacted as investors assess their
appetite for risk and evaluate the appropriate risk premium for investing in
credit sensitive fixed income assets. Although market sentiment has certainly
improved and we are confident that the outlook is much more positive, we expect
this volatile period in the emerging markets to continue in the short term.
* * *
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 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).
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 the future
years.
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
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds -- 77.0%
BASIC INDUSTRIES -- 15.9%
$ 500,000 AEI Holding Co., Inc., Company Guaranteed, 10.500% due 12/15/05(a)..... $ 500,000
750,000 BE Aerospace, Sr. Sub. Notes, 9.500% due 11/1/08(a).................... 795,000
1,000,000 Berry Plastics Corp., Sr. Sub. Notes, 12.250% due 4/15/04.............. 1,047,500
1,000,000 Breed Technologies, Inc., Sr. Sub. Notes, 9.250% due 4/15/08(a)........ 882,500
500,000 Envirosource Inc., Sr. Notes, 9.750% due 6/15/03....................... 470,000
1,000,000 Glencore Nickel, Company Guaranteed, 9.000% due 12/1/14................ 841,250
750,000 Jitney-Jungle Stores of America, Inc., Company Guaranteed, 12.000%
due 3/1/06........................................................... 834,375
1,000,000 PCI Chemicals Canada Inc., Company Guaranteed, 9.250% due 10/15/07..... 808,750
P & L Coal Holdings:
500,000 Company Guaranteed, 8.875% due 5/15/08............................... 511,250
500,000 Sr. Sub. Notes, 9.625% due 5/15/08................................... 508,750
Radnor Holdings Corp.:
150,000 Series B, Company Guaranteed, 10.000% due 12/1/03.................... 151,500
600,000 Sr. Notes, 10.000% due 12/1/03....................................... 606,000
1,000,000 Teekay Shipping Corp., Company Guaranteed, 8.320% due 2/1/08........... 996,250
500,000 Tekni-Plex Inc., Sr. Sub. Notes, 11.250% due 4/1/07.................... 557,500
----------
9,510,625
----------
CONSUMER CYCLICALS -- 3.3%
1,000,000 Cole National Group, Sr. Sub. Notes, 8.625% due 8/15/07................ 980,000
1,000,000 HMH Properties Inc., Sr. Notes, 8.450% due 12/1/08..................... 1,003,750
----------
1,983,750
----------
CONSUMER NON-CYCLICALS -- 12.3%
500,000 Alaris Medical Systems Inc., Company Guaranteed, 9.750% due 12/1/06.... 495,625
500,000 Fresenius Medical Care Capital Trust, 9.000% due 12/1/06............... 526,250
651,000 Hines Horticulture, Sr. Sub. Notes, 11.750% due 10/15/05............... 698,198
1,400,000 Nebco Evans, Sr. Discount Notes, zero coupon until 7/15/02,
(12.375% thereafter) due 7/15/07..................................... 672,000
1,000,000 North Atlantic Trading, Company Guaranteed, 11.000% due 6/15/04........ 1,010,000
750,000 Park Place Entertainment, Sr. Sub. Notes, 7.875% due 12/15/05(a)....... 751,875
750,000 Pueblo Xtra International, Inc., Sr. Notes, 9.500% due 8/1/03.......... 712,500
1,125,000 Revlon Worldwide Corp., Sr. Discount Notes, zero coupon due 3/15/01.... 624,375
500,000 Stroh Brewery Co., Sr. Sub. Notes, 11.100% due 7/1/06.................. 377,500
500,000 Sun International Hotels, Sr. Sub. Notes, 9.000% due 3/15/07........... 520,000
946,000 Waterford Gaming LLC, Sr. Notes, 12.750% due 11/15/03.................. 1,020,498
----------
7,408,821
----------
- ---------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
Page 4
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 2.3%
$ 500,000 Benton Oil & Gas Co., Sr. Notes, 11.625% due 5/1/03................... $ 290,000
1,000,000 Dailey International Inc., Company Guaranteed, 9.500% due 2/15/08..... 450,000
500,000 Pool Energy Services Co., Company Guaranteed, 8.625% due 4/1/08....... 474,375
500,000 TransAmerican Energy Corp., Sr. Discount Notes, zero coupon until
6/15/99 (13.000% thereafter) due 6/15/02............................ 162,500
----------
1,376,875
----------
FINANCIAL -- 3.6%
500,000 Airplanes Pass Through Trust, 10.875% due 3/15/19..................... 531,720
Contifinancial Corp., Sr. Notes:
500,000 7.500% due 3/15/02.................................................. 360,000
500,000 8.125% due 4/1/08................................................... 325,000
1,000,000 Morgan Stanley Aircraft Finance, Series 1A, Class D1, 8.700%
due 3/15/23(a)...................................................... 910,000
----------
2,126,720
----------
INDUSTRIAL/MANUFACTURING -- 12.0%
500,000 Alvey Systems Inc., Sr. Sub. Notes, 11.375% due 1/31/03............... 505,000
750,000 Axiohm Transaction Solutions, Inc., Company Guaranteed, 9.750%
due 10/1/07......................................................... 699,375
500,000 Burke Industries Inc., Company Guaranteed, 10.000% due 8/15/07........ 492,500
750,000 Foamex L.P., Company Guaranteed, 9.875% due 6/15/07................... 810,000
750,000 High Voltage Engineering Corp., Sr. Notes, 10.500% due 8/15/04........ 710,625
750,000 International Knife & Saw Inc., Sr. Sub. Notes, 11.375% due 11/15/06.. 772,500
500,000 JH Heafner Co., Sr. Notes, 10.000% due 5/15/08........................ 506,250
750,000 Motors & Gears, Inc., Sr. Notes, 10.750% due 11/15/06................. 790,313
1,000,000 Neenah Corp., Sr. Discount Notes, 11.125% due 5/1/07.................. 1,027,500
750,000 Vencor Inc., Company Guaranteed, 9.875% due 5/1/05.................... 652,500
250,000 Venture Holdings Trust, Sr. Notes, 9.500% due 7/1/05.................. 250,000
----------
7,216,563
----------
MEDIA/TELECOMMUNICATIONS -- 18.6%
1,000,000 Adelphia Communications Corp., Sr. Notes, 9.500% due 2/15/04(b)....... 1,062,500
2,000,000 Century Communications Corp., Sr. Discount Notes, zero coupon due
1/15/08............................................................. 1,020,000
250,000 Citadel Broadcasting Co., Sr. Sub. Notes, 9.250% due 11/15/08(a)...... 261,563
1,000,000 CSC Holdings Inc., Sr. Sub. Debentures, 7.625% due 7/15/18............ 1,006,250
500,000 Diamond Cable Co., Sr. Discount Notes, zero coupon until 12/15/00.....
(11.750% thereafter) due 12/15/05................................... 411,250
- ---------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 5
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDIA/TELECOMMUNICATIONS -- 18.6% (CONTINUED)
$1,000,000 Falcon Holding Group, Sr. Sub. Debentures, 8.375% due 4/15/10......... $ 1,030,000
1,500,000 Intelcom Group Inc., Sr. Discount Notes, zero coupon until 9/15/00
(13.500% thereafter) due 9/15/05.................................... 1,245,000
1,500,000 Intermedia Communications of Florida, Sr. Discount Notes,
zero coupon until 7/15/02 (11.250% thereafter) due 7/15/07.......... 1,020,000
Nextel Communications, Inc., Sr. Discount Notes:
750,000 Zero coupon until 2/15/99 (9.750% thereafter) due 8/15/04........... 728,438
500,000 Zero coupon until 2/15/03 (9.950% thereafter) due 2/15/08........... 301,250
1,300,000 NTL Inc., Sr. Notes, zero coupon until 2/1/01 (11.500% thereafter)
due 2/1/06.......................................................... 1,046,500
500,000 Perry Judd, Company Guaranteed, 10.625% due 12/15/07.................. 525,000
500,000 Transwestern Publishing Co., Sr. Sub. Notes, 9.625% due 11/15/07...... 521,875
1,000,000 World Color Press, Sr. Sub. Notes, 8.375% due 11/15/08(a)............. 1,005,000
----------
11,184,626
----------
SERVICES/OTHER -- 7.3%
1,000,000 Allied Waste Industries, Sr. Notes, zero coupon until 6/1/02
(11.300% thereafter) due 6/1/07..................................... 1,016,250
500,000 APCOA Inc., Company Guaranteed, 9.250% due 3/15/08.................... 470,000
500,000 La Petite Academy, Company Guaranteed, 10.000% due 5/15/08............ 495,000
1,000,000 Loomis Fargo & Co., Company Guaranteed, 10.000% due 1/15/04........... 920,000
1,000,000 Millar Western Forest, Sr. Notes, 9.875% due 5/15/08.................. 750,000
750,000 Protection One Alarm Co., Sr. Sub. Notes, 8.125% due 1/15/09(a)....... 751,875
----------
4,403,125
----------
TECHNOLOGY/ELECTRONICS -- 1.7%
1,000,000 Amphenol Corp., Sr. Sub. Notes, 9.875% due 5/15/07.................... 1,026,250
----------
TOTAL CORPORATE BONDS (Cost -- $50,911,590)........................... 46,237,355
----------
Sovereign Bonds -- 18.0%
Republic of Argentina Global Bond:
1,650,000 11.000% due 12/4/05................................................. 1,645,875
350,000 11.375% due 1/30/17................................................. 351,307
2,064,000 Federal Republic of Brazil, EI Bearer Bond, Series L, 6.125%
due 4/15/06(c)...................................................... 1,331,280
- -------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 6
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sovereign Bonds -- 18.0% (continued)
$1,250,000 Republic of Bulgaria, FLIRB, Series A, 2.500% due 7/28/12(c).......... $ 718,750
400,000 Republic of Colombia, 12.245% due 8/13/05(c).......................... 370,000
1,000,000 Croatia Series A, 6.5625% due 7/31/10(c).............................. 795,000
1,030,524 Republic of Ecuador, Bearer, PDI Bond, 6.625%, due 2/27/15(b)(c)...... 421,228
Export-Import Bank of Korea, Global Bond:
100,000 7.250% due 6/25/01.................................................. 94,725
125,000 6.500% due 2/10/02.................................................. 111,094
175,000 Korea Development Bank, Global Bond, 7.900% due 2/1/02................ 168,315
800,000 United Mexican States, Global Bond, 11.375% due 9/15/16............... 842,000
Republic of Panama:
500,000 Global Bond, 8.250% due 4/22/08..................................... 469,375
500,000 IRB, 4.000% due 7/17/14(c).......................................... 377,500
900,000 Republic of Peru, PDI, 4.000% due 3/7/17(c)........................... 569,250
880,000 Republic of Philippines, DCB, 6.000% due 12/1/09(c)................... 728,200
Russia:
172,046 IAN, 6.625% due 12/15/15(a)(c)...................................... 18,710
625,000 Ministry of Finance, Global Bond, 11.000% due 7/24/18............... 157,813
750,000 Ministry of Finance, Global Bond, 12.750% due 6/24/28............... 236,250
Republic of Venezuela:
607,144 FLIRB, Series B, 6.125% due 3/31/07(c).............................. 377,947
1,375,000 Global Bond, 13.625% due 8/15/18.................................... 1,048,438
----------
TOTAL SOVEREIGN BONDS (Cost -- $8,591,848)............................ 10,833,057
----------
Loan Participations (d) -- 4.8%
The People's Democratic Republic of Algeria:
272,727 Tranche A, 7.1875% due 3/4/00 (Chase Manhattan)(c).................. 226,364
545,454 Tranche 1, 6.375% due 9/4/06 (Chase Manhattan)(c)................... 242,727
2,750,000 Kingdom of Morocco, Tranche A, 6.0625% due 1/1/09.....................
(Chase Manhattan, Morgan Guaranty Trust Company of New York)(c)..... 2,200,000
3,025,000 Russia, Principal Loan, (J.P. Morgan), 6.625% due 12/15/20(c)(e)...... 189,063
----------
TOTAL LOAN PARTICIPATIONS (Cost -- $4,668,501)........................ 2,858,154
----------
- ---------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 7
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock (f) -- 0.1%
500 AmeriKing, Inc........................................................ $ 20,000
2,875 United International Holdings, Inc.................................... 43,125
-----------
TOTAL COMMON STOCK (Cost -- $95,295).................................. 63,125
-----------
Preferred Stock (f) -- 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 (f) -- 0.1%
1,225 Republic of Argentina, Warrants (Exercise price of 93.30% plus accrued
interest per 1,000 bonds, expiring on 12/3/99)...................... 55,125
2,500 In Flight Phone (Exercise price of $.01 per share expiring on 8/31/02,
Each warrant exercisable for one share of common stock.)............ 0
-----------
TOTAL WARRANTS (Cost-- $42,214)....................................... 55,125
-----------
TOTAL INVESTMENTS -- 100% (Cost -- $64,309,735*)...................... $60,047,103
===========
<FN>
- -------------------------------------------------------------------------------------------------------------------
(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) Payment-in-kind security for which all or part of the income earned is
capitalized as additional principal.
(c) Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(d) Participation interest was acquired through the financial institution
indicated parenthetically.
(e) Currently, all interest earned is capitalized as Russian Government Interest
in Arrears Notes.
(f) Non-income producing securities.
* Aggregate cost for Federal income tax purposes is substantially the same.
DCB -- Debt Conversion Bond.
EI -- Eligible Interest.
FLIRB -- Front-Loaded Interest Reduction Bond.
IAN -- Interest in Arrears Notes.
IRB -- Interest Reduction Bond.
PDI -- Past Due Interest.
</FN>
- -------------------------------------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
Page 8
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $64,309,735).............................................. $60,047,103
Cash.................................................................................... 698
Interest receivable..................................................................... 1,108,372
Prepaid expenses........................................................................ 151
Other assets............................................................................ 1,570,000
-----------
TOTAL ASSETS............................................................................ 62,726,324
-----------
LIABILITIES:
Payable for securities purchased........................................................ 428,093
Management fee payable.................................................................. 36,696
Accrued expenses........................................................................ 146,718
-----------
TOTAL LIABILITIES....................................................................... 611,507
-----------
TOTAL NET ASSETS.......................................................................... $62,114,817
===========
NET ASSETS:
Par value of capital shares ($0.001 par value, authorized 100,000,000 shares;
4,869,312 shares outstanding)........................................................ $ 4,869
Capital paid in excess of par value..................................................... 67,025,022
Accumulated net realized loss on investments............................................ (652,442)
Net unrealized depreciation on investments.............................................. (4,262,632)
-----------
TOTAL NET ASSETS.......................................................................... $62,114,817
===========
NET ASSET VALUE, PER SHARE ($62,114,817 / 4,869,312 shares)............................... $12.76
======
- ---------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 9
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................................... $ 7,239,564
-----------
EXPENSES:
Management fee............................................................................. 473,869
Printing .................................................................................. 52,500
Legal ..................................................................................... 42,000
Transfer agent ............................................................................ 41,000
Directors' fees & expenses ................................................................ 40,000
Audit and tax return preparation services ................................................. 31,000
Custodian.................................................................................. 21,000
Amortization of deferred organization costs (Note 1)....................................... 1,795
Other ..................................................................................... 25,594
-----------
TOTAL EXPENSES............................................................................. 728,758
-----------
NET INVESTMENT INCOME........................................................................ 6,510,806
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales..................................................................... 75,368,435
Cost of securities sold................................................................. 75,868,327
-----------
NET REALIZED LOSS.......................................................................... (499,892)
-----------
Change in Net Unrealized Appreciation (Depreciation) on Investments:
Beginning of year....................................................................... 4,453,494
End of year............................................................................. (4,262,632)
-----------
INCREASE IN NET UNREALIZED DEPRECIATION.................................................... (8,716,126)
-----------
NET LOSS ON INVESTMENTS...................................................................... (9,216,018)
-----------
DECREASE IN NET ASSETS FROM OPERATIONS....................................................... $(2,705,212)
===========
- --------------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 10
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................. $ 6,510,806 $ 6,862,065
Net realized gain (loss)................................................ (499,892) 3,611,923
Change in net unrealized appreciation................................... (8,716,126) (267,238)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ...................... (2,705,212) 10,206,750
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (6,480,394) (6,853,996)
Net realized gains...................................................... (729,016) (2,452,604)
Capital................................................................. (595,795) --
----------- -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS............... (7,805,205) (9,306,600)
----------- -----------
FUND SHARE TRANSACTIONS:
Proceeds from shares issued in reinvestment of dividends
(45,507 and 47,530 shares issued) ................................... 674,341 742,434
----------- -----------
INCREASE (DECREASE) IN NET ASSETS....................................... (9,836,076) 1,642,584
NET ASSETS:
Beginning of year....................................................... 71,950,893 70,308,309
----------- -----------
END OF YEAR*............................................................ $62,114,817 $71,950,893
=========== ===========
*Includes undistributed (overdistributed) net investment income of........ -- $6,598
=========== ===========
- -----------------------------------------------------------------------------------------------------------
See notes to financial statements.
Page 11
</TABLE>
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements
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 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.
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 (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.
DEFERRED ORGANIZATION COSTS. Organization costs amounting to $125,000 were
incurred in connection with the organization of the Fund. These costs have been
deferred and were amortized ratably over a five-year period from commencement of
operations in January 1993. As of December 31, 1998, the amortization of the
deferred organization costs had been completed.
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 Investment
Manager has delegated certain administrative responsibilities to Mutual
Management Corp. ("MMC"), an affiliate of the Investment Manager pursuant to
Page 13
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Notes to Financial Statements (continued)
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., which occurred on
November 28, 1997.
Certain officers and/or directors of the Fund are also officers and/or directors
of the investment manager.
Note 3. Portfolio Activity
Purchases and sales of investment securities, other than short-term
investments, for the year ended December 31, 1998, aggregated $72,868,427 and
$75,368,435, respectively.
The Federal income tax cost basis of the Fund's investments at December 31, 1998
was substantially the same as the cost basis for financial reporting. Gross
unrealized appreciation and depreciation amounted to $1,413,897 and $5,676,529,
respectively, resulting in net unrealized depreciation for Federal income tax
purposes of $4,262,632.
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 $4,668,501.
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 (continued)
Note 6. Dividends Subsequent to December 31, 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 January, February, March
and April 1999, payable on January 29, 1999, February 26, 1999, March 26, 1999
and April 30, 1999 to shareholders of record on January 12, 1999, February 17,
1999, March 16, 1999 and April 13, 1999, respectively.
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 each year ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR......... $ 14.92 $ 14.72 $ 13.50 $ 12.88 $ 15.59
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................... 1.34 1.43 1.52 1.52 1.38
Net realized and unrealized gain (loss). (1.89) 0.71 1.22 0.70 (2.32)
------- ------- ------- ------- -------
Total Income (Loss) From Operations........ (0.55) 2.14 2.74 2.22 (0.94)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income................... (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........................ (1.61) (1.94) (1.52) (1.60) (1.77)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR............... $ 12.76 $ 14.92 $ 14.72 $ 13.50 $ 12.88
======= ======= ======= ======= =======
PER SHARE MARKET VALUE, END OF YEAR........ $14.625 $16.438 $15.375 $14.125 $12.875
======= ======= ======= ======= =======
TOTAL RETURN, BASED ON MARKET PRICE(1)..... (0.89)% 20.93% 20.98% 23.83% (8.04)%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses...................... 1.08% 1.10% 1.16% 1.22% 1.13%
Net investment income................... 9.62% 9.53% 10.76% 11.68% 9.91%
NET ASSETS, END OF YEAR (000s)............. $62,115 $71,951 $70,301 $63,931 $60,344
PORTFOLIO TURNOVER RATE.................... 110.8% 112.2% 110.4% 128.2% 76.6%
<FN>
- ----------------------------------------------------------------------------------------------------------------
(1) 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.
</FN>
</TABLE>
Page 16
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers High Income Fund Inc
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Salomon Brothers High Income
Fund Inc (the "Fund") at December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in comformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 22, 1999
Page 17
<PAGE>
SALOMON BROTHERS HIGH INCOME FUND INC
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
<TABLE>
<CAPTION>
NET REALIZED
NET INVESTMENT & UNREALIZED
INCOME GAIN (LOSS)
------------------ --------------------
QUARTERS ENDED* TOTAL PER SHARE TOTAL PER SHARE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
* Totals expressed in thousands of dollars except per share amounts.
</TABLE>
Tax Information (unaudited)
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
December 31, 1998:
* Total long-term capital gain distributions paid of $729,016.
Page 18
<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 PricewaterhouseCoopers LLP as the
Fund's independent accountants for the fiscal year ended 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 0.9%
Jeswald W. Salacuse 4,580,703 99.5% 25,039 0.5%
Heath B. McLendon 4,580,703 99.5% 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 98.9% 11,458 0.2% 39,886 0.9%
- -------------------------------------------------------------------------------------------------------------------
Page 19
</TABLE>
<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 20
<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 21
<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.
Page 22
<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 23
<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, 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
ANTHONY PACE
Assistant 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>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
Salomon Brothers
High Income Fund Inc
Annual Report
DECEMBER 31, 1998
-------------------------------------------
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
