Salomon Brothers
High Income Fund Inc
Semi-Annual Report
June 30, 2000
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Salomon Brothers Asset Management
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
July 28, 2000
Dear Shareholders:
We are pleased to provide this semi-annual report for the Salomon Brothers High
Income Fund Inc ("Fund") as of June 30, 2000. Included are market commentary, a
schedule of the Fund's investments as of June 30, 2000 and financial statements
for the period ended June 30, 2000. 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, 2000 net asset value ("NAV") per share and its New
York Stock Exchange ("NYSE") closing price 1:
Price Annualized Six-Month
Per Share Distribution Rate 2 Total Return 2
---------- ------------------- --------------
$11.18 (NAV) 13.42% (0.59)%
$12.25 (NYSE) 12.24% 14.21%
In comparison, during the same period, the Salomon Smith Barney High Yield
Market Index 3 returned a negative 1.42% and the J.P. Morgan Emerging Markets
Bond Index Plus ("EMBI+") 4 returned 8.10%. On June 30, 2000, 66.1% of the
Fund's long-term investments were in U.S. high-yield corporate bonds and 28.0%
of the Fund's long-term investments were invested in securities of emerging
market issuers, including both obligations of sovereign and corporate issuers.
U.S. HIGH-YIELD MARKET
For the six months ended June 30, 2000, the high-yield bond market returned a
negative 1.42%, as reported by the Salomon Smith Barney High Yield Market Index.
Interest rate and inflation concerns were serious issues for the high-yield bond
market throughout the period.
As the Federal Reserve Board ("Fed") raised interest rates by 25 basis points 5
in February and the Nasdaq6 market turned in a relatively strong performance
early in calendar year 2000, a string of mutual fund inflows ensued as investors
fled the interest rate-sensitive fixed-income markets for the
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1 The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the market price of all
the securities in which the Fund has invested. However, the price at which
an investor may buy or sell shares of the Fund is at their market (NYSE)
price as determined by supply and demand.
2 Total returns are based on changes in NAV or the market value, respectively.
Total returns assume the reinvestment of all dividends and /or capital gains
distributions in additional shares. Annualized distribution rate is the
Fund's current monthly income dividend rate, annualized, and then divided by
the NAV or the market value noted in this report. The annualized
distribution rate assumes a current monthly income dividend rate of $0.125
for twelve months. This rate is as of July 31, 2000 and is subject to
change. The important difference between a total return and an annualized
distribution rate is that the total return takes into consideration a number
of factors including the fluctuation of the NAV or the market value during
the period reported. The NAV fluctuation includes the effects of unrealized
appreciation or depreciation in the Fund. Accordingly, since an annualized
distribution rate only reflects the current monthly income dividend rate
annualized, it should not be used as the sole indicator to judge the return
you receive from your Fund investment. Past performance is not indicative of
future results.
3 The Salomon Smith Barney High Yield Market Index covers a significant
portion of the below investment-grade U.S. corporate bond market.
4 The EMBI+ is a total return index that tracks the traded market for U.S.
dollar-denominated Brady and other similar sovereign restructured bonds
traded in the emerging market.
5 A basis point is 0.01% or one one-hundredth of a percent.
6 The Nasdaq is a computerized system that provides brokers and dealers with
price quotations for securities traded over the counter as well as for many
New York Stock Exchange listed securities.
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
red-hot stock markets. As the U.S. stock markets became more volatile in March
and April and the Fed announced a 50-basis point interest rate increase with a
tightening bias in May, mutual fund outflows intensified as investors focused on
the potential for further interest rate increases. Investors also increasingly
considered the possibility of a cyclical downturn in the near term, which would
exacerbate already high default rates.
As a result, mutual fund outflows for the period totaled $5.9 billion. In June,
however, benign economic data and a more passive Fed mitigated interest rate
concerns while the high absolute yields available in the high-yield bond market
attracted investors from the volatile equity markets. As a result, the
high-yield bond market saw in June its first month of positive mutual fund flows
in 2000 and returned 2.25% for the month, according to the Salomon Smith Barney
High Yield Market Index.
For the six months ended June 30, 2000, the top performing sectors in the
high-yield bond market included telecommunications, energy, technology,
utilities and gaming. The performance of the telecommunications sector was
driven by explosive industry growth, continued mergers and acquisitions and
equity investment activity. High product prices supported positive performance
in energy. The technology sector's performance benefited from good 1999 fourth
quarter results and the popularity of the sector in the stock markets early in
the period. Utilities and gaming, which are generally composed of higher-rated
issuers, benefited from investors' preference for higher-quality issues.
The most significant underperforming sectors consisted of automotive,
steel/metals, capital goods, leisure/lodging, supermarkets/drugstores and
services/other. Automotive was adversely affected by weakness in the parts
aftermarket. The steel/metals sector performance was hurt by product price
weakness. Additionally, automotive, steel/metals and capital goods were
negatively impacted by increased cyclical concerns. Leisure/lodging was
adversely affected by operating difficulties at several issuers resulting from
overcapacity in the theatre operator sector. The performance of the
supermarkets/drugstores sector was adversely affected by difficulties at Rite
Aid and Pathmark.
In terms of credit quality, BB issues outperformed B issues (as measured by the
Salomon Smith Barney High Yield Market Index), which in turn, outperformed CCC
issues as investors continued to favor the greater liquidity and higher credit
quality offered by BB issues. BB, B and CCC issues returned 0.28%, negative
2.01% and negative 3.92%, respectively, for the period.
The Fund benefited from overweightings in energy and gaming. It was also helped
by an underweighting in leisure/lodging. Performance was hurt, however, by
overweightings in automotive and capital goods and underweighting in
telecommunications and utilities. During the course of the period, the Fund
responded to market conditions by shifting from market-weighted positions to
overweightings in energy and gaming, shifting its holdings in the steel/metals
sector to an underweighting from an overweighting, increasing its positions in
telecommunications and utilities companies and reducing its position in the
automotive sector.
U.S. HIGH-YIELD
MARKET OUTLOOK On June 30, 2000, the high-yield bond market yielded 12.52%, as
represented by the Salomon Smith Barney High Yield Market Index, up from 11.41%
at year-end 1999. The excess yield over U.S. Treasuries was 6.40%, up from 5.00%
at 1999 year-end. We believe that these levels represent attractive long-term
value.
Going forward, we expect the high-yield bond market to continue to experience
volatility over the course of the year primarily as a result of several
technical factors, including: (i) mutual fund flows,
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
(ii) continued concerns regarding default rates, (iii) reduced secondary market
liquidity and (iv) continuing cyclical concerns. In light of these conditions,
we are pursuing a conservative investment strategy geared to overweighting BB
credits and aggressively pursuing selective opportunities in undervalued B and
CCC credits.
EMERGING MARKET DEBT
Emerging market debt returned 8.10% as measured by the EMBI+. Rising oil prices
and rising interest rates were the predominant fundamental factors impacting
returns during the year.
Individual country returns were dominated by Russia which gained 49.78% during
the period. Overall market performance was good with 12 of 16 index countries
generating positive results although no countries generated returns approaching
Russia's.
The performance of the Fund and the emerging debt markets was particularly
strong in light of the difficult fixed-income environment. The Fed raised
interest rates three times during the period, moving the federal funds rate from
5.50% to 6.50%. This aggressive stance by the Fed was an attempt to slow the
rate of U.S. economic growth and keep inflation under control. The aggressive
Fed activity and widening spreads led to subpar returns in most fixed-income
asset classes other than emerging markets debt.
Commodity prices in general, and oil prices in particular, moved higher during
the year. Oil prices began the fiscal year at $25 per barrel and ended the year
over $32 per barrel. A price increase of this magnitude has a beneficial effect
on all oil producers. Russia, Venezuela, and Algeria all experienced measurable
improvements in their credit quality over the period due to rising oil and gas
prices.
The spread on the EMBI+ ended the period at 712 basis points over U.S.
Treasuries, 112 basis points tighter than year-end 1999 levels.
Individual country performance the period followed the period of 1999, with
Russian returns driving the overall Index. While 12 of 16 EMBI+ countries
generated positive returns for the period, no country's performance approached
the level of Russia's 49.78% return.
No country in the EMBI+ experienced a wider range of fundamental developments
than Russia during the Fund's period.
o Boris Yeltsin resigned his presidency at the beginning of the period and
Vladimir Putin was elected President.
o Duma elections in December reduced the influence of the Communist party and
made the moderate bloc the largest faction in the Congress. This development
presumably creates a more constructive environment for Duma-government
relations.
o The Duma passed the 2000 budget which emphasizes increased tax collection
and deficit reduction.
o The first quarter federal budget surplus was 0.7% of Gross Domestic Product
("GDP") as revenue from tax collections soared.
o The Russian government agreed on terms to exchange defaulted former Soviet
debt for new Eurobonds. The terms reduce Russia's debt burden by over 50% on
a net present value basis. The deal is expected to close in late July.
These events helped Russia generate the best returns of any EMBI+ country, up
49.78% during the period.
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Mexico's foreign currency debt rating was upgraded by Moody's Investors Service,
Inc. to investment grade ("Baa3"). The ratings agency cited sound fiscal
policies, increased political stability and a reduced debt burden in explaining
its rationale for the upgrade. Mexico has been viewed as a safe haven in the
emerging markets. It generated returns of 7.88% during the period, driven by
ratings upgrade, rising oil prices, strong exports and an unusually calm
political environment. The ratings upgrade attracted additional investors into
emerging markets debt as Mexico was added to investment grade debt indexes.
Venezuela returned 7.48% for the first half of the fiscal year. Oil price
strength has continued to be a bright spot for the Venezuelan economy. The
additional revenue from oil has helped limit the size of the federal budget
deficit during a period of economic contraction. Venezuela continues to finance
its fiscal deficit domestically, without turning to international capital
markets. Political uncertainty weighed on Venezuelan debt during the latter part
of the fiscal year. Elections were postponed from late May and rescheduled for
late July. We expect President Chavez to be reelected in July.
EMERGING MARKET DEBT OUTLOOK
The overall tone in emerging markets remains positive. Spreads of 712 basis
points over U.S. Treasuries, in our view, represent good value, especially in
light of the strong economic fundamentals and stable politics in most emerging
countries. The technical picture in emerging markets is also encouraging. Market
liquidity remains at very satisfactory levels while hedge fund activity in the
market has been curtailed, leading to a reduction in volatility.
* * * *
In a continuing effort to provide information concerning the Salomon Brothers
High Income Fund Inc, shareholders may call 1-888-777-0102 (toll free), Monday
through Friday from 8:00 a.m. to 6:00 p.m. Eastern Standard Time (EST), for the
Fund's current NAV, market price and other information regarding the Fund's
portfolio holdings and allocations. For information regarding 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 new century.
Sincerely,
/s/ Heath B. McLendon /s/ Peter J. Wilby
Heath B. McLendon Peter J. Wilby
Chairman Executive Vice President
/s/ Beth Semmel /s/ James E. Craige
Beth Semmel James E. Craige
Executive Vice President Executive Vice President
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds -- 66.1%
Basic Industries -- 5.1%
$ 500,000 AEI Holding Co., Inc., Company Guaranteed, 10.500% due 12/15/05 (a) . $ 102,500
250,000 AK Steel Corp., Company Guaranteed, 7.875% due 2/15/09 .............. 223,125
800,000 Berry Plastics Corp., Sr. Sub. Notes, 12.250% due 4/15/04 ........... 763,000
1,000,000 Holt Group, Sr. Notes, 9.750% due 1/15/06 ........................... 100,000
125,000 LTV Corp., Sr. Notes, 11.750% due 11/15/09 .......................... 105,625
375,000 Lyondell Chemical Co., Secured Notes, Series B, 9.875% due 5/1/07 ... 371,250
250,000 Murrin Murrin Holdings Property, Sr. Notes, 9.375% due 8/31/07 ...... 217,500
375,000 Owens-Illinois Inc., 7.500% due 5/15/10 ............................. 322,031
Radnor Holdings Corp.:
150,000 Series B, Company Guaranteed, 10.000% due 12/1/03 ................. 135,000
350,000 Sr. Notes, 10.000% due 12/1/03 .................................... 315,000
750,000 Republic Technology/RTI Capital, 13.750% due 7/15/09 ................ 135,938
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2,790,969
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Building/Construction -- 0.7%
375,000 Nortek Inc., Sr. Sub. Notes, 9.875% due 3/1/04 ...................... 358,125
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Consumer Cyclicals -- 5.8%
500,000 AmeriKing Inc.,Sr. Notes, 10.750% due 12/1/06 ....................... 423,125
500,000 Aztar Corp., Sr. Sub. Notes, 8.875% due 5/15/07 ..................... 473,750
250,000 Cole National Group, Inc., Sr. Sub. Notes, 8.625% due 8/15/07 ....... 166,250
375,000 HMH Properties, Inc., Sr. Notes, Series C, 8.450% due 12/1/08 ....... 349,219
780,000 Mattress Discounters Co., Sr. Notes, 12.625% due 7/15/07 ............ 713,700
1,000,000 Pillowtex Corp., Series B, Company Guaranteed, 9.000% due 12/15/07 .. 350,000
550,000 WestPoint Stevens Inc., Sr. Notes, 7.875% due 6/15/05 ............... 462,000
500,000 Worldtex Inc., Series B, Company Guaranteed, 9.625% due 12/15/07 .... 190,000
----------
3,128,044
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Consumer Non-Cyclicals -- 10.2%
500,000 Circus Circus Enterprise, Sr. Sub. Notes, 9.250% due 12/1/05 ........ 485,000
375,000 Columbia/HCA Healthcare Co., 6.910% due 6/15/05 ..................... 343,125
375,000 Fresenius Medical Capital Trust, Company Guaranteed, 7.875% due 2/1/08 334,688
500,000 Harrah's Operating Co., Inc., Company Guaranteed, 7.875% due 12/15/05 471,250
250,000 Home Interiors & Gifts Inc., Company Guaranteed, 10.125% due 6/1/08.. 143,750
500,000 MGM Grand Inc., Company Guaranteed, 9.750% due 6/1/07 ............... 511,250
1,400,000 Nebco Evans Holding Co., Sr. Discount Notes, (zero coupon until 7/15/02,
12.375% thereafter), due 7/15/07 (b)(c) ........................... 1,750
</TABLE>
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See Notes to Financial Statements.
Page 5
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Non-Cyclicals -- 10.2% (continued)
$ 750,000 North Atlantic Trading, Company Guaranteed, 11.000% due 6/15/04 ..... $ 680,625
500,000 Park Place Entertainment Corp., Sr. Sub. Notes, 9.375% due 2/15/07 (a) 501,250
750,000 Pueblo Xtra International, Inc., Sr. Notes, Series C, 9.500% due 8/1/03 348,750
Revlon Consumer Products Corp.:
500,000 Sr. Notes, 9.000% due 11/1/06 ..................................... 362,500
100,000 Sr. Sub. Notes, 8.625% due 2/1/08 ................................. 51,000
250,000 Simmons Co., Sr. Sub. Notes, Series B, 10.250% due 3/15/09 .......... 223,125
375,000 Tenet Healthcare Corp., Sr. Notes, 9.250% due 9/1/10 (a) ............ 379,688
719,000 Waterford Gaming LLC, Sr. Notes, 9.500% due 3/15/10 (a) ............. 693,835
----------
5,531,586
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Energy -- 6.1%
250,000 Belco Oil & Gas Corp., Company Guaranteed, Series B, 10.500% due 4/1/06 252,813
500,000 Benton Oil & Gas Co., Sr. Notes, 11.625% due 5/1/03 ................. 322,500
420,000 Canadian Forest Oil Ltd., Company Guaranteed, 8.750% due 9/15/07 .... 396,900
500,000 Continental Resources, Company Guaranteed, 10.250% due 8/1/08 ....... 448,750
500,000 Key Energy Services Inc., Company Guaranteed, Series B, 14.000% due 1/15/09 565,000
500,000 Lomak Petroleum, Company Guaranteed, 8.750% due 1/15/07 ............. 432,500
375,000 Pioneer Natural Resource Co., Company Guaranteed, 9.625% due 4/1/10 . 387,656
500,000 Plains Resources Inc., Sr. Sub. Notes, 10.250% due 3/15/06 (a) ...... 506,250
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3,312,369
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Financial Services -- 2.2%
493,850 Airplanes Pass Through Trust, 10.875% due 3/15/19 ................... 401,199
Contifinancial Corp., Sr. Notes:
500,000 7.500% due 3/15/02 (b)(c) ......................................... 62,500
1,000,000 8.375% due 8/15/03 (b)(c) ......................................... 125,000
250,000 8.125% due 4/1/08 (b)(c) .......................................... 31,250
750,000 Morgan Stanley Aircraft Finance, Series 1A, Class D1, 8.700% due 3/15/23 600,000
----------
1,219,949
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Manufacturing -- 10.3%
1,000,000 Breed Technologies, Inc., Sr. Sub. Notes, 9.250% due 4/15/08 (b)(c) . 11,250
375,000 Federal-Mogul Co., 7.375% due 1/15/06 ............................... 272,812
750,000 Foamex L.P., Company Guaranteed, 9.875% due 6/15/07 ................. 574,688
600,000 High Voltage Engineering Corp., Sr. Notes, 10.500% due 8/15/04 ...... 417,000
250,000 Hines Horticulture, Inc., Sr. Sub. Notes, Series B, 11.750% due 10/15/05 251,250
750,000 JH Heafner Co., Sr. Notes, 10.000% due 5/15/08 ...................... 551,250
500,000 JL French Auto Casting, Sr. Sub. Notes, 11.500% due 6/1/09 .......... 457,500
500,000 Jordan Industries, Sr. Notes, Series D, 10.375% due 8/1/07 .......... 460,000
</TABLE>
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See Notes to Financial Statements.
Page 6
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S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing -- 10.3% (continued)
$ 500,000 Key Plastics, Inc., Sr. Sub. Notes, Series B, 10.250% due 3/15/07 (b)(c) $ 42,500
750,000 Moll Industries, Inc., Sr. Sub. Notes, 10.500% due 7/1/08 ........... 135,000
750,000 Motors & Gears, Inc., Sr. Notes, 10.750% due 11/15/06 ............... 725,625
1,000,000 Neenah Corp., Sr. Discount Notes, 11.125% due 5/1/07 ................ 740,000
500,000 Sequa Corp., Sr. Notes, 9.000% due 8/1/09 ........................... 482,500
250,000 Tenneco Automotive Inc., Sr. Sub. Notes, 11.625% due 10/15/09 ....... 223,750
250,000 Winsloew Furniture, Inc., Sr. Sub. Notes, 12.750% due 8/15/07 ....... 231,250
----------
5,576,375
----------
Media - Cable -- 6.7%
Adelphia Communications Corp., Sr. Notes:
170,970 9.500% due 2/15/04 ................................................ 165,841
450,000 Series B, 9.875% due 3/1/07 ....................................... 432,000
500,000 Charter Communications Holdings LLC, Sr. Notes, 8.625% due 4/1/09 ... 441,875
350,000 Charter Communications Inc., Sr. Discount Notes, (zero coupon until 4/1/04,
9.920% thereafter), due 4/1/11 .................................... 199,500
250,000 CSC Holdings, Inc., Sr. Sub. Notes, 9.875% due 4/1/23 ............... 257,500
500,000 Diamond Cable Co., Sr. Discount Notes, (zero coupon until 12/15/00,
11.750% thereafter), due 12/15/05 ................................. 476,875
1,250,000 NTL Inc., Sr. Notes, (zero coupon until 2/1/01, 11.500% thereafter),
due 2/15/06 ....................................................... 1,159,375
500,000 Transwestern Publishing Co., Sr. Sub. Notes, 9.625% due 11/15/07 485,000
----------
3,617,966
----------
Services/Other -- 5.4%
750,000 Allied Waste Industries, Inc., Sr. Sub. Notes, 10.000% due 8/1/09 ... 630,000
750,000 Avis Rent A Car, Inc., Company Guaranteed, 11.000% due 5/1/09 ....... 785,625
750,000 Axiohm Transaction Solutions Inc., Company Guaranteed, 9.750% due
10/1/07 (b)(c) ................................................... 155,625
250,000 La Petite Academy Inc., Company Guaranteed, 10.000% due 5/15/08 ..... 148,750
1,000,000 Loomis Fargo & Co., Company Guaranteed, 10.000% due 1/15/04 ......... 965,000
250,000 Pierce Leahy Co., Company Guaranteed, 8.125% due 5/15/08 ............ 221,250
----------
2,906,250
----------
Technology -- 1.0%
500,000 Polaroid Corp., Sr. Notes, 11.500% due 2/15/06.......................... 522,500
----------
Telecommunications -- 10.1%
500,000 Covad Communications Group, Sr. Notes, 12.000% due 2/15/10 (a)....... 392,500
500,000 Global Crossing Holding Ltd., Company Guaranteed, 9.125% due 11/15/06 481,250
1,500,000 ICG Holdings Inc., Sr. Discount Notes, (zero coupon until 9/15/00,
13.500% thereafter), due 9/15/05................................... 1,458,750
1,000,000 Intermedia Communications of Florida, Sr. Discount Notes, (zero
coupon until 7/15/02, 11.250% thereafter), due 7/15/07............. 790,000
</TABLE>
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See Notes to Financial Statements.
Page 7
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications -- 10.1% (continued)
$1,500,000 Nextel Communications, Inc., Sr. Discount Notes, (zero coupon
until 2/15/03, 9.950% thereafter), due 2/15/08 .................... $ 1,106,250
500,000 Price Communications Wireless, Inc., Sr. Sub. Notes, 11.750% due 7/15/07 540,000
500,000 PSINet Inc., Sr. Notes, 11.500% due 11/1/08 ......................... 472,500
250,000 Rogers Cantel, Inc., 9.375% due 6/1/08 .............................. 258,750
----------
5,500,000
----------
Transportation -- 1.2%
375,000 Northwest Airlines, Inc., Company Guaranteed, 7.625% due 3/15/05 .... 331,875
375,000 Stena AB, Sr. Notes, 8.750% due 6/15/07 ............................. 329,063
----------
660,938
----------
Utilities -- 1.3%
375,000 Azurix Corp., Sr. Notes, 10.750% due 2/15/10 (a) .................... 362,812
375,000 Calpine Corp., Sr. Notes, 7.750% due 4/15/09 ........................ 355,312
----------
718,124
----------
TOTAL CORPORATE BONDS (Cost -- $44,373,422) ......................... 35,843,195
----------
Convertible Bonds -- 1.1%
750,000 Quantum Corp., 7.000% due 8/1/04 (Cost-- $621,758) .................. 592,972
----------
Sovereign Bonds -- 28.0%
Argentina -- 4.9%
Republic of Argentina:
350,000 11.375% due 3/15/10 ............................................... 319,375
1,125,000 12.000% due 2/1/20 ................................................ 1,032,187
1,250,000 9.750% due 9/19/27 ................................................ 975,000
325,000 Variable Bond, 11.595% due 4/10/05 ................................ 305,500
----------
2,632,062
----------
Brazil -- 6.0%
Federal Republic of Brazil:
14,781 C Bond, 8.000% due 4/15/14 (d) .................................... 10,725
1,375,000 DCB, Series L, 7.000% due 4/15/12 (d) ............................. 1,015,781
500,000 FLIRB, Series L, 5.000% due 4/15/09 (d) ........................... 386,875
2,151,619 MYDFA, 6.8125% due 9/15/07 (d) .................................... 1,839,635
----------
3,253,016
----------
Bulgaria -- 2.0%
1,475,000 Republic of Bulgaria, FLIRB, Series A, 2.750% due 7/28/12 (d) ....... 1,087,812
----------
</TABLE>
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See Notes to Financial Statements.
Page 8
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
Face
Amount Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Columbia -- 2.6%
Republic of Columbia:
$ 350,000 13.580% due 8/13/05 (d) ............................................ $ 329,000
1,300,000 11.750% due 2/25/20 ................................................ 1,090,375
----------
1,419,375
----------
Croatia -- 0.0%
21,955 Croatia, Series A, 7.0625% due 7/31/10 (d) ........................... 20,088
----------
Ivory Coast -- 1.2%
4,000,000 Ivory Coast, FLIRB, 2.000% due 3/29/18 (b)(c) ........................ 640,000
----------
Mexico -- 0.4%
175,000 United Mexican States, 11.375% due 9/15/16 ........................... 200,550
----------
Russia -- 5.6%
Russia:
Federation:
2,000,000 11.750% due 6/10/03 .............................................. 1,858,750
1,200,000 10.000% due 6/26/07 .............................................. 928,500
300,000 Ministry of Finance, 12.750% due 6/24/28 ........................... 260,625
----------
3,047,875
----------
Venezuela -- 5.3%
Republic of Venezuela:
2,050,000 13.625% due 8/15/18 ................................................ 1,906,500
FLIRB:
166,665 Series A, 7.4375% due 3/31/07 (d) ................................ 136,665
999,997 Series B, 7.4375% due 3/31/07 (d) ................................ 819,998
----------
2,863,163
----------
TOTAL SOVEREIGN BONDS (Cost -- $14,311,189) .......................... 15,163,941
----------
Loan Participations (d)(e) -- 2.5%
Algeria -- 1.8%
The People's Democratic Republic of Algeria:
995,455 Tranche 1, 7.1875% due 9/4/06 (Chase Manhattan) ................... 820,006
200,000 Tranche 3, 7.1875% due 3/4/10 (First Boston) ...................... 155,500
----------
975,506
----------
Morocco -- 0.7%
400,143 Kingdom of Morocco, Tranche A, 7.750% due 1/1/09 (Chase Manhattan,
Morgan Guaranty Trust Company of New York) ........................ 360,129
----------
TOTAL LOAN PARTICIPATIONS (Cost -- $1,245,800) ...................... 1,335,635
----------
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 9
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Schedule of Investments (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
Shares Security Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock (c) -- 0.0%
500 AmeriKing, Inc. (Cost -- $22,000) ................................... $ 5,000
-----------
Preferred Stock -- 0.0%
925 AmeriKing, Inc. (f) ................................................. 7,400
TCR Holding Corp.:
803 Class B (c) ....................................................... 8
442 Class C (c) ....................................................... 4
1,165 Class D (c) ....................................................... 12
2,410 Class E (c) ....................................................... 24
-----------
TOTAL PREFERRED STOCK (Cost -- $8,687) .............................. 7,448
-----------
Warrants (c) -- 0.0%
2,500 In Flight Phone (Exercise price of $0.01 per share expiring 8/31/02,
each warrant exercisable for one share of common stock) ........... 0
750 Republic Technology Corp., expire 7/15/09 ........................... 75
250 Winsloew Furniture, Inc., expire 1/1/01 ............................. 3,750
-----------
TOTAL WARRANTS (Cost -- $18,668) .................................... 3,825
-----------
Face
Amount
---------
Repurchase Agreement -- 2.3%
$1,279,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $1,279,698; (Fully collateralized
by U.S. Treasury Notes, 13.875% due 5/15/11;
Market value -- $1,304,875) (Cost -- $1,279,000) .................. 1,279,000
-----------
Total Investments -- 100% (Cost -- $61,880,524*)............................ $54,231,016
===========
<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) Security is currently in default.
(c) Non-income producing securities.
(d) Rate shown reflects current rate on instruments with variable rate or step
coupon rates.
(e) Participation interest was acquired through the financial institution
indicated parenthetically.
(f) Payment-in-kind security for which part of the income earned may be paid
as additional principal.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
C Bond -- Capitalization Bond.
DCB -- Debt Conversion Bond.
FLIRB -- Front-Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
PDI -- Past Due Interest.
</FN>
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 10
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Assets and Liabilities (unaudited)
June 30, 2000
<TABLE>
<S> <C>
Assets:
Investments, at value (Cost -- $61,880,524) ............................................ $54,231,016
Cash ................................................................................... 283
Interest receivable .................................................................... 1,449,360
-----------
Total Assets ........................................................................... 55,680,659
-----------
Liabilities:
Payable for securities purchased ....................................................... 251,375
Dividends payable ...................................................................... 51,033
Management fee payable ................................................................. 31,566
Accrued expenses ....................................................................... 188,294
-----------
Total Liabilities ...................................................................... 522,268
-----------
Total Net Assets ......................................................................... $55,158,391
===========
Net Assets:
Par value of capital shares ($0.001 par value, authorized 100,000,000 shares;
4,931,642 shares outstanding) ....................................................... $ 4,932
Capital paid in excess of par value .................................................... 67,034,337
Overdistributed net investment income .................................................. (278,994)
Accumulated net realized loss on investments ........................................... (3,952,376)
Net unrealized depreciation on investments ............................................. (7,649,508)
-----------
Total Net Assets ......................................................................... $55,158,391
===========
Net Asset Value, per share ($55,158,391 / 4,931,642 shares) .............................. $11.18
=======
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 11
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statement of Operations (unaudited)
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................................ $ 3,762,217
-----------
EXPENSES:
Management fees (Note 2)................................................................ 198,053
Audit................................................................................... 30,416
Directors' fees and expenses ........................................................... 23,935
Shareholder and system servicing fees................................................... 22,937
Shareholder communications.............................................................. 22,937
Legal .................................................................................. 22,439
Registration fees....................................................................... 10,802
Custody................................................................................. 8,976
Other .................................................................................. 8,965
-----------
Total Expenses.......................................................................... 49,460
-----------
Net Investment Income..................................................................... 3,412,757
-----------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales.................................................................. 27,148,372
Cost of securities sold.............................................................. 27,410,078
-----------
Net Realized Loss....................................................................... (261,706)
-----------
Change in Net Unrealized Depreciation on Investments:
Beginning of period.................................................................. (4,163,273)
End of period........................................................................ (7,649,508)
-----------
Increase in Net Unrealized Depreciation................................................. (3,486,235)
-----------
Net Loss on Investments................................................................... (3,747,941)
-----------
Decrease in Net Assets From Operations.................................................... $ (335,184)
===========
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 12
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 3,412,757 $ 6,562,758
Net realized loss....................................................... (261,706) (3,038,228)
(Increase) decrease in net unrealized depreciation...................... (3,486,235) 99,359
----------- -----------
Increase (Decrease) in Net Assets From Operations ...................... (335,184) 3,623,889
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (3,691,751) (6,562,758)
Capital................................................................. -- (779,990)
----------- -----------
Decrease in Net Assets From Distributions to Shareholders .............. (3,691,751) (7,342,748)
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 8):
Proceeds from shares issued in reinvestment of dividends................ 161,387 627,981
----------- -----------
Increase in Net Assets From Fund Share Transactions..................... 161,387 627,981
----------- -----------
Decrease in Net Assets.................................................... (3,865,548) (3,090,878)
Net Assets:
Beginning of period..................................................... 59,023,939 62,114,817
----------- -----------
End of period*.......................................................... $55,158,391 $59,023,939
=========== ===========
* Includes overdistributed net investment income of:..................... $ (278,994) --
=========== ===========
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 13
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Notes to Financial Statements (unaudited)
Note 1. Organization and 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 generally accepted
accounting principles ("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 14
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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, 1999,
reclassifications were made to the Fund's capital accounts 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
SSB Citi Fund Management LLC ("SSBC"), an affiliate of the Investment Manager
pursuant to a Sub-Administration Agreement between the Investment Manager and
SSBC.
Page 15
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Notes to Financial Statements (unaudited) (continued)
At June 30, 2000, the Investment Manager owned 10,056 shares of the Fund.
Certain officers and/or directors of the Fund are also officers and/or directors
of the investment manager.
Note 3. Portfolio Activity and Federal Income Tax Status
For the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
Purchases ............................................... $25,787,125
===========
Sales ................................................... $27,148,372
===========
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
Gross unrealized appreciation ........................... $ 2,185,947
Gross unrealized depreciation ........................... (9,835,455)
-----------
Net unrealized depreciation ............................. $(7,649,508)
===========
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 $1,245,800.
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 16
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Notes to Financial Statements (unaudited) (continued)
Note 6. Dividends Subsequent to June 30, 2000
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 2000,
payable on July 28, 2000 and August 25, 2000 to shareholders of record on July
18, 2000 and August 15, 2000.
Note 7. Capital Loss Carryforward
At December 31, 1999, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $2,961,000, available to offset future
capital gains through December 31, 2007. To the extent that these carryforward
losses are used to offset capital gains, it is probable that any gains so offset
will not be distributed. Note 8. Capital Shares Capital stock transactions were
as follows:
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------ ------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------
Shares issued on reinvestment .... 14,048 $161,387 48,282 $627,981
-----------------------------------------------------------------------------
Page 17
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
Financial Highlights
Data for a share of capital stock outstanding throughout each year ended
December 31, except where noted:
<TABLE>
<CAPTION>
2000(1) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 12.00 $ 12.76 $ 14.92 $ 14.72 $ 13.50 $ 12.88
-------- -------- ------- -------- ------- -------
Income (Loss) From Operations:
Net investment income............... 0.69 1.34 1.34 1.43 1.52 1.52
Net realized and unrealized gain (loss) (0.76) (0.60) (1.89) 0.71 1.22 0.70
-------- -------- ------- -------- ------- -------
Total Income (Loss) From Operations.... (0.07) 0.74 (0.55) 2.14 2.74 2.22
-------- -------- ------- -------- ------- -------
Less Distributions From:
Net investment income............... (0.75) (1.34) (1.34) (1.43) (1.52) (1.53)
Net realized gains.................. -- -- (0.15) (0.51) -- (0.07)
Capital............................. -- (0.16) (0.12) -- -- --
-------- -------- ------- -------- ------- -------
Total Distributions.................... (0.75) (1.50) (1.61) (1.94) (1.52) (1.60)
-------- -------- ------- -------- ------- -------
Net Asset Value, End of Period......... $ 11.18 $ 12.00 $ 12.76 $ 14.92 $14.72 $13.50
======== ======== ======= ======== ======= =======
Per Share Market Value, End of Period.. $12.250 $11.4375 $14.625 $16.438 $15.375 $14.125
======== ======== ======= ======== ======= =======
Total Return, Based on Market Price(2). 14.21%++ (12.06)% (0.89)% 20.93% 20.98% 23.83%
======== ======== ======= ======== ======= =======
Ratios to Average Net Assets:
Operating expenses.................. 1.23%+ 1.20% 1.08% 1.10% 1.16% 1.22%
Net investment income............... 12.03%+ 10.86% 9.62% 9.53% 10.76% 11.68%
Net Assets, End of Period (000s)....... $55,158 $59,024 $62,115 $71,951 $70,301 $63,931
Portfolio Turnover Rate................ 48.3% 100.3% 110.8% 112.2% 110.4% 128.2%
<FN>
-------------------------------------------------------------------------------------------------------
(1) For the six months ended June 30, 2000 (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>
</TABLE>
Page 18
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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, 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)
September 30, 1999........................................... 1,701 0.34 3,265) (0.66)
December 31, 1999............................................ 1,764 0.36 805 0.16
March 31, 2000............................................... 1,813 0.37 1,582) (0.32)
June 30, 2000................................................ 1,600 0.33 2,166) (0.44)
---------------------------------------------------------------------------------------------------------
<FN>
* Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
Page 19
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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 ("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 ("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>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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 21
<PAGE>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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>
S A L O M O N B R O T H E R S H I G H I N C O M E F U N D I N C
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,
SSB Citi Fund Management LLC
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, 46th Floor
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>
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
BULK RATE
U.S. POSTAGE
PAID
STATENISLAND, NY
PERMIT No. 169
HIFSEMI 6/00
