QUARTERLY REPORT
================================================================================
High Income
Opportunity
Fund Inc.
-----------------------------------------
June 30, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ---------------------------------
High Income Opportunity Fund Inc.
- ---------------------------------
Dear Shareholder:
We are pleased to provide you with the third quarter report for the High Income
Opportunity Fund Inc. for the nine-month period ended June 30, 1996. Over the
past nine months the Fund paid dividends totaling $0.837 per share. The table
below details the annualized distribution rates based on the Fund's June 30,
1996 net asset value (NAV) per share and New York Stock Exchange (NYSE) closing
price.
Annualized
Price Per Share Distribution Rate
------------- -----------------
$11.50 (NAV) 9.70%
$10.75 (NYSE) 10.38%
The High Income Opportunity Fund generated a total return on NAV of 1.47% for
the past three months and 8.06% for the past nine months, compared to the high
yield closed-end fund average total returns of 2.39% and 8.98% for the same
respective periods, as reported by Lipper Analytical Services, a major fund
tracking organization. Because of its relatively higher credit quality and
somewhat greater interest-rate sensitivity, the Fund's three- and nine-month
performance was somewhat less than the average returns of other closed-end high
yield funds.
Market and Economic Overview
The fixed income markets remained relatively volatile during the first half of
1996, with the more interest-rate sensitive instruments, such as U.S. government
securities, and investment-grade corporate bonds continuing to generate negative
returns. Securities with longer maturities performed extremely poorly. The
30-Year Treasury Bond for example, posted a total return of -9.00% for the first
six months of 1996. Despite a rather turbulent bond market, high yield bonds,
which tend to be slightly less sensitive to interest rate fluctuations than
government or investment-grade corporate bonds, continued to post positive total
returns as investors remained optimistic that U.S. economic expansion would
continue.
Within the high yield market, the lowest quality issues (i.e., CCC/Caa rated and
lower) which tend to be more sensitive to economic conditions, had returns of
roughly 10.00% for the first six months of 1996. This compares to modestly
positive total returns of about 1.50% for BB/Ba rated issues and slightly
greater total returns in the 4.50% range for B/B rated issues. Given the
considerable rise in interest rates in the first six months of 1996 and the
negative performance for both U.S. Treasury bonds and investment grade corporate
bonds in response to the stronger-than-expected U.S. economic growth, we are not
surprised by this performance disparity.
1
<PAGE>
Fund's Investment Strategy
The High Income Opportunity Fund has maintained a relatively conservative
investment strategy over the past nine months with a strong emphasis on the
upper- and middle-rated tiers of the high-yield market, namely those issues
rated B/B and Ba/BB by Standard and Poor's and Moody's. These bonds are issued
by improving companies which we believe have a great likelihood of receiving
upgrades and, as a consequence, should experience price appreciation.
Despite the fact that the Fund's higher credit quality held back its relative
performance in the first six months of 1996, we will continue to avoid lower
quality CCC/Caa rated issues because we are not comfortable with the level of
risk associated with these issues. Moreover, we believe the Fund's investment
strategy of concentrating on improving high yield bonds rated B/B and BB/Ba is
prudent over the long term. As of June 30, 1996 approximately 86% of the Fund's
portfolio was invested in B/B-rated and BB/Ba-rated bonds.
In terms of industry breakdown, the Fund is heavily weighted in the
telecommunications and cable industries, which currently make up approximately
36% of total assets. Many companies within these industries continue to show
strong growth and tend to be less sensitive to changing economic conditions.
Because of our positive views on the telecommunications and cable industries, we
added several new issues to the Fund including: Time Warner, which has
significantly expanded its cable and programming segments, and now has
approximately 11.4 million subscribers; Intelcom Group, an expanding
Colorado-based company which provides alternate local telecommunications access;
and Intermedia Communications of Florida, which gives local telephone companies
in the Southeast access to its extensive fiber-optic system and its voice and
data networks.
In light of the strong performance of the high yield market in the past six
months -- in contrast to the sell-off in the U.S. Treasury market -- we would
not be surprised to witness a short-term pullback in the market, especially
considering the increased level of new issues amounting to over $5 billion,
scheduled to be offered over the next two months. In anticipation, we have
modestly raised cash reserves by eliminating or reducing several holdings
including Harvard Industries, Coleman, a camping equipment manufacturer, and
Marvel Entertainment, a company that specializes in comic books. In our view,
the Fund's modestly higher cash reserves will not only partially buffer against
increased market volatility, but will allow us greater flexibility to take
advantage of any new attractive investment opportunities. It is our opinion that
unless the U.S. economy is heading for a recession, the high yield market offers
reasonable value. We are still able to invest in select new issues at attractive
yields. However, there are some issues in the high yield market,
2
<PAGE>
particularly in the lower-rated tiers of the market, that in our view, are
overvalued.
We anticipate the high yield market will generate competitive performance
returns as more investors become convinced that U.S. economic growth will
continue throughout the rest of the year. We believe the Fund's prudent
investment philosophy should work well over a full economic cycle and we look
forward to meeting the challenges that may lie ahead in a more volatile market.
In a Prudential Securities research report dated July 3, 1996, one of their
analysts initiated coverage of the High Income Opportunity Fund with a "buy"
rating. Among the key points covered in the report are that the High Income
Opportunity Fund:
o Is well-positioned to continue to provide high income potential;
o Is conservatively structured and does not use leverage;
o And has performed consistently well under various interest-rate levels.
In closing thank you for your investment in the High Income Opportunity Fund. We
look forward to continuing to help you achieve your investment goals.
Sincerely,
/s/Heath B. McLendon /s/John C. Bianchi, CFA
Heath B. McLendon John C. Bianchi, CFA
Chairman and Vice President
Chief Executive Officer
July 23, 1996
3
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
CORPORATE BONDS AND NOTES -- 90.4%
Aerospace/Defense -- 1.4%
$ 4,415,000 B Howmet Corp., Sr. Sub. Notes, 10.000% due 12/1/03+ $ 4,657,825
3,700,000 B Tracor Inc., Sr. Sub. Notes, 10.875% due 8/15/01 3,959,000
2,325,000 B UNC Inc., Sr. Sub. Notes, 11.000% due 6/1/06+ 2,365,687
- ----------------------------------------------------------------------------------------------------------------
10,982,512
- ----------------------------------------------------------------------------------------------------------------
Automobile -- 1.3%
3,425,000 B Collins & Aikman Products, Sr. Sub Notes,
11.500% due 4/15/06 3,450,688
Harvard Industries Inc., Sr. Notes:
6,125,000 B+ 12.000% due 7/15/04 6,071,405
1,000,000 B+ 11.125% due 8/1/05+ 946,250
- ----------------------------------------------------------------------------------------------------------------
10,468,343
- ----------------------------------------------------------------------------------------------------------------
Broadcasting -- 19.9%
19,075,000 CCC Australis Media Ltd., Sr. Discount Notes, step bond to yield
13.740% due 5/15/03++ 11,349,625
Bell Cablemedia, Sr. Discounts Notes:
16,275,000 BB- Step bond to yield 13.850% due 7/15/04 11,473,874
11,250,000 BB- Step bond to yield 11.990% due 9/15/05 6,862,500
Cablevision Systems Corp.:
7,500,000 B 10.750% due 4/1/04 7,762,500
6,325,000 B 9.875% due 2/15/13 5,945,500
11,900,000 B Comcast UK Cable step bond to yield 11.720% due 11/15/07 6,931,750
3,750,000 BB Grupo Televisa S.A., Sr. Notes, 11.875% due 5/15/06+ 3,843,750
7,350,000 BB- Lenfest Communications, Sr. Sub. Notes,
10.500% due 6/15/06+ 7,395,938
26,100,000 B+ Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 12.770% due 8/1/04 18,628,875
22,875,000 B NWCG Holdings, Sr. Discount Notes, zero coupon to yield
11.320% due 6/15/99 16,841,719
Rogers Cablesystems:
10,315,000 BB- Sr. Debentures, 10.875% due 4/15/04 10,521,300
Sr. Secured Second Priority Debentures:
5,450,000 BB+ 9.650% due 1/15/14 3,481,823
4,400,000 BB+ 10.00% due 12/1/07 4,328,500
5,400,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15 5,636,250
3,950,000 BB- SCI Television, Sr. Notes, 11.000% due 6/30/05 4,127,750
6,350,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750% due 5/15/06+ 6,334,125
11,550,000 BB- UIH Australia/Pacific, Sr. Discount Notes, step-bond to yield
13.920% due 5/15/06+ 6,179,250
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Broadcasting -- 19.9% (continued)
United International Holdings Inc.:
$ 7,100,000 B- Sr. Discount Notes, 11.780% due 11/15/99 $ 4,606,125
5,475,000 B- Discount Notes, zero coupon to yield
12.330% due 11/15/99 3,551,906
Videotron Holdings:
5,425,000 B+ Sr. Discount Notes, step bond to yield
14.480% due 8/15/05 3,560,156
2,600,000 BB+ Sr. Notes, 10.625% due 2/15/05 2,730,000
4,250,000 BB+ Sr. Sub. Notes, 10.250% due 10/15/02 4,377,500
1,900,000 B- Wireless One Inc., Sr. Notes, 13.000% due 10/15/03 2,018,750
2,650,000 B Young Broadcasting , Sr. Sub. Notes, 11.750% due 11/15/04 2,815,625
- ----------------------------------------------------------------------------------------------------------------
161,305,091
- ----------------------------------------------------------------------------------------------------------------
Building/Construction -- 1.5%
2,650,000 BB- American Standard Inc., Sr. Sub. Debentures,
11.375% due 5/15/04 2,875,250
7,025,000 B Greystone Homes, Inc., Sr. Notes, 10.750% due 3/1/04 7,025,000
2,700,000 B- Miles Homes Services Inc., Sr. Notes, 12.000% due 4/1/01 2,001,375
- ----------------------------------------------------------------------------------------------------------------
11,901,625
- ----------------------------------------------------------------------------------------------------------------
Chemicals -- 4.8%
NL Industries, Sr. Secured Notes:
15,180,000 B 11.750% due 10/15/03 15,578,475
5,050,000 B Step bond to yield 12.300% due 10/15/03 3,945,313
5,975,000 BB- Pt. Polysindo Eka Perkasa, Sr. Notes, 13.000% due 6/15/01 6,550,094
3,250,000 BB- Polysindo International Finance, Sr. Secured Notes,
11.375% due 6/15/06 3,302,813
7,350,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05 7,800,188
1,825,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06+ 1,870,625
- ----------------------------------------------------------------------------------------------------------------
39,047,508
- ----------------------------------------------------------------------------------------------------------------
Communications -- 15.9%
5,250,000 B- Allbriton Communications Corp., Sr. Sub. Debentures,
9.750% due 11/30/07+ 4,790,625
16,700,000 NR Clearnet Communications Inc., step bond to yield
14.500% due 12/15/05 10,437,500
Dial Call Communications, Inc.:
7,750,000 NR Discount Notes, step bond to yield 13.050% due 12/15/05 4,775,938
7,950,000 CCC- Sr. Discount Notes, step bond to yield
15.430% due 4/15/04 5,147,625
3,950,000 B+ Fonorola Inc., Sr. Secured Notes, 12.500% due 8/15/02 4,246,250
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Communications -- 15.9% (continued)
$15,025,000 NR Intelcom Group Inc., Sr. Discount Notes, step bond to yield
12.440% due 5/1/06+ $ 8,357,655
10,700,000 B- Intermedia Communications of Florida, Sr. Discount Notes,
step bond to yield 12.400% due 5/15/06 5,992,000
3,700,000 NR International Cabletel Inc., Sr. Deferred Coupon Notes,
step bond to yield 11.400% due 2/1/06+ 2,076,625
3,700,000 B- Metrocall Inc., Sr. Sub. Notes, 10.375% due 10/1/07 3,487,250
13,725,000 B- Millicom International Cellular, Sr. Discount Notes,
step bond to yield 13.490% due 6/1/06+ 7,308,563
7,875,000 B- Mobile Telecommunications Tech. Corp.,
Sr. Notes, 10.500% due 12/15/02 8,377,030
28,075,000 CCC- Nextel Communications, Sr. Discount Notes,
step bond to yield 14.000% due 8/15/04+ 16,634,438
8,550,000 NR Nextlink Communications, Sr. Notes, 12.500% due 4/15/06+ 8,550,000
9,450,000 NR Pagemart Inc., Sr. Discount Notes, step bond to yield
14.210% due 11/1/03+ 7,264,688
8,575,000 NR Pagemart Nationwide, Inc., Sr. Discount Notes,
step bond to yield 14.970% due 2/1/05+ 5,788,125
32,475,000 BB Telewest Communications, Sr. Discount Debentures,
step bond to yield 11.470% due 10/1/06 19,241,438
5,750,000 CCC+ USA Mobile Communication, Inc., Sr. Notes,
14.000% due 11/1/04 6,526,250
- ----------------------------------------------------------------------------------------------------------------
129,002,000
- ----------------------------------------------------------------------------------------------------------------
Consumer Durables -- 2.3%
23,025,000 B+ International Semi-Tech, Sr. Secured Notes, step bond to
yield 12.510% due 8/15/03 13,383,281
4,775,000 B- TAG-Heuer International, Sr. Sub. Notes,
12.000% due 12/15/05+ 4,876,469
- ----------------------------------------------------------------------------------------------------------------
18,259,750
- ----------------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 2.4%
Interlake Corp., Sr. Sub. Debentures:
1,975,000 B- 12.000% due 11/15/01 2,086,094
9,575,000 B3* 12.125% due 3/1/02 9,634,843
6,925,000 B- Williamhouse-Regency, Sr. Sub. Notes,
13.000% due 11/15/05+ 7,842,563
- ----------------------------------------------------------------------------------------------------------------
19,563,500
- ----------------------------------------------------------------------------------------------------------------
Electric Utilities -- 1.2%
7,275,000 B Calpine Corp., Sr. Notes, 10.500% due 5/15/06+ 7,347,750
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Electric Utilities -- 1.2% (continued)
$2,201,482 BB- Midland Cogeneration Venture Limited Partnership,
Midland Funding, Debentures, Series C,
10.330% due 7/23/02 $ 2,295,045
- ----------------------------------------------------------------------------------------------------------------
9,642,795
- ----------------------------------------------------------------------------------------------------------------
Electronics/Computers -- 1.4%
3,225,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05+ 3,434,625
7,925,000 B+ Unisys Corp., Sr. Notes, 12.000% due 4/15/03+ 8,073,594
- ----------------------------------------------------------------------------------------------------------------
11,508,219
- ----------------------------------------------------------------------------------------------------------------
Finance -- 0.6%
4,750,000 BB Airplanes Pass Through Trust, Sub. Bonds,
10.875% due 3/15/19 4,951,875
- ----------------------------------------------------------------------------------------------------------------
Food -- 0.8%
3,825,000 BB- TLC Beatrice Inc., Sr. Notes, 11.500% due 10/1/05 3,887,155
2,335,000 B- Van De Kamp, Sr. Sub. Notes, 12.000% due 9/15/05+ 2,504,288
- ----------------------------------------------------------------------------------------------------------------
6,391,443
- ----------------------------------------------------------------------------------------------------------------
Grocery/Convenience Stores -- 2.5%
5,300,000 B- Farm Fresh Inc., Sr. Notes, 12.250% due 10/1/00 4,604,375
441 B- Kash-N-Karry, Sr. Notes, 11.500% due 2/1/03 445
Pathmark Stores Inc.:
7,485,000 B Debentures, 12.625% due 6/15/02 7,550,494
3,750,000 B Sub. Notes, 11.625% due 6/15/02 3,735,938
4,025,000 B- Smiths Food & Drug, Sr. Sub. Notes, 11.250% due 5/15/07 4,085,375
- ----------------------------------------------------------------------------------------------------------------
19,976,627
- ----------------------------------------------------------------------------------------------------------------
Healthcare -- 3.2%
6,600,000 B Magellan Health Services, Sr. Sub. Notes,
11.250% due 4/15/04 7,128,000
17,147,000 B- Ornda Healthcorp, Sr. Sub. Notes, 12.250% due 5/15/02 18,604,495
- ----------------------------------------------------------------------------------------------------------------
25,732,495
- ----------------------------------------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 6.9%
10,025,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 11,503,688
11,775,000 BB- Bally's Grand, 1st Mortgage Notes, 10.375% due 12/15/03 12,952,500
5,375,000 B- Courtyard by Marriott II, Sr. Secured Notes,
10.750% due 2/1/08+ 5,280,938
5,125,000 NR Mohegan Tribal Gaming Authority, Sr. Secured Notes,
13.500% due 11/15/02+ 6,451,094
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Hotel, Casinos and Gaming -- 6.9% (continued)
$5,750,000 B Showboat Inc., Sr. Sub. Notes, 13.000% due 8/1/09 $ 6,605,313
Station Casinos Inc., Sr. Sub. Notes:
2,600,000 B 9.625% due 6/1/03 2,512,250
8,050,000 B Series B, 9.625% due 6/1/03 7,778,313
3,275,000 B+ 10.125% due 3/15/06 3,197,219
- ----------------------------------------------------------------------------------------------------------------
56,281,315
- ----------------------------------------------------------------------------------------------------------------
Insurance Companies -- 2.3%
7,675,000 BB+ Bankers Life Holdings, Sr. Sub. Debenture, Series B,
13.000% due 11/1/02 8,787,875
9,350,000 BB+ Life Partners Group Inc., Sr. Sub. Notes,
12.750% due 7/15/02 10,214,875
- ----------------------------------------------------------------------------------------------------------------
19,002,750
- ----------------------------------------------------------------------------------------------------------------
Leisure -- 1.3%
2,834,285 NR Gillett Holdings, Inc., Sr. Sub. Notes, 12.250% due 6/30/02 2,975,999
8,985,000 B Remington Arms Co., Inc., Sr. Sub. Notes,
9.500% due 12/1/03+ 7,809,525
- ----------------------------------------------------------------------------------------------------------------
10,785,524
- ----------------------------------------------------------------------------------------------------------------
Machinery -- 0.3%
1,500,000 B- Alvey Systems, Sr. Sub. Notes, 11.325% due 1/31/03+ 1,550,625
1,000,000 B- Day International Group, Sr. Sub Notes, 11.125% due 6/1/05+ 1,028,750
- ----------------------------------------------------------------------------------------------------------------
2,579,375
- ----------------------------------------------------------------------------------------------------------------
Metals/Mining -- 2.9%
14,075,000 B- Kaiser Aluminum, Sr. Sub. Notes, 12.750% due 2/1/03 14,884,313
4,600,000 B- Russel Metals, Sr. Notes, 10.250% due 6/15/00 4,513,750
3,545,000 B UCAR Global Enterprises Inc., Sr. Sub. Notes,
12.000% due 1/15/05 4,054,594
- ----------------------------------------------------------------------------------------------------------------
23,452,657
- ----------------------------------------------------------------------------------------------------------------
Oil and Natural Gas -- 4.4%
3,000,000 B+ Clark R&M Holdings, Sr. Notes, zero coupon bond to yield
10.310% due 2/15/00 2,066,250
7,250,000 B+ Clark USA Inc., Sr. Notes, 10.875% due 12/1/05 7,521,875
6,650,000 B+ Global Marine, Sr. Secured Notes, 12.750% due 12/15/99 7,215,250
2,700,000 B+ Kelley Oil & Gas Corp., Sr. Notes, 13.500% due 6/15/99 2,855,250
Mesa Operating Corp.:
2,425,000 B Sr. Sub. Notes, 10.625% due 7/1/06 2,473,500
4,150,000 B Sr. Sub. Discount Notes, step bond to yield
11.530% due 7/1/06 2,432,938
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Oil and Natural Gas -- 4.4% (continued)
$6,025,000 B Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04 $ 6,514,531
4,325,000 B United Meridian Corp., Sr. Sub. Notes,
10.375% due 10/15/05 4,460,155
- ----------------------------------------------------------------------------------------------------------------
35,539,749
- ----------------------------------------------------------------------------------------------------------------
Other Utilities -- 0.2%
1,200,000 BB- California Energy, Sr. Notes, 9.875% due 6/30/03 1,216,500
- ----------------------------------------------------------------------------------------------------------------
Packaging and Containers -- 0.5%
Gaylord Container Corp.:
2,000,000 B Sr. Notes, 11.500% due 5/15/01 2,047,500
1,950,000 B Sr. Sub. Debentures, 12.750% due 5/15/05 2,059,688
- ----------------------------------------------------------------------------------------------------------------
4,107,188
- ----------------------------------------------------------------------------------------------------------------
Paper and Printing -- 5.1%
4,300,000 B Crown Paper Corp., Sr. Sub. Notes, 11.000% due 9/1/05 4,095,750
Indah Kiat International Finance Co., Secured Notes,
15,875,000 BB 11.875% due 6/15/02 16,708,438
8,775,000 B+ Repap New Brunswick, Sr. Notes, 10.625% due 4/15/05 8,226,563
4,425,000 B+ SD Warren Corp., Sr. Sub. Notes, 12.000% due 12/15/04 4,690,500
6,415,000 BB Tjiwi Kimia Industries, Sr. Notes, 13.250% due 8/1/01 7,184,800
- ----------------------------------------------------------------------------------------------------------------
40,906,051
- ----------------------------------------------------------------------------------------------------------------
Personal Care -- 3.3%
2,275,000 B- Remington Products Corp., Sr. Sub. Notes,
11.000% due 5/15/06+ 2,266,469
5,715,000 B3* Revlon Consumer Products Corp., Sr. Sub. Notes,
10.500% due 2/15/03 5,765,005
22,735,000 B- Revlon Worldwide Corp., Sr. Secured Notes,
zero coupon bond to yield 22.560% due 3/15/98 18,955,305
- ----------------------------------------------------------------------------------------------------------------
26,986,779
- ----------------------------------------------------------------------------------------------------------------
Real Estate Development/ REITS -- 0.9%
7,225,000 BB- Trizec Finance, Sr. Notes, 10.875% due 10/15/05 7,270,155
- ----------------------------------------------------------------------------------------------------------------
Retail -- 1.0%
7,400,000 B Barnes and Noble, Sr. Sub. Notes, 11.875% due 1/15/03 7,955,000
- ----------------------------------------------------------------------------------------------------------------
Textiles/Apparel -- 0.6%
4,675,000 B Dan River Inc., Sr. Sub. Notes, 10.125% due 12/15/03 4,493,844
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
================================================================================================================
<C> <C> <S> <C>
Tobacco -- 0.7%
$5,075,000 B Consolidated Cigar Acquisition Corp., Sr. Sub. Notes,
10.500% due 3/1/03 $ 5,290,688
- ----------------------------------------------------------------------------------------------------------------
Transportation -- 0.8%
6,200,000 BB- Sea Containers Limited, Sr. Sub. Debentures,
12.500% due 12/1/04 6,889,750
- ----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $733,184,255) 731,491,108
================================================================================================================
SHARES SECURITY VALUE
================================================================================================================
PREFERRED STOCKS -- 4.4%
Health Care/Pharmaceuticals -- 1.0%
300,547 Foxmeyer Health Corp., Series A, Payment-in-kind,
Exchange Pfd., $4.20 (Formerly National Intergroup) 8,114,766
- ----------------------------------------------------------------------------------------------------------------
Publishing -- 1.1%
1,476 KIII Communications Corp., Series B, Exchange 11.625% 146,124
9,150 Time Warner Inc., Series K, Exchange 10.250%+ 8,967,000
- ----------------------------------------------------------------------------------------------------------------
9,113,124
- ----------------------------------------------------------------------------------------------------------------
Metals/Mining -- 0.4%
120,324 BCP/Essex Holding, Series A, Exchange 15.00% 3,128,424
- ----------------------------------------------------------------------------------------------------------------
Telecommunication -- 1.9%
13,482 PanAmSat Corp., Series A, Exchange $31.875 15,639,120
- ----------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost -- $36,948,853) 35,995,434
================================================================================================================
CONVERTIBLE PREFERRED STOCKS -- 1.1%
Automobiles/Trucking -- 1.1%
164,400 Navistar International, Series G, Convertible $6.00
(Cost -- $8,828,280) 9,144,750
================================================================================================================
COMMON STOCKS -- 0.5%
Communications -- 0.1%
20,125 Pagemart Nationwide Inc. 203,766
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================================================
<C> <S> <C>
Metals/Mining -- 0.4%
325,231 Algoma Steel Inc. $ 1,133,557
146,500 Freeport McMoRan Resources 2,911,687
- ----------------------------------------------------------------------------------------------------------------
4,045,244
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $4,787,719) 4,249,010
================================================================================================================
WARRANTS -- 0.1%
11,959 Nextel Communications, Inc., Expires 12/15/98+ 239
6,575 Nextel Communications, Inc., Expires 4/25/99+ 132
32,800 Miles Homes Inc., Expires 4/1/97 8,200
43,470 Pagemart Inc., Expires 12/31/03 347,760
8,175 SD Warren, Expires 12/5/06 106,275
5,700 Wireless One Inc., Expires 10/15/03 45,600
- ----------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $24,823) 508,206
================================================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================================================
REPURCHASE AGREEMENT -- 3.5%
$28,712,000 Chase Inc., 5.328% due 7/1/96;
Proceeds at maturity -- $ 28,724,747;
(Fully collateralized by U.S. Treasury
Notes, 5.750% due 9/30/97; Market value -- $29,298,299)
(Cost -- $28,712,000) 28,712,000
================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $812,485,930**) $810,100,508
================================================================================================================
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
++ Security issued with attached warrants.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 12 for definition of ratings.
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Description of Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation ("Standard &Poor's") except
that those identified by an asterisk (*) are rated by Moody's Investors Service
("Moody's"). The definitions of the applicable rating symbols are set forth
below:
Standard & Poor's -- Ratings from "BBB" to "C" may be modified by the addition
of a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB, B and CCC -- Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of speculation
than "B", and "CCC" the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C -- The rating "C" is reserved for income bonds on which no
interest is being paid.
D -- Bonds rated "D" are in default, and payment of interest and/or
repayment of principal is in arrears.
Moody's -- Numerical modifiers 1,2 and 3 may be applied to each generic rating
from "Baa" to "C", where 1 is the highest and 3 the lowest rating within its
generic category.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment
characteristics and may have speculative characteristics as
well.
Ba -- Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. These issues
may be in default, or present elements of danger may exist
with respect to principal or interest.
Ca -- Bonds that are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C -- Bonds that are rated "C" are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
12
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $812,485,930) $ 810,100,508
Cash 335
Interest receivable 11,080,927
Receivable for securities sold 2,646,583
Dividends receivable 112,804
- --------------------------------------------------------------------------------
Total Assets 823,941,157
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 16,228,711
Dividend payable 2,779,613
Management fees payable 760,149
Accrued expenses 374,189
- --------------------------------------------------------------------------------
Total Liabilities 20,142,662
- --------------------------------------------------------------------------------
Total Net Assets $ 803,798,495
================================================================================
NET ASSETS:
Par value of capital shares $ 69,858
Capital paid in excess of par value 870,757,410
Undistributed net investment income 735,431
Net realized loss on security transactions,
futures contracts and options (65,381,287)
Net unrealized depreciation of investments
and foreign currencies (2,382,917)
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.51 a share on 69,858,000 shares
of $0.001 par value outstanding;
500,000,000 shares authorized) $ 803,798,495
================================================================================
See Notes to Financial Statements.
13
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended June 30, 1996
INVESTMENT INCOME:
Interest $ 62,877,521
Dividends 3,799,044
- --------------------------------------------------------------------------------
Total Investment Income 66,676,565
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 6,995,828
Shareholder communications fees 227,595
Custody 32,388
Audit and legal 26,120
Shareholder and system servicing fees 22,255
Directors' fees 8,634
Other 33,032
- --------------------------------------------------------------------------------
Total Expenses 7,345,852
- --------------------------------------------------------------------------------
Net Investment Income 59,330,713
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FUTURES CONTRACTS, OPTIONS AND
FOREIGN CURRENCIES (NOTES 3 AND 5):
Realized Gain (Loss) From:
Securities transactions (excluding short-term
securities) 3,937,651
Futures contracts 2,315,907
Options purchased (148,138)
Foreign currency transactions (124,136)
- --------------------------------------------------------------------------------
Net Realized Gain 5,981,284
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period 2,708,987
End of period (2,382,917)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (5,091,904)
- --------------------------------------------------------------------------------
Net Gain on Investments, Futures Contracts,
Options and Foreign Currencies 889,380
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 60,220,093
================================================================================
See Notes to Financial Statements.
14
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Nine Months Ended June 30, 1996 (unaudited)
and the Year Ended September 30, 1995
1996 1995
================================================================================
OPERATIONS:
Net investment income $ 59,330,713 $ 78,307,768
Net realized gain (loss) 5,981,284 (42,338,465)
Increase in net unrealized appreciation
(depreciation) (5,091,904) 63,403,538
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 60,220,093 99,372,841
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (58,471,146) (78,307,768)
Overdistribution of net investment income -- (38,286)
Capital -- (1,501,640)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (58,471,146) (79,847,694)
- --------------------------------------------------------------------------------
Increase in Net Assets 1,748,947 19,525,147
NET ASSETS:
Beginning of period 802,049,548 782,524,401
- --------------------------------------------------------------------------------
End of period* $ 803,798,495 $ 802,049,548
================================================================================
* Includes undistributed net investment
income of: $ 735,431 --
================================================================================
See Notes to Financial Statements.
15
<PAGE>
High Income Opportunity Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The High Income Opportunity Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid and ask prices provided by an
independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days or less are valued at cost plus accreted dis
count or minus amortized premium, as applicable; (d) gains or losses on the sale
of securities are calculated by using the specific identification method; (e)
dividend income is recorded on the ex-dividend date and interest income,
adjusted for accretion of original issue discount, is recorded on the accrual
basis; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) foreign currencies (and receivables and payables for
unsettled foreign securities transactions) are translated into U.S. Dollars
based on the rate of exchange of such currencies against U.S. Dollars on the
date of valuation; (h) the Fund intends to comply with the requirements of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes; (i) in accordance with
Statement of Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies, book and tax basis differences relating to shareholder
distributions and other permanent book and tax differences are reclassified to
paid-in capital. As of September 30, 1995, the cumulative effect of such
differences, totaling $1,501,640, was reclassified to paid-in capital from
overdistribution of net investment income. Net investment income, net realized
gains, and net assets were not affected by this change; and (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), through its Greenwich Street Advisors division,
acts as investment manager of the Fund. The Fund pays SBMFM a
16
<PAGE>
High Income Opportunity Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
management fee calculated at the annual rate of 1.15% of the Fund's average
daily net assets. This fee is calculated daily and paid monthly.
All officers and two Directors of the Fund are employees of Smith Barney
Inc., another subsidiary of SBH.
3. INVESTMENTS
During the nine months ended June 30, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were $451,578,236 and $461,164,452, respectively. At June
30, 1996, aggregate gross unrealized appreciation for all securities in which
there is an excess of market value over tax cost amounted to $18,932,150, and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over market value amounted to $21,317,572, or a net
unrealized depreciation of $2,385,422.
4. CAPITAL LOSS CARRYFORWARD
At September 30, 1995, the Fund had for Federal tax purposes approximately
$31,540,000 of capital loss carryforwards, expiring September 30, 2003,
available to offset future realized capital gains, if any. To the extent that
these carryforward losses are used to offset capital gains, it is probable that
the gains so offset will not be distributed.
5. FUTURES CONTRACTS
Initial margin deposits are made upon entering into futures contracts and
are recog nized as assets. The initial margin is segregated by the custodian and
is noted in the schedule of investments. During the period the futures contract
is open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to the
broker, depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into such contracts to hedge a
portion of its portfolio. The Fund bears the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts) and the credit risk should a counterparty fail to perform
under such contracts.
At June 30, 1996, the Fund had no open futures contracts.
17
<PAGE>
High Income Opportunity Fund, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
6. OPTIONS CONTRACTS
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily. When a purchased options expires,
the Fund will realized a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
When a Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is eliminated. When a call option is
exercised the cost of the security sold will be increased by the premium
originally received. When a put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchased upon exercise. When written index options are exercised, settlement is
made in cash. The risk associated with purchasing options is limited to the
premium originally paid. The Fund enters into options for hedging purposes. The
risk in writing a call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines.
7. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date, (generally, the next business day)at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
18
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1995 1994(2)(3)
================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.48 $11.20 $12.50
- -------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.85 1.14 1.01*
Net realized and unrealized gain (loss) 0.02 0.28 (1.30)
- -------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.87 1.42 (0.29)
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.84) (1.12) (1.01)
Overdistribution of net investment income -- (0.00)# --
Capital -- (0.02) --
- -------------------------------------------------------------------------------------------------
Total Distributions (0.84) (1.14) (1.01)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.51 $11.48 $11.20
- -------------------------------------------------------------------------------------------------
Total Return 8.06%++ 13.99% (2.32)%++
- -------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $803,798 $802,050 $782,524
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.21%+ 1.20% 1.15%+*
Net investment income 9.76+ 10.02 9.09+
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 56.29% 59.17% 68.56%
- -------------------------------------------------------------------------------------------------
Market Price at End of Period $10.750 $10.500 $10.625
================================================================================================
</TABLE>
(1) For the nine months ended June 30, 1996 (unaudited).
(2) For the period from October 22, 1993 (commencement of operations) to
September 30, 1994.
(3) Based on the weighted average shares outstanding for the period.
* The Manager waived a part of its fee for the period ended September 30,
1994. If such fees were not waived, the per share decrease in net
investment income would have been $0.01 and the ratio of expenses to
average net assets would have been 1.21% (annualized).
# Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
19
<PAGE>
High Income Opportunity Fund, Inc.
- --------------------------------------------------------------------------------
Financial Data (unaudited)
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
Income Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
==========================================================================
1995
January 24 10.25 10.73 0.096 10.520
February 21 10.75 10.98 0.096 10.979
March 21 10.88 11.09 0.096 11.020
April 25 10.94 11.26 0.096 11.083
May 23 11.00 11.41 0.096 11.005
June 23 10.88 11.33 0.096 10.781
July 28 10.63 11.51 0.093 10.748
August 25 10.75 11.46 0.093 10.769
September 29 10.50 11.48 0.093 10.844
October 27 10.63 11.53 0.093 10.888
November 24 10.63 11.48 0.093 10.730
December 29 10.50 11.61 0.093 10.751
1996
January 26 11.00 11.68 0.093 11.339
February 23 11.13 11.85 0.093 11.242
March 29 11.13 11.62 0.093 11.135
April 26 11.00 11.56 0.093 11.010
May 31 10.81 11.62 0.093 10.880
June 28 10.69 11.48 0.093 11.020
==========================================================================
20
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited)
- --------------------------------------------------------------------------------
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all
distributions are automatically reinvested by First Data Investor Services
Group, Inc., as plan agent (the "Plan Agent"), in additional shares of its
Common Stock (the "Common Shares") as provided below unless a stockholder elects
to receive cash.
Distributions with respect to Common Shares registered in the name of a
broker-dealer or other nominee (i.e., in "street name") are reinvested by the
broker or nominee in additional Common Shares under the Plan, unless the service
is not provided by the broker or nominee. Investors who own Common Shares
registered in street name should consult their broker-dealer for details. All
distributions to shareholders who do not participate in the Plan are paid by
check mailed directly to the record holder by First Data Investor Services
Group, Inc., as dividend disbursing agent.
If the Fund declares a distribution payable either in Common Shares or in cash,
nonparticipants in the Plan receive cash, and Plan participants receive the
equiva lent in Common Shares valued in the following manner: whenever the market
price is equal to or exceeds the net asset value per share at the time Common
Shares are valued for the purpose of determining the number of Common Shares
equivalent to the cash distribution, participants are issued Common Shares
valued at the greater of (1) the net asset value most recently determined or (2)
95% of the then current market price of the Common Shares.
If the net asset value of the Common Shares at the time of valuation exceeds the
market price of the Common Shares, or if the Fund declares a distribution
payable only in cash, the Plan Agent buys Common Shares in the open market, on
the New York Stock Exchange or elsewhere, for the participants' accounts. The
Plan Agent applies all cash received as a distribution to purchase Common Shares
on the open market as soon as practicable after the payment date of the
distribution, but in no event later than 30 days after such date, except when
necessary to comply with applicable provisions of the Federal securities laws.
If, following the com mence ment of purchases and before the Plan Agent has
completed its purchases the market price exceeds the net asset value of the
Common Shares, the Plan Agent is permitted to cease purchasing shares on the
open market and the Fund may issue the remaining shares at a price equal to the
greater of (a) net asset value or (b) 95% of the then current market price. In a
case where the Plan Agent has terminated open market purchases and the Fund has
issued the remaining shares, the number of shares received by the participant in
respect of the cash dividend or distribution will be based on the weighted
average of prices paid for shares pur chased in the open market and the price at
which the Fund issued the remaining shares.
21
<PAGE>
High Income Opportunity Fund Inc.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent which must be received at least ten business days prior to the
distribution record date to become effective for that distribution. Shares in
the account of each Plan participant are held by the Plan Agent in
non-certificated form in the name of the Plan Agent or participant. When a
participant withdraws from the Plan or upon termination of the Plan as provided
below, certificates for whole Fund shares credited to his or her account under
the Plan are issued and a cash payment is made for any fraction of a Fund share
credited to such account.
The automatic reinvestment of distributions does not relieve participants of any
Federal income tax that may be payable on such distributions.
The Fund does not charge participants for reinvesting distributions. Any Plan
Agent's fees for the handling of reinvestment of distributions under the Plan
are paid by the Fund. There are no brokerage charges with respect to Common
Shares issued directly by the Fund as a result of distributions payable either
in stock or in cash. However, each participant pays a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund and the Plan Agent reserve the right to amend the Plan as applied to
any distribution paid subsequent to written notice of the change sent to all
stockholders of the Fund at least 30 days before the record date for the
distribution. The Plan also may be terminated by the Fund or the Plan Agent by
at least 30 days' written notice to all Shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at First
Data Investor Services Group, Inc., Inc., P.O. Box 9134, Boston, MA 02205-9134.
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase at
market prices shares of its common stock in the open market.
22
<PAGE>
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<PAGE>
(This page intentionally left blank)
<PAGE>
High Income SMITH BARNEY
Opportunity ------------
Fund Inc. A Member of TravelersGroup [Logo]
Directors
Jessica M. Bibliowicz
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank, N.A.
Shareholder
Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for
the general information of the
shareholders of the High Income
Opportunity Fund Inc. It is not
authorized for distribution to prospective
investors unless accompanied or preceded
by a current Prospectus for the Fund,
which contains information concerning
the Fund's investment policies and
expenses as well as other pertinent
information.
High Income Opportunity
Fund Inc.
388 Greenwich Street
New York, New York 10013
FD01006 8/96
