HIGH INCOME
Opportunity Fund Inc.
Semi Annual Report
March 31, 1997
<PAGE>
- ---------------------------------
High Income Opportunity Fund Inc.
- ---------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the High Income
Opportunity Fund Inc. ("Fund") for the period ended March 31, 1997. Over the
past six months, the Fund paid dividends totaling $0.56 per share. The table
below shows the annualized distribution rates and six-month total returns for
the Fund based on its March 31, 1997 net asset value (NAV) per share and New
York Stock Exchange (NYSE) closing price.
Price Annualized Six-Month
Per Share Distribution Rate Total Return
------------- ----------------- ------------
$11.74 (NAV) 9.51% 5.06%
$11.75 (NYSE) 9.50% 7.16%
According to Lipper Analytical Services Inc., an independent fund tracking
organization, the Fund's six-month total return on NAV of 5.06%, compares
favorably to the average total return on NAV of 4.64% for closed-end high yield
bond funds during the same time period. The Fund was able to generate these
positive results without the use of financial leverage, which is employed by
many closed-end high yield bond funds. While financial leverage may tend to
boost a fund's total returns during market rallies, it can also undermine total
returns during market declines.
Market and Economic Overview
After a rather difficult three quarters in 1996, the fixed income markets began
to rally in the fourth quarter of 1996, with strong performance gains by
investment grade bonds and U.S. Treasury bonds. An apparent slowdown in U.S.
economic growth over the fourth quarter of 1996, combined with favorable
inflation data, helped to bolster the domestic fixed income markets. The bond
market rally was also fueled by the Federal Reserve Board's ("Fed") decision to
remain on the sidelines and not raise interest rates. However, since early
December, renewed inflation fears caused interest rates to rise. In retrospect,
fourth quarter economic growth was relatively strong, but the overall rate of
inflation remained well behaved.
In the first quarter of 1997 the U.S. economy has remained strong with only a
modest upturn in inflation. However, Fed Chairman Alan Greenspan began voicing
concern over continued strong economic growth in the first quarter and the
potential for higher inflation if the economy were to further strengthen in the
first quarter of 1997. Consequently, the Fed raised short-term interest rates by
a modest 0.25% (25 basis points) in March to slow down economic growth
1
<PAGE>
and prevent any increase in inflationary pressures over the upcoming months. In
our opinion, the Fed Chairman's public comments and subsequent actions have
accentuated a widespread sell-off in both the equity and bond markets that began
earlier this year. Despite Mr. Greenspan's concerns over potentially higher
inflation, many government reports have indicated that inflation has remained
well contained during the first three months of 1997.
Over the past year, the high yield bond market has generally outperformed the
more interest-rate sensitive, longer-maturity Treasury and investment grade bond
markets. Specifically, the better quality issues (BB/Ba and B/B rated) turned in
the strongest performance since these issues tend to be less vulnerable to
market volatility than lower-quality issues. In addition, over the past few
weeks the equity market has begun to weaken at a rate faster than the bond
market. Since the lower-quality high-yield issues tend to trade more closely
with the stock market, we expect further underperformance versus the better
quality issues, especially if the equity market continues to trade down. In
fact, in recent weeks, the equity market has experienced greater volatility.
However, because of the Fund's relatively conservative investment philosophy, we
tend to avoid the lower-quality high-yield issues and that has helped its
relative performance.
As we have stated, the Fund's total performance over the past six months has
generally been much better than other types of domestic bonds. During 1996, many
investors, who had become dissatisfied with the modest returns and extreme price
swings in the U.S. Treasury market, began investing more money into the high
yield bond market. In fact, during 1996 alone, over $15 billion flowed into
open-end high-yield bond mutual funds, with another $4 billion invested during
the first quarter of 1997. At the same time, greater numbers of institutional
investors such as insurance companies and municipal and corporate pension fund
managers have invested more of their assets in the high yield bond market,
particularly the better-quality issues.
Given the relatively strong performance of the high yield bond market compared
to U.S. Treasuries during 1996, high yield bond premiums were roughly 100 basis
points tighter than they were at the beginning of 1996. In our opinion, this
narrowing of yields reflects a strong demand for high yield bonds and investor
expectations of a strong economy. In retrospect, the high yield bond market had
become overvalued in light of the Fed's decision to raise interest rates in
March. In simple terms, the economy and financial markets, which were relatively
benign, have become more hostile for financial assets and as a result, the high
yield bond market has begun to underperform the U.S. Treasuries and investment
grade corporate bonds. We would not be surprised to see yield spreads widen back
to their historical averages, especially if the Federal Reserve raises
short-term interest rates further.
2
<PAGE>
We expect increased market volatility to continue over the near term. While we
believe the Federal Reserve will probably raise short-term interest rates
further in the coming months, we still expect the economy to grow moderately
over the near future with no serious threat of either an increase in inflation
or an economic recession. We remain convinced the Fed can successfully engineer
an economic slowdown and effectively keep inflation under control. Nevertheless,
issue selectivity has become even more important when seeking investment ideas
given the fact the market is fully valued and the uncertainty over the future
direction of the U.S. economy and Federal Reserve monetary policy.
Portfolio Strategy
While our near-term outlook for the high yield bond market is cautious, we
remain optimistic about the market's total return prospects in the second half
of 1997. We anticipate a gradual decline in interest rates as economic activity
moderates and inflation remains subdued. In a moderately growing economy,
stronger high yield companies should outperform. These companies tend to be in
industries that continue to benefit from new technology.
We have found many attractive growth opportunities in the telecommunications,
media, cable TV and oil and natural gas industries, and the Fund is overweighted
in these areas. Some of the issues that we continue to favor include Time Warner
Inc. (entertainment and media), Brooks Fiber (alternate local telecommunications
provider), Teleport Communications Group (telecommunications), and Parker
Drilling Company (international contract drilling). All of these companies
continue to generate improving results either through increased market share,
improved internal cost controls, or a combination of both.
We still firmly believe that over a full ten-year economic cycle the
better-quality high-yield issues offer superior risk-adjusted returns and lower
default risk relative to lower-quality issues. Considering the trend toward
greater industry competition and little pricing power in most sectors of the
domestic economy, we believe our prudent approach to high yield bond investing
should generate consistently positive returns in 1997. We therefore will
continue to avoid areas of the economy that are experiencing weak growth trends
as well as heavy industry competition. In addition, we will continue to place
more emphasis on higher-quality issues and avoid or eliminate the weaker,
lower-tier issues. During the past year, we sold our investments in Harvard
Industries, Inc. (automotive components), Moblemedia (telecommunications),
Metrocall, Inc. (telecommunications), and Mobile Telecommunications Technologies
Corp. (wireless messaging), because of their deteriorating results.
3
<PAGE>
Given the shift in Fed policy, we have raised cash reserves in the Fund's
portfolio to a 7% to 10% level to be better positioned for potential investment
opportunities. Moreover, because of concerns over increased market volatility,
we have kept the Fund's average weighted maturity below eight years. We believe
this maturity range should help to limit the Fund's net asset value volatility
if interest rates move higher.
Outlook
In our opinion, the U.S. economy should grow solidly at least through the first
half of 1997. Given our expectations for continued economic growth with greater
interest rate volatility, our outlook on the bond market as a whole is somewhat
more cautious. As investors attempt to sort out the confusion over economic
growth, inflation and Fed monetary policy, we expect higher volatility with
respect to intermediate- and long-term interest rates over the first half of
1997. However, we believe the Fund is well positioned to weather this expected
market uncertainty.
In closing, thank you for investing in the High Income Opportunity Fund Inc. We
look forward to continuing to help you achieve your investment goals. Should you
have any questions about your investment in the Fund, please call First Data
Investor Services Group, Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President
May 2, 1997
4
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- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) March 31, 1997
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 91.1%
==========================================================================================================
Aerospace/Defense -- 1.9%
$ 6,725,000 BB Airplanes Pass Through Trust, Corporate Collateralized
Mortgage Obligation, Series D, 10.875% due 3/15/19 $ 7,404,158
4,415,000 B Howmet Corp., Sr. Sub. Notes, 10.000% due 12/1/03 4,751,644
2,325,000 B UNC Inc., Sr. Sub. Notes, 11.000% due 6/1/06+ 2,726,063
- ----------------------------------------------------------------------------------------------------------
14,881,865
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Banks/Savings and Loans -- 3.1%
4,750,000 B Amresco Inc., Sr. Notes, 10.000% due 3/15/04 4,750,000
13,150,000 B First Nationwide Holdings, Sr. Notes, 12.500% due 4/15/03 14,399,250
3,900,000 B+ Imperial Credit Industries Inc., Sr. Notes,
9.875% due 1/15/07+ 3,870,750
1,000,000 B+ Ocwen Financial Corp., Sr. Notes, 11.875% due 10/1/03 1,110,000
- ----------------------------------------------------------------------------------------------------------
24,130,000
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Broadcasting - TV, Cable, and Radio -- 22.7%
1,700,000 NR All American Communications Inc., Sr. Sub. Notes,
10.875% due 10/15/01 1,702,125
3,575,000 B- Allbritton Communications Corp., Sr. Sub. Debentures,
11.500% due 8/15/04 3,807,375
4,500,000 CCC+ Australis Holdings, Sr. Sub. Discount Notes, step bond
to yield 15.001% due 11/1/02 2,773,125
16,425,000 CCC Australis Media Ltd., Sr. Sub. Discount Notes, step bond
to yield 12.675% due 5/15/03 10,019,250
Bell Cablemedia, Sr. Discount Notes:
16,275,000 BB- Step bond to yield 12.096% due 7/15/04 13,996,500
6,125,000 BB- Step bond to yield 11.492% due 9/15/05 4,900,000
Cablevision Systems Corp., Sr. Sub. Debentures:
10,775,000 B 10.750% due 4/1/04 11,098,250
9,200,000 B 9.875% due 2/15/13 9,027,500
5,025,000 B 10.500% due 5/15/16 5,125,500
12,500,000 B Comcast UK Cable, Sr. Unsecured Discount Debentures,
step bond to yield 11.392% due 11/15/07 8,531,250
4,500,000 B Globalstar L.P., Sr. Sub. Notes, 11.375% due 2/15/04+ 4,488,750
Globo Communicacoes, Debentures:
3,500,000 NR Series A, 9.875% due 12/20/04 3,521,875
3,500,000 NR Series B, 10.500% due 12/20/06 3,552,500
10,600,000 B Marcus Cable Capital Corp., Sr. Discount Notes,
step bond to yield 11.628% due 8/1/04 8,559,500
3,275,000 BB Multicanal S.A., Sr. Sub. Notes, 10.500% due 2/1/07+ 3,275,000
Rogers Cablesystems, Sr. Secured Second Priority:
4,400,000 BB+ Debentures, 10.000% due 12/1/07 4,614,500
5,450,000 BB+ Debentures, 9.650% due 1/15/14 3,846,362
7,000,000 BB- Sr. Sub. Debentures, 11.000% due 12/1/15 7,481,250
10,315,000 BB- Rogers Communications, Sr. Debentures,
10.875% due 4/15/04 10,766,281
</TABLE>
See Notes to Financial Statements.
5
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Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Broadcasting - TV, Cable, and Radio -- 22.7% (continued)
$ 3,950,000 BB- SCI Television Inc., Sr. Secured Notes,
11.000% due 6/30/05 $ 4,152,438
6,350,000 B- SFX Broadcasting, Sr. Sub. Notes, 10.750% due 5/15/06 6,699,250
11,825,000 BB Telewest Communications PLC, Sr. Discount Debentures,
step bond to yield 11.129% due 10/1/07 7,922,750
3,625,000 B TV Azteca SA De CV, Sr. Sub. Notes, 10.500% due 2/15/07+ 3,561,563
11,550,000 B3* United International Holdings Inc., Australia/Pacific,
Sr. Discount Debentures, step bond to yield
14.000% due 5/15/06 5,904,938
United International Holdings Inc.,
Sr. Secured Discount Notes:
8,300,000 B- Zero coupon to yield 12.300% due 11/15/99 6,007,125
6,875,000 B- Zero coupon to yield 12.720% due 11/15/99 4,975,781
Videotron Holdings PLC:
5,425,000 B+ Sr. Discount Notes, step bond to yield 11.262%
due 8/15/05 4,340,000
4,250,000 BB+ Sr. Sub. Notes, 10.250% due 10/15/02 4,510,313
2,600,000 BB+ Videotron (Le Groupe), Sr. Notes, 10.625% due 2/15/05 2,866,500
4,600,000 B- Wireless One Inc., Sr. Notes, 13.000% due 10/15/03 2,800,250
2,650,000 B Young Broadcasting, Sr. Sub. Notes,
11.750% due 11/15/04 2,868,625
- ----------------------------------------------------------------------------------------------------------
177,696,426
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Building/Construction -- 0.3%
2,650,000 BB- American Standard Inc., Sr. Debentures,
11.375% due 5/15/04 2,795,750
- ----------------------------------------------------------------------------------------------------------
Chemicals -- 4.9%
9,650,000 B- Haynes International Inc., Sr. Notes, 11.625% due 9/1/04 10,385,813
NL Industries, Sr. Secured Notes:
5,000,000 B 11.750% due 10/15/03 5,275,000
4,675,000 B Step bond to yield 12.524% due 10/15/05 4,207,500
5,975,000 BB Pt. Polysindo Eka Perkasa, Sr. Secured Notes,
13.000% due 6/15/01 6,744,281
7,350,000 B+ Terra Industries, Inc., Sr. Notes, 10.500% due 6/15/05 7,901,250
3,850,000 B Texas Petrochemical Corp., Sr. Sub. Notes,
11.125% due 7/1/06+ 4,042,500
- ----------------------------------------------------------------------------------------------------------
38,556,344
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Consumer Durables -- 1.5%
14,725,000 B+ International Semi-Tech Corp., Sr. Secured Discount Notes,
step bond to yield 10.398% due 8/15/03 8,246,000
3,104,000 B- TAG-Heuer International, Inc., Sr. Sub. Notes,
12.000% due 12/15/05+ 3,515,280
- ----------------------------------------------------------------------------------------------------------
11,761,280
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Diversified/Conglomerate Manufacturing -- 2.0%
$ 3,000,000 B- Alvey Systems Inc., Sr. Sub. Notes,
11.375% due 1/31/03 $ 3,116,250
4,325,000 B3* Interlake Corp., Sr. Sub. Notes, 12.125% due 3/1/01 4,514,219
4,500,000 BBB Intertek Finance, 10.250% due 11/1/06+ 4,567,500
3,725,000 B Unifrax Investment Corp., Sr. Notes,
10.500% due 11/1/03 3,799,500
- ----------------------------------------------------------------------------------------------------------
15,997,469
- ----------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Services -- 0.5%
3,925,000 B- Outsourcing Solutions, Sr. Sub. Notes,
11.000% due 11/1/06+ 4,140,875
- ----------------------------------------------------------------------------------------------------------
Electric Utilities -- 1.3%
7,275,000 B Calpine Corp., Sr. Notes, 10.500% due 5/15/06+ 7,802,438
1,950,581 BB- Midland Cogeneration Venture Limited Partnership,
Midland Funding, Debentures, Sr. Secured Lease
Obligation Bond, Series C, 10.330% due 7/23/02 2,072,493
- ----------------------------------------------------------------------------------------------------------
9,874,931
- ----------------------------------------------------------------------------------------------------------
Electrical Equipment -- 0.4%
3,400,000 B Goss Graphic Systems, Sr. Sub. Notes,
12.000% due 10/15/06 3,570,000
- ----------------------------------------------------------------------------------------------------------
Electronics/Computers -- 4.2%
4,225,000 B Celestica International, Sr. Sub. Notes,
10.500% due 12/31/06+ 4,547,156
5,525,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/97+ 5,538,813
4,725,000 B- Graphic Controls Corp., Sr. Sub. Notes,
12.000% due 9/15/05 5,197,500
Unisys Corp., Sr. Notes:
7,925,000 B+ 12.000% due 4/15/03 8,450,031
8,700,000 B+ 11.750% due 10/15/04 9,156,750
- ----------------------------------------------------------------------------------------------------------
32,890,250
- ----------------------------------------------------------------------------------------------------------
Food -- 0.9%
3,825,000 BB- TLC Beatrice Inc., Sr. Secured Notes,
11.500% due 10/1/05 4,102,313
2,335,000 B- Van de Kamp Inc., Sr. Sub. Notes, 12.000% due 9/15/05 2,574,338
- ----------------------------------------------------------------------------------------------------------
6,676,651
- ----------------------------------------------------------------------------------------------------------
Grocery/Convenience Stores -- 1.0%
7,485,000 B- Pathmark Stores Inc., Sub. Notes, 12.625% due 6/15/02 7,775,044
- ----------------------------------------------------------------------------------------------------------
Healthcare -- 2.1%
6,600,000 B Magellan Health Services, Sr. Sub. Notes,
11.250% due 4/15/04 7,301,250
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Healthcare -- 2.1% (continued)
Tenet Healthcare Corp. Sr. Sub. Notes:
$ 4,000,000 Ba1* 8.000% due 1/15/97 $ 3,960,000
5,000,000 Ba3* 8.625% due 1/15/97 4,993,750
- ----------------------------------------------------------------------------------------------------------
16,255,000
- ----------------------------------------------------------------------------------------------------------
Hotel, Casinos and Gaming -- 3.3%
2,500,000 B Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04 2,825,000
5,375,000 B- Courtyard by Marriott, Sr. Secured Notes,
10.750% due 2/1/08 5,670,625
3,775,000 BB Grand Casinos Inc., Sr. Sub. Notes, 10.125% due 12/1/03 3,737,250
5,125,000 NR Mohegan Tribal Gaming Authority,
Sr. Secured Notes, 13.500% due 11/15/02 6,745,781
5,750,000 B Showboat Inc., Sr. Sub. Notes, 13.000% due 8/1/09 6,569,375
- ----------------------------------------------------------------------------------------------------------
25,548,031
- ----------------------------------------------------------------------------------------------------------
Industrial -- 2.3%
1,850,000 B+ Anchor Advance Products, Sr. Sub. Notes,
11.750% due 1/1/04+ 1,863,875
4,325,000 B- Innova S De R.L., Sr. Sub. Notes, 12.875% due 4/1/07+ 4,281,750
10,550,000 B- Terex Corp., Sr. Sub. Notes, 13.250% due 5/15/02 11,539,063
- ----------------------------------------------------------------------------------------------------------
17,684,688
- ----------------------------------------------------------------------------------------------------------
Leisure -- 0.4%
3,985,000 B Remington Arms Co., Inc., Sr. Sub. Notes, 9.500%
due 12/1/03 (Current penalty coupon 10.000%)+ 3,217,888
- ----------------------------------------------------------------------------------------------------------
Metals/Mining -- 3.3%
451,000 B Algoma Steel Inc., Sr. Secured Notes,
12.375% due 7/15/05 486,674
3,825,000 B- Commonwealth Aluminum Co., Sr. Sub. Notes,
10.750% due 10/1/06+ 3,978,000
650,000 BB- Echo Bay Mines, Sr. Sub. Notes, 11.000% due 4/1/27 653,250
5,500,000 B- Ivex Holdings Corp., Sr. Discount Debentures,
step bond to yield 12.822% due 3/15/05 4,372,500
6,325,000 B- Kaiser Aluminum and Chemical, Sr. Sub. Notes,
12.750% due 2/1/03 6,831,000
3,600,000 B Russel Metals, Sr. Notes, 10.250% due 6/15/00 3,618,000
5,495,000 BB- UCAR Global Enterprises Inc., Sr. Sub. Notes,
12.000% due 1/15/05 6,223,088
- ----------------------------------------------------------------------------------------------------------
26,162,512
- ----------------------------------------------------------------------------------------------------------
Oil and Natural Gas -- 7.0%
6,950,000 B+ Clark R&M Holdings, Sr. Notes, zero coupon bond to yield
10.400% due 2/15/00 5,082,188
7,250,000 B+ Clark USA Inc., Sr. Notes, 10.875% due 12/1/05 7,395,000
6,925,000 B+ Dawson Production Services, Sr. Sub. Notes,
9.375% due 2/1/07 6,890,375
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Oil and Natural Gas -- 7.0% (continued)
$ 3,950,000 Caa* Deeptech International, Sr. Sub. Notes,
12.000% due 12/15/00 $ 4,177,125
1,825,000 B Forcenergy Inc., Sr. Sub. Notes, 8.500% due 2/15/07+ 1,706,375
6,650,000 BB- Global Marine, Sr. Secured Notes,
12.750% due 12/15/99 7,049,000
3,725,000 B+ Kelley Oil & Gas Corp., Sr. Guaranteed Notes,
10.375% due 10/15/06 3,818,125
7,800,000 B+ Parker Drilling, Debentures, 9.750% due 11/15/06 7,917,000
6,025,000 BB- Santa Fe Energy Resources, Sr. Sub. Debentures,
11.000% due 5/15/04 6,544,656
4,325,000 B United Meridian Corp., Sr. Sub. Guaranteed Notes,
10.375% due 10/15/05 4,681,813
- ----------------------------------------------------------------------------------------------------------
55,261,657
- ----------------------------------------------------------------------------------------------------------
Packaging and Containers -- 0.5%
2,000,000 B+ Container Corp. of America, Sr. Notes,
11.250% due 5/1/04 2,171,380
1,950,000 B- Gaylord Container Corp., Sr. Sub. Debentures,
12.750% due 5/15/05 2,125,500
- ----------------------------------------------------------------------------------------------------------
4,296,880
- ----------------------------------------------------------------------------------------------------------
Paper/Forest Products/Printing -- 6.2%
4,502,000 NR American Pad & Paper Co., Sr. Sub. Notes,
13.000% due 11/15/05 5,244,830
9,225,000 B+ Asia Pulp & Paper II Maritus Ltd., Sr. Sub. Notes,
12.000% due 12/29/49+ 8,902,125
14,875,000 BB Indah Kiat International Finance Co., Secured Notes,
11.875% due 6/15/02 16,176,563
10,075,000 B+ SD Warren Corp., Sr. Sub. Notes, 12.000% due 12/15/04 11,158,063
6,415,000 BB Tjiwi Kimia Industries, Sr. Guaranteed Notes,
13.250% due 8/1/01 7,297,063
- ----------------------------------------------------------------------------------------------------------
48,778,644
- ----------------------------------------------------------------------------------------------------------
Pollution Control/Waste Removal -- 0.8%
3,925,000 B+ Allied Waste North America, Sr. Sub. Notes,
10.250% due 12/1/06+ 4,072,188
2,100,000 B Envirosource Inc., Sr. Sub. Notes, 9.750% due 6/15/03 2,021,250
- ----------------------------------------------------------------------------------------------------------
6,093,438
- ----------------------------------------------------------------------------------------------------------
Real Estate Development/ REITS -- 1.0%
7,225,000 BB- Trizec Finance, Sr. Notes, 10.875% due 10/15/05 7,893,313
- ----------------------------------------------------------------------------------------------------------
Retail -- 1.0%
7,400,000 B+ Barnes and Noble, Sr. Sub. Notes, 11.875% due 1/15/03 8,029,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Telecommunications -- 16.9%
Brooks Fiber Properties, Sr. Discount Notes:
$14,450,000 NR Step bond to yield 11.565% due 3/1/06 $ 9,211,873
18,150,000 NR Step bond to yield 11.699% due 11/1/06 11,026,123
16,700,000 B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 13.911% due 12/15/05 10,855,000
6,025,000 NR Colt Telecommunications Units, step bond to yield
11.508% due 12/15/06+ 3,750,563
3,000,000 NR Dobson Communications CP, Sr. Sub. Notes,
11.750% due 4/15/07+ 2,947,500
3,950,000 B+ Fonorola Inc., Sr. Secured Notes,
12.500% due 8/15/02 4,374,625
17,025,000 NR Intelcom Group Inc., Sr. Discount Notes,
step bond to yield 12.408% due 5/1/06+ 10,747,031
13,500,000 B- Intermedia Communications of Florida,
Sr. Discount Unsecured Notes, step bond to yield
12.408% due 5/15/06 8,673,750
9,750,000 NR McCaw International Ltd., Sr. Discount Debentures,
step bond to yield 13.000% due 4/15/07+ 4,680,000
9,000,000 NR McLeod Inc., Sr. Discount Debentures, step bond to yield
10.457% due 3/1/07+ 4,972,500
13,725,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 13.500% due 6/1/06+ 9,127,124
13,750,000 CCC- Nextel Communications, Sr. Discount Notes,
step bond to yield 12.704% due 8/15/04 9,384,374
7,550,000 NR Nextlink Communications, Sr. Notes,
12.500% due 4/15/06+ 7,568,874
9,450,000 NR Pagemart Inc., Sr. Discount Notes, step bond to yield
11.335% due 11/1/03 7,619,062
5,500,000 NR Pagemart Nationwide, Inc., Sr. Discount Notes,
step bond to yield 13.344% due 2/1/05+ 3,911,710
2,050,000 B- Phonetel Technologies, Sr. Notes, 12.000% due 12/15/06 2,070,500
3,225,000 B Pricellular Wireless, Sr. Notes, 10.750% due 11/1/04 3,233,062
5,000,000 NR Qwest Communications, Sr. Notes,
10.875% due 4/1/07+ 4,987,500
6,975,000 NR RSL Communications Ltd., Units,
12.250% due 11/15/06+ 6,992,437
9,375,000 B Teleport Communications Group Inc., Sr. Discount Notes,
step bond to yield 11.461% due 7/1/07 6,351,563
- ----------------------------------------------------------------------------------------------------------
132,485,171
- ----------------------------------------------------------------------------------------------------------
Tobacco -- 0.7%
5,075,000 B Consolidated Cigar Acquisition Corp., Sr. Sub. Notes,
10.500% due 3/1/03 5,335,094
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<S> <C> <C> <C>
Transportation -- 0.9%
$ 6,200,000 BB- Sea Containers Limited, Sr. Sub. Debentures,
12.500% due 12/1/04 $ 6,820,000
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $703,972,575) 714,608,201
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==========================================================================================================
<S> <C> <C>
PREFERRED STOCKS -- 7.6%
==========================================================================================================
Banking -- 0.3%
108,000 California Federal, Series A, Exchangeable 9.125% 2,673,000
- ----------------------------------------------------------------------------------------------------------
Health Care/Pharmaceuticals -- 0.6%
210,825 Avatex Corp., Series A, Payment-in-kind,
Exchangeable $4.20 (Formerly Foxmeyer Health Corp.) 1,712,958
29,000 Fresensius Medical Care, Exchangeable 9.000% 2,842,000
- ----------------------------------------------------------------------------------------------------------
4,554,958
- ----------------------------------------------------------------------------------------------------------
Publishing -- 4.4%
1,611 K-III Communications Corp., Series B,
Exchangeable 11.625% 176,055
31,331 Time Warner Inc., Series K, Exchangeable 10.250% 33,916,695
- ----------------------------------------------------------------------------------------------------------
34,092,750
- ----------------------------------------------------------------------------------------------------------
Telecommunications -- 2.3%
14,814 PanAmSat Corp., Series A, Exchangeable $12.875 17,925,169
- ----------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost -- $61,647,321) 59,245,877
==========================================================================================================
CONVERTIBLE PREFERRED STOCK -- 1.2%
==========================================================================================================
Automobiles/Trucking -- 1.2%
164,400 Navistar International, Series G, Convertible $6.00
(Cost -- $8,828,280) 9,761,250
==========================================================================================================
COMMON STOCK -- 0.0%
==========================================================================================================
Communications -- 0.0%
20,125 Pagemart Nationwide Inc. (Cost -- $0) 115,719
==========================================================================================================
FOREIGN STOCK -- 0.0%
==========================================================================================================
Metals/Mining -- 0.0%
81,581 Algoma Steel Inc. (Cost -- $408,277) 380,888
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) March 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==========================================================================================================
<S> <C> <C>
WARRANTS -- 0.1%
4,500 Australis Holdings Ltd., Expires 5/15/00+@ $ 135
55,110 Clearnet Communications Inc., Expires 9/15/05@ 289,328
32,800 DeGeorge Financial Corp., Expires 4/1/97@ 328
11,959 Nextel Communications, Inc., Expires 12/15/98+@ 120
6,575 Nextel Communications, Inc., Expires 4/25/99+@ 66
43,470 Pagemart Nationwide Inc., Expires 12/31/03+@ 119,542
8,175 SD Warren Corp., Expires 12/5/06+@ 106,274
5,700 Wireless One Inc., Expires 10/15/03@ 5,700
- ----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $342,066) 521,493
==========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $775,198,519**) $784,633,428
==========================================================================================================
</TABLE>
+ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
@ Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 13 for definition of ratings.
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Description of Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Ratings Services ("Standard &Poor's")
except that those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "BBB" to "CCC" 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 -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly
and CCC speculative and and 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.
Moody's -- Numerical modifiers 1,2 and 3 may be applied to each generic rating
from "Baa" to "Caa", 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.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) March 31, 1997
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $775,198,519) $ 784,633,428
Cash 22,040,193
Interest receivable 16,566,240
Receivable for securities sold 6,564,883
Receivable from broker -- variation margin 96,250
- -------------------------------------------------------------------------------
Total Assets 829,900,994
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 6,145,201
Dividends payable 2,253,037
Management fees payable 813,607
Accrued expenses 305,358
- -------------------------------------------------------------------------------
Total Liabilities 9,517,203
- -------------------------------------------------------------------------------
Total Net Assets $ 820,383,791
===============================================================================
NET ASSETS:
Par value of capital shares $ 69,858
Capital paid in excess of par value 871,919,590
Undistributed net investment income 2,807,059
Accumulated net realized loss on security
transactions, futures contracts and options (64,815,343)
Net unrealized appreciation of investments and
futures contracts 10,402,627
- -------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.74 a share on 69,858,000 shares
of $0.001 par value outstanding; 500,000,000 shares authorized) $ 820,383,791
===============================================================================
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1997
INVESTMENT INCOME:
Interest $ 42,898,975
Dividends 3,435,364
- -------------------------------------------------------------------------------
Total Investment Income 46,334,339
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 4,740,688
Shareholder communications 151,177
Shareholder and system servicing fees 15,386
Custody 15,062
Audit and legal 14,923
Pricing service fees 10,180
Directors' fees 5,735
Other 32,285
- -------------------------------------------------------------------------------
Total Expenses 4,985,436
- -------------------------------------------------------------------------------
Net Investment Income 41,348,903
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND OPTIONS (NOTES 3, 5 AND 6):
Realized Gain From:
Security transactions (excluding short-term securities) 4,155,027
Futures contracts 944,215
Options purchased 444,545
- -------------------------------------------------------------------------------
Net Realized Gain 5,543,787
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures Contracts:
Beginning of period 16,669,968
End of period 10,402,627
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (6,267,341)
- -------------------------------------------------------------------------------
Net Loss on Investments, Futures Contracts and Options (723,554)
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 40,625,349
===============================================================================
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1997 (unaudited)
and the Year Ended September 30, 1996
March 31 September 30
===============================================================================
OPERATIONS:
Net investment income $ 41,348,903 $ 79,771,854
Net realized gain 5,543,787 918,351
Increase (decrease) in net unrealized
appreciation (6,267,341) 13,960,981
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 40,625,349 94,651,186
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (38,980,764) (77,961,528)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (38,980,764) (77,961,528)
- -------------------------------------------------------------------------------
Increase in Net Assets 1,644,585 16,689,658
NET ASSETS:
Beginning of period 818,739,206 802,049,548
- -------------------------------------------------------------------------------
End of period* $820,383,791 $818,739,206
===============================================================================
* Includes undistributed net investment
income of: $ 2,807,059 $ 438,920
===============================================================================
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
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
discount 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; foreign dividends are
recorded on the ex-dividend date or as soon as practical after the Fund
determines the existence of a dividend declaration after exercising reasonable
due diligence; (f) interest income, adjusted for accretion of original issue
discount, is recorded on an accrual basis; (g) dividends and distributions to
shareholders are recorded on the ex-dividend date; (h) the accounting records
are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, and income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income or expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank; (i) 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
September 30, 1996, 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. Accordingly, a portion of
undistributed net investment income amounting to $1,162,180 was reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; (j) 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;
and (k) 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
17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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 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 six months ended March 31, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
===============================================================================
Purchases $344,147,197
- --------------------------------------------------------------------------------
Sales 329,882,615
===============================================================================
At March 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $ 46,477,298
Gross unrealized depreciation (37,042,389)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 9,434,909
===============================================================================
4. CAPITAL LOSS CARRYFORWARD
At September 30, 1996, the Fund had, for Federal tax purposes, approximately
$69,656,000 of capital loss carryforwards available to offset future realized
capital gains. To the extent that these capital loss carryforwards can be used
to offset net realized capital gains, such gains, if any, will not be
distributed. The amounts and expiration of carryforwards are indicated below.
Expiration occurs on September 30 in the year indicated:
2003 2004
===============================================================================
Carryforward Amounts $31,540,000 $38,116,000
===============================================================================
18
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
Initial margin deposits are made upon entering into futures contracts and
are recog nized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. 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 received or made and recognized as assets
due from or liabilities due to 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 March 31, 1997, the Fund had the following open futures contracts:
<TABLE>
<CAPTION>
# of Basis Market Unrealized
Futures contracts to sell Contracts Expiration Value Value Gain
======================================================================================
<S> <C> <C> <C> <C> <C>
U.S. Treasury - Long Bond 616 6/97 $67,014,468 $66,046,750 $967,718
======================================================================================
</TABLE>
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 option 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.
As of March 31, 1997, the Fund had no open purchased call or put option
contracts.
19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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 written call
option is exercised, the cost of the security sold will be decreased by the
premium originally received. When a written 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 covered 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.
During the period ended March 31, 1997, the Fund had not written any call or
put options.
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.
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
1997(1) 1996 1995 1994(2)(3)
=============================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.72 $11.48 $11.20 $12.50
- ---------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.59 1.14 1.14 1.01*
Net realized and unrealized gain (loss) (0.01) 0.22 0.28 (1.30)
- ---------------------------------------------------------------------------------------------
Total Income (Loss) from Operations 0.58 1.36 1.42 (0.29)
- ---------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.56) (1.12) (1.12) (1.01)
Capital -- -- (0.02) --
- ---------------------------------------------------------------------------------------------
Total Distributions (0.56) (1.12) (1.14) (1.01)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.74 $11.72 $11.48 $11.20
- ---------------------------------------------------------------------------------------------
Total Return,
Based on Market Value 7.16%++ 21.07% 9.90% (7.33)%++
- ---------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value 5.06%++ 12.86% 13.99% (2.31)%++
- ---------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $820,384 $818,739 $802,050 $782,524
- ---------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.21%+ 1.21% 1.20% 1.15%+*
Net investment income 10.02+ 9.85 10.02 9.09+
- ---------------------------------------------------------------------------------------------
Portfolio Turnover Rate 41% 73% 59% 69%
- ---------------------------------------------------------------------------------------------
Market Price, End of Period $11.750 $11.500 $10.500 $10.625
=============================================================================================
</TABLE>
(1) For the six months ended March 31, 1997 (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).
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
21
<PAGE>
- --------------------------------------------------------------------------------
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 26 10.50 11.55 0.093 10.751
1996
January 23 11.00 11.68 0.093 11.339
February 20 11.13 11.85 0.093 11.242
March 26 11.13 11.62 0.093 11.135
April 23 11.00 11.56 0.093 11.010
May 28 10.81 11.62 0.093 10.880
June 25 10.69 11.48 0.093 11.020
July 23 11.13 11.44 0.093 11.270
August 27 11.25 11.47 0.093 11.300
September 24 11.13 11.61 0.093 11.430
October 22 11.38 11.65 0.093 11.375
November 25 11.25 11.77 0.093 11.375
December 23 11.38 11.84 0.093 11.490
1997
January 24 11.63 11.93 0.093 11.872
February 21 11.94 12.05 0.093 11.895
March 20 11.75 11.82 0.093 11.710
================================================================================
* In December 1995, the valuation date, which is the date that determines the
dividend reinvestment price, was changed from payable date to record date.
22
<PAGE>
- --------------------------------------------------------------------------------
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 record 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 commencement 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 purchased in the open market and the price at
which the Fund issued the remaining shares.
23
<PAGE>
- --------------------------------------------------------------------------------
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., 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.
24
<PAGE>
- --------------------------------------------------------------------------------
High Income
-----------
Opportunity Fund Inc.
- --------------------------------------------------------------------------------
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, Emeritus
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.
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 sent to the shareholders of the High Income Opportunity Fund Inc.
for their information. It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in the report.
HIO
Listed High Income Opportunity Fund Inc.
NYSE 388 Greenwich Street
THE NEW YORK STOCK EXCHANGE New York, New York 10013
FD0850 5/97
