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HIGH INCOME
Opportunity Fund Inc.
Quarterly Report
June 30, 1999
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<PAGE>
High Income
Opportunity
Fund Inc.
[PHOTO OMITTED]
HEATH B. MCLENDON
Chairman
[PHOTO OMITTED]
JOHN C. BIANCHI, CFA
Vice President
Dear Shareholder:
We are pleased to provide the third quarter report for the High Income
Opportunity Fund ("Fund") for the nine months ended June 30, 1999. We hope you
find this report to be useful and informative. Over the past nine months, the
Fund paid income dividends totaling $0.78 per share. The table below details the
annualized distribution rate and the nine month total return for the Fund based
on its June 30, 1999 net asset value ("NAV") per share and the New York Stock
Exchange ("NYSE") closing price.
Price Annualized Nine-Month
Per Share Distribution Rates* Total Returns
--------------- ------------------- -------------
$10.79 (NAV) 9.34% 3.30%
$10.563 (NYSE) 9.54% 2.17%
The Fund generated a total return of a 3.30% for the past nine months. In
comparison, the Lipper, Inc. peer group average posted 5.16% for the same time
period. We were disappointed by the weaker performance results of the past three
months as the high yield bond market continued to be negatively impacted by a
combination of rising interest rates and heavy new issue supply.
Market and Economic Overview
During the second quarter of 1999, the high yield bond market went down as U.S.
Treasury rates continued to move higher on fears that the Federal Reserve Board
("Fed") would raise short-term interest rates in response to U.S. economic
growth and inflationary pressures. On June 30, 1999, the Fed raised short-term
interest rates by 25 basis points and recently indicated that it may increase
rates again later in 1999.
- ----------
* This distribution assumes a current monthly income dividend rate of $0.084 per
share for twelve months.
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High Income Opportunity Fund Inc. 1
<PAGE>
The high yield bond market and the investment grade corporate bond market were
not only negatively affected by the general increase in interest rates, but also
by the rush on the part of corporations to issue additional debt before interest
rates went even higher. This added supply caused the high yield bond market to
fall as investors retreated from the market.
With the rise in general interest rates and corresponding decline in U.S.
Treasury bond prices, compounded by heavy new issuance of corporate bonds during
the past three months, the better quality segments of the high yield bond market
continued to underperform the lower quality CCC/Caa rated issues. Although
higher quality issues have a lower risk of default, these issues tend to be more
sensitive to the movements of the U.S. Treasury market. At the same time, the
lower quality high yield issues tend to have a higher risk of default and tend
to be more economically sensitive, reacting more closely to stock market trends.
The lower quality segment of the high yield market clearly benefited from strong
domestic economic growth in the second quarter and the strong performance
returns generated by the domestic equity markets.
Compared to other segments of the fixed income markets such as the U.S. Treasury
bonds and investment grade corporate bonds, the high yield market modestly
outperformed. Thirty-year Treasuries generated the worst performance with a
negative 4.00% total return for the second quarter of 1999 and a negative 10.50%
total return for the first half of 1999. Ten-year Treasuries generated a
negative 3.45% total return for the second quarter of 1999 and a negative 6.50%
total return for the first half of 1999. For the second quarter of 1999, the
domestic high yield market generated flat results and a modestly positive 2.00%
total return for the first half of 1999.
The strongest performing industry sectors were basic materials (i.e., forest
products, metals, mining etc.) and energy. This was not surprising given the
higher risk of greater inflation caused by stronger than expected economic
growth both domestically and globally. The weakest industry sectors included
media (i.e., cable TV and broadcasting) and telecommunications. A number of
media and telecommunications companies rushed new issues into the market in the
second quarter of 1999, putting further pressure on the existing issues in these
sectors.
The Fund's performance lagged the various high yield indices in the second
quarter of 1999, with total returns below that of the U.S. high yield bond
market overall. We were held back by our underweight in basic materials and our
overweight in the telecommunications sector. Yet, despite adverse short-term
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2 1999 Quarterly Report to Shareholders
<PAGE>
adverse market conditions, we are committed to our long-term investment style --
to maintain style purity in the funds we manage with a meaningful emphasis on
better quality issues. In fact, our higher quality BB/Ba rated issues generated
the weakest results given the ongoing increase in interest rates in the second
quarter.
Portfolio Strategy Update
As mentioned in our last report, the Fund's management team has begun a
multi-pronged strategy of rebalancing the Fund to better reflect strong economic
conditions. We have therefore been slowly increasing the Fund's exposure to the
basic industry sector and eliminating underperforming sectors such as
healthcare. Also, we have modestly increased our energy exposure by investing in
higher quality energy credits. Given the increased volatility in the fixed
income markets, this rebalancing strategy has taken longer than expected. In
terms of quality, we have been increasing our exposure to the middle B-rated
segment of the market where we have continued to find attractive yields.
Some of our recent additions include AES Corp., an independent power producer;
Nextlink, a competitive local exchange telecommunications provider; Huntsman
Chemical, a specialty chemical company; and Ames Department Stores, a middle
market retailer. We believe the middle B rated segment of the high yield bond
market represents the best value given continued economic strength. The Fund's
average maturity of approximately 6 to 7 years on a call-adjusted basis should
continue to limit the impact of rising rates on the portfolio. We remain bullish
on the total return prospects of the high yield bond market at current valuation
levels, especially given the health of the economy.
Conclusion
For the remainder of 1999, the Fund's management team expects a continuation of
solid economic growth with a modest upward bias in inflation. These factors
could result in a modest increase in general interest rates. We anticipate that
both the equity markets and the high yield bond market should do better than
U.S. Treasuries and the middle quality high yield bonds should outperform.
Moreover, we will continue to focus closely on some of the stronger companies in
select commodity sectors such as paper, energy and steel. And while no
guarantees can be made, we expect the Fund to generate competitive returns over
the near term.
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High Income Opportunity Fund Inc. 3
<PAGE>
Thank you for your continued confidence in our investment management approach.
Should you have any questions about your investment in the Fund, please call the
First Data Investor Services Group, Inc. at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, C.F.A.
Heath B. McLendon John C. Bianchi, C.F.A.
Chairman Vice President
July 31, 1999
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4 1999 Quarterly Report to Shareholders
<PAGE>
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains distributions, if any, in additional shares of the Fund. Below
is a short summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value ("NAV") per share on the
determination date, you will be issued shares by the Fund at a price reflecting
the NAV, or 95% of the market price, whichever is greater.
If the market price is less than the NAV at the time of valuation (the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, the First Data Investors
Services Group, Inc. (the "Plan Agent"), will buy common stock for your account
in the open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the NAV previously
determined before the purchases are completed, the Plan Agent will attempt to
terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV. In that
case, the number of Fund shares you receive will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares.
Restated Plan Adopted
A more complete description of the current Plan appears in the section of this
report beginning on page 31. The descriptions in here are based on a restated
version of the Plan, which was recently adopted to reflect current practices of
the Plan Agent and for the purpose of standardizing the terms among all
closed-end funds managed by SSBC Fund Management Inc.
To find out more detailed information about the Plan and about how you can
participate, please call First Data Investor Services Group, Inc. at (800)
331-1710.
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High Income Opportunity Fund Inc. 5
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 96.3%
Aerospace -- 0.9%
2,725,000 B1* BE Aerospace, Inc., Sr. Sub. Notes, Series B,
9.500% due 11/1/08 $ 2,759,062
2,005,000 B- Dunlop Standard Aero Holdings, Sr. Notes,
11.875% due 5/15/09+ 2,015,025
2,300,000 B- Fairchild Corp., Guaranteed Sr. Sub. Notes,
10.750% due 4/15/09+ 2,265,500
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7,039,587
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Airlines -- 1.6%
10,080,000 BB Airplanes Pass-Through Trust, Corporate
Asset-Backed Securities, Series 1, Class D, 10.875%
due 3/15/19 10,072,944
2,060,000 Ba2* Continental Airlines, Inc., Sr. Notes,
8.000% due 12/15/05 1,957,000
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12,029,944
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Auto Parts -- 0.8%
4,390,000 B Collins & Aikman Products Co., Guaranteed
Sr. Sub. Notes, 11.500% due 4/15/06 4,477,800
1,335,000 B Dura Operating Corp., Sr. Sub. Notes,
9.000% due 5/1/09+ 1,288,275
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5,766,075
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Automotive Aftermarket -- 0.7%
5,305,000 B1* Exide Corp., Sr. Exchange Notes, 10.000% due 4/15/05 5,291,737
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Broadcasting -- 1.6%
890,000 B- Capstar Broadcasting Partners, Inc., Sr. Discount Notes,
step bond to yield 10.380% due 2/1/09 747,600
6,600,000 B1* Chancellor Media Corp., Guaranteed Sr. Sub. Notes,
9.000% due 10/1/08 6,748,500
Citadel Broadcasting Co.:
2,645,000 B- Guaranteed Sr. Sub. Notes, 9.250% due 11/15/08 2,730,962
1,350,000 B- Sr. Sub. Notes, 10.250% due 7/1/07 1,458,000
950,000 B+ TV Azteca SA de C.V., Guaranteed Sr. Notes,
Series B, 10.500% due 2/15/07 705,375
- ---------------------------------------------------------------------------------------------------------
12,390,437
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Building Materials -- 0.3%
2,020,000 B Atrium Companies Inc., Sr. Sub. Notes,
10.500% due 5/1/09+ 1,989,700
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Building Materials Chains -- 0.3%
Building Materials Corp. of America:
1,420,000 BB Guaranteed Sr. Notes, 8.000% due 12/1/08 1,331,250
750,000 BB Sr. Deferred Coupon Notes, Series B, step bond to yield
9.772% due 7/1/04 787,500
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2,118,750
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Building Products -- 1.9%
1,945,000 B Amatek Industries Property Ltd., Sr. Sub. Notes,
12.000% due 2/15/08+ 1,857,475
</TABLE>
See Notes to Financial Statements.
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6 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C>
Building Products -- 1.9% (continued)
1,600,000 B NCI Building Systems, Inc., Sr. Sub. Notes,
9.250% due 5/1/09+ $ 1,600,000
Nortek, Inc., Sr. Notes:
845,000 B+ 8.875% due 8/1/08+ 868,238
Series B:
3,800,000 B+ 9.250% due 3/15/07 3,819,000
6,660,000 B+ 9.125% due 9/1/07 6,643,350
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14,788,063
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Cable Television -- 10.4%
2,135,000 BB- Century Communications Corp., Sr. Notes,
8.750% due 10/1/07 2,118,987
Charter Communications Holdings LLC/
Charter Communications Capital Corp.:
4,570,000 B+ Sr. Discount Notes, step bond to yield
9.784% due 4/1/11+ 2,844,825
1,585,000 B+ Sr. Notes, 8.625% due 4/1/09+ 1,525,562
CSC Holdings Inc., Sr. Sub. Debentures:
12,020,000 BB- 9.875% due 2/15/13 13,011,650
5,525,000 BB- 10.500% due 5/15/16 6,243,250
1,900,000GBP B- Diamond Holdings PLC, Guaranteed Notes,
10.000% due 2/1/08 3,047,368
4,620,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09+ 4,723,950
NTL Communications Corp.:
1,415,000 B- Sr. Deferred Coupon Notes, Series B, step bond
to yield 10.526% due 10/1/08 965,738
4,950,000 B- Sr. Notes, 11.500% due 10/1/08 5,346,000
Rogers Cablesystems, Ltd.:
7,260,000 BB- Guaranteed Sr. Sub. Debentures, 11.000% due 12/1/15 8,349,000
4,250,000 BB+ Sr. Secured Second Priority Debentures,
10.000% due 12/1/07 4,590,000
2,250,000 BB- Rogers Communications, Inc., Sr. Notes,
9.125% due 1/15/06 2,295,000
TeleWest Communications PLC:
1,675,000GBP B+ Sr. Discount Notes, step bond to yield
9.059% due 4/15/09+ 1,768,994
3,650,000 B+ Sr. Notes, 11.250% due 11/1/08 4,161,000
27,880,000 B United International Holdings, Inc., Sr. Secured Discount
Notes, Series B, step bond to yield 10.747% due 2/15/08 18,540,200
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79,531,524
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Casinos/Gambling -- 2.6%
4,080,000 BB+ Harrah's Operating Co., Inc., Guaranteed Sr. Sub. Notes,
7.875% due 12/15/05 3,957,600
3,725,000 B Harveys Casino Resorts, Guaranteed Sr. Sub. Notes,
10.625% due 6/1/06 3,855,375
</TABLE>
See Notes to Financial Statements.
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High Income Opportunity Fund Inc. 7
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Casinos/Gambling -- 2.6% (continued)
3,510,000 B Hollywood Park, Inc., Guaranteed Sr. Sub. Notes,
Series B, 9.250% due 2/15/07 $ 3,474,900
3,335,000 B+ Horseshoe Gaming, LLC, Sr. Sub. Notes,
8.625% due 5/15/09+ 3,234,950
2,470,000 B Isle of Capris Casinos, Inc., Sr. Sub. Notes,
8.750% due 4/15/09+ 2,321,800
705,000 BB+ Mandalay Resort Group, Sr. Sub. Debentures,
7.625% due 7/15/13 623,925
Station Casinos, Inc., Sr. Sub. Notes:
1,200,000 B+ 10.125% due 3/15/06 1,245,000
1,250,000 B+ 8.875% due 12/1/08 1,225,000
- ---------------------------------------------------------------------------------------------------------
19,938,550
- ---------------------------------------------------------------------------------------------------------
Chemicals - Major -- 0.5%
2,240,000 NR Huntsman Corp., Sr. Sub. Notes, 9.500% due 7/1/07+ 2,150,400
2,035,000 B+ Huntsman ICI Chemicals LLC, Sr. Sub. Notes,
10.125% due 7/1/09+ 2,045,175
- ---------------------------------------------------------------------------------------------------------
4,195,575
- ---------------------------------------------------------------------------------------------------------
Chemicals - Specialty -- 0.7%
Lyondell Chemical Co., Sr. Secured Notes:
1,685,000 BB Series A, 9.625% due 5/1/07+ 1,731,338
3,370,000 BB Series B, 9.875% due 5/1/07+ 3,437,400
- ---------------------------------------------------------------------------------------------------------
5,168,738
- ---------------------------------------------------------------------------------------------------------
Coal Mining -- 0.6%
4,750,000 B AEI Resources, Inc., Guaranteed Sr. Notes,
10.500% due 12/15/05+ 4,655,000
- ---------------------------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.5%
3,775,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes,
8.500% due 4/1/08 3,680,625
- ---------------------------------------------------------------------------------------------------------
Containers/Packaging -- 2.9%
3,350,000 B AEP Industries Inc., Sr. Sub. Notes, 9.875% due 11/15/07 3,358,375
1,025,000 B Consolidated Container Co. LLC/Consolidated Container
Capital, Inc., Sr. Sub. Notes, 10.125% due 7/15/09+ 1,035,250
3,250,000 B Huntsman Packaging Corp., Guaranteed Sr. Sub. Notes,
9.125% due 10/1/07 3,217,500
5,125,000DEM B Impress Metal Packaging Holdings, Sr. Sub. Notes,
9.875% due 5/29/07+ 2,992,691
2,170,000 B Packaging Corp. of America, Sr. Sub. Notes,
9.625% due 4/1/09+ 2,191,700
5,830,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06+ 6,296,400
</TABLE>
See Notes to Financial Statements.
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8 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Containers/Packaging -- 2.9% (continued)
Tekni-Plex Inc.:
300,000 B- Guaranteed Sr. Sub. Notes, Series B, 9.250% due 3/1/08 $ 291,000
2,435,000 B- Sr. Sub. Notes, Series B, 11.250% due 4/1/07 2,587,188
- ---------------------------------------------------------------------------------------------------------
21,970,104
- ---------------------------------------------------------------------------------------------------------
Contract Drilling -- 1.3%
Pride International, Inc., Sr. Notes:
340,000 BB 9.375% due 5/1/07 338,300
3,140,000 BB 10.000% due 6/1/09 3,194,950
3,375,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06+ 3,455,156
3,095,000 BB- RBF Finance Co., Guaranteed Sr. Secured Notes,
11.375% due 3/15/09+ 3,203,325
- ---------------------------------------------------------------------------------------------------------
10,191,731
- ---------------------------------------------------------------------------------------------------------
Discount Stores -- 1.4%
4,220,000 B+ Ames Department Stores, Inc., Sr. Notes,
10.000% due 4/15/06+ 4,135,600
2,930,000 BB+ DR Structured Finance Securitized Lease Trust,
Pass-Through Certificates, Series A-2,
8.375% due 8/15/15 2,876,059
2,900,000 BB+ KMart Corp., Debentures, 12.500% due 3/1/05 3,530,750
- ---------------------------------------------------------------------------------------------------------
10,542,409
- ---------------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.8%
3,825,000 BB- Cia Latino Americana de Infraestructura & Servicos S.A.,
Guaranteed Sr. Notes, 11.625% due 6/1/04+ 2,275,875
4,950,000 B2* Intertek Finance PLC, Guaranteed Sr. Sub. Notes, Series B,
10.250% due 11/1/06 4,832,438
6,675,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes, Series B,
11.000% due 11/1/06 6,541,500
- ---------------------------------------------------------------------------------------------------------
13,649,813
- ---------------------------------------------------------------------------------------------------------
Diversified Financial Services -- 0.4%
Amresco, Inc., Sr. Sub. Notes:
1,850,000 CCC+ Series 1997-A, 10.000% due 3/15/04 1,535,500
1,890,000 CCC+ Series 1998-A, 9.875% due 3/15/05 1,535,625
- ---------------------------------------------------------------------------------------------------------
3,071,125
- ---------------------------------------------------------------------------------------------------------
Diversified Manufacturing -- 0.6%
4,475,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07 4,441,438
- ---------------------------------------------------------------------------------------------------------
Drugs - Generic -- 1.5%
11,250,000 BB ICN Pharmaceuticals Inc., Sr. Notes, Series B,
9.250% due 8/15/05 11,306,250
- ---------------------------------------------------------------------------------------------------------
Electronic Components -- 1.6%
4,051,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 4,385,207
</TABLE>
See Notes to Financial Statements.
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High Income Opportunity Fund Inc. 9
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Electronic Components -- 1.6% (continued)
9,010,000 B- Viasystems, Inc., Sr. Sub. Notes, 9.750% due 6/1/07 $ 7,906,275
- ---------------------------------------------------------------------------------------------------------
12,291,482
- ---------------------------------------------------------------------------------------------------------
Electronic Data Processing -- 3.3%
Unisys Corp., Sr. Notes:
14,550,000 BB- 11.750% due 10/15/04 16,259,625
8,495,000 BB- Series B, 12.000% due 4/15/03 9,280,788
- ---------------------------------------------------------------------------------------------------------
25,540,413
- ---------------------------------------------------------------------------------------------------------
Engineering & Construction -- 1.2%
2,240,000 B- American Plumbing & Mechanical, Inc., Guaranteed
Sr. Sub. Notes, 11.625% due 10/15/08+ 2,161,600
3,830,000 B Group Maintenance America Corp., Sr. Sub. Notes,
9.750% due 1/15/09+ 3,791,700
1,700,000 B+ Integrated Electrical Services, Inc., Guaranteed Sr. Sub.
Notes, 9.375% due 2/1/09+ 1,674,500
1,265,000 B Metromedia Fiber Network, Inc., Sr. Notes, Series B,
10.000% due 11/15/08 1,302,950
- ---------------------------------------------------------------------------------------------------------
8,930,750
- ---------------------------------------------------------------------------------------------------------
Environmental Services -- 0.5%
1,670,000 B+ IT Group, Inc., Sr. Sub. Notes, 11.250% due 4/1/09+ 1,607,375
2,560,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09+ 2,566,400
- ---------------------------------------------------------------------------------------------------------
4,173,775
- ---------------------------------------------------------------------------------------------------------
Food Distributors -- 2.6%
6,615,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08 6,333,862
7,075,000 B Imperial Holly Corp., Guaranteed Sr. Sub. Notes,
9.750% due 12/15/07 7,004,250
2,075,000 B- Purina Mills, Inc., Sr. Sub. Notes, 9.000% due 3/15/10 1,639,250
4,585,000 B SC International Services, Inc., Guaranteed Sr. Sub. Notes,
Series B, 9.250% due 9/1/07 4,688,163
- ---------------------------------------------------------------------------------------------------------
19,665,525
- ---------------------------------------------------------------------------------------------------------
Foods - Specialty/Candy -- 1.0%
4,575,000 B- B&G Foods Inc., Guaranteed Sr. Sub. Notes,
9.625% due 8/1/07 4,300,500
2,985,000 B+ Chiquita Brands International, Inc.,
Sr. Notes, 10.000% due 6/15/09 2,992,462
- ---------------------------------------------------------------------------------------------------------
7,292,962
- ---------------------------------------------------------------------------------------------------------
Forest Products -- 0.7%
4,955,000 B Ainsworth Lumber Co. Ltd., Sr. Secured Notes,
12.500% due 7/15/07 5,524,825
- ---------------------------------------------------------------------------------------------------------
Home Furnishings -- 0.4%
2,130,000 B Falcon Products, Inc., Sr. Sub. Notes, 11.375%
due 6/15/09+ 2,140,650
700,000 B- Simmons Co., Sr. Sub. Notes, 10.250% due 3/15/09+ 714,000
- ---------------------------------------------------------------------------------------------------------
2,854,650
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Homebuilding -- 0.7%
1,660,000 Ba1* D.R. Horton, Inc., Guaranteed Sr. Notes,
8.000% due 2/1/09 $ 1,568,700
4,280,000 BB- US Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09 4,066,000
- ---------------------------------------------------------------------------------------------------------
5,634,700
- ---------------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 1.4%
3,575,000 Ba3* Fresenius Medical Care Capital Trust I, Guaranteed
Trust Preferred Securities, 9.000% due 12/1/06 3,539,250
2,550,000 Ba3* Fresenius Medical Care Capital Trust II, Guaranteed
Trust Preferred Securities, 7.875% due 2/1/08 2,371,500
5,685,000 B- Magellan Health Services, Inc., Sr. Sub. Notes, Series A,
9.000% due 2/15/08 4,860,675
- ---------------------------------------------------------------------------------------------------------
10,771,425
- ---------------------------------------------------------------------------------------------------------
Hotels/Resorts -- 2.3%
5,375,000 B- Courtyard by Marriott II LP/Courtyard Finance Co.,
Sr. Secured Notes, Series B, 10.750% due 2/1/09 5,495,937
HMH Properties, Inc., Guaranteed Sr. Notes:
4,105,000 BB Series B, 7.875% due 8/1/08 3,776,600
5,280,000 BB Series C, 8.450% due 12/1/08 5,016,000
Intrawest Corp., Sr. Notes:
1,815,000 B+ 9.750% due 8/15/08 1,842,225
1,285,000 B+ 9.750% due 8/15/08+ 1,304,275
- ---------------------------------------------------------------------------------------------------------
17,435,037
- ---------------------------------------------------------------------------------------------------------
Insurance - Multi-Line -- 1.0%
5,500,000 BB+ SIG Capital Trust I, Guaranteed Trust Preferred
Securities, 9.500% due 8/15/27 4,125,000
4,175,000 B Veritas Capital Trust, Guaranteed Trust Preferred
Securities, 10.000% due 1/1/28 3,340,000
- ---------------------------------------------------------------------------------------------------------
7,465,000
- ---------------------------------------------------------------------------------------------------------
Internet Services -- 3.1%
PSINet Inc., Sr. Notes:
4,840,000 B- 11.500% due 11/1/08 5,082,000
6,500,000 B- Series B, 10.000% due 2/15/05 6,516,250
5,675,000 NR Splitrock Services, Inc., Guaranteed Sr. Notes, Series B,
11.750% due 7/15/08 5,348,688
3,545,000 B- Verio Inc., Sr. Notes, 11.250% due 12/1/08 3,722,250
4,650,000 CCC+ WAM!Net Inc., Guaranteed Sr. Discount Notes, Series B,
step bond to yield 14.572% due 3/1/05 2,836,500
- ---------------------------------------------------------------------------------------------------------
23,505,688
- ---------------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 1.6%
5,305,000 B Regal Cinemas, Inc., Sr. Sub. Notes, 9.500% due 6/1/08 4,973,438
7,425,000 B- SFX Entertainment, Inc., Guaranteed Sr. Sub. Notes,
Series B, 9.125% due 2/1/08 7,276,500
- ---------------------------------------------------------------------------------------------------------
12,249,938
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund, Inc. 11
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Machinery - Industrial/Components -- 0.5%
3,812,000 B- Alvey Systems, Inc., Sr. Sub. Notes,
11.375% due 1/31/03 $ 3,840,590
- ---------------------------------------------------------------------------------------------------------
Media Conglomerates -- 0.4%
2,100,000GBP B Polestar Corp. PLC, Sr. Notes, Series B,
10.500% due 5/30/08 3,277,112
- ---------------------------------------------------------------------------------------------------------
Medical Specialties -- 0.3%
2,045,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes,
11.250% due 6/15/09+ 2,070,563
- ---------------------------------------------------------------------------------------------------------
Metal/Minerals - Other -- 1.2%
5,050,000 B- Haynes International, Inc., Sr. Notes, 11.625% due 9/1/04 4,772,250
Kaiser Aluminium & Chemical Corp.:
755,000 B1* Sr. Notes, Series D, 10.875% due 10/15/06 788,975
3,350,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03 3,400,250
- ---------------------------------------------------------------------------------------------------------
8,961,475
- ---------------------------------------------------------------------------------------------------------
Miscellaneous -- 0.3%
2,110,000 B- Key Plastics, Inc., Guaranteed Sr. Sub. Notes, Series B,
10.250% due 3/15/07 2,067,800
- ---------------------------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.5%
3,865,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+ 3,739,388
- ---------------------------------------------------------------------------------------------------------
Newspapers -- 0.1%
1,195,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes,
8.625% due 7/1/11+ 1,123,300
- ---------------------------------------------------------------------------------------------------------
Oil & Gas Production -- 3.5%
Belco Oil & Gas Corp.:
1,200,000 B1* Guaranteed Sr. Sub. Notes, Series B, 10.500% due 4/1/06 1,221,000
2,195,000 B1* Sr. Sub. Notes, Series B, 8.875% due 9/15/07 2,129,150
2,375,000 B Canadian Forest Oil Ltd., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07 2,280,000
6,350,000 B+ Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05 5,437,187
510,000 B+ Nuevo Energy Co., Guaranteed Sr. Sub. Notes,
9.500% due 4/15/06 507,450
Ocean Energy Inc.:
3,600,000 BB- Guaranteed Sr. Sub. Debentures, 9.750% due 10/1/06 3,712,500
5,425,000 BB- Guaranteed Sr. Sub. Notes, 10.375% due 10/15/05 5,723,375
2,425,000 B+ Parker Drilling Co., Guaranteed Sr. Notes, Series D,
9.750% due 11/15/06 2,255,250
3,200,000 B2* Stone Energy Corp., Guaranteed Sr. Sub. Notes,
8.750% due 9/15/07 3,104,000
545,000 B+ Vintage Petroleum, Inc., Sr. Sub. Notes,
9.750% due 6/30/09 558,625
- ---------------------------------------------------------------------------------------------------------
26,928,537
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Oil & Gas Transmission -- 0.3%
2,175,000 BB- Leviathan Gas Pipeline Partners, LP/Leviathan Finance
Corp., Sr. Sub. Notes, 10.375% due 6/1/09+ $ 2,240,250
- ---------------------------------------------------------------------------------------------------------
Packaged Goods/Cosmetics -- 0.4%
3,200,000 B- Revlon Consumer Products Corp., Sr. Sub.
Exchange Notes, 8.625% due 2/1/08 2,992,000
- ---------------------------------------------------------------------------------------------------------
Paper -- 3.3%
4,900,000 BB+ Mallette, Inc., Sr. Secured Notes, 12.250% due 7/15/04 5,212,375
4,940,000 CCC+ Repap New Brunswick Inc., Second Priority Mortgage
Notes,10.625% due 4/15/05 3,964,350
Riverwood International Corp.:
4,295,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07 4,402,375
5,085,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08 4,945,163
3,800,000 BB+ Tembec Finance Corp., Guaranteed Sr. Notes,
9.875% due 9/30/05 3,952,000
2,380,000 BB+ Tembec Industries, Inc., Guaranteed Sr. Notes,
8.625% due 6/30/09 2,374,050
- ---------------------------------------------------------------------------------------------------------
24,850,313
- ---------------------------------------------------------------------------------------------------------
Pharmaceuticals -- 0.0%
285,000 B King Pharmaceuticals, Inc., Guaranteed Sr. Sub. Notes,
10.750% due 2/15/09 294,975
- ---------------------------------------------------------------------------------------------------------
Photographic Products -- 0.5%
3,820,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 4,011,000
- ---------------------------------------------------------------------------------------------------------
Printing/Forms -- 0.3%
1,220,000 B Cadmus Communications Corp., Sr. Sub. Notes,
9.750% due 6/1/09+ 1,224,575
1,065,000 BB- World Color Press, Inc., Sr. Sub. Notes,
7.750% due 2/15/09 985,125
- ---------------------------------------------------------------------------------------------------------
2,209,700
- ---------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.9%
4,000,000 NR Ocwen Asset Investment Corp., Redeemable Notes,
11.500% due 7/1/05 3,500,000
3,100,000 Baa3* Trizec Finance Ltd., Guaranteed Sr. Notes,
10.875% due 10/15/05 3,379,000
- ---------------------------------------------------------------------------------------------------------
6,879,000
- ---------------------------------------------------------------------------------------------------------
Recreational Products/Toys -- 0.4%
2,925,000 BB+ International Game Technology, Sr. Notes,
7.875% due 5/15/04+ 2,873,813
- ---------------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 1.1%
3,605,000 BB- Avis Rent A Car, Inc., Sr. Sub. Notes, 11.000% due 5/1/09+ 3,618,519
1,720,000 B NationsRent, Inc., Guaranteed Sr. Sub. Notes,
10.375% due 12/15/08 1,707,100
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund, Inc. 13
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Rental/Leasing Companies -- 1.1% (continued)
3,285,000 BB- United Rentals (North America), Inc., Guaranteed
Sr. Sub. Notes, Series B, 9.250% due 1/15/09 $ 3,268,575
- ---------------------------------------------------------------------------------------------------------
8,594,194
- ---------------------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.1%
475,000 CCC+ Pathmark Stores, Inc., Sub. Notes, 12.625% due 6/15/02 487,469
- ---------------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.7%
5,600,000 B- Advance Stores Co., Inc., Guaranteed Sr. Sub. Notes,
Series B, 10.250% due 4/15/08 5,390,000
- ---------------------------------------------------------------------------------------------------------
Retail - Restaurants -- 0.6%
4,625,000 B Advantica Restaurant Group, Inc., Sr. Notes,
11.250% due 1/15/08 4,428,437
- ---------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 1.0%
5,500,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27 4,317,500
3,400,000 BB- Ocwen Financial Corp., Notes, 11.875% due 10/1/03 3,281,000
- ---------------------------------------------------------------------------------------------------------
7,598,500
- ---------------------------------------------------------------------------------------------------------
Semiconductors -- 0.8%
6,510,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07 6,412,350
- ---------------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.3%
1,735,000 Ba3* National Steel Corp., First Mortgage Bonds,
Series D, 9.875% due 3/1/09 1,765,363
3,495,000 B+ Russel Metals Inc., 10.000% due 6/1/09 (b) 3,512,475
1,795,000 B+ WCI Steel, Inc., Sr. Secured Notes, Series B,
10.000% due 12/1/04 1,830,900
3,270,000 B WHX Corp., Sr. Exchange Notes, 10.500% due 4/15/05 3,106,500
- ---------------------------------------------------------------------------------------------------------
10,215,238
- ---------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 12.7%
COLT Telecommunications Group PLC, Sr. Notes:
1,390,000DEM NR 8.875% due 11/30/07 740,219
400,000GBP B1* 10.125% due 11/30/07 643,127
E.Spire Communications, Inc.:
13,610,000 NR Sr. Discount Notes, step bond to yield
18.197% due 7/1/08 5,035,700
700,000 NR Sr. Notes, 13.750% due 7/15/07 623,000
Esprit Telecom Group PLC, Sr. Notes:
3,900,000 B- 11.500% due 12/15/07 4,124,250
4,000,000DEM B- 11.500% due 12/15/07 2,283,033
2,250,000 B- 10.875% due 6/15/08 2,306,250
6,575,000 NR FaciliCom International, Inc., Sr. Notes, Series B,
10.500% due 1/15/08 5,095,625
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Telecommunications - Other -- 12.7% (continued)
Hermes Europe Railtel B.V., Sr. Notes:
6,250,000 B 11.500% due 8/15/07 $ 6,562,500
2,050,000 B 10.375% due 1/15/09 2,080,750
680,000 BB- IMPSAT Corp., Guaranteed Sr. Notes, 12.125% due 7/15/03 622,200
Intermedia Communications Inc.:
Sr. Discount Notes:
1,870,000 B Series B, step bond to yield 11.111% due 7/15/07 1,337,050
295,000 B Step bond to yield 11.356% due 5/15/06 244,113
Sr. Notes, Series B:
855,000 B 8.500% due 1/15/08 784,463
2,870,000 B 9.500% due 3/1/09 2,783,900
1,535,000 B3* IXC Communications Inc., Sr. Sub. Notes,
9.000% due 4/15/08 1,465,925
4,390,000 B- KMC Telecom Holdings, Inc., Sr. Notes,
13.500% due 5/15/09+ 4,395,488
6,870,000 B Level 3 Communications, Inc., Sr. Discount Notes,
step bond to yield 10.772% due 12/1/08 4,242,225
MetroNet Communications Corp.:
4,650,000 B Sr. Discount Notes, step bond to yield
9.103% due 6/15/08 3,464,250
Sr. Notes:
9,000,000 B 12.000% due 8/15/07 10,372,500
3,030,000 B 10.625% due 11/1/08+ 3,408,750
1,785,000 B- Microcell Telecommunications Inc., Sr. Discount Notes,
step bond to yield 11.786% due 6/1/09+ 1,012,988
NEXTLINK Communications, Inc.:
7,000,000 B Sr. Discount Notes, step bond to yield 11.532% due 6/1/09 4,095,000
4,370,000 B Sr. Notes, 10.750% due 6/1/09 4,490,175
4,655,000 B NEXTLINK Communications, LLC/NEXTLINK Capital Inc.,
Sr. Notes, 12.500% due 4/15/06 5,120,500
4,260,000 BB- Orange PLC, Sr. Notes, 9.000% due 6/1/09+ 4,270,650
6,055,000 B- Primus Telecommunications Group, Inc.,
Sr. Notes, 11.750% due 8/1/04 6,145,825
945,000 B3* RCN Corp., Sr. Notes, 10.000% due 10/15/07 954,450
Tele1 Europe B.V., Units:
1,705,000 B- 13.000% due 5/15/09+(b) 1,777,463
1,675,000ECU B- 13.000% due 5/15/09+(b) 1,796,525
625,000 NR VersaTel Telecom International N.V., Sr. Notes,
13.250% due 5/15/08 650,000
3,625,000 Caa1* Viatel, Inc., Sr. Notes, 11.250% due 4/15/08 3,652,188
- ---------------------------------------------------------------------------------------------------------
96,581,082
- ---------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 6.0%
3,460,000 CCC+ Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08+ 3,581,100
5,079,000 B Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 12.439% due 12/15/05 4,621,890
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund, Inc. 15
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Telephone - Cellular -- 6.0% (continued)
Crown Castle International Corp.:
2,040,000 B Sr. Discount Notes, step bond to yield
10.662% due 5/15/11 $ 1,193,400
1,175,000 B Sr. Notes, 9.000% due 5/15/11 1,154,437
Dolphin Telecom PLC, Sr. Discount Notes:
8,675,000 CCC+ Step bond to yield 14.653% due 6/1/08 4,337,500
7,250,000ECU CCC+ Step bond to yield 14.748% due 6/1/08 3,663,693
8,870,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 13.953% due 6/1/06 6,563,800
Nextel Communications, Inc.:
3,925,000 B2* Sr. Redeemable Discount Notes, step bond to yield
10.091% due 9/15/07 2,875,063
5,170,000 B2* Sr. Serial Redeemable Discount Notes, step bond to yield
9.941% due 2/15/08 3,580,225
4,155,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.389% due 4/15/09+ 2,368,350
1,730,000 B3* Telecorp PCS Inc., Sr. Discount Notes,
step bond to yield 11.840% due 4/15/09+ 968,800
Telesystem International Wireless Inc.,
Sr. Discount Notes:
10,495,000 CCC+ Series B, step bond to yield 16.558% due 6/30/07 5,562,350
6,250,000 CCC+ Series C, step bond to yield 16.414% due 11/1/07 2,812,500
3,600,000 B3* Triton PCS, Inc., Guaranteed Sr. Sub. Discount Notes,
step bond to yield 11.095% due 5/1/08 2,331,000
- ---------------------------------------------------------------------------------------------------------
45,614,108
- ---------------------------------------------------------------------------------------------------------
Textiles -- 0.4%
7,050,000DEM B Texon International PLC, Sr. Notes, 10.000% due 2/1/08 3,326,874
- ---------------------------------------------------------------------------------------------------------
Transportation - Marine -- 0.5%
2,125,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 2,050,625
15,000 BB- Sea Containers Ltd., Sr. Sub. Debentures, Series A,
12.500% due 12/1/04 16,181
2,410,000 B1* Stena Line AB, Sr. Notes, 10.625% due 6/1/08 1,807,500
- ---------------------------------------------------------------------------------------------------------
3,874,306
- ---------------------------------------------------------------------------------------------------------
Unregulated Power Generation -- 3.3%
AES Corp.:
7,960,000 Ba1* Sr. Notes, 9.500% due 6/1/09 8,198,800
1,410,000 Ba3* Sr. Sub. Exchange Notes, 8.500% due 11/1/07 1,321,875
5,370,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06 5,504,250
2,620,000 BB Caithness Coso Funding Corp., Sr. Secured Notes,
9.050% due 12/15/09+ 2,574,150
Calpine Corp., Sr. Notes:
5,375,000 BB 10.500% due 5/15/06 5,805,000
1,550,000 BB 8.750% due 7/15/07 1,561,625
- ---------------------------------------------------------------------------------------------------------
24,965,700
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
=========================================================================================================
<S> <C> <C> <C> <C>
Wholesale Distributors -- 0.2%
1,620,000 B- Fisher Scientific International Inc., Sr. Sub. Notes,
9.000% due 2/1/08 $ 1,539,000
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $757,468,173) 734,480,419
=========================================================================================================
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================================
<S> <C> <C>
COMMON STOCK -- 0.1%
Telecommunications - Other -- 0.0%
20,125 Pagemart Nationwide Inc.+ 80,500
- ---------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.1%
15,523 Nextel Communications, Inc. 779,061
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $502,480) 859,561
=========================================================================================================
PREFERRED STOCK -- 1.5%
Broadcasting -- 0.6%
37,209 Capstar Broadcasting Partners, Inc.
12.625% Cumulative Exchangeable, Series E 4,465,080
- ---------------------------------------------------------------------------------------------------------
Electronic Components -- 0.1%
67,570 Viasystems Inc., Payment-in-kind, Series B 895,299
- ---------------------------------------------------------------------------------------------------------
Paper -- 0.0%
5,000 S.D. Warren Co., 14.000% Cumulative, Series B 260,000
- ---------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.4%
20,100 California Federal Preferred Capital Corp.,
9.125% Noncumulative Exchangeable, Series A 2,835,000
- ---------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.4%
37,209 Dobson Communications Corp.,
13.000% Exchangeable+ 2,525,000
- ---------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost-- $11,131,122) 10,980,379
- ---------------------------------------------------------------------------------------------------------
WARRANTS# -- 0.9%
Broadcasting -- 0.0%
14,825 UIH Australia/Pacific, Inc., Expire 5/15/06 29,650
- ---------------------------------------------------------------------------------------------------------
Cable -- 0.0%
5,700 Wireless One Inc., Expire 10/19/00 1,425
- ---------------------------------------------------------------------------------------------------------
Internet Services -- 0.1%
6,975 Splitrock Services, Inc., Expire 7/15/08 488,250
13,950 WAM!Net Inc., Expire 3/1/05+ 317,362
- ---------------------------------------------------------------------------------------------------------
805,612
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund, Inc. 17
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1999
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=========================================================================================================
<S> <C> <C>
Paper -- 0.0%
8,175 SDW Holdings Corp., Expire 12/15/06+ $ 143,880
- ---------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 0.7%
7,800 Allegiance Telecom, Inc., Expire 2/3/08 319,800
8,000 COLT Telecommunications Group PLC, Expire 12/31/06+ 4,640,000
43,470 Pagemart, Inc., Expire 12/31/03 86,940
6,975 RSL Communications, Ltd., Expire 11/15/06 272,025
625 VersaTel Telecom International N.V., Expire 5/15/08+ 31,250
- ---------------------------------------------------------------------------------------------------------
5,350,015
- ---------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.1%
7,500 Globalstar Telecommunications Ltd., Expire 2/15/04+ 412,500
6,725 Iridium World Communications Ltd., Expire 7/15/05+ 673
- ---------------------------------------------------------------------------------------------------------
413,173
- ---------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $2,004,209) 6,743,755
=========================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
=========================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.2%
$9,406,000 Morgan Stanley Dean Witter & Co., 4.800% due 7/1/99;
Proceeds at maturity-- $9,407,254; (Fully
collateralized by U.S. Treasury Notes, Bonds and Bills,
0.000% to 7.750% due 10/14/99 to 11/15/27;
Market value-- $9,667,366) (Cost-- $9,406,000) 9,406,000
=========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $780,511,984**) $762,470,114
=========================================================================================================
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except that those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Security has been issued with attached warrants.
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
# Non-income producing securities.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 19 for definition of ratings.
Currency abbreviations used in this schedule:
DEM -- German Mark
ECU -- European Currency Unit
GBP -- British Pound
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Bond Ratings (unaudited)
================================================================================
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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", "B" and "CCC" are regarded, on balance, as
and CCC 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.
Moody's Investors Service, Inc. ("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 in fact have speculative characteristics
as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be con sidered 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 rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
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 there may be present elements of danger
with respect to principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 19
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1999
================================================================================
ASSETS:
Investments, at value (Cost-- $780,511,984) $ 762,470,114
Cash 18
Interest and dividends receivable 16,702,578
Receivable for securities sold 3,380,407
Receivable for open forward foreign currency contracts 447,172
- --------------------------------------------------------------------------------
Total Assets 783,000,289
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 1,658,446
Payable for securities purchased 1,025,000
Management fees payable 815,423
Payable for open forward foreign currency contracts 13,883
Accrued expenses 165,654
- --------------------------------------------------------------------------------
Total Liabilities 3,678,406
- --------------------------------------------------------------------------------
Total Net Assets $ 779,321,883
================================================================================
NET ASSETS:
Par value of capital shares $ 72,230
Capital paid in excess of par value 899,768,919
Overdistributed net investment income (2,304,072)
Accumulated net realized loss from security
transactions (100,588,065)
Net unrealized depreciation of investments and
foreign currencies (17,627,129)
- --------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.79 a share on 72,230,352 shares of
$0.001 par value outstanding; 500,000,000 shares authorized) $ 779,321,883
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Nine Months Ended June 30, 1999
INVESTMENT INCOME:
Interest $ 62,266,936
Dividends 590,380
- --------------------------------------------------------------------------------
Total Investment Income 62,857,316
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 6,921,600
Shareholder communications 179,506
Custody 40,390
Shareholder and system servicing fees 28,422
Audit and legal 21,840
Directors' fees 8,228
Other 44,878
- --------------------------------------------------------------------------------
Total Expenses 7,244,864
- --------------------------------------------------------------------------------
Net Investment Income 55,612,452
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 8):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (43,476,577)
Foreign currency transactions 585,294
- --------------------------------------------------------------------------------
Net Realized Loss (42,891,283)
- --------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments
and Foreign Currencies:
Beginning of period (28,844,872)
End of period (17,627,129)
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 11,217,743
- --------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies (31,673,540)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 23,938,912
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 21
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Nine Months Ended June 30, 1999 (unaudited)
and the Year Ended September 30, 1998
<TABLE>
<CAPTION>
1999 1998
======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 55,612,452 $ 77,058,960
Net realized gain (loss) (42,891,283) 4,505,920
(Increase) decrease in net unrealized depreciation 11,217,743 (85,807,339)
- --------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 23,938,912 (4,242,459)
- --------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (56,537,342) (81,031,027)
- --------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (56,537,342) (81,031,027)
- --------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net asset value of shares issued
for reinvestment of dividends 2,293,455 12,211,727
- --------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 2,293,455 12,211,727
- --------------------------------------------------------------------------------------
Decrease in Net Assets (30,304,975) (73,061,759)
NET ASSETS:
Beginning of period 809,626,858 882,688,617
- --------------------------------------------------------------------------------------
End of period* $ 779,321,883 $ 809,626,858
======================================================================================
* Includes overdistributed net investment income of: $ (2,304,072) $ (1,966,392)
======================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 1999 Quarterly Report to Shareholders
<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 dis count or minus
amortized premium, which approximates value; (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 dividend income is
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, 1998, 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
overdistributed net investment income amounting to $695,344 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
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 23
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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.
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market daily
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Management Agreement and Other Transactions
SSBC Fund Management Inc. ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), acts as investment manager of the Fund. The Fund pays
SSBC a management fee calculated at an annual rate of 1.15% of the Fund's
average daily net assets. This fee is calculated daily and paid monthly.
All officers and one director of the Fund are employees of Salomon Smith Barney
Inc., another subsidiary of SSBH.
3. Investments
During the nine months ended June 30, 1999, the aggregate cost of pur chases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $492,909,125
- --------------------------------------------------------------------------------
Sales 512,378,330
================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and de pre ci
ation of investments for Federal income tax purposes were substantially as
follows:
================================================================================
Gross unrealized appreciation $ 16,742,182
Gross unrealized depreciation (34,784,052)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(18,041,870)
================================================================================
4. Capital Loss Carryforward
At September 30, 1998, the Fund had, for Federal tax purposes, approximately
$54,135,000 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
- --------------------------------------------------------------------------------
24 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
amounts and expiration of carryforwards are indicated below. Expiration occurs
on September 30 in the year indicated:
2003 2004
================================================================================
Carryforward Amounts $16,017,000 $38,118,000
================================================================================
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).
At June 30, 1999, the Fund did not have any open futures contracts.
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 realize 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.
At June 30, 1999, the Fund did not have any open purchased call or put option
contracts.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 25
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
When the 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 depending upon whether
the cost of the closing transaction is greater or less than the premium
received, 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 nine months ended June 30, 1999, 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.
- --------------------------------------------------------------------------------
26 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
8. Forward Foreign Currency Contracts
At June 30, 1999, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts is
re flected as follows:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Buy:
European Currency Unit 684,308 $ 711,531 9/15/99 $ (13,883)
- --------------------------------------------------------------------------------
To Sell:
British Pound 5,744,063 9,069,478 9/22/99 209,347
European Currency Unit 14,406,701 14,979,830 9/15/99 237,825
- --------------------------------------------------------------------------------
447,172
- --------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Foreign Currency Contracts $ 433,289
================================================================================
9. Capital Shares
Capital stock transactions were as follows:
Nine Months Ended Year Ended
June 30, 1999 September 30, 1998
-------------------- --------------------
Shares Amount Shares Amount
================================================================================
Shares issued on
dividend reinvestment 213,742 $2,293,455 995,988 $12,211,727
================================================================================
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 27
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year ended September
30, except where noted:
<TABLE>
<CAPTION>
1999(1) 1998 1997 1996 1995 1994(2)(3)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.24 $12.43 $11.72 $11.48 $11.20 $12.50
- ---------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income(4) 0.77 1.08 1.15 1.14 1.14 1.01
Net realized and unrealized
gain (loss) (0.44) (1.14) 0.68 0.22 0.28 (1.30)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.33 (0.06) 1.83 1.36 1.42 (0.29)
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.78) (1.13) (1.12) (1.12) (1.12) (1.01)
Capital -- -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.78) (1.13) (1.12) (1.12) (1.14) (1.01)
- ---------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.79 $11.24 $12.43 $11.72 $11.48 $11.20
- ---------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(5) 2.17%++ (1.65)% 18.18% 21.07% 9.90% (7.33)%++
- ---------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(5) 3.30%++ (0.58)% 16.48% 12.86% 13.99% (2.31)%++
- ---------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $ 779 $ 810 $ 883 $ 819 $ 802 $ 783
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.20%+ 1.18% 1.21% 1.21% 1.20% 1.15%+
Net investment income 9.24+ 8.81 9.63 9.85 10.02 9.09+
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 98% 87% 73% 59% 69%
- ---------------------------------------------------------------------------------------------------
Market Value,
End of Period $10.563 $11.125 $12.438 $11.500 $10.500 $10.625
===================================================================================================
</TABLE>
(1) For the nine months ended June 30, 1999 (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.
(4) 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).
(5) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
28 1999 Quarterly Report to Shareholders
<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
================================================================================
1997
October 22 $11.38 $11.65 0.0930 11.375
November 25 11.25 11.77 0.0930 11.375
December 23 11.38 11.84 0.0930 11.490
January 28 11.75 11.94 0.0930 11.872
February 25 11.75 12.09 0.0930 11.895
March 24 11.75 11.81 0.0930 11.710
April 22 11.75 11.67 0.0930 11.670
May 27 11.88 11.92 0.0930 11.920
June 24 12.06 12.13 0.0930 12.120
July 22 12.31 12.17 0.0930 12.170
August 26 12.25 12.24 0.0930 12.240
September 23 12.38 12.38 0.0930 12.380
1998
October 28 11.69 12.30 0.0930 12.200
November 24 12.31 12.23 0.0930 12.230
December 22 12.44 12.26 0.0930 12.260
December 31 12.50 12.24 0.0375 12.240
January 27 12.63 12.24 0.0930 12.240
February 24 12.69 12.30 0.0930 12.300
March 24 11.88 12.29 0.0930 11.990
April 21 11.94 12.32 0.0890 11.880
May 26 11.50 12.25 0.0890 11.930
June 23 11.81 12.16 0.0890 11.900
July 28 11.56 12.21 0.0890 11.790
August 25 11.69 11.82 0.0890 10.810
September 22 10.69 11.16 0.0890 10.850
1999
October 27 11.06 10.73 0.0890 10.730
November 23 11.19 11.29 0.0890 11.150
December 21 10.44 11.18 0.0890 10.610
January 26 10.38 11.30 0.0860 10.390
February 23 10.50 11.16 0.0860 10.560
March 23 10.69 11.15 0.0860 10.570
April 27 10.50 11.27 0.0860 10.720
May 25 10.38 10.97 0.0860 10.530
June 22 10.44 10.80 0.0860 10.450
================================================================================
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 29
<PAGE>
================================================================================
Financial Data (unaudited)
================================================================================
On February 24, 1999, the annual meeting of shareholders of the Fund was held
for the purpose of voting on the following matters:
1. To vote on the election of Lee Abraham, Allan J. Bloostein, Jane F. Dasher
and Richard E. Hanson, Jr. as Directors; and
2. To approve or disapprove the selection of KPMG LLP as the independent
auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Percentage Shares Percentage
Voted of Shares Voted of Shares
Name of Directors* For Voted Against Voted
=========================================================================================
<S> <C> <C> <C> <C>
Lee Abraham 68,089,341.957 98.478% 1,052,642.835 1.522%
Allan J. Bloostein 68,143,476.809 98.556 998,507.983 1.444
Jane F. Dasher 68,155,384.809 98.573 986,599.983 1.427
Richard E. Hanson, Jr. 68,122,137.957 98.525 1,019,846.835 1.475
=========================================================================================
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
Shares Percentage Shares Percentage Percentage
Voted of Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
==========================================================================================
<S> <C> <C> <C> <C> <C>
68,174,360,680 98.601% 367,437.497 0.531% 600,186.615 0.868%
==========================================================================================
</TABLE>
* The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Donald R. Foley, Paul Hardin,
Heath B. McLendon, Roderick C. Rasmussen and John P. Toolan.
- --------------------------------------------------------------------------------
30 1999 Quarterly Report to Shareholders
<PAGE>
================================================================================
Dividend Reinvestment Plan (unaudited)
================================================================================
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose shares
of Common Stock are registered in his own name will have all distributions from
the Fund reinvested automatically by First Data Investor Services Group, Inc.
("First Data") as purchasing agent under the Plan, unless the shareholder elects
to receive cash. Distributions with respect to shares registered in the name of
a broker-dealer or other nominee (that is, in "street name") will be reinvested
by the broker or nominee in additional shares under the Plan, unless the service
is not provided by the broker or nominee or the shareholder elects to receive
distributions in cash. Investors who own common stock registered in street name
should consult their broker-dealers for details regarding reinvestment. All
distributions to share holders who do not participate in the Plan will be paid
by check mailed directly to the record holder by or under the direction of First
Data as dividend paying agent.
The number of shares of common stock distributed to participants in the Plan in
lieu of a cash dividend is determined in the following manner. When the market
price of the common stock is equal to or exceeds the net asset value ("NAV") per
share of the common stock on the determination date (generally, the record date
for the distribution), the Plan participants will be issued shares of common
stock by the Fund at a price equal to the greater of NAV determined as described
below or 95% of the market price of the common stock.
If the market price of the common stock is less than the NAV of the common stock
at the time of valuation (which is the close of business on the determination
date), or if the Fund declares a dividend or capital gains distribution payable
only in cash, First Data will buy common stock in the open market, on the stock
exchange or elsewhere, for the participants' accounts. If following the
commencement of the purchases and before First Data has completed its purchases,
the market price exceeds the NAV of the common stock as of the valuation time,
First Data will attempt to terminate purchases in the open market and cause the
Fund to issue the remaining portion of the dividend or distribution in shares at
a price equal to the greater of (a) NAV as of the valuation time or (b) 95% of
the then current market price. In this case, the number of shares received by a
Plan participant will be based on the weighted average of prices paid for shares
purchased in the open market and the price at which the Fund issues the
remaining shares. To the extent First Data is unable to stop open market
purchases and cause the Fund to issue the remaining shares, the average per
share purchase price paid by First Data may exceed the NAV of the common stock
as of the valuation time, resulting in the acquisition of fewer shares than if
the dividend or capital gains distribution had
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 31
<PAGE>
================================================================================
Dividend Reinvestment Plan (unaudited) (continued)
================================================================================
been paid in common stock issued by the Fund at such net asset value. First Data
will begin to purchase common stock on the open market as soon as practicable
after the determination date for the dividend or capital gains distribution, but
in no event shall such purchases continue later than 30 days after the payment
date for such dividend or distribution, or the record date for a succeeding
dividend or distribution, except when necessary to comply with applicable
provisions of the federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes written
confirmation of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of each Plan participant.
Plan participants are subject to no charge for reinvesting dividends and capital
gains distributions under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable. The
Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data Investor Services Group, Inc.,
P.O. Box 8030, Boston, Massachusetts 02266-8030 or by telephone at
1-800-451-2010.
================================================================================
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.
- --------------------------------------------------------------------------------
32 1999 Quarterly Report to Shareholders
