HIGH INCOME
---------------------
Opportunity Fund Inc.
[GRAPHIC]
Quarterly Report
December 31, 1999
<PAGE>
[PHOTO] [PHOTO]
HEATH B. JOHN C.
MCLENDON BIANCHI, CFA
Chairman Vice President
High Income
Opportunity
Fund Inc.
Dear Shareholder:
We are pleased to provide the quarterly report for the High Income Opportunity
Fund Inc. ("Fund") for the three months ended December 31, 1999. Any discussion
of the Fund's holdings is as of December 31, 1999. Please refer to pages 6
through 18 for the Fund's holdings. Over the past three months, the Fund paid
income dividends totaling $0.25 per share. The table below details the
annualized distribution rate and the three-month total return for the Fund based
on its December 31, 1999 net asset value ("NAV") per share and the New York
Stock Exchange ("NYSE") closing price.(1)
Price Annualized Three-Month
Per Share Distribution Rate(2) Total Return
------------ -------------------- -------------
$10.49 (NAV) 9.61% 3.31%
$8.50 (NYSE) 11.86% (4.14)%
The Fund generated a return based on NAV of 3.31% for the past three months.
These results were better than the three-month average total return of 2.83% for
non-leveraged, closed-end, high yield bond funds as reported by Lipper, Inc., an
independent mutual fund performance tracking organization. Of course past
performance is not an indication of future results.
- ----------
(1) The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund, plus all other assets. This
result (total net assets) is divided by the total number of shares
outstanding. The NAV fluctuates with the changes in the market price of
the securities in which the Fund had invested. However, the price at which
the investor buys or sells shares of the Fund is its market (NYSE) price
as determined by supply and demand.
(2) Total returns are based on changes in NAV or the market value and assume
the reinvestment of all dividends and/or capital gains distributions in
additional shares. The annualized distribution rate is the Fund's current
monthly income dividend rate, annualized, and then divided by the NAV or
the market value noted in the report. This annualized distribution rate
assumes a current monthly income dividend rate of $0.084 for twelve
months. This rate is as of January 31, 2000 and is subject to change. The
important difference between a total return and an annualized distribution
rate is that the total return takes into consideration a number of factors
including the fluctuation of the NAV or the market value during the period
reported. The NAV fluctuation includes the effects of unrealized
appreciation or depreciation in the Fund. Accordingly, since an annualized
distribution rate only reflects the current monthly income dividend rate
annualized, it should not be used as the sole indicator to judge the
return you receive from your fund investment. Past performance is not
indicative of future results.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 1
<PAGE>
The weakness in the price of bonds and closed-end bond funds over the past year
is of particular concern to shareholders and management alike of the High Income
Opportunity Fund. Even as the Fund continued to provide investors with a
consistent monthly income, the market price suffered considerably. This
resulted, in our opinion, from a combination of several factors. During this
period, the prices of bonds moved lower as interest rates rose amid concern over
potential Federal Reserve Board ("Fed") action to slow the nation's surprisingly
robust economic growth. In addition, the excitement surrounding the returns
being generated in some sectors of the stock market drew investor interest and
money away from bonds. Finally, heavy tax-loss selling that began in the second
half of the year and accelerated in the final months of 1999 led to a
significant decline in the market price of the Fund.
The Fund's Board of Directors, concerned about this price weakness and its
impact on investors, is taking concrete steps to improve the stock price. On
Tuesday, October 19, 1999, the Board of Directors approved a plan to repurchase
the Fund's common stock shares. These shares are purchased on the New York Stock
Exchange at market prices and then retired. Over time, a share repurchase
program will reduce the number of shares outstanding and may increase both the
stock price and the net asset value per share of the Fund by increasing the
demand for the Fund's shares. As of December 31, 1999, the Fund had repurchased
1,049,900 shares totaling $9,148,055 at an average price of $8.71 per share. By
January 31, 2000, the Fund had repurchased 2,346,200 shares totaling $20,793,000
at an average price of $8.84. At the same time, as you will read later on in
this letter, we continue to seek to provide investors with a strong and
consistent income stream earned from portfolio operations.
We were encouraged by the Fund's results over the past three months because our
relatively more conservative credit strategy enabled us to perform well relative
to our benchmark despite difficult market conditions. We believe our general
cautiousness was warranted because of the increasing volatility in the financial
markets during this period. And while no guarantees can be given, we believe
that the high yield bond market may be competitively valued at current levels
and that we are in a good position to take advantage of any economic or market
dislocations that may occur in the coming months.
Market and Economic Overview
During the fourth quarter of 1999, the U.S. bond market continued to suffer as a
result of investor concerns over strong economic growth, potentially higher
inflation and a more restrictive Fed monetary policy. In fact, in 1999 the Fed
raised short-term interest rates three times for a total of 75 basis points
(0.75%) in an effort to help control economic growth and contain inflation.(3)
- ----------
(3) On Wednesday, February 2, 2000 after this letter was written, the Fed
raised interest rates 0.25% to 5.75%.
- --------------------------------------------------------------------------------
2 1999 Quarterly Report to Shareholders
<PAGE>
During the period, the high yield bond market posted total returns in the 1.50%
to 2.25% range. Also, the high yield bond market reacted positively to buoyant
economic conditions and strong stock market performance. Given the strength in
the U.S. and global economies, we would not be surprised if the Fed increased
short-term interest rates a little more in early 2000. However, we believe that
the worst of the bond market decline may be behind us and, although no
assurances can be made, we would expect better performance from the bond market
sometime in 2000.
1999 turned out to be one of the worst years in bond market history in terms of
performance. With the dramatic increase in overall interest rates, the high
yield bond market was able to generate only modestly positive total returns as
the high current yields offered offset price declines.
Portfolio Strategy
During 1999, we continued to add to our basic industry positions on the
assumption that stronger economic growth would benefit a number of the
industrial segments of the economy. We also maintained healthy weightings in the
fast-growing telecommunications, cable and media sectors. The
strongest-performing industry sectors in the high yield market during 1999 were
in basic materials such as forest products, metals, mining, etc., chemicals as
well as cable and media, and telecommunications. The worst-performing sectors
included restaurants, health care, textile and apparel. Some of the Fund's
better-performing investments included:
o Tembec, a paper and forest products company
o Nextel, a fast-growing wireless communications company
o NEXTLINK, a fast-growing telecommunications company
o PSINet, a major Internet telecommunications company
Our portfolio repositioning over the first half of the year benefited our
performance in the second half of 1999. Moreover, our continued emphasis on
better-quality issues and our increased emphasis on basic industry issues
contributed to our relative outperformance versus our peer group.
As we have mentioned in prior reports, during the first half of 1999, the
higher-quality issues actually did not perform as well as lower-quality issues
by a meaningful margin because of their higher sensitivity to rising U.S.
Treasury rates. Given our relatively higher-quality orientation versus our peer
group, our return performance was negatively impacted in the first half of 1999.
We especially lagged our high yield peer group since a number of our high yield
fund competitors emphasized a combination of lower-quality issues, emerging
market debt as well as common and preferred stock. During the second half of
1999, we
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 3
<PAGE>
witnessed a sharp reversal of these trends. Lower-quality issues dramatically
underperformed in the second half of 1999 due to rising default rates.
We do not attribute rising defaults in the high yield bond market to a
deteriorating economy. We believe instead that rising defaults may be a natural
fallout from the massive amount of new issuance in the past three years when a
great deal of merger and acquisition activity took place. A number of defaults
are occurring among the less viable companies that are simply not competitive in
today's more challenging economic environment. Given our quality orientation, we
did not have any defaults in the Fund in 1999. We have and will continue to
maintain style purity in our funds with a meaningful emphasis on better-quality
issues. We believe this is not the time to get reckless with respect to credit
risk.
We have also pruned underperforming companies and selectively raised our
exposure to improving credits during the period. We plan on selectively adding
attractively priced credits in an effort to add more balance. 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. We believe that in
a period of rising rates, a yield-oriented strategy may be prudent.
Conclusion
We expect a continuation of solid economic growth with only a modest upward bias
to inflation. We think both the stock market as well as the high yield bond
market should do better than U.S. Treasuries. In addition, we will continue to
focus closely on some of the stronger companies in select commodity sectors such
as paper, energy and steel where conditions appear to be improving.
Longer term, we remain positive on the high yield market and, while no
guarantees can be given, we expect relatively stronger total return performance
over the next six to twelve months. Should you have any questions about your
investment in the High Income Opportunity Fund Inc., please call PFPC Global
Fund Services at (800) 331-1710.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President
January 15, 2000
- --------------------------------------------------------------------------------
4 1999 Quarterly Report to Shareholders
<PAGE>
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, PFPC Global Fund Services
("Plan Agent"), formerly known as First Data Investor Services Group, Inc., 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.
A more complete description of the current Plan appears in the section of this
report beginning on page 30. To find out more detailed information about the
Plan and about how you can participate, please call PFPC Global Fund Services at
(800) 331-1710.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 95.6%
Aerospace -- 0.3%
2,005,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09+ $ 2,065,150
- --------------------------------------------------------------------------------------------------------------------------------
Airlines -- 1.2%
10,080,000 BB Airplanes Pass-Through Trust, Collateralized Mortgage
Obligation, Series 1, Class D, 10.875% due 3/15/19 8,725,349
- --------------------------------------------------------------------------------------------------------------------------------
Aluminium -- 1.5%
Kaiser Aluminium Chemical Corp.:
850,000 B1* Series B, Sr. Notes, 10.875% due 10/15/06 858,500
755,000 B1* Series D, Sr. Notes, 10.875% due 10/15/06 765,381
9,175,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03 9,197,938
- --------------------------------------------------------------------------------------------------------------------------------
10,821,819
- --------------------------------------------------------------------------------------------------------------------------------
Apparel -- 0.1%
930,000 B- Tropical Sportswear International Corp., Series A,
Company Guaranteed, 11.000% due 6/15/08 895,125
- --------------------------------------------------------------------------------------------------------------------------------
Auto Parts: O.E.M.-- 1.3%
4,390,000 B Collins & Aikman Products Co., Company Guaranteed,
11.500% due 4/15/06 4,346,100
1,355,000 B Dura Operating Corp., Series B, Company Guaranteed,
9.000% due 5/1/09 1,277,088
Hayes Lemmerz International Inc., Company Guaranteed:
1,160,000 B 11.000% due 7/15/06 1,220,900
1,195,000 B 8.250% due 12/15/08 1,099,400
1,735,000 B+ Tenneco Automotive Inc., Sr. Sub. Notes,
11.625% due 10/15/09+ 1,776,206
- --------------------------------------------------------------------------------------------------------------------------------
9,719,694
- --------------------------------------------------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.3%
2,615,000 B1* Exide Corp., Sr. Notes, 10.000% due 4/15/05 2,523,475
- --------------------------------------------------------------------------------------------------------------------------------
Broadcasting -- 0.7%
3,955,700 NR AMFM Operating, Inc., Debentures,
12.625% due 10/31/06 4,549,055
890,000 B Capstar Broadcasting Partners, Inc., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09 787,650
- --------------------------------------------------------------------------------------------------------------------------------
5,336,705
- --------------------------------------------------------------------------------------------------------------------------------
Building Products -- 1.8%
1,945,000 B Amatek Industries Property Ltd., Sr. Sub. Notes,
12.000% due 2/15/08 1,867,200
2,020,000 B Atrium Companies Inc., Series B, Company Guaranteed,
10.500% due 5/1/09 1,979,600
1,600,000 B NCI Building Systems, Inc., Series B, Sr. Sub. Notes,
9.250% due 5/1/09 1,520,000
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Building Products -- 1.8% (continued)
Nortek, Inc., Series B, Sr. Notes:
3,420,000 B+ 9.250% due 3/15/07 $ 3,351,600
4,265,000 B+ 9.125% due 9/1/07 4,137,050
- --------------------------------------------------------------------------------------------------------------------------------
12,855,450
- --------------------------------------------------------------------------------------------------------------------------------
Cable Television -- 11.7%
Adelphia Communications Corp., Sr. Notes:
1,790,000 BB- 8.375% due 11/15/17 1,611,000
5,520,000 B+ Series B, 9.875% due 3/1/07 5,602,800
Century Communications Corp.:
7,765,000 BB- Series B, Sr. Discount Notes, step bond to yield
10.170% due 1/15/08 3,455,425
1,640,000 BB- Sr. Discount Notes, step bond to yield
10.960% due 1/15/08+ 729,800
700,000 BB- Sr. Notes, 9.750% due 2/15/02 707,000
4,570,000 B+ Charter Communications Holdings Capital LLC, Sr.
Discount Notes, step bond to yield 9.920% due 4/1/11 2,696,300
CSC Holdings Inc., Sr. Sub. Debentures:
80,000 BB- 9.875% due 2/15/13 84,000
5,525,000 BB- 10.500% due 5/15/16 6,160,375
1,900,000 GBP B- Diamond Holdings PLC, Company Guaranteed,
10.000% due 2/1/08 3,036,516
4,620,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 4,643,100
1,000,000 B+ Insight Midwest Corp., Sr. Notes, 9.750% due 10/1/09 1,040,000
NTL Inc.:
6,485,000 B- Series B, Sr. Notes, 11.500% due 10/1/08 7,052,438
8,000,000 EUR B- Sr. Discount Notes, 5.430% due 11/15/09+ 4,715,080
2,505,000 B- RCN Corp., Sr. Discount Notes, step bond to yield
11.461% due 10/15/07 1,797,338
7,260,000 BB- Rogers Cablesystems, Ltd., Company Guaranteed,
11.000% due 12/1/15 8,203,800
3,650,000 B+ TeleWest Communications PLC, Sr. Notes,
11.250% due 11/1/08 3,996,750
27,880,000 B United International Holdings, Inc., Sr. Discount Notes,
step bond to yield 11.176% due 2/15/08 17,843,200
22,000,000 B United Pan Europe Communications NV, Series B,
Sr. Discount Notes, step bond to yield
12.500% due 8/1/04 12,650,000
- --------------------------------------------------------------------------------------------------------------------------------
86,024,922
- --------------------------------------------------------------------------------------------------------------------------------
Casinos/Gambling -- 2.3%
705,000 BB+ Circus Circus Enterprises Inc., Sr. Sub. Debentures,
7.625% due 7/15/13 608,062
3,725,000 B Harveys Casino Resorts, Sr. Sub. Notes,
10.625% due 6/1/06 3,822,781
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Casinos/Gambling -- 2.3% (continued)
Hollywood Casino:
850,000 B 1st Mortgage Notes, 13.000% due 8/1/06+ $ 913,750
3,185,000 B Company Guaranteed, 11.250% due 5/1/07 3,328,325
1,450,000 NR Jazz Casino Co. LLC, Sr. Sub. Notes,
5.867% due 11/15/09 826,500
Sun International Hotels, Company Guaranteed:
2,110,000 Ba3* 9.000% due 3/15/07 2,036,150
2,645,000 Ba3* 8.625% due 12/15/07 2,486,300
Venetian Casino, Company Guaranteed:
2,510,000 B- 12.250% due 11/15/04 2,196,250
1,365,000 CCC+ 14.250% due 11/15/05 887,250
- --------------------------------------------------------------------------------------------------------------------------------
17,105,368
- --------------------------------------------------------------------------------------------------------------------------------
Chemicals - Major -- 1.3%
Huntsman Corp.:
17,800,000 B+ Sr. Discount Notes, 12.570% due 12/31/09+ 5,362,250
3,880,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09+ 4,015,800
- --------------------------------------------------------------------------------------------------------------------------------
9,378,050
- --------------------------------------------------------------------------------------------------------------------------------
Chemicals - Specialty -- 1.0%
880,000 BB- Georgia Gulf Corp., Sr. Sub. Notes,
10.375% due 11/1/07 921,800
Lyondell Chemical Co., Sr. Secured Notes:
1,685,000 BB Series A, 9.625% due 5/1/07 1,735,550
2,665,000 BB Series B, 9.875% due 5/1/07 2,764,938
1,940,000 B ZSC Specialty Chemical PLC, Company Guaranteed,
11.000% due 7/1/09+ 2,017,600
- --------------------------------------------------------------------------------------------------------------------------------
7,439,888
- --------------------------------------------------------------------------------------------------------------------------------
Coal Mining -- 0.6%
4,750,000 Caa* AEI Resources, Inc., Company Guaranteed,
10.500% due 12/15/05+ 3,372,500
1,000,000 B P&L Coal Holdings Corp., Series B, Company Guaranteed,
9.625% due 5/15/08 975,000
- --------------------------------------------------------------------------------------------------------------------------------
4,347,500
- --------------------------------------------------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.5%
3,775,000 B Columbus McKinnon Corp., Company Guaranteed,
8.500% due 4/1/08 3,265,375
- --------------------------------------------------------------------------------------------------------------------------------
Containers/Packaging -- 3.4%
2,690,000 B AEP Industries Inc., Sr. Sub. Notes,
9.875% due 11/15/07 2,609,300
5,500,000 EUR B1* BSN Financing Co., Company Guaranteed,
10.250% due 8/1/09 5,735,169
1,195,000 B BWAY Corp., Company Guaranteed,
10.250% due 4/15/07 1,199,481
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Containers/Packaging -- 3.4% (continued)
3,250,000 B Huntsman Packaging Corp., Company Guaranteed,
9.125% due 10/1/07 $ 3,152,500
6,285,000 B Stone Container Finance Corp., Company Guaranteed,
11.500% due 8/15/06+ 6,701,381
2,950,000 B- Sweetheart Cup Co. Inc., Sr. Sub. Notes,
10.500% due 9/1/03 2,824,625
Tekni-Plex Inc., Series B:
300,000 B- Company Guaranteed, 9.250% due 3/1/08 304,500
2,435,000 B- Sr. Sub. Notes, 11.250% due 4/1/07 2,635,887
- --------------------------------------------------------------------------------------------------------------------------------
25,162,843
- --------------------------------------------------------------------------------------------------------------------------------
Contract Drilling -- 1.7%
Parker Drilling Co.:
595,000 B- 5.500% due 8/1/04 416,500
1,655,000 B+ Company Guaranteed, Series D, 9.750% due 11/15/06 1,634,313
3,490,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09 3,568,525
3,375,000 Ba3* R&B Falcon Co., Sr. Notes, 12.250% due 3/15/06 3,737,813
3,095,000 BB- RBF Finance Corp., Company Guaranteed,
11.375% due 3/15/09 3,350,337
- --------------------------------------------------------------------------------------------------------------------------------
12,707,488
- --------------------------------------------------------------------------------------------------------------------------------
Discount Stores -- 1.3%
6,370,000 B+ Ames Department Stores, Inc., Sr. Notes,
10.000% due 4/15/06 6,306,300
2,900,000 BB+ KMart Corp., Debentures, 12.500% due 3/1/05 3,280,625
- --------------------------------------------------------------------------------------------------------------------------------
9,586,925
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.5%
4,950,000 B2* Intertek Finance PLC, Series B, Company Guaranteed,
10.250% due 11/1/06 4,628,250
6,675,000 B- Outsourcing Solutions Inc., Series B, Sr. Sub. Notes,
11.000% due 11/1/06 6,408,000
- --------------------------------------------------------------------------------------------------------------------------------
11,036,250
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services -- 0.3%
Amresco, Inc., Sr. Sub. Notes:
1,850,000 CCC- Series 97-A, 10.000% due 3/15/04 1,110,000
1,890,000 CCC- Series 98-A, 9.875% due 3/15/05 1,134,000
- --------------------------------------------------------------------------------------------------------------------------------
2,244,000
- --------------------------------------------------------------------------------------------------------------------------------
Diversified Manufacturing -- 0.9%
2,050,000 B- Blount Inc., Sr. Sub. Notes, 13.000% due 8/1/09+ 2,162,750
4,475,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes,
9.250% due 12/1/07 4,340,750
- --------------------------------------------------------------------------------------------------------------------------------
6,503,500
- --------------------------------------------------------------------------------------------------------------------------------
Drugs - Generic -- 1.4%
10,535,000 BB ICN Pharmaceuticals Inc., Series B, Sr. Notes,
9.250% due 8/15/05 10,403,313
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Electronic Components -- 0.6%
4,051,000 B+ Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 $ 4,288,996
- --------------------------------------------------------------------------------------------------------------------------------
Engineering & Construction -- 0.9%
1,285,000 NR American Plumbing & Mechanical, Inc.,
Company Guaranteed, 11.625% due 10/15/08+ 1,220,750
3,830,000 B Group Maintenance America Corp.,
Company Guaranteed, 9.750% due 1/15/09 3,810,850
1,700,000 BB- Integrated Electrical Services, Inc., Series B,
Sr. Sub. Notes, 9.375% due 2/1/09+ 1,687,250
- --------------------------------------------------------------------------------------------------------------------------------
6,718,850
- --------------------------------------------------------------------------------------------------------------------------------
Environmental Services -- 2.9%
17,615,000 B+ Allied Waste Corp., Sr. Sub. Notes, 10.000% due 8/1/09+ 15,765,425
1,670,000 B+ IT Group, Inc., Series B, Company Guaranteed,
11.250% due 4/1/09 1,613,637
3,870,000 B+ URS Corp., Series B, Sr. Sub. Notes, 12.250% due 5/1/09 4,073,175
- --------------------------------------------------------------------------------------------------------------------------------
21,452,237
- --------------------------------------------------------------------------------------------------------------------------------
Food Distributors -- 1.9%
2,625,000 B- Agrilink Foods Inc., Company Guaranteed,
11.875% due 11/1/08 2,598,750
6,615,000 B2* Carrols Corp., Company Guaranteed, 9.500% due 12/1/08 6,085,800
2,535,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09 2,535,000
3,195,000 B SC International Services, Inc., Series B, Company
Guaranteed, 9.250% due 9/1/07 2,887,481
- --------------------------------------------------------------------------------------------------------------------------------
14,107,031
- --------------------------------------------------------------------------------------------------------------------------------
Foods - Specialty/Candy -- 1.3%
4,575,000 B- B&G Foods Inc., Company Guaranteed,
9.625% due 8/1/07 4,083,188
7,075,000 B Imperial Holly Corp., Company Guaranteed,
9.750% due 12/15/07 5,129,375
- --------------------------------------------------------------------------------------------------------------------------------
9,212,563
- --------------------------------------------------------------------------------------------------------------------------------
Forest Products -- 1.0%
4,955,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07 5,462,888
2,070,000 B+ Millar Western Forest, Sr. Notes, 9.875% due 5/15/08 2,070,000
- --------------------------------------------------------------------------------------------------------------------------------
7,532,888
- --------------------------------------------------------------------------------------------------------------------------------
Home Furnishing -- 0.3%
2,130,000 B Falcon Products, Inc., Series B, Company Guaranteed,
11.375% due 6/15/09 2,044,800
- --------------------------------------------------------------------------------------------------------------------------------
Homebuilding -- 0.5%
4,280,000 BB- U.S. Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09 3,852,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Hospital/Nursing Management -- 2.0%
Fresenius Medical Care Capital Trust I, Company
Guaranteed, Trust Preferred Securities:
3,575,000 Ba3* 9.000% due 12/1/06 $ 3,440,938
2,095,000 Ba3* 7.875% due 2/1/08 1,911,688
11,530,000 B- Magellan Health Services, Inc., Sr. Sub. Notes,
9.000% due 2/15/08 9,339,300
- --------------------------------------------------------------------------------------------------------------------------------
14,691,926
- --------------------------------------------------------------------------------------------------------------------------------
Hotel/Resort -- 1.6%
1,765,000 B- Courtyard By Marriott II LP, Series B,
Sr. Notes, 10.750% due 2/1/08 1,729,700
5,205,000 BB HMH Properties, Inc., Sr. Notes, Series C,
8.450% due 12/1/08 4,840,650
4,890,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08+ 4,816,650
- --------------------------------------------------------------------------------------------------------------------------------
11,387,000
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - Multi-Line -- 0.4%
4,175,000 B Veritas Capital Trust, Company Guaranteed, Trust
Preferred Securities, 10.000% due 1/1/28 3,141,687
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - Specialty -- 0.3%
5,500,000 Caa* SIG Capital Trust I, Company Guaranteed, Trust Preferred
Securities, 9.500% due 8/15/27 2,213,750
- --------------------------------------------------------------------------------------------------------------------------------
Internet Services -- 4.5%
1,705,000 Caa* Cybernet Internet Services International,
14.000% due 7/1/09@ 1,483,350
Exodus Communications Inc., Sr. Notes:
3,595,000 B- 10.750% due 12/15/09 3,657,913
2,000,000 EUR B- 10.750% due 12/15/09 2,060,328
PSINet Inc., Sr. Notes:
4,840,000 B- 11.500% due 11/1/08 5,082,000
4,725,000 B- 11.000% due 8/1/09 4,890,375
1,375,000 EUR B- 11.000% due 8/1/09 1,423,403
5,675,000 NR Splitrock Services, Inc., Series B, Company Guaranteed,
11.750% due 7/15/08 5,277,750
Verio Inc., Sr. Notes:
3,545,000 B- 11.250% due 12/1/08 3,739,975
3,530,000 B- 10.625% due 11/15/09+ 3,627,075
2,605,000 CCC+ WAM!NET Inc., Series B, Company Guaranteed,
step bond to yield 12.812% due 3/1/05 1,517,413
- --------------------------------------------------------------------------------------------------------------------------------
32,759,582
- --------------------------------------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 1.5%
2,030,000 B- AMC Entertainment, Inc., Sr. Sub. Notes,
9.500% due 2/1/11 1,791,475
2,790,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to yield
10.778% due 4/1/08 1,897,200
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Leisure/Movies/Entertainment -- 1.5% (continued)
7,425,000 B- SFX Entertainment, Inc., Series B, Company Guaranteed,
9.125% due 2/1/08 $ 7,035,187
- --------------------------------------------------------------------------------------------------------------------------------
10,723,862
- --------------------------------------------------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.5%
3,812,000 B- Alvey Systems, Inc., Sr. Sub. Notes, 11.375% due 1/31/03 3,945,420
- --------------------------------------------------------------------------------------------------------------------------------
Medical Specialties -- 0.3%
2,045,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes,
11.250% due 6/15/09 2,116,575
- --------------------------------------------------------------------------------------------------------------------------------
Metals/Minerals - Other -- 0.3%
2,700,000 B- Haynes International, Inc., Sr. Notes, 11.625% due 9/1/04 2,234,250
- --------------------------------------------------------------------------------------------------------------------------------
Miscellaneous -- 0.1%
790,000 B3* Key Plastics, Inc., Series B, Sr. Sub. Notes,
10.250% due 3/15/07 371,300
- --------------------------------------------------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.5%
3,865,000 B- Triarc Consumer Beverage, Sr. Sub. Notes,
10.250% due 2/15/09+ 3,700,737
- --------------------------------------------------------------------------------------------------------------------------------
Newspapers -- 0.5%
4,295,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes,
8.625% due 7/1/11 3,913,819
- --------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Production -- 2.3%
Belco Oil & Gas Corp., Series B:
1,200,000 B1* Company Guaranteed, 10.500% due 4/1/06 1,227,000
2,195,000 B1* Sr. Sub. Notes, 8.875% due 9/15/07 2,107,200
2,375,000 B Canadian Forest Oil Ltd., Company Guaranteed,
8.750% due 9/15/07 2,274,063
765,000 B Chesapeake Energy Corp., Series B, Company Guaranteed,
9.625% due 5/1/05 726,750
6,350,000 B Clark USA Inc., Series B, Sr. Notes, 10.875% due 12/1/05 2,857,500
1,835,000 B Forest Oil Corp., Company Guaranteed,
10.500% due 1/15/06 1,862,525
2,905,000 B+ Nuevo Energy Co., Sr. Sub. Notes, 9.500% due 6/1/08 2,908,631
2,555,000 B Stone Energy Corp., Company Guaranteed,
8.750% due 9/15/07 2,497,513
545,000 B+ Vintage Petroleum, Inc., Sr. Sub. Notes,
9.750% due 6/30/09 564,075
- --------------------------------------------------------------------------------------------------------------------------------
17,025,257
- --------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Transmission -- 0.3%
2,175,000 BB- Leviathan Gas Pipeline Partners, LP, Series B,
Company Guaranteed, 10.375% due 6/1/09 2,259,281
- --------------------------------------------------------------------------------------------------------------------------------
Paper -- 3.3%
2,380,000 B Doman Industries Ltd., Sr. Notes, 8.750% due 3/15/04 2,046,800
4,260,000 EUR B Kappa Beheer B.V., Company Guaranteed,
10.625% due 7/15/09+ 4,527,988
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Paper -- 3.3% (continued)
4,060,000 CCC+ Repap New Brunswick Inc., Sr. Notes,
10.625% due 4/15/05 $ 3,755,500
Riverwood International Corp., Company Guaranteed:
4,295,000 B- 10.625% due 8/1/07 4,456,062
5,085,000 CCC+ 10.875% due 4/1/08 5,034,150
231,750 NR SD Warren Co., Debentures, 14.000% due 12/15/06 265,354
3,800,000 BB+ Tembec Finance Corp., Sr. Notes, 9.875% due 9/30/05 3,952,000
- --------------------------------------------------------------------------------------------------------------------------------
24,037,854
- --------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals -- 0.4%
2,760,000 B King Pharmaceuticals, Inc., Company Guaranteed,
10.750% due 2/15/09 2,946,300
- --------------------------------------------------------------------------------------------------------------------------------
Photographic Products -- 0.5%
3,820,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 3,724,500
- --------------------------------------------------------------------------------------------------------------------------------
Printing/Forms -- 0.7%
1,765,000 B Merrill Corp., 12.000% due 5/1/09@ 1,718,669
2,100,000 GBP B Polestar Corp. PLC, Series B, Sr. Notes,
10.500% due 5/30/08 3,288,348
- --------------------------------------------------------------------------------------------------------------------------------
5,007,017
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.9%
4,000,000 NR Ocwen Asset Investment Corp., Sr. Notes,
11.500% due 7/1/05 3,400,000
3,100,000 Baa3* Trizec Finance Ltd., Sr. Notes, 10.875% due 10/15/05 3,239,500
- --------------------------------------------------------------------------------------------------------------------------------
6,639,500
- --------------------------------------------------------------------------------------------------------------------------------
Recreational Products/Toys -- 0.2%
1,700,000 EUR B2* Head Holding Corp., Sr. Notes, 10.750% due 7/15/06+ 1,798,380
- --------------------------------------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.6%
3,605,000 BB- Avis Rent a Car, Inc., Company Guaranteed,
11.000% due 5/1/09 3,812,288
820,000 B NationsRent, Inc., Company Guaranteed,
10.375% due 12/15/08 809,750
- --------------------------------------------------------------------------------------------------------------------------------
4,622,038
- --------------------------------------------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.2%
1,390,000 B+ Stater Brothers Holdings Inc., Sr. Notes,
10.750% due 8/15/06 1,396,950
- --------------------------------------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.5%
3,975,000 B- Advance Stores Co., Inc., Series B, Company Guaranteed,
10.250% due 4/15/08 3,458,250
- --------------------------------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.8%
Ocwen Capital Trust I Corp.:
5,500,000 B2* Company Guaranteed, 10.875% due 8/1/27 3,492,500
2,600,000 B+ Notes, 11.875% due 10/1/03 2,405,000
- --------------------------------------------------------------------------------------------------------------------------------
5,897,500
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Semiconductors -- 0.9%
6,510,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07 $ 6,640,200
- --------------------------------------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.7%
1,875,000 BB- LTV Corp., Sr. Notes, 11.750% due 11/15/09+ 1,959,375
3,495,000 B+ Russel Metals Inc./RMI USA LLC, Sr. Notes,
10.000% due 6/1/09 3,416,363
4,075,000 B+ WCI Steel, Inc., Series B, Sr. Notes, 10.000% due 12/1/04 4,156,500
3,270,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 3,204,600
- --------------------------------------------------------------------------------------------------------------------------------
12,736,838
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 11.7%
Call-Net Enterprises, Inc.:
880,000 B+ Sr. Discount Notes, step bond to yield
12.787% due 8/15/08 422,400
1,590,000 B+ Sr. Notes, 9.375% due 5/15/09 1,319,700
1,250,000 EUR B+ Esat Telecom Group PLC, Sr. Notes, 11.875% due 11/1/09 1,473,463
Esprit Telecom Group PLC, Sr. Notes:
3,900,000 B- 11.500% due 12/15/07 3,929,250
4,000,000 DEM B- 11.500% due 12/15/07 2,091,489
2,250,000 B- 10.875% due 6/15/08 2,238,750
3,400,000 EUR B Global Telesystems, Sr. Notes, 11.000% due 12/1/09+ 3,459,740
Hermes Europe Railtel B.V., Sr. Notes:
6,250,000 B 11.500% due 8/15/07 6,453,125
1,170,000 B 10.375% due 1/15/09 1,164,150
ICG Holdings Inc.:
3,630,000 B- Company Guaranteed, step bond to yield
12.846% due 5/1/06 2,758,800
1,775,000 B- Sr. Discount Notes, step bond to yield
12.935% due 9/15/05 1,544,250
2,300,000 EUR CCC+ Jazztel PLC, Sr. Notes, 13.250% due 12/15/09 2,328,827
KMC Telecom Holdings, Inc.:
2,860,000 B- Sr. Discount Notes, step bond to yield
15.872% due 2/15/08 1,551,550
3,960,000 B- Sr. Notes, 13.500% due 5/15/09+ 3,910,500
9,905,000 B Level 3 Communications, Inc., Sr. Discount Notes,
step bond to yield 11.235% due 12/1/08 5,992,525
Metromedia Fiber Network, Sr. Notes:
2,650,000 B+ 10.000% due 12/15/09 2,729,500
1,485,000 EUR B+ 10.000% due 12/15/09 1,548,495
NEXTLINK Communications, Inc.:
7,000,000 B Sr. Discount Notes, step bond to yield
12.051% due 6/1/09 4,375,000
4,815,000 B Sr. Discount Notes, step bond to yield
12.125% due 12/1/09+ 2,876,962
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Telecommunications - Other -- 11.7% (continued)
4,655,000 B Sr. Notes, 12.500% due 4/15/06 $ 4,992,487
4,370,000 B Sr. Notes, 10.750% due 6/1/09 4,522,950
6,035,000 B- Primus Telecommunications Group, Inc., Sr. Notes,
11.750% due 8/1/04 5,974,650
3,260,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09 3,357,800
625,000 Caa* VersaTel Telecom International NV, Sr. Notes,
13.250% due 5/15/08 668,750
3,625,000 B- Viatel, Inc., Sr. Notes, 11.250% due 4/15/08 3,625,000
4,360,000 BB- Williams Communications Group Inc., Sr. Notes,
10.875% due 10/1/09 4,578,000
6,575,000 NR World Access Inc., Series B, Sr. Notes,
13.250% due 1/15/08 5,950,375
- --------------------------------------------------------------------------------------------------------------------------------
85,838,488
- --------------------------------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 10.0%
Airgate PCS Inc.:
1,115,000 NR Sr. Sub. Notes, step bond to yield 13.548% due 10/1/09 618,825
3,485,000 NR Step bond to yield 13.226% due 10/1/09 2,265,250
1,125,000 B- Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08 1,212,187
Clearnet Communications:
5,250,000 CAD B Sr. Discount Notes, step bond to yield
13.250% due 5/15/08 2,282,451
3,000,000 NR Sr. Notes, 10.125% due 7/7/07 3,015,000
5,440,000 B Crown Castle International Corp., Sr. Discount Notes,
step bond to yield 11.165% due 5/15/11 3,413,600
1,855,000 NR Dobson/Sygnet Corp., Sr. Notes, 12.250% due 12/15/08 2,059,050
Dolphin Telecom PLC, Sr. Discount Notes:
5,910,000 CCC+ Step bond to yield 11.473% due 6/1/08 2,925,450
4,750,000 EUR Caa* Step bond to yield 14.748% due 6/1/08 2,297,090
Microcell Telecommunications Inc., Sr. Discount Notes:
1,610,000 B3* Step bond to yield 11.843% due 6/1/06 1,428,875
4,790,000 B- Step bond to yield 11.757% due 6/1/09 3,101,525
11,140,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 13.943% due 6/1/06 9,162,650
Nextel Communications, Inc., Sr. Discount Notes:
6,000,000 B1* Step bond to yield 10.802% due 9/15/07 4,515,000
9,340,000 B1* Step bond to yield 10.686% due 2/15/08 6,608,050
Omnipoint Corp., Sr. Notes:
1,760,000 CCC+ 11.625% due 8/15/06 1,878,800
935,000 B2* 11.500% due 9/15/09+ 1,021,488
1,985,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09 1,057,012
Telesystem International Wireless Inc., Sr. Discount Notes:
11,375,000 CCC+ Series B, step bond to yield 12.698% due 6/30/07 6,938,750
7,130,000 CCC+ Series C, step bond to yield 11.941% due 11/1/07 3,921,500
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Telephone - Cellular -- 10.0% (continued)
6,275,000 B3* Triton PCS, Inc., Company Guaranteed, step bond to yield
11.296% due 5/1/08 $ 4,455,250
3,015,000 CCC+ US Unwired Inc., Sr. Discount Notes, step bond to yield
13.375% due 11/1/09 1,793,925
Voicestream Wireless Co.:
2,515,000 B- Sr. Discount Notes, step bond to yield
11.875% due 11/15/09 1,521,575
5,425,000 B- Sr. Notes, 10.375% due 11/15/09 5,587,750
- --------------------------------------------------------------------------------------------------------------------------------
73,081,053
- --------------------------------------------------------------------------------------------------------------------------------
Textiles -- 0.4%
7,050,000 DEM Ba3* Texon International PLC, Sr. Notes, 10.000% due 2/1/08 3,195,961
- --------------------------------------------------------------------------------------------------------------------------------
Transportation - Marine -- 0.3%
2,125,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 2,071,875
15,000 BB- Sea Containers Ltd., Series A, Sr. Sub. Debentures,
12.500% due 12/1/04 15,525
- --------------------------------------------------------------------------------------------------------------------------------
2,087,400
- --------------------------------------------------------------------------------------------------------------------------------
Unregulated Power Generation -- 2.6%
AES Corp.:
7,510,000 Ba1* Sr. Notes, 9.500% due 6/1/09 7,585,100
5,370,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06 5,437,125
5,375,000 BB Calpine Corp., Sr. Notes, 10.500% due 5/15/06 5,657,188
- --------------------------------------------------------------------------------------------------------------------------------
18,679,413
- --------------------------------------------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.3%
1,775,000 B Buhrmann US, Inc., Sr. Sub. Notes, 12.250% due 11/1/09+ 1,846,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $731,676,548) 701,475,642
<CAPTION>
================================================================================================================================
SHARES SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
COMMON STOCK -- 0.1%
Telecommunications - Other -- 0.1%
20,125 Pagemart Nationwide Inc.+ 242,768
20,658 World Access, Inc. 397,690
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $373,324) 640,458
================================================================================================================================
PREFERRED STOCK -- 0.0%
Electronic Components -- 0.0%
3,953 Viasystems Inc., Payment-in-kind, Series B 29,652
- --------------------------------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.0%
8,000 California Federal Preferred Capital Corp.,
Series A, Exchangeable 9.125% 180,500
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
16 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================================================================
<S> <C> <C> <C>
Telephone - Cellular -- 0.0%
82 Dobson Communications Corp., Payment-in-kind,
Exchangeable 13.000% $ 7,872
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $259,214) 218,024
================================================================================================================================
WARRANTS# -- 0.4%
Broadcasting -- 0.1%
14,825 UIH Australia/Pacific, Inc., Expire 5/15/06 444,750
- --------------------------------------------------------------------------------------------------------------------------------
Cable -- 0.0%
5,700 Wireless One Inc., Expire 10/19/00 1,425
- --------------------------------------------------------------------------------------------------------------------------------
Internet Services -- 0.1%
1,705 Cybernet Internet Services, Expire 7/1/09 137,253
6,975 Splitrock Services, Inc., Expire 7/15/08 655,650
13,950 WAM!NET Inc., Expire 3/1/05+ 317,363
- --------------------------------------------------------------------------------------------------------------------------------
1,110,266
- --------------------------------------------------------------------------------------------------------------------------------
Paper -- 0.0%
8,175 SDW Holdings Corp., Expire 12/15/06+ 143,880
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 0.2%
43,470 Pagemart, Inc., Expire 12/31/03 119,542
6,975 RSL Communications, Ltd., Expire 11/15/06 279,000
1,705 Tele1 Europe B.V., Expire 5/15/09 298,375
1,675 Tele1 Europe B.V. (EUR), Expire 5/15/09 295,322
625 VersaTel Telecom International N.V., Expire 5/15/08+ 256,250
- --------------------------------------------------------------------------------------------------------------------------------
1,248,489
- --------------------------------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.0%
6,725 Iridium World Communications Ltd., Expire 7/15/05+ 67
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,273,936) 2,948,877
================================================================================================================================
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 3.9%
$28,269,000 Morgan Stanley Dean Witter & Co., 2.500% due 1/3/00;
Proceeds at maturity -- $28,274,889;
(Fully collateralized by U.S. Treasury Bonds,
6.000% to 7.250% due 8/15/22 to 2/15/26;
Market value -- $28,677,047)
(Cost -- $28,269,000) $ 28,269,000
================================================================================================================================
TOTAL INVESTMENTS-- 100%
(Cost-- $761,852,022**) $733,552,001
================================================================================================================================
</TABLE>
++ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors
Service, Inc.
+ 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.
@ Security has been issued with attached warrants.
# 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:
---------------------------------------------
CAD -- Canadian Dollar
DEM -- German Mark
EUR -- Euro
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 spec- and CCC ulative 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 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 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) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $761,852,022) $733,552,001
Cash 1,012
Receivable for open forward foreign currency contracts (Note 8) 169,809
Interest and dividends receivable 15,704,043
- -----------------------------------------------------------------------------------------------------------
Total Assets 749,426,865
- -----------------------------------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 1,832,379
Management fees payable 736,218
Payable for open forward foreign currency contracts (Note 8) 46,007
Accrued expenses 92,888
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 2,707,492
- -----------------------------------------------------------------------------------------------------------
Total Net Assets $746,719,373
===========================================================================================================
NET ASSETS:
Par value of capital shares $ 72,230
Capital paid in excess of par value 899,306,898
Treasury stock, at cost (Note 9) (9,148,055)
Undistributed net investment income 542,125
Accumulated net realized loss from security transactions (115,848,764)
Net unrealized depreciation of investments and foreign currencies (28,205,061)
- -----------------------------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $10.49 per share on 72,230,352 shares of
$0.001 par value outstanding; 500,000,000 shares authorized) $746,719,373
===========================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Three Months Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 21,200,315
Dividends 269,223
- -----------------------------------------------------------------------------------------------------------
Total Investment Income 21,469,538
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 2,181,589
Shareholder communications 60,493
Custody 13,611
Shareholder and system servicing fees 9,578
Audit and legal 7,360
Directors' fees 2,773
Other 15,125
- -----------------------------------------------------------------------------------------------------------
Total Expenses 2,290,529
- -----------------------------------------------------------------------------------------------------------
Net Investment Income 19,179,009
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 8):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (15,825,023)
Foreign currency transactions 860,575
- -----------------------------------------------------------------------------------------------------------
Net Realized Loss (14,964,448)
- -----------------------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of
Investments and Foreign Currencies:
Beginning of period (43,005,972)
End of period (28,205,061)
- -----------------------------------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 14,800,911
- -----------------------------------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies (163,537)
- -----------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $19,015,472
===========================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Three Months Ended December 31, 1999 (unaudited) and the Year Ended
September 30, 1999
<TABLE>
<CAPTION>
December 31 September 30
===========================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,179,009 $ 73,859,720
Net realized loss (14,964,448) (41,919,147)
(Increase) decrease in net unrealized depreciation 14,800,911 (14,161,100)
- -----------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 19,015,472 17,779,473
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,108,439) (74,284,603)
Capital -- (454,788)
- -----------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (18,108,439) (74,739,391)
- -----------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Treasury stock acquired (9,148,055) 2,293,455
- -----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (9,148,055) 2,293,455
- -----------------------------------------------------------------------------------------------------------
Decrease in Net Assets (8,241,022) (54,666,463)
NET ASSETS:
Beginning of period 754,960,395 809,626,858
- -----------------------------------------------------------------------------------------------------------
End of period* $746,719,373 $754,960,395
===========================================================================================================
* Includes undistributed (overdistributed) net investment income of: $542,125 $(1,389,020)
===========================================================================================================
</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 discount 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, 1999, reclassifications were made to the Fund's capital accounts
to reflect permanent book/tax differences and income and gains available for
distributions under income regulations. Accordingly, a portion of
overdistributed net investment income tax and net realized gains amounting to
$454,788 and $7,233, respectively, 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,
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
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
SSB Citi Fund Management LLC ("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 three months ended December 31, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $129,026,832
- --------------------------------------------------------------------------------
Sales 144,488,529
================================================================================
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 13,755,150
Gross unrealized depreciation (42,055,171)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (28,300,021)
================================================================================
- --------------------------------------------------------------------------------
24 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
4. Capital Loss Carryforward
At September 30, 1999, the Fund had, for Federal tax purposes, approximately
$65,210,000 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 2007
================================================================================
Carryforward Amounts $16,016,600 $38,118,000 $11,075,400
================================================================================
5. Futures Contracts
Initial margin deposits are made upon entering into futures contracts and are
recognized 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 December 31, 1999, the Fund did not have any open futures contracts.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
6. Options Contracts
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily. When a purchased 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 December 31, 1999, the Fund did not have any open purchased call or put
option contracts.
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 three months ended December 31, 1999, the Fund did not write any call
or put options.
- --------------------------------------------------------------------------------
26 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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.
8. Forward Foreign Currency Contracts
At December 31, 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
reflected as follows:
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS)
===========================================================================================================
<S> <C> <C> <C> <C>
To Buy:
Euro 2,082,063 $ 2,126,833 6/15/00 $ (2,705)
- -----------------------------------------------------------------------------------------------------------
To Sell:
British Pound 3,918,000 6,318,947 6/22/00 (43,302)
Canadian Dollar 3,307,500 2,295,600 6/8/00 169,727
Euro 38,496,915 39,324,700 6/15/00 82
- -----------------------------------------------------------------------------------------------------------
126,507
- -----------------------------------------------------------------------------------------------------------
Net Unrealized Gain on Open
Forward Foreign Currency Contracts $123,802
===========================================================================================================
</TABLE>
9. Capital Shares
At December 31, 1999, the Fund had 500,000,000 shares of common stock authorized
with a par value of $0.001.
On October 19, 1999, the Fund commenced a share repurchase plan. As of December
31, 1999, repurchased shares totaled 1,049,900.
- --------------------------------------------------------------------------------
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) 1999 1998 1997 1996 1995
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.45 $11.24 $12.43 $11.72 $11.48 $11.20
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.28 1.03 1.08 1.15 1.14 1.14
Net realized and unrealized
gain (loss) 0.01 (0.79) (1.14) 0.68 0.22 0.28
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.29 0.24 (0.06) 1.83 1.36 1.42
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.25) (1.03) (1.13) (1.12) (1.12) (1.12)
Capital -- (0.00)* -- -- -- (0.02)
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (1.03) (1.13) (1.12) (1.12) (1.14)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.49 $10.45 $11.24 $12.43 $11.72 $11.48
- ----------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(2) (4.14)%++ (9.36)% (1.65)% 18.18% 21.07% 9.90%
- ----------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(2) 3.31%++ 2.74% (0.58)% 16.48% 12.86% 13.99%
- ----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $747 $755 $810 $883 $819 $802
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.21%+ 1.20% 1.18% 1.21% 1.21% 1.20%
Net investment income 10.14+ 9.28 8.81 9.63 9.85 10.02
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 18% 83% 98% 87% 73% 59%
- ----------------------------------------------------------------------------------------------------------
Market Value,
End of Period $8.500 $9.125 $11.125 $12.438 $11.500 $10.500
==========================================================================================================
</TABLE>
(1) For the three months ended December 31, 1999 (unaudited).
(2) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01 per share.
++ 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:
<TABLE>
<CAPTION>
Income Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
=========================================================================================================
<S> <C> <C> <C> <C>
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
July 23 10.19 10.83 0.0840 9.860
August 20 9.31 10.55 0.0840 9.460
September 17 9.00 10.46 0.0840 9.040
October 22 8.63 10.36 0.0840 9.190
November 18 8.94 10.40 0.0840 8.570
December 22 8.56 10.49 0.0840 8.490
2000
October 22 8.63 10.36 0.0840 9.190
November 18 8.94 10.40 0.0840 8.570
December 22 8.56 10.49 0.0840 8.490
=========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 29
<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 PFPC Global Fund Services ("PFPC"),
formerly known as First Data Investor Services Group, Inc. 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
shareholders who do not participate in the Plan will be paid by check mailed
directly to the record holder by or under the direction of PFPC 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, PFPC 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 PFPC has completed its purchases, the
market price exceeds the NAV of the common stock as of the valuation time, PFPC
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 PFPC is unable to stop open market purchases and
cause the Fund to issue the remaining shares, the average per share purchase
price paid by PFPC may exceed the NAV of the common stock as of the valuation
time, resulting in the acquisition of fewer shares than if the
- --------------------------------------------------------------------------------
30 1999 Quarterly Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
- --------------------------------------------------------------------------------
dividend or capital gains distribution had been paid in common stock issued by
the Fund at such net asset value. PFPC 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.
PFPC 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 PFPC 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. PFPC'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 PFPC, 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 PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 31
<PAGE>
(This page intentionally left blank.)
<PAGE>
- --------------------------------------------------------------------------------
HIGH INCOME
- --------------------- [GRAPHIC]
Opportunity Fund Inc.
- --------------------------------------------------------------------------------
DIRECTORS
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Joseph H. Fleiss, Emeritus
OFFICERS
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi, CFA
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
INVESTMENT MANAGER
SSB Citi Fund Management LLC
CUSTODIAN
PNC Bank, N.A.
SHAREHOLDER
SERVICING AGENT
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
This report is intended only for the shareholders of the High Income Opportunity
Fund Inc. 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 HIGH INCOME OPPORTUNITY FUND INC.
Listed 388 Greenwich Street
NYSE [LOGO] New York, New York 10013
THE NEW YORK STOCK EXCHANGE
FD0850 2/00
