[GRAPHIC OMITTED]
HIGH INCOME
----------------------
Opportunity Fund, Inc.
Annual Report
September 30, 2000
<PAGE>
High Income Opportunity Fund Inc.
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. JOHN C.
MCLENDON BIANCHI, CFA
Chairman Vice President
Dear Shareholder:
We are pleased to provide the annual report for the High Income Opportunity Fund
Inc. ("Fund") for the period ended September 30, 2000. Any discussion of the
Fund's holdings is as of September 30, 2000. Please refer to pages 6 through 19
for a list of the Fund's holdings.
During the past twelve months, the Fund distributed income dividends totaling
$1.01 per share. The table below details the annualized distribution rate and
the twelve-month total return for the Fund based on its September 30, 2000 net
asset value ("NAV") per share and the New York Stock Exchange ("NYSE") closing
price.(1)
Price Annualized Twelve-Month
Per Share Distribution Rate(2) Total Return(2)
--------- -------------------- ---------------
$9.42 (NAV) 10.70% 0.98%
$8.938 (NYSE) 11.28% 9.75%
----------
(1) The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the value of the
securities in which the Fund has invested. However, the price at which an
investor may buy or sell shares of the Fund is at their market (NYSE)
price as determined by supply and demand.
(2) Total returns are based on changes NAV or the market value, respectively.
Total returns assume the reinvestment of all dividends and/or capital
gains distributions in additional shares. Annualized distribution rate is
the Fund's current monthly income dividend rate, annualized, and then
divided by the NAV or the market value noted in this report. The
annualized distribution rate assumes a current monthly income dividend
rate of $0.084 for 12 months. This rate is as of October 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>
Performance Update
The Fund generated a total return based on NAV of 0.98% for the year ended
September 30, 2000. In comparison, the Lipper Inc. ("Lipper")(3) peer group of
high current yield funds returned a negative 0.13% for the same period.
Special Shareholder Notice
The Fund continued to repurchase and retire shares during the period. We believe
that the share repurchase program which started on October 19, 1999 is an
opportunity to take advantage of market price fluctuations with the objective of
offering increased value to the Fund's shareholders. The Fund intends to
continue to purchase and then retire shares of its stock in the open market at
such times, prices and amounts deemed advisable.
The Fund's share repurchase program has also added liquidity to the market for
the benefit of investors who wish to sell their shares, while also seeking to
benefit current shareholders by increasing the Fund's shares' NAV. Since the
inception of the program, the Fund has repurchased (and retired) shares with an
average buyback price of $8.779. As of September 30, 2000, this repurchase
program has increased the Fund's shares' NAV by $0.069 and increased the Fund
shares' total return by approximately 0.75% when measured by NAV.
Market and Economic Overview(4)
The high-yield bond market encountered continued difficulty in September 2000 in
the face of improved performance in other areas of the U.S. bond market. In our
opinion, it appears that many bond investors are becoming more convinced that
the Federal Reserve Board ("Fed") may be able to engineer a "soft landing" for
the U.S. economy, which in turn should benefit most bonds. However, depending
upon the severity of the economic slowdown, high-yield bonds may be negatively
affected.
We believe the high-yield bond market is close to discounting most of this risk.
At current median yield levels, the high-yield bond market is trading at a 750
basis point(5) spread over 10-year U.S. Treasuries, which is above the levels
reached during the 1998 emerging market crisis. In fact, we are now approaching
the spread levels reached in the 1990 recession. On a year-to-date basis the
high-yield market generated a negative total return of roughly 1.50%, as
measured by the Bear Stearns High Yield Market Index(6), compared to a
----------
(3) Lipper is an independent mutual fund-tracking organization.
(4) Please note that the statistical performance information that appears in
this section of this report is compiled from SSB Citi Fund Management LLC
internal research. It is not intended to be used as a forecast of future
events, a guarantee of future results nor investment advice.
(5) A basis point is 0.01% or one-hundredth of a percent.
(6) The Bear Stearns High Yield Market Index is an unmanaged broad-based index
of high-yield bonds. Please note that an investor cannot invest directly
in an index.
--------------------------------------------------------------------------------
2 2000 Annual Report to Shareholders
<PAGE>
positive total return range of 4.50% to 12.00% in the U.S. Treasury market and
4.00% to 6.50% in the investment-grade(7) corporate bond market.
In our view, there are several factors driving high-yield bond valuations down
to such undervalued levels including:
o The Fed's tightening bias over the last 18 months has withdrawn liquidity
from the bond markets;
o Various Wall Street dealers have reduced their exposure to high-yield
bonds and investment-grade corporate bonds to protect their own balance
sheets; and
o Redemptions out of open-end bond mutual funds, especially high-yield bond
mutual funds, have exerted even more downward pressure on high-yield bond
prices as mutual funds are forced to liquidate their bond positions to
meet redemptions.
The lower- to middle-quality segments (Caa/ CCC and B/B rated issues) of the
high-yield bond market performed poorly in the first nine months of 2000 due to
a combination of increased defaults among the lesser quality credits as well as
new issue supply pressures in B/B rated issues earlier in the year. During the
period, most industry sectors of the high-yield market performed poorly,
especially the more economically sensitive areas of the high-yield bond market
such as basic materials, capital goods manufacturing, transportation and
consumer cyclical sectors.
The recent economic slowdown is causing downward earnings revisions among many
of the more economically sensitive companies. In addition, the once robust
telecommunications sector has significantly underperformed versus the overall
market given the heavy capital needs of this industry and the current difficulty
for many companies to obtain additional capital in the bond market to fund their
business plans. We believe this is a short-term problem that should eventually
be resolved when and if the market stabilizes.
The industry sectors in the high-yield bond market that posted positive returns
during the period were energy, technology, media and operating utilities. These
are the sectors that have continued to experience considerable positive momentum
and as a result, may be less vulnerable to an economic slowdown. Our overweight
position in B/B rated telecommunications issues held back the Fund's performance
during the period. Yet, we continue to believe the performance of these issues
should eventually improve once the high-yield bond market stabilizes.
----------
(7) Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Service, or that have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by the portfolio
manager to be of equivalent quality.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 3
<PAGE>
Conclusion
Over the near term, we plan to emphasize the less economically sensitive growth
sectors of the bond market. We will attempt to maintain a reasonable balance in
overall credit quality when seeking out investment opportunities in this
volatile market. Moreover, we remain positive on the high-yield market and
believe the worst of the recent correction is behind us.
However, we do not expect any meaningful improvement in high-yield bond prices
until the Fed begins to reverse its interest rate increases instituted in recent
months. In our opinion, as the stock market faces further challenges and
economic momentum slows even further, the Fed may be in a good position to start
to inject more liquidity into the financial markets and reduce interest rates.
In our opinion, the high-yield bond market should dramatically benefit from any
potential shift in Fed policy. We witnessed the same trend change seen during
the 1990 recession. Despite the fact that high-yield bond default rates in 1990
approached 10%, the high-yield bond market generated total returns during that
time of more than 30%. We believe this resulted from increased money flows into
this area of the market as many investors looked to take advantage of what they
deemed to be undervalued bonds. And while no guarantees can be made that this
trend will duplicate itself in the coming months, we are optimistic about the
long-term return potential of high-yield bonds.
Should you have any questions about the Fund, please call PFPC Global Fund
Services at (800) 331-1710. Thank you for your continued confidence in our
investment approach.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi, CFA
Heath B. McLendon John C. Bianchi, CFA
Chairman Vice President
October 12, 2000
--------------------------------------------------------------------------------
4 2000 Annual 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"), 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 34. 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 September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
========================================================================================
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 98.2%
Aerospace and Defense -- 0.9%
BE Aerospace Inc.:
1,025,000 B Series B, Sr. Sub. Notes, 9.875% due 2/1/06 $ 1,012,188
1,990,000 B Series B, Sr. Sub. Notes, 8.000% due 3/1/08 1,800,950
1,235,000 B Sr. Sub. Notes, 9.500% due 11/1/08 1,222,650
2,005,000 B- Dunlop Standard Aerospace, Sr. Notes,
11.875% due 5/15/09 2,027,556
----------------------------------------------------------------------------------------
6,063,344
----------------------------------------------------------------------------------------
Airlines -- 1.3%
9,956,016 BB Airplanes Pass-Through Trust, Series D,
Company Guaranteed, 10.875% due 3/15/12 8,097,925
----------------------------------------------------------------------------------------
Alternative Power Generation -- 4.3%
AES Corp.:
8,995,000 Ba1* Sr. Notes, 9.500% due 6/1/09 9,197,387
6,250,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06 6,421,875
3,615,000 Ba1* Sr. Sub. Notes, 9.375% due 9/15/10 3,687,300
2,770,000 Ba2* AES Drax Energy Ltd., Secured Notes,
11.500% due 8/30/10 (b) 2,943,125
5,375,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06 5,556,406
----------------------------------------------------------------------------------------
27,806,093
----------------------------------------------------------------------------------------
Aluminum -- 1.5%
Kaiser Aluminum & Chemical Corp.:
435,000 B1* Series B, Sr. Notes, 10.875% due 10/15/06 429,562
755,000 B1* Series D, Sr. Notes, 10.875% due 10/15/06 745,563
9,175,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03 8,486,875
----------------------------------------------------------------------------------------
9,662,000
----------------------------------------------------------------------------------------
Apparel/Footwear -- 0.7%
2,360,000 BB- Levi Strauss Co., Notes, 7.000% due 11/1/06 1,852,600
Tommy Hilfiger USA Inc., Company Guaranteed:
810,000 BBB- 6.500% due 6/1/03 653,063
1,120,000 BBB- 6.850% due 6/1/08 750,400
1,360,000 B- Tropical Sportswear International Corp., Series A,
Company Guaranteed, 11.000% due 6/15/08 1,285,200
----------------------------------------------------------------------------------------
4,541,263
----------------------------------------------------------------------------------------
Apparel/Footwear Retail -- 0.4%
2,495,000 CCC+ J Crew Operating Corp., Sr. Sub Notes,
10.375% due 10/15/07 2,257,975
----------------------------------------------------------------------------------------
Auto Parts: O.E.M -- 0.8%
1,465,000 B Collins & Aikman Products, Company Guaranteed,
11.500% due 4/15/06 1,413,725
Hayes Lemmerz International Inc., Company Guaranteed:
740,000 B Series B, 9.125% due 7/15/07 638,250
3,465,000 B Series B, 8.250% due 12/15/08 2,823,975
----------------------------------------------------------------------------------------
4,875,950
----------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
6 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Beverages: Non-Alcoholic -- 0.5%
3,120,000 B- Triarc Consumer Beverage, Company Guaranteed,
10.250% due 2/15/09 $ 3,486,600
-----------------------------------------------------------------------------------------------
Broadcasting -- 0.6%
890,000 BB+ Capstar Broadcasting Partners, Inc., Sr. Discount Notes,
step bond to yield 11.002% due 2/1/09 853,288
Young Broadcasting Corp.:
1,140,000 B Sr. Sub. Notes, 11.750% due 11/15/04 1,177,050
1,585,000 B Sr. Sub. Notes, 10.125% due 2/15/05 1,596,888
-----------------------------------------------------------------------------------------------
3,627,226
-----------------------------------------------------------------------------------------------
Building Products -- 0.4.%
1,320,000 B Amatek Industries Property Ltd., Sr. Sub. Notes,
12.000% due 2/15/08 1,023,000
2,020,000 B- Atrium Cos. Inc., Series B, Company Guaranteed,
10.500% due 5/1/09 1,828,100
-----------------------------------------------------------------------------------------------
2,851,100
-----------------------------------------------------------------------------------------------
Cable/Satellite TV -- 10.3%
Adelphia Communications Corp.:
2,370,000 B+ Series B, Sr. Notes, 8.375% due 2/1/08 2,061,900
1,740,000 B+ Sr. Notes, 10.875% due 10/1/10 1,713,900
890,000 CCC+ Cable Satisfaction International, Sr. Notes,
12.750% due 3/1/10 769,850
Century Communications Inc.:
6,595,000 B+ Series B, Sr. Discount Notes, step bond to yield
10.670% due 1/15/08 2,703,950
700,000 B+ Sr. Notes, 9.750% due 2/15/02 703,500
2,930,000 B+ Sr. Notes, 8.750% due 10/1/07 2,637,000
Charter Communications Holdings LLC:
8,500,000 B+ Sr. Discount Notes, step bond to yield
11.713% due 1/15/10 (b) 4,972,500
3,145,000 B+ Sr. Notes, 8.625% due 4/1/09 2,838,363
3,625,000 BB- CSC Holdings Inc., Sr. Sub. Debentures,
10.500% due 5/15/16 3,905,938
1,900,000 GBP B- Diamond Holdings PLC, Company Guaranteed,
10.000% due 2/1/08 (c) 2,442,911
1,410,000 B+ Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 1,388,850
NTL Communications Corp.:
4,830,000 B Sr. Notes, 11.500% due 10/1/08 4,685,100
1,315,000 B Sr. Notes, 11.875% due 10/1/10 (b) 1,291,987
7,260,000 BB- Rogers Cablesystems, Ltd., Company Guaranteed,
11.000% due 12/1/15 8,167,500
2,600,000 GBP B+ TeleWest Communications PLC, Sr. Notes,
11.250% due 11/1/08 1,968,951
19,150,000 B- United International Holdings, Inc., Series B,
Sr. Discount Notes, step bond to yield
11.416% due 2/15/08 13,213,500
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 7
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Cable/Satellite TV -- 10.3% (continued)
22,000,000 B United Pan Europe Communications NV, Series B,
Sr. Discount Notes, step bond to yield
12.500% due 8/1/09 $10,505,000
------------------------------------------------------------------------------------------------
65,970,700
------------------------------------------------------------------------------------------------
Casinos/Gaming -- 3.7%
3,880,000 B Hollywood Casino Corp., Company Guaranteed,
11.250% due 5/1/07 4,044,900
2,150,000 B+ Horseshoe Gaming Hldg., Series B,
Company Guaranteed, 8.625% due 5/15/09 2,117,750
43,406 NR Jazz Casino Co. LLC, Payment-in-Kind, Sr. Sub. Notes,
6.046% due 11/15/09 8,030
Mandalay Resort Group:
705,000 BB- Sr. Sub. Debenture, 7.625% due 7/15/13 588,675
1,055,000 NR Sr. Sub. Notes, 10.250% due 8/1/07 (b) 1,093,244
1,560,000 BB+ Park Place Entertainment, Sr. Sub. Notes,
8.875% due 9/15/08 1,552,200
1,915,000 B+ Station Casinos Inc., Sr. Sub Notes, 9.875% due 7/1/10 (b) 1,929,362
Sun International Hotels, Company Guaranteed:
3,445,000 B1* 9.000% due 3/15/07 3,255,525
3,710,000 B1* 8.625% due 12/15/07 3,422,475
5,315,000 B- Venetian Casino Resort LLC, Company Guaranteed,
12.250% due 11/15/04 5,474,450
------------------------------------------------------------------------------------------------
23,486,611
------------------------------------------------------------------------------------------------
Chemicals - Major -- 1.1%
Huntsman ICI Holdings LLC:
1,280,000 B+ Company Guaranteed, 10.125% due 7/1/09 (b) 1,262,400
17,800,000 B+ Sr. Discount Notes, zero coupon due 12/31/09 5,785,000
------------------------------------------------------------------------------------------------
7,047,400
------------------------------------------------------------------------------------------------
Chemicals - Specialty -- 0.2%
1,390,000 B Avecia Group PLC, Company Guaranteed,
11.000% due 7/1/09 1,376,100
------------------------------------------------------------------------------------------------
Coal Mining -- 0.1%
4,750,000 Ca* AEI Resources Inc., Company Guaranteed,
10.500% due 12/15/05 (b) 736,250
------------------------------------------------------------------------------------------------
Construction Materials -- 0.8%
Nortek Inc.:
3,915,000 B+ Series B, Sr. Notes, 9.125% due 9/1/07 3,719,250
1,615,000 B- Sr. Sub Notes, 9.875% due 3/1/04 1,566,550
------------------------------------------------------------------------------------------------
5,285,800
------------------------------------------------------------------------------------------------
Consumer Specialties -- 0.4%
2,330,000 B Jostens Inc., 12.750% due 5/1/10 (d) 2,411,550
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Containers/Packaging -- 2.8.%
1,195,000 B BWAY Corp., Series B, Company Guaranteed,
10.250% due 4/15/07 $ 1,186,037
1,720,000 B- SF Holdings Group Inc., Series B, Sr. Discount Notes,
step bond to yield 18.085% due 3/15/08 903,000
Stone Container Finance Corp., Company Guaranteed:
6,285,000 B 11.500% due 8/15/06 (b) 6,504,975
1,780,000 Ba3* Term Loan, 10.375% due 12/31/06 1,780,000
1,780,000 Ba3* Term Loan, 10.188% due 12/31/06 1,780,000
3,725,000 B- Sweetheart Cup Co. Inc., Sr. Sub Notes,
10.500% due 9/1/03 3,520,125
2,080,000 B- Tekni-Plex Inc., Sr. Sub Notes, 12.750% due 6/15/10 (b) 2,059,200
------------------------------------------------------------------------------------------------
17,733,337
------------------------------------------------------------------------------------------------
Contract Drilling -- 2.1.%
Parker Drilling Co.:
595,000 B- 5.500% due 8/1/04 507,238
2,035,000 B+ Company Guaranteed, Series D, 9.750% due 11/15/06 2,040,088
3,490,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09 3,681,950
3,375,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 3,902,344
3,095,000 BB- RBF Finance Co., Company Guaranteed,
11.375% due 3/15/09 3,578,594
------------------------------------------------------------------------------------------------
13,710,214
------------------------------------------------------------------------------------------------
Discount Stores -- 0.5%
580,000 B+ Ames Department Stores Inc., Sr. Notes,
10.000% due 4/15/06 269,700
2,900,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05 3,023,250
------------------------------------------------------------------------------------------------
3,292,950
------------------------------------------------------------------------------------------------
Electric Utilities -- 1.0%
4,355,000 B Echostar Broadband Corp., Sr. Notes,
10.375% due 10/1/07 (b) 4,355,000
1,820,000 B+ Orion Power Holdings Inc., Sr. Notes,
12.000% due 5/1/10 (b) 1,956,500
------------------------------------------------------------------------------------------------
6,311,500
------------------------------------------------------------------------------------------------
Electronic Components -- 1.0%
2,996,000 BB- Celestica International Inc., Sr. Sub. Notes,
10.500% due 12/31/06 3,134,565
3,445,000 Ba3* Flextronics Intl. Ltd., Sr. Sub Notes, 9.875% due 7/1/10 (b) 3,556,962
------------------------------------------------------------------------------------------------
6,691,527
------------------------------------------------------------------------------------------------
Electronics Production Equipment -- 0.3%
1,585,000 B1* Amkor Technologies Inc., Sr. Sub Notes,
10.500% due 5/1/09 1,614,719
------------------------------------------------------------------------------------------------
Electronics/Appliances -- 0.5%
3,395,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 3,310,125
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 9
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Engineering and Construction -- 0.6%
1,700,000 BB- Integrated Electrical Services Inc., Series B,
Company Guaranteed, 9.375% due 2/1/09 $ 1,542,750
2,155,000 B- Orius Capital Corp., Sr. Sub. Notes, 12.750% due 2/1/10 (b) 2,273,525
------------------------------------------------------------------------------------------------
3,816,275
------------------------------------------------------------------------------------------------
Environmental Services -- 3.3%
Allied Waste Corp., Series B, Company Guaranteed:
2,305,000 BB- 7.875% due 1/1/09 2,022,637
15,195,000 B+ 10.000% due 8/1/09 13,333,612
Tranche B Term Loan:
162,000 BB- 9.437% due 7/21/06 157,241
648,000 Ba3* 9.437% due 7/21/06 628,965
Tranche C Term Loan:
129,600 Ba3* 9.750% due 7/21/07 125,793
842,400 Ba3* 9.687% due 7/21/07 817,654
3,695,000 B+ URS Corp., Series B, Sr. Sub. Notes, 12.250% due 5/1/09 3,805,850
------------------------------------------------------------------------------------------------
20,891,752
------------------------------------------------------------------------------------------------
Finance/Rental/Leasing Companies -- 0.5.%
2,085,000 BB- Avis Group Holdings Inc., Company Guaranteed,
11.000% due 5/1/09 2,272,650
820,000 B NationsRent, Inc., Company Guaranteed,
10.375% due 12/15/08 610,900
------------------------------------------------------------------------------------------------
2,883,550
------------------------------------------------------------------------------------------------
Financial Conglomerates -- 0.3%
Amresco, Inc., Sr. Sub. Notes:
1,850,000 Caa3* Series 97-A, 10.000% due 3/15/04 823,250
1,890,000 Caa* Series 98-A, 9.875% due 3/15/05 841,050
------------------------------------------------------------------------------------------------
1,664,300
------------------------------------------------------------------------------------------------
Food Distributors -- 2.7%
2,625,000 B- Agrilink Foods Inc., Company Guaranteed,
11.875% due 11/1/08 1,955,625
Aurora Foods Inc.:
3,435,000 CCC+ Series B, Sr. Sub. Notes, 9.875% due 2/15/07 2,730,825
520,000 CCC+ Series B, Sr. Sub. Notes, 8.750% due 7/1/08 400,400
1,215,000 CCC+ Series D, Sr. Sub. Notes, 9.875% due 2/15/07 965,925
4,740,000 B2* Carrols Corp., Company Guaranteed, 9.500% due 12/1/08 4,100,100
2,215,000 BBB International Home Foods, Company Guaranteed,
10.375% due 11/1/06 2,381,125
4,870,000 B SC International Services, Inc., Series B,
Company Guaranteed, 9.250% due 9/1/07 4,772,600
------------------------------------------------------------------------------------------------
17,306,600
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Foods - Specialty/Candy -- 0.5%
2,725,000 B- B&G Foods Inc., Company Guaranteed, 9.625% due 8/1/07 $ 1,975,625
5,340,000 CCC+ Imperial Holly Corp., Company Guaranteed,
9.750% due 12/15/07 987,900
------------------------------------------------------------------------------------------------
2,963,525
------------------------------------------------------------------------------------------------
Forest Products -- 0.8.%
3,310,000 B Ainsworth Lumber Co. Ltd., Sr. Notes,
12.500% due 7/15/07 3,094,850
2,070,000 B+ Millar Western Forest Products, Sr. Notes,
9.875% due 5/15/08 1,914,750
------------------------------------------------------------------------------------------------
5,009,600
------------------------------------------------------------------------------------------------
Home Furnishing -- 0.3%
2,130,000 B Falcon Inc., Series B, Company Guaranteed,
11.375% due 6/15/09 2,031,487
------------------------------------------------------------------------------------------------
Homebuilding -- 0.9%
1,760,000 Ba1* D.R. Horton Inc., Company Guaranteed,
8.000% due 2/1/09 1,623,600
3,810,000 BB+ Lennar Corp., Sr. Notes, 9.950% due 5/1/10 (b) 3,933,825
------------------------------------------------------------------------------------------------
5,557,425
------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 0.7%
4,810,000 Ba3* Fresenius Medical Care Capital Trust I,
Company Guaranteed Trust, 9.000% due 12/1/06 4,797,975
------------------------------------------------------------------------------------------------
Hotel/Resort -- 1.8%
1,765,000 B- Courtyard By Marriott II, Series B, Sr. Notes,
10.750% due 2/1/08 1,776,031
2,825,000 BB HMH Properties, Inc., Series C, Sr. Notes,
8.450% due 12/1/08 2,697,875
Intrawest Corp., Sr. Notes:
3,150,000 B+ 9.750% due 8/15/08 3,165,750
3,490,000 B+ 10.500% due 2/1/10 3,594,700
------------------------------------------------------------------------------------------------
11,234,356
------------------------------------------------------------------------------------------------
Industrial Machinery -- 0.3%
1,755,000 B Flowserve Corp., Company Guaranteed,
12.250% due 8/15/10 (b) 1,803,263
------------------------------------------------------------------------------------------------
Internet Software/Services -- 3.5%
920,000 NR Colo.com, 13.875% due 3/15/10 (d) 943,000
1,705,000 Caa3* Cybernet Internet Services International, Sr. Notes,
14.000% due 7/1/09 792,825
Exodus Communications Inc., Sr. Notes:
895,000 B 10.750% due 12/15/09 872,625
11,355,000 B 11.625% due 7/15/10 (b) 11,440,162
PSINet Inc., Sr. Notes:
1,120,000 B- 11.500% due 11/1/08 756,000
6,815,000 B- 11.000% due 8/1/09 4,463,825
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 11
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Internet Software/Services -- 3.5% (continued)
Rhythms Netconnections, Sr. Notes:
1,120,000 CCC+ Series B, 14.000% due 2/15/10 (b) $ 744,800
3,630,000 CCC+ Sr. Discount Notes, step bond to yield 13.500% due 5/15/08 1,397,550
2,605,000 CCC+ WAM|NET Inc., Series B, Company Guaranteed,
step bond to yield 12.812% due 3/1/05 1,185,275
------------------------------------------------------------------------------------------------
22,596,062
------------------------------------------------------------------------------------------------
Major Telecommunications -- 0.5%
2,705,000 B+ McLeodUSA Inc., Sr. Discount Note, step bond to yield
10.500% due 3/1/07 2,231,625
1,105,000 B- USA Mobile Communication, Sr. Notes,
9.500% due 2/1/04 823,225
------------------------------------------------------------------------------------------------
3,054,850
------------------------------------------------------------------------------------------------
Marine Shipping -- 0.3%
2,125,000 B- Oglebay Norton Co., Sr. Sub Notes, 10.000% due 2/1/09 1,976,250
------------------------------------------------------------------------------------------------
Medical Distributors -- 0.2%
1,565,000 B- Alaris Medical Systems, Company Guaranteed,
9.750% due 12/1/06 1,150,275
------------------------------------------------------------------------------------------------
Medical Specialties -- 0.7%
3,335,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes,
11.250% due 6/15/09 2,968,150
2,520,000 B- Total Rental Care Holdings, 7.000% due 5/15/09 1,801,800
------------------------------------------------------------------------------------------------
4,769,950
------------------------------------------------------------------------------------------------
Medical/Nursing Services -- 1.0%
HealthSouth Corp., Sr. Notes:
3,630,000 BBB- 6.875% due 6/15/05 3,239,775
3,305,000 BB+ Sr. Sub. Notes, 10.750% due 10/1/08 (b) 3,317,394
------------------------------------------------------------------------------------------------
6,557,169
------------------------------------------------------------------------------------------------
Miscellaneous Commercial Services -- 1.2%
4,950,000 B2* Intertek Finance PLC, Series B, Company Guaranteed,
10.250% due 11/1/06 1,757,250
6,675,000 B- Outsourcing Solutions Inc., Series B, Sr. Sub. Notes,
11.000% due 11/1/06 5,707,125
------------------------------------------------------------------------------------------------
7,464,375
------------------------------------------------------------------------------------------------
Miscellaneous Manufacturing -- 0.8%
4,475,000 B+ Park-Ohio Industries Inc., Sr. Sub. Notes,
9.250% due 12/1/07 4,005,125
1,535,000 B Polymer Group Inc., Series B, Company Guaranteed,
9.000% due 7/1/07 1,189,625
------------------------------------------------------------------------------------------------
5,194,750
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Movies/Entertainment -- 1.0%
7,710,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to yield
11.509% due 4/1/08 $ 5,184,975
1,340,000 BB+ SFX Entertainment, Inc., Series B, Company Guaranteed,
9.125% due 2/1/08 1,413,700
------------------------------------------------------------------------------------------------
6,598,675
------------------------------------------------------------------------------------------------
Oil and Gas Pipelines -- 0.4%
2,175,000 BB- Leviathan Gas Pipeline Partners, L.P., Series B,
Company Guaranteed, 10.375% due 6/1/09 2,305,500
------------------------------------------------------------------------------------------------
Oil and Gas Production -- 4.7%
Belco Oil & Gas Corp., Series B:
1,200,000 B1* Company Guaranteed, 10.500% due 4/1/06 1,218,000
2,195,000 B1* Sr. Sub. Notes, 8.875% due 9/15/07 2,129,150
2,245,000 CCC- Belden & Blake Corp., Company Guaranteed,
9.875% due 6/15/07 1,936,313
3,955,700 NR AMFM Operating, Inc., Debentures, 12.625% due 10/31/06 4,469,941
3,850,000 B Chesapeake Energy Corp., Series B, Company Guaranteed,
9.625% due 5/1/05 3,840,375
3,780,000 B Forest Oil Corp., Company Guaranteed, 10.500% due 1/15/06 3,912,300
1,250,000 B Houston Exploration Co., Series B, Sr. Sub Notes,
8.625% due 1/1/08 1,221,875
695,000 B Magnum Hunter Resources Inc., Company Guaranteed,
10.000% due 6/1/07 688,050
4,495,000 B+ Nuevo Energy Co., Series B, Sr. Sub. Notes,
9.500% due 6/1/08 4,517,475
Plains Resources, Company Guaranteed:
1,190,000 B2* 10.250% due 3/15/06 (b) 1,213,800
395,000 B2* Series B, 10.250% due 3/15/06 402,900
950,000 B- Range Resources Corp., Company Guaranteed,
8.750% due 1/15/07 907,250
2,555,000 B Stone Energy Corp., Company Guaranteed,
8.750% due 9/15/07 2,503,900
1,165,000 BB- Vintage Petroleum, Inc., Sr. Sub. Notes,
9.750% due 6/30/09 1,217,425
------------------------------------------------------------------------------------------------
30,178,754
------------------------------------------------------------------------------------------------
Oil Refining/Marketing -- 0.5%
2,045,000 BB- Clark Oil & Refining Corp., Sr. Notes, 9.500% due 9/15/04 1,850,725
350,000 BB- Clark Refining & Marketing Corp., Sr. Notes,
8.375% due 11/15/07 283,500
1,595,000 B Clark USA Inc., Series B, Sr. Notes, 10.875% due 12/1/05 996,875
------------------------------------------------------------------------------------------------
3,131,100
------------------------------------------------------------------------------------------------
Pharmaceuticals - Generic -- 1.4.%
8,930,000 BB ICN Pharmaceuticals Inc., Series B, Sr. Notes,
9.250% due 8/15/05 8,840,700
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 13
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Pharmaceuticals - Other -- 0.6%
3,510,000 B King Pharmaceuticals, Inc., Company Guaranteed,
10.750% due 2/15/09 $ 3,720,600
------------------------------------------------------------------------------------------------
Printing/Forms -- 0.1%
705,000 GBP B Polestar Corp. PLC, Series B, Sr. Notes,
10.500% due 5/30/08 (c) 786,969
------------------------------------------------------------------------------------------------
Publishing - Newspapers -- 0.6%
4,295,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes,
8.625% due 7/1/11 4,026,562
------------------------------------------------------------------------------------------------
Pulp and Paper -- 2.6%
5,515,000 CCC+ Repap New Brunswick Inc., Sr. Notes,
10.625% due 4/15/05 5,708,025
Riverwood International Corp., Company Guaranteed:
3,430,000 B- 10.625% due 8/1/07 3,451,437
5,820,000 CCC+ 10.875% due 4/1/08 5,354,400
1,766,750 NR SD Warren Co., Debentures, 14.000% due 12/15/06 1,947,842
------------------------------------------------------------------------------------------------
16,461,704
------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REIT) -- 0.6%
1,000,000 BB Felcor Lodging LP, Sr. Notes, 9.500% due 9/15/08 997,500
4,000,000 NR Ocwen Asset Investment Corp., Sr. Notes,
11.500% due 7/1/05 3,160,000
------------------------------------------------------------------------------------------------
4,157,500
------------------------------------------------------------------------------------------------
Savings and Loan Associations -- 0.9%
5,500,000 B2* Ocwen Capital Trust I Corp., Company Guaranteed,
10.875% due 8/1/27 3,162,500
2,600,000 B+ Ocwen Financial Corp., Notes, 11.875% due 10/1/03 2,301,000
------------------------------------------------------------------------------------------------
5,463,500
------------------------------------------------------------------------------------------------
Semiconductors -- 1.3%
6,510,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes,
10.125% due 3/15/07 6,542,550
1,800,000 B SCG Holdings & Semiconductor Co., Company Guaranteed,
12.000% due 8/1/09 1,899,000
------------------------------------------------------------------------------------------------
8,441,550
------------------------------------------------------------------------------------------------
Specialty Stores -- 0.4%
3,065,000 B- Advance Stores Co., Inc., Series B, Company Guaranteed,
10.250% due 4/15/08 2,406,025
------------------------------------------------------------------------------------------------
Specialty Telecommunications -- 11.6%
2,255,000 B+ Call-Net Enterprises, Inc., Sr. Notes, 9.375% due 5/15/09 1,071,125
1,250,000 EUR B+ Esat Telecom Group PLC, Sr. Unsub. Notes,
11.875% due 11/1/09 (c) 1,362,419
3,650,000 EUR B Flag Telecom Holdings Ltd., Sr. Notes, 11.625% due 3/30/10 2,770,178
Focal Communications Corp.:
4,125,000 B- Series B, Sr. Discount Notes, step bond to yield
13.362% due 2/15/08 1,959,375
110,000 B- Sr. Notes, 11.875% due 1/15/10 84,150
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Specialty Telecommunications -- 11.6% (continued)
4,100,000 BB Global Crossing Holdings Ltd., Company Guaranteed,
9.500% due 11/15/09 $ 4,100,000
3,400,000 EUR B Global Telesystems, 11.000% due 12/1/09 (b)(c) 1,410,241
1,555,000 NR GT Group Telecom, step bond to yield 13.250%
due 2/1/10 (b) 676,425
Esprit Telecom Group PLC, Sr. Notes:
3,900,000 B- 11.500% due 12/15/07 1,384,500
4,000,000 DEM B- 11.500% due 12/15/07 (c) 676,773
2,250,000 B- 10.875% due 6/15/08 798,750
Hermes Europe Railtel B.V., Sr. Notes:
1,645,000 B 11.500% due 8/15/07 830,725
7,345,000 B 10.375% due 1/15/09 3,709,225
Jazztel PLC, Sr. Notes:
2,300,000 EUR CCC+ 13.250% due 12/15/09 (b)(c) 1,654,253
2,000,000 EUR CCC+ 14.000% due 7/15/10 (b)(c)(d) 1,667,932
KMC Telecom Holdings, Inc.:
4,030,000 CCC+ Sr. Discount Notes, step bond to yield
15.899% due 2/15/08 1,632,150
2,865,000 CCC+ Sr. Notes, 13.500% due 5/15/09 1,991,175
Level 3 Communications, Inc.:
12,055,000 B Sr. Discount Notes, step bond to yield
12.846% due 3/15/10 6,509,700
5,300,000 EUR B Sr. Notes, 11.250% due 3/15/10 (b)(c) 4,115,996
2,215,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09 1,921,513
1,760,000 CCC+ Madison River Capital, Sr. Notes, 13.250% due 3/1/10 (b) 1,416,800
4,610,000 B- MGC Communications Inc., Sr. Notes, 13.000% due 4/1/10 3,111,750
4,400,000 CAD B- Microcell Telecommunication Inc., Sr. Discount Notes,
step bond to yield 11.125% due 10/15/07 (c) 2,244,450
NEXTLINK Communications, Inc.:
7,000,000 B Sr. Discount Notes, step bond to yield
12.051% due 6/1/09 3,955,000
3,435,000 B Sr. Discount Notes, step bond to yield
13.160% due 12/1/09 1,803,375
4,610,000 B Sr. Notes, 12.500% due 4/15/06 4,529,325
970,000 B Sr. Notes, 10.750% due 6/1/09 902,100
6,035,000 B- Primus Telecommunications Group, Inc.,
Sr. Notes, 11.750% due 8/1/04 3,409,775
3,260,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09 3,178,500
Versatel Telecom International NV., Sr. Notes:
625,000 B3* 13.250% due 5/15/08 562,500
3,700,000 EUR B- 11.250% due 3/30/10 (b)(c) 2,824,452
6,630,000 B- Viatel Inc., Sr. Notes, 11.500% due 3/15/09 3,182,400
2,630,000 B+ Williams Communications Group Inc., Sr. Notes,
11.875% due 8/1/10 (b) 2,511,650
------------------------------------------------------------------------------------------------
73,958,682
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 15
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Steel -- 0.6%
1,875,000 BB- LTV Corp., Company Guaranteed, 11.750% due 11/15/09 $ 946,875
2,530,000 B+ WCI Steel, Inc., Series B, Sr. Notes, 10.000% due 12/1/04 2,251,700
1,065,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 591,075
------------------------------------------------------------------------------------------------
3,789,650
------------------------------------------------------------------------------------------------
Telecommunications Equipment -- 0.9.%
1,570,000 B- At Home Corp., 4.750% due 12/15/06 1,057,788
6,575,000 B- World Access Inc., Series B, Sr. Notes,
13.250% due 1/15/08 4,766,875
------------------------------------------------------------------------------------------------
5,824,663
------------------------------------------------------------------------------------------------
Textiles -- 0.3%
2,150,000 BB Westpoint Stevens Inc., Sr. Notes, 7.875% due 6/15/05 1,870,500
------------------------------------------------------------------------------------------------
Tobacco -- 0.1%
965,000 BB- Standard Commercial Tobacco Co. Inc., Company Guaranteed,
8.875% due 8/1/05 826,281
------------------------------------------------------------------------------------------------
Trucks/Construction/Farm Machinery -- 0.5%
3,775,000 B Columbus Mckinnon Corp., Company Guaranteed,
8.500% due 4/1/08 3,336,156
------------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.3%
1,775,000 B2* Buhrmann US, Inc., Company Guaranteed,
12.250% due 11/1/09 1,846,000
------------------------------------------------------------------------------------------------
Wireless Telecommunications -- 11.7%
3,620,000 CCC Airgate PCS Inc., Sr. Sub. Notes,
step bond to yield 13.238% due 10/1/09 2,199,150
6,925,000 CCC+ Alamosa PCS Holdings, Inc., Company Guaranteed,
step bond to yield 13.411% due 2/15/10 3,774,125
1,125,000 B- Centennial Cellular Corp., Sr. Sub. Notes,
10.750% due 12/15/08 1,105,313
Clearnet Communications:
5,250,000 CAD BBB+ Sr. Discount Notes, step bond to yield
13.450% due 5/15/08 (c) 2,756,547
3,000,000 NR Sr. Secured Notes, 10.125% due 7/7/07 (b) 3,147,375
Crown Castle International Corp.:
6,425,000 B Sr. Discount Notes, step bond to yield
11.322% due 5/15/11 4,192,313
1,030,000 B Sr. Notes, 10.750% due 8/1/11 1,063,475
1,090,000 B Dobson Communications Corp., Sr. Notes,
10.875% due 7/1/10 1,070,925
3,120,000 NR Dobson/Sygnet Communications Corp., Sr. Notes,
12.250% due 12/15/08 3,127,800
1,155,000 CCC Horizon PCS Inc., step bond to yield
14.000% due 10/1/10 (d) 594,825
7,980,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 14.073% due 6/1/06 6,902,700
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
16 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ RATING(a) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Wireless Telecommunications -- 11.7% (continued)
Nextel Communications, Inc.:
7,365,000 B1* Sr. Discount Notes, step bond to yield
10.985% due 9/15/07 $ 6,057,713
16,735,000 B1* Sr. Discount Notes, step bond to yield
10.915% due 2/15/08 12,844,113
2,280,000 B1* Sr. Notes, 9.375% due 11/15/09 2,234,400
1,985,000 B- Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.250% due 4/15/09 1,091,750
2,015,000 NR Telecorp PCS Inc., Sr. Sub. Notes, 10.625% due 7/15/10 (b) 2,045,225
Telesystem International Wireless Inc., Sr. Discount Notes:
8,160,000 CCC+ Series B, step bond to yield 13.368% due 6/30/07 5,100,000
3,825,000 CCC+ Series C, step bond to yield 12.641% due 11/1/07 2,084,625
1,965,000 B3* Triton PCS, Inc., Company Guaranteed,
step bond to yield 12.077% due 5/1/08 1,483,575
3,120,000 Caa1* U.S. Unwired Inc., Company Guaranteed,
step bond to yield 13.530% due 11/1/09 1,684,800
Voicestream Wire Co.:
2,515,000 B2* Sr. Discount Notes, step bond to yield
11.875% due 11/15/09 1,823,375
935,000 B2* Sr. Notes, 11.500% due 9/15/09 1,049,537
1,891,278 B2* Sr. Notes, 10.375% due 11/15/09 2,052,037
3,564,000 B1* Term Loan, 9.620% due 2/25/09 3,555,090
5,765,000 B- Winstar Communications Corp., Sr. Discount Notes,
step bond to yield 15.313% due 4/15/10 (b) 1,873,625
------------------------------------------------------------------------------------------------
74,914,413
------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $689,957,088) 627,857,532
================================================================================================
<CAPTION>
SHARES SECURITY VALUE
================================================================================================
<S> <C> <C>
COMMON STOCK -- 0.0%
Containers/Packaging -- 0.0%
344 SF Holdings Group, Class C Shares (b) 10
------------------------------------------------------------------------------------------------
Telecommunications Equipment -- 0.0%
20,125 Pagemart Nationwide Inc. (b) 140,875
20,659 World Access, Inc. 111,688
------------------------------------------------------------------------------------------------
252,563
------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $373,323) 252,573
================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 17
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================================
<S> <C> <C>
PREFERRED STOCK -- 0.0%
Electronic Components -- 0.0%
4,113 Viasystems Group Inc., Payment-in-kind, Series B $ 74,039
------------------------------------------------------------------------------------------------
Wireless Telecommunications -- 0.0%
91 Dobson Communications Corp.,
Payment-in-kind, Exchangeble 13.000% 8,691
------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $62,381) 82,730
================================================================================================
WARRANTS (e) -- 0.3%
Broadcasting -- 0.0%
14,825 UIH Australia/Pacific, Inc., Expire 5/15/06 222,375
------------------------------------------------------------------------------------------------
Cable -- 0.0%
890 Cable Satisfaction Corp., Expire 3/1/05 18,245
------------------------------------------------------------------------------------------------
Internet Services -- 0.2%
1,705 Cybernet Internet Services, Expire 7/1/09 12,788
6,975 Splitrock Services, Inc., Expire 7/15/08 945,984
13,950 WAM!NET Inc., Expire 3/1/05 162,169
------------------------------------------------------------------------------------------------
1,120,941
------------------------------------------------------------------------------------------------
Paper -- 0.0%
8,175 SDW Holdings Corp., Expire 12/15/06 (b) 0
------------------------------------------------------------------------------------------------
Printing/Forms -- 0.0%
1,765 Merrill Corp., Expire 5/1/09 177
------------------------------------------------------------------------------------------------
Specialty Telecommunications -- 0.1%
1,555 GT Group Telecom Inc., Expire 2/1/10 125,178
43,470 Pagemart, Inc., Expire 12/31/03 217,350
6,975 RSL Communications, Ltd., Expire 11/15/06 56,672
------------------------------------------------------------------------------------------------
399,200
------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.0%
3,485 Airgate PCS Inc., Expire 10/1/09 296,225
6,725 Iridium World Communications Ltd., Expire 7/15/05 (b) 67
------------------------------------------------------------------------------------------------
296,292
------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,750,399) 2,057,230
================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
18 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT (c) -- 1.5%
$9,456,000 Goldman, Sachs & Co., 6.450% due 10/2/00;
Proceeds at maturity -- $9,461,106;
(Fully collateralized by U.S. Treasury Notes and Bonds,
6.125% to 11.750% due 8/15/01 to 8/15/27;
Market value -- $9,645,133) (Cost -- $9,456,000 ) $ 9,456,000
================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $701,599,191**) $639,706,065
================================================================================================
</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.
(b) 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.
(c) All or a portion of this security is segregated for open forward foreign
currency contracts.
(d) Security has been issued with attached warrants.
(e) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 20 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.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 19
<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
predominantly and CCC speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" represents a lower degree of speculation than "B",
and "CCC" the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may
be applied to each generic rating from "Baa" to "Ca", 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.
Ca -- Bonds rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
--------------------------------------------------------------------------------
20 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $701,599,191) $ 639,706,065
Cash 579
Interest and dividends receivable 14,976,105
Receivable for securities sold 7,116,342
Receivable for open forward foreign currency contracts (Note 8) 1,148,794
---------------------------------------------------------------------------------------------------
Total Assets 662,947,885
---------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 8,096,230
Dividends payable 1,694,635
Management fees payable 614,577
Payable for open forward foreign currency contracts (Note 8) 78,276
Accrued expenses 89,113
---------------------------------------------------------------------------------------------------
Total Liabilities 10,572,831
---------------------------------------------------------------------------------------------------
Total Net Assets $ 652,375,054
===================================================================================================
NET ASSETS:
Par value of capital shares $ 69,227
Capital paid in excess of par value 872,884,799
Undistributed net investment income 1,795,010
Accumulated net realized loss from security transactions and foreign currencies (161,369,525)
Net unrealized depreciation of investments and foreign currencies (61,004,457)
---------------------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $9.42 per share on 69,227,252 shares of
$0.001 par value outstanding; 500,000,000 shares authorized) $ 652,375,054
===================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 21
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 80,594,742
Dividends 547,821
--------------------------------------------------------------------------------
Total Investment Income 81,142,563
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 8,172,741
Shareholder communications 160,489
Shareholder and system servicing fees 117,510
Audit and legal 59,009
Custody 54,002
Directors' fees 11,270
Other 79,606
--------------------------------------------------------------------------------
Total Expenses 8,654,627
--------------------------------------------------------------------------------
Net Investment Income 72,487,936
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 8):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) (62,096,312)
Foreign currency transactions 2,031,860
--------------------------------------------------------------------------------
Net Realized Loss (60,064,452)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments
and Foreign Currencies:
Beginning of year (43,005,972)
End of year (61,004,457)
--------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (17,998,485)
--------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies (78,062,937)
--------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (5,575,001)
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
22 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended September 30,
2000 1999
====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 72,487,936 $ 73,859,720
Net realized loss (60,064,452) (41,919,147)
Increase in net unrealized depreciation (17,998,485) (14,161,100)
----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (5,575,001) 17,779,473
----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (70,585,238) (74,284,603)
Capital -- (454,788)
----------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (70,585,238) (74,739,391)
----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Treasury stock acquired (26,425,102) --
Net asset value of shares issued
for reinvestment of dividends -- 2,293,455
----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (26,425,102) 2,293,455
----------------------------------------------------------------------------------------------------
Decrease in Net Assets (102,585,341) (54,666,463)
NET ASSETS:
Beginning of year 754,960,395 809,626,858
----------------------------------------------------------------------------------------------------
End of year* $ 652,375,054 $ 754,960,395
====================================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ 1,795,010 $ (1,389,020)
====================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 23
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
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, 2000, reclassifications were made to the Fund's capital accounts
to reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this change; (j) the Fund intends to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared.
--------------------------------------------------------------------------------
24 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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"), which, in turn, is a subsidiary of Citigroup Inc., 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 year ended September 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $460,378,159
--------------------------------------------------------------------------------
Sales 482,295,980
================================================================================
At September 30, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 14,057,946
Gross unrealized depreciation (75,951,072)
--------------------------------------------------------------------------------
Net unrealized depreciation $(61,893,126)
================================================================================
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 25
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
4. Capital Loss Carryforward
At September 30, 2000, the Fund had, for Federal tax purposes, approximately
$105,015,800 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 2008
================================================================================
Carryforward Amounts $16,016,600 $38,118,000 $11,075,400 $39,805,800
================================================================================
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 September 30, 2000, the Fund did not have any open futures contracts.
--------------------------------------------------------------------------------
26 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
6. Options Contracts
Premiums paid when call or put 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 September 30, 2000, 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 year ended September 30, 2000, the Fund did not write any call or put
option contracts.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 27
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (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 (plus accrued interest) of the collateral in amounts at
least equal to the repurchase price.
8. Forward Foreign Currency Contracts
At September 30, 2000, 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:
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
================================================================================
To Buy:
Euro 1,627,606 $ 1,441,901 12/15/00 $ (78,276)
British Pound 189,150 280,107 12/22/00 4,062
--------------------------------------------------------------------------------
To Sell:
Canadian Dollar 6,395,188 4,257,687 12/8/00 82,118
Euro 12,701,409 11,252,213 12/15/00 972,209
British Pound 4,023,125 5,957,745 12/22/00 90,405
--------------------------------------------------------------------------------
1,144,732
--------------------------------------------------------------------------------
Net Unrealized Gain on Open
Forward Foreign Currency Contracts $1,070,518
================================================================================
9. Capital Shares
At September 30, 2000, 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. For the year
ended September 30, 2000, the Fund repurchased (and retired) 3,003,100 shares
with a total cost of $26,425,102.
--------------------------------------------------------------------------------
28 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended September
30, except where noted:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.45 $ 11.24 $ 12.43 $ 11.72 $ 11.48
------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 1.06 1.03 1.08 1.15 1.14
Net realized and unrealized
gain (loss) (1.13) (0.79) (1.14) 0.68 0.22
------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.07) 0.24 (0.06) 1.83 1.36
------------------------------------------------------------------------------------------------------------
Gains From Repurchase
of Treasury Stock 0.05 -- -- -- --
------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (1.01) (1.03) (1.13) (1.12) (1.12)
Capital -- (0.00)* -- -- --
------------------------------------------------------------------------------------------------------------
Total Distributions (1.01) (1.03) (1.13) (1.12) (1.12)
------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 9.42 $ 10.45 $ 11.24 $ 12.43 $ 11.72
------------------------------------------------------------------------------------------------------------
Total Return,
Based on Market Value(1) 9.75% (9.36)% (1.65)% 18.18% 21.07%
------------------------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value(1) 0.98% 2.74% (0.58)% 16.48% 12.86%
------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 652 $ 755 $ 810 $ 883 $ 819
------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.22% 1.20% 1.18% 1.21% 1.21%
Net investment income 10.21 9.28 8.81 9.63 9.85
------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 69% 83% 98% 87% 73%
------------------------------------------------------------------------------------------------------------
Market Value, End of Year $ 8.938 $ 9.125 $ 11.125 $ 12.438 $ 11.500
============================================================================================================
</TABLE>
(1) 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.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 29
<PAGE>
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------
The Shareholders and Board of Directors of High Income Opportunity Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of High Income Opportunity Fund Inc. as of
September 30, 2000, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of High
Income Opportunity Fund Inc. as of September 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
November 13, 2000
--------------------------------------------------------------------------------
30 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Tax Information (unaudited)
--------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
September 30, 2000:
o A corporate dividends received deduction of 0.73%.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 31
<PAGE>
--------------------------------------------------------------------------------
Financial Data (unaudited)
--------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each period:
Income Dividend
NYSE Net Asset Dividend Reinvestment
Closing Price Value Paid Price
================================================================================
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
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
January 21 9.00 10.42 0.0840 8.940
February 17 8.56 10.35 0.0840 8.430
March 24 8.63 10.07 0.0840 8.570
April 20 8.63 9.96 0.0840 8.670
May 19 8.81 9.71 0.0840 8.850
June 23 9.00 9.85 0.0840 9.070
July 25 9.50 9.78 0.0840 9.350
August 22 9.19 9.76 0.0840 9.230
September 26 9.94 9.42 0.0840 8.780
================================================================================
--------------------------------------------------------------------------------
32 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
--------------------------------------------------------------------------------
On February 23, 2000, the Annual Meeting of shareholders of the Fund was held
for the purpose of voting on the following matters:
1. To vote on the election of Heath B. McLendon, Roderick C. Rasmussen and
John P. Toolan, as Directors; and
2. To approve or disapprove the selection of KPMG LLP as the independent
auditors for the current fiscal year of the Fund.
The results of the vote on Proposal 1 were as follows:
Shares Percentage Shares Percentage
Voted of Shares Voted of Shares
Name of Directors* For Voted Against Voted
================================================================================
Heath B. McLendon 66,260,425.057 98.177% 1,230,404.269 1.823%
Roderick C. Rasmussen 66,225,233.057 98.125 1,265,596.269 1.875
John P. Toolan 66,123,119.283 97.973 1,367,710.043 2.027
================================================================================
The results of the vote on Proposal 2 were as follows:
Shares Percentage Shares Percentage Percentage
Voted of Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
================================================================================
66,525,198.300 98.569% 323,025.109 0.479% 642,605.917 0.952%
================================================================================
* The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Lee Abraham, Allan J.
Bloostein, Jane F. Dasher, Donald R. Foley, Richard E. Hanson, Jr. and
Paul Hardin.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 33
<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"), 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
--------------------------------------------------------------------------------
34 2000 Annual 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 (unautited)
--------------------------------------------------------------------------------
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. 35
<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
PFPC Trust Company
TRANSFER 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 7 World Trade Center
NYSE [LOGO] New York, New York 10048
THE NEW YORK STOCK EXCHANGE
FD0802 11/00
