UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7920
High Income Opportunity Fund Inc.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: September 30
Date of reporting period: March 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
HIGH INCOME
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Opportunity Fund Inc.
[GRAPHIC OMITTED]
Semi-Annual Report
March 31, 2004
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WHAT'S INSIDE
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Letter from the Chairman ................................................... 1
Schedule of Investments .................................................... 5
Statement of Assets and Liabilities ........................................ 21
Statement of Operations .................................................... 22
Statements of Changes in Net Assets ........................................ 23
Notes to Financial Statements .............................................. 24
Financial Highlights ....................................................... 28
Financial Data ............................................................. 29
Additional Shareholder Information ......................................... 30
Dividend Reinvestment Plan ................................................. 31
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LETTER FROM THE CHAIRMAN
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[PHOTO OMITTED]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
Dear Shareholder,
The performance of the high-yield bond market(i) over the six months ending
March 31, 2004, was spurred by an improving economy, which benefited from a
mid-year cut in interest rates. Strong inflows into high-yield bond funds
throughout much of the period drove demand for high-yield bonds, propelling the
market higher through the end of December. Better-than-expected quarterly
earnings and lower default rates also contributed to this strong demand, while
increased capital market transactions fortified the balance sheets of corporate
bond issuers. Although the market's tone was more tempered in 2004 than it had
been in the final quarter of 2003, as of the period's close, corporate
fundamentals have remained strong and yields on high-yield issues finished
significantly above those on higher-rated bonds.
During the six months ended March 31, 2004 the High Income Opportunity Fund
Inc., returned 5.28% based on its New York Stock Exchange ("NYSE") market price,
and 7.49% based on its net asset value ("NAV")(ii) per share. In comparison, the
Citigroup High Yield Market Index ("High Yield Index")(iii) returned 8.33% over
the same period. The fund's Lipper high current yield closed-end funds category
average returned 8.83% over the same time frame.(iv) Please note that Lipper
performance returns are based on each fund's NAV.
During this six-month period, the fund made distributions to shareholders
totaling $0.30 per share. The performance table shows the fund's 30-day SEC
yields as well as its six-month total return based on its NAV and market price
as of March 31, 2004. Past performance is no guarantee of future results. The
fund's yields will vary. Please note that high-yield bonds are subject to
additional risks, such as the increased risk of default and greater volatility
because of the lower credit quality of these issues.
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High Income Opportunity Fund Inc. 1
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FUND PERFORMANCE
AS OF MARCH 31, 2004
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30-Day Six-Month
Price Per Share SEC Yield Total Return
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$7.30 (NAV) 7.11% 7.49%
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$7.16 (NYSE) 7.25% 5.28%
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All figures represent past performance and are not a guarantee of future
results. The fund's yields will vary.
Total returns are based on changes in NAV or market price, respectively. Total
returns assume the reinvestment of all dividends and/or capital gains
distributions, if any, in additional shares. The "SEC yield" is a return figure
often quoted by bond and other fixed income mutual funds. This quotation is
based on the most recent 30-day (or one month) period covered by the fund's
filings with the SEC. The yield figure reflects the dividends and interest
earned during the period after deduction of the fund's expenses for the period.
These yields are as of March 31, 2004 and are subject to change.
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Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The fund has been informed
that the Adviser and its affiliates are responding to those information
requests, but are not in a position to predict the outcome of these requests and
investigations.
Looking for Additional Information?
The fund is traded under the symbol "HIO" and its closing market price is
available in most newspapers under the NYSE listings. The daily NAV is available
online under symbol XHIOX. Barron's and The Wall Street Journal's Monday
editions carry closed-end fund tables that will provide additional information.
In addition, the fund issues a quarterly press release that can be found on most
major financial web sites as well as www.citigroupassetmanagement.com.
In a continuing effort to provide information concerning the fund, shareholders
may call 1-888-735-6507, Monday through Friday from 8:00 a.m. to 6:00 p.m.
Eastern Time, for the fund's current net asset value, market price and other
information regarding the fund's portfolio holdings and allocations.
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2 2004 Semi-Annual Report
Thank you for your investment in the High Income Opportunity Fund Inc.
We appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
April 19, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of March 31, 2004 and are subject to
change. Please refer to pages 5 through 19 for a list and percentage breakdown
of the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) RISKS: The fund invests in high yield bonds, which are subject to
additional risks such as the increased risk of default and greater
volatility because of the lower credit quality of the issues. The fund may
use derivatives, such as options and futures, which can be illiquid, may
disproportionately increase losses, and have a potentially large impact on
fund performance. In addition, it may invest in foreign securities, which
are subject to certain risks of overseas investing including currency
fluctuations and changes in political and economic conditions, which could
result in significant market fluctuations.
(ii) NAV is a price that reflects the value of the fund's underlying portfolio
plus other assets, less the fund's liabilities. However, the price at
which an investor may buy or sell shares of the fund is at the fund's
market price as determined by supply of and demand for the fund's common
shares, which may be more or less than the fund's NAV.
(iii) The Citigroup High Yield Market Index is a broad-based unmanaged index of
high yield securities.
(iv) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended March 31, 2004 calculated
among the eight funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any.
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High Income Opportunity Fund Inc. 3
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Take Advantage of the Fund's Dividend Reinvestment Plan!
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), PFPC Inc. ("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 or 95% of
the market price. 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 31. To find out more detailed information about the
Plan and about how you can participate, please call the Plan Agent at
1-800-331-1710.
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4 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
CORPORATE BONDS & NOTES -- 95.0%
Aerospace & Defense -- 0.5%
1,600,000 CCC+ Dunlop Standard Aerospace Holdings PLC, Sr. Notes,
11.875% due 5/15/09 $ 1,712,000
650,000 BB- Sequa Corp., Sr. Notes, 9.000% due 8/1/09 734,500
----------------------------------------------------------------------------------------------------------
2,446,500
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Airlines -- 1.1%
Continental Airlines, Inc., Pass-Through Certificates:
571,321 BB Series 00-2, Class C, 8.312% due 4/2/11 498,061
2,380,000 B Series 01-2, Class D, 7.568% due 12/1/06 2,045,501
1,555,000 BB- Series 99-2, Class C-2, 7.434% due 9/15/04 1,536,559
United Air Lines, Inc., Pass-Through Certificates:
962,969 CCC Series 00-1, Class B, 8.030% due 7/1/11 329,676
2,268,135 CCC+ Series 00-2, Class B, 7.811% due 10/1/09 956,280
Series 01-1:
460,000 B+ Class B, 6.932% due 9/1/11 216,889
1,045,000 CCC+ Class C, 6.831% due 9/1/08 215,714
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5,798,680
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Automotive -- 2.7%
695,000 B+ Arvin Capital I, Capital Securities, 9.500% due 2/1/27 750,600
Dana Corp., Notes:
1,925,000 BB 6.500% due 3/1/09 2,059,750
875,000 BB 10.125% due 3/15/10 1,015,000
2,200,000 B- Eagle-Picher Industries, Inc., Sr. Notes,
9.750% due 9/1/13 2,420,000
775,000 BBB- Ford Motor Co., Notes, 7.450% due 7/16/31 776,221
1,325,000 BBB- Ford Motor Credit Co., Notes, 7.250% due 10/25/11 1,437,153
1,275,000 BBB General Motors Acceptance Corp., Notes,
6.875% due 8/28/12 1,379,382
General Motors Corp.:
450,000 BBB Debentures, 8.375% due 7/15/33 511,972
2,125,000 BBB Sr. Notes, 7.125% due 7/15/13 2,325,375
1,000,000 CCC+ Tenneco Automotive Inc., Sr. Secured 2nd Lien Notes,
Series B, 10.250% due 7/15/13 1,155,000
276,000 BB- TRW Automotive Inc., Sr. Sub. Notes,
11.000% due 2/15/13 331,200
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14,161,653
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Building Products -- 1.3%
Associated Materials Inc.:
3,750,000 B- Sr. Discount Notes, step bond to yield
11.246% due 3/1/14 (b) 2,296,875
435,000 B- Sr. Sub. Notes, 9.750% due 4/15/12 487,200
1,745,000 B- Atrium Cos. Inc., Sr. Sub. Notes, Series B,
10.500% due 5/1/09 1,845,337
2,185,000 B- Nortek Inc., Sr. Sub. Notes, Series B, 9.875% due 6/15/11 2,469,050
----------------------------------------------------------------------------------------------------------
7,098,462
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See Notes to Financial Statements.
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High Income Opportunity Fund Inc. 5
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Business -- 1.6%
1,990,000 B- Advanstar Communications Inc., Sr. Secured Notes,
8.620% due 8/15/08 (c) $ 2,101,937
2,845,000 BBB- Avis Group Holdings Inc., Sr. Sub. Notes,
11.000% due 5/1/09 3,007,256
550,000 B Iron Mountain Inc., Sr. Sub. Notes, 8.625% due 4/1/13 602,250
1,460,000 BB- Mail-Well I Corp., Sr. Notes, 9.625% due 3/15/12 1,613,300
1,125,000 B- Muzak Finance Corp., Sr. Notes, 10.000% due 2/15/09 1,171,406
4,770,000 D Outsourcing Solutions Inc., Sr. Sub. Notes, Series B,
11.000% due 11/1/06 (d) 48,893
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8,545,042
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Cable & Media -- 9.7%
525,000 BB+ Avista Corp., Sr. Notes, 9.750% due 6/1/08 635,250
Charter Communications Holdings, LLC:
Sr. Discount Notes:
8,655,000 CCC- Step bond to yield 11.732% due 1/15/10 7,010,550
2,735,000 CCC- Step bond to yield 11.668% due 1/15/11 1,969,200
3,880,000 CCC- Step bond to yield 17.391% due 5/15/11 2,483,200
2,600,000 CCC- Sr. Notes, 10.750% due 10/1/09 2,288,000
CSC Holdings Inc.:
2,425,000 BB- Sr. Debentures, 7.625% due 7/15/18 2,570,500
Sr. Notes:
1,025,000 BB- 7.875% due 12/15/07 1,107,000
Series B:
1,200,000 BB- 8.125% due 7/15/09 1,296,000
700,000 BB- 7.625% due 4/1/11 742,000
1,955,000 B+ Sr. Sub. Debentures, 10.500% due 5/15/16 2,267,800
2,375,000 BB- DirecTV Holdings LLC, Sr. Notes, 8.375% due 3/15/13 2,719,375
Echostar DBS Corp., Sr. Notes:
3,495,000 BB- 10.375% due 10/1/07 3,818,287
1,979,000 BB- 9.125% due 1/15/09 2,246,165
2,630,000 B- Insight Communications Co., Inc., Sr. Discount Notes,
step bond to yield 13.766% due 2/15/11 2,235,500
650,000 B+ Insight Midwest, L.P., Sr. Notes, 10.500% due 11/1/10 702,000
3,075,000 B+ Mediacom Broadband LLC, Sr. Notes,
11.000% due 7/15/13 3,305,625
75,000 B+ Mediacom Capital Corp., Sr. Notes, 9.500% due 1/15/13 74,625
Pegasus Communications Inc., Sr. Notes, Series B:
175,000 CCC- 9.625% due 10/15/05 156,844
710,000 CCC- 9.750% due 12/1/06 629,237
870,000 CCC- Pegasus Satellite Communications, Inc., Sr. Discount
Notes, step bond to yield 19.102% due 3/1/07 648,150
4,500,000 BB- Rogers Cablesystems, Ltd., Sr. Sub. Notes,
11.000% due 12/1/15 5,242,500
See Notes to Financial Statements.
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6 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Cable & Media -- 9.7% (continued)
2,575,000 BBB+ Time Warner Inc., Sr. Debentures, 6.625% due 5/15/29 $ 2,700,699
Vivendi Universal SA, Sr. Notes:
3,200,000 Ba3* 6.250% due 7/15/08 3,472,000
1,200,000 BB 9.250% due 4/15/10 1,440,000
----------------------------------------------------------------------------------------------------------
51,760,507
----------------------------------------------------------------------------------------------------------
Capital Goods -- 0.2%
1,150,000 B Terex Corp., Sr. Sub. Notes, Series B,
10.375% due 4/1/11 1,316,750
----------------------------------------------------------------------------------------------------------
Cellular & PCs -- 3.8%
1,157,300 CCC- AirGate PCS, Inc., Sr. Sub. Secured Notes,
9.375% due 9/1/09 1,099,435
Alamosa Delaware Inc:
3,008,457 CCC Sr. Discount Notes, step bond to yield
11.437% due 7/31/09 2,752,738
568,750 CCC Sr. Notes, 11.000% due 7/31/10 609,984
250,000 B- American Cellular Corp., Sr. Notes, Series B,
10.000% due 8/1/11 241,250
AT&T Wireless Services Inc.:
3,825,000 BBB Notes, 8.125% due 5/1/12 4,667,930
Sr. Notes:
4,425,000 BBB 7.875% due 3/1/11 5,285,654
100,000 BBB 8.750% due 3/1/31 130,171
525,000 CCC+ Dobson Communications Corp., Sr. Notes,
8.875% due 10/1/13 414,750
890,000 D Horizon PCS Inc., Sr. Discount Notes, step bond to yield
14.482% due 10/1/10 (d) 200,250
Nextel Communications, Inc., Sr. Notes:
1,375,000 BB 9.375% due 11/15/09 1,502,187
1,875,000 BB 7.375% due 8/1/15 2,039,062
998,000 CCC+ Nextel Partners Inc., Sr. Notes, 12.500% due 11/15/09 1,177,640
----------------------------------------------------------------------------------------------------------
20,121,051
----------------------------------------------------------------------------------------------------------
Chemicals -- 5.7%
1,020,000 B+ Airgas Inc., Sr. Sub. Notes, 9.125% due 10/1/11 1,162,800
745,000 CCC Avecia Group PLC, Sr. Notes, 11.000% due 7/1/09 636,975
2,400,000 B+ Equistar Chemical L.P., Sr. Notes, 10.625% due 5/1/11 2,598,000
700,000 BB+ FMC Corp., Medium-Term Notes, Series A,
6.750% due 5/5/05 721,000
15,785,000 CCC+ Huntsman International Holdings LLC., Sr. Discount
Notes, zero coupon bond to yield
13.091% due 12/31/09 7,340,025
870,000 B- Huntsman International LLC, Sr. Notes,
9.875% due 3/1/09 961,350
1,750,000 B+ IMC Global Inc., Sr. Notes, Series B, 11.250% due 6/1/11 2,082,500
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 7
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Chemicals -- 5.7% (continued)
1,750,000 BB- ISP Chemco Inc., Sr. Sub. Notes, Series B,
10.250% due 7/1/11 $ 1,990,625
1,715,000 B+ ISP Holdings Inc., Sr. Secured Notes, Series B,
10.625% due 12/15/09 1,912,225
Lyondell Chemical Co., Sr. Secured Notes:
1,745,000 B+ 11.125% due 7/15/12 1,884,600
900,000 B+ Series B, 9.875% due 5/1/07 938,250
700,000 BBB- Methanex Corp., Sr. Notes, 8.750% due 8/15/12 805,000
655,000 B- OM Group, Inc., Sr. Sub. Notes, 9.250% due 12/15/11 677,925
2,800,000 CCC+ Resolution Performance Products Inc., Sr. Sub. Notes,
13.500% due 11/15/10 2,352,000
Rhodia SA:
250,000 CCC+ Sr. Notes, 7.625% due 6/1/10 (b) 231,250
2,750,000 CCC+ Sr. Sub. Notes, 8.875% due 6/1/11 (b) 2,310,000
170,000 B+ Terra Capital Inc., Sr. Secured Notes,
12.875% due 10/15/08 201,450
1,450,000 B+ Westlake Chemical Corp., Sr. Notes, 8.750% due 7/15/11 1,609,500
----------------------------------------------------------------------------------------------------------
30,415,475
----------------------------------------------------------------------------------------------------------
Consumer Products -- 4.7%
2,100,000 B+ AKI, Inc., Sr. Notes, 10.500% due 7/1/08 2,194,500
American Greetings Corp.:
1,220,000 BBB- Notes, 6.100% due 8/1/28 1,323,700
790,000 BB+ Sr. Sub. Notes, 11.750% due 7/15/08 928,250
2,550,000 CCC+ Home Interiors & Gifts, Inc., Sr. Sub. Notes,
10.125% due 6/1/08 2,594,625
2,200,000 B- Icon Health & Fitness, Inc., Sr. Sub. Notes,
11.250% due 4/1/12 2,541,000
2,150,000 B Playtex Products, Inc., Sr. Secured Notes,
8.000% due 3/1/11 (b) 2,246,750
Sealy Mattress Co.:
2,390,000 B- Sr. Sub. Discount Notes, Series B,
10.875% due 12/15/07 2,494,562
Sr. Sub. Notes:
1,300,000 B- 8.250% due 6/15/14 (b) 1,306,500
1,025,000 B- Series B, 9.875% due 12/15/07 1,066,430
Service Corp. International:
1,225,000 BB- Debentures, 7.875% due 2/1/13 1,316,875
Notes:
1,365,000 BB- 6.875% due 10/1/07 1,440,075
1,715,000 BB- 6.500% due 3/15/08 1,787,887
1,395,000 B Sola International Inc., Notes, 6.875% due 3/15/08 1,417,669
1,880,000 B+ Stewart Enterprises, Inc., Sr. Sub. Notes,
10.750% due 7/1/08 2,124,400
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24,783,223
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See Notes to Financial Statements.
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8 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Containers & Packaging -- 2.8%
2,275,000 B+ Anchor Glass Container Corp., Sr. Secured Notes,
11.000% due 2/15/13 $ 2,656,062
3,420,000 BB- Owens-Brockway Glass Container Inc., Sr. Secured Notes,
8.875% due 2/15/09 3,710,700
700,000 B Owens-Illinois Inc., Sr. Notes, 7.150% due 5/15/05 728,000
1,625,000 B+ Plastipak Holdings Inc., Sr. Notes, 10.750% due 9/1/11 1,771,250
Pliant Corp.:
1,100,000 B- Sr. Secured 2nd Lien Notes, 11.125% due 9/1/09 1,155,000
245,000 B- Sr. Sub. Notes, 13.000% due 6/1/10 213,150
725,000 B Radnor Holdings Corp., Sr. Notes, 11.000% due 3/15/10 590,875
1,550,000 BBB Sealed Air Corp., Notes, 6.950% due 5/15/09 (b) 1,787,576
Tekni-Plex Inc.:
1,000,000 B- Sr. Secured Notes, 8.750% due 11/15/13 (b) 1,000,000
1,385,000 B- Sr. Sub. Notes, Series B, 12.750% due 6/15/10 1,457,713
----------------------------------------------------------------------------------------------------------
15,070,326
----------------------------------------------------------------------------------------------------------
Drillers & Service -- 0.5%
1,890,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09 2,003,400
865,000 BB- SESI, LLC, Sr. Notes, 8.875% due 5/15/11 947,175
----------------------------------------------------------------------------------------------------------
2,950,575
----------------------------------------------------------------------------------------------------------
Energy -- 7.1%
Dynegy Holdings Inc.:
4,500,000 B- 2nd Priority Sr. Secured Notes,
7.620% due 7/15/08 (b)(c) 4,736,250
4,500,000 CCC+ Sr. Debentures, 7.625% due 10/15/26 3,667,500
El Paso Corp., Sr. Medium-Term Notes:
750,000 CCC+ 7.800% due 8/1/31 605,625
6,275,000 CCC+ 7.750% due 1/15/32 5,067,062
938,000 BB- El Paso Energy Partners L.P., Sr. Sub. Notes, Series B,
8.500% due 6/1/11 1,069,320
2,075,000 BB- Leviathan Gas Pipeline Partners, L.P., Sr. Sub. Notes,
Series B, 10.375% due 6/1/09 2,209,875
1,725,000 B+ Magnum Hunter Resources, Inc., Sr. Notes,
9.600% due 3/15/12 1,936,312
Plains Exploration & Production Co., Sr. Sub. Notes:
1,250,000 B 8.750% due 7/1/12 1,412,500
875,000 B Series B, 8.750% due 7/1/12 988,750
Pogo Producing Co., Sr. Sub. Notes, Series B:
345,000 BB 10.375% due 2/15/09 365,700
520,000 BB 8.250% due 4/15/11 587,600
Swift Energy Co., Sr. Sub. Notes:
1,600,000 B 10.250% due 8/1/09 1,720,000
700,000 B 9.375% due 5/1/12 784,000
Vintage Petroleum, Inc.:
1,210,000 BB- Sr. Notes, 8.250% due 5/1/12 1,367,300
1,600,000 B Sr. Sub. Notes, 7.875% due 5/15/11 1,728,000
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 9
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Energy -- 7.1% (continued)
875,000 B+ Westport Resources Corp., Sr. Sub. Notes,
8.250% due 11/1/11$ 977,812
The Williams Cos., Inc.:
Notes:
1,825,000 B+ 7.625% due 7/15/19 1,861,500
2,950,000 B+ 7.875% due 9/1/21 3,001,625
700,000 B+ 8.750% due 3/15/32 745,500
2,500,000 B+ Sr. Notes, 8.625% due 6/1/10 2,762,500
----------------------------------------------------------------------------------------------------------
37,594,731
----------------------------------------------------------------------------------------------------------
Financial & Leasing -- 1.4%
9,956,016 D Airplanes Pass-Through Trust, Corporate Asset-Backed
Securities, Sub. Notes, Series D, 10.875% due 3/15/12 (d) 0
1,680,000 BB Markel Capital Trust I, Capital Securities, Series B,
8.710% due 1/1/46 1,812,915
5,500,000 CCC- Ocwen Capital Trust I, Capital Securities,
10.875% due 8/1/27 5,555,000
----------------------------------------------------------------------------------------------------------
7,367,915
----------------------------------------------------------------------------------------------------------
Food Processing/Beverages/Tobacco -- 1.7%
875,000 B+ Cott Beverages USA Inc., Sr. Sub. Notes,
8.000% due 12/15/11 966,875
995,000 BB- Dean Foods Co., Sr. Notes, 6.900% due 10/15/17 1,049,725
1,125,000 B Del Monte Corp., Sr. Sub. Notes, 8.625% due 12/15/12 1,271,250
Doane Pet Care Co.:
2,575,000 CCC Sr. Notes, 10.750% due 3/1/10 2,697,312
175,000 CCC Sr. Sub. Notes, 9.750% due 5/15/07 155,313
1,600,000 B Land O' Lakes Inc., Sr. Secured Notes,
9.000% due 12/15/10 (b) 1,624,000
175,000 B- Premier International Foods PLC, Sr. Notes,
12.000% due 9/1/09 189,875
1,075,000 BB+ Standard Commercial Tobacco Co., Sr. Notes,
8.875% due 8/1/05 1,096,500
----------------------------------------------------------------------------------------------------------
9,050,850
----------------------------------------------------------------------------------------------------------
Gaming -- 3.6%
2,170,000 B Ameristar Casinos, Inc., Sr. Sub. Notes,
10.750% due 2/15/09 2,519,912
Caesars Entertainment Inc., Sr. Sub. Notes:
1,300,000 BB- 9.375% due 2/15/07 1,469,000
1,325,000 BB- 8.875% due 9/15/08 1,517,125
2,545,000 BB- 8.125% due 5/15/11 2,920,387
625,000 B+ Horseshoe Gaming Holding Corp., Sr. Sub. Notes,
Series B, 8.625% due 5/15/09 657,813
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Gaming -- 3.6% (continued)
Mandalay Resort Group:
700,000 BB- Sr. Sub. Debentures, 7.625% due 7/15/13 $ 770,000
1,725,000 BB- Sr. Sub. Notes, Series B, 10.250% due 8/1/07 2,039,812
MGM MIRAGE, Sr. Sub. Notes:
875,000 BB- 9.750% due 6/1/07 1,015,000
2,050,000 BB- 8.375% due 2/1/11 2,378,000
800,000 B+ Station Casinos, Inc., Sr. Sub. Notes,
6.875% due 3/1/16 (b) 826,000
2,615,000 B- Venetian Casino Resort, LLC, Mortgage Secured Notes,
11.000% due 6/15/10 3,020,325
----------------------------------------------------------------------------------------------------------
19,133,374
----------------------------------------------------------------------------------------------------------
Healthcare -- 3.6%
1,350,000 CC aaiPharma Inc., Sr. Sub. Notes, 11.000% due 4/1/10 1,086,750
AmeriPath, Inc., Sr. Sub. Notes:
1,600,000 B- 10.500% due 4/1/13 1,640,000
850,000 B- 10.500% due 4/1/13 (b) 871,250
2,900,000 B- Athena Neurosciences Financial LLC, Sr. Notes,
7.250% due 2/21/08 2,925,375
1,898,881 B+ Dade Behring Holdings Inc., Sr. Sub. Notes,
11.910% due 10/3/10 2,193,208
775,000 B Extendicare Health Services, Inc., Sr. Sub. Notes,
9.500% due 7/1/10 869,938
2,250,000 B- InSight Health Services, Corp., Sr. Sub. Notes, Series B,
9.875% due 11/1/11 2,266,875
Tenet Healthcare Corp.:
4,275,000 B- Notes, 7.375% due 2/1/13 3,879,562
575,000 B- Sr. Notes, 5.375% due 11/15/06 543,375
2,450,000 CCC+ Vanguard Health Systems, Sr. Sub. Notes,
9.750% due 8/1/11 2,652,125
----------------------------------------------------------------------------------------------------------
18,928,458
----------------------------------------------------------------------------------------------------------
Home Builders -- 2.0%
D.R. Horton Inc.:
1,140,000 BB+ Sr. Notes, 8.000% due 2/1/09 1,322,400
910,000 BB- Sr. Sub. Notes, 9.375% due 3/15/11 1,041,950
1,350,000 BB- KB HOME, Sr. Sub. Notes, 9.500% due 2/15/11 1,539,000
1,490,000 BBB- Lennar Corp., Sr. Notes, Series B, 9.950% due 5/1/10 1,702,461
650,000 BBB- The Ryland Group, Inc., Sr. Notes, 9.750% due 9/1/10 744,250
1,715,000 BB- Schuler Homes Inc., Sr. Sub. Notes,
10.500% due 7/15/11 2,032,275
Standard Pacific Corp.:
1,140,000 BB Sr. Notes, 8.500% due 4/1/09 1,194,150
875,000 B+ Sr. Sub. Notes, 9.250% due 4/15/12 1,030,312
----------------------------------------------------------------------------------------------------------
10,606,798
----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 11
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Industrial -- 1.6%
1,235,000 NR Aqua-Chem Inc., Sr. Sub. Notes, 11.250% due 7/1/08 $ 1,018,875
435,000 BB- Case Credit Corp., Notes, 6.75% due 10/21/07 443,700
375,000 BB- Case New Holland Inc., Sr. Notes, 9.250% due 8/1/11 (b) 425,625
1,400,000 B- Columbus McKinnon Corp., Sr. Secured Notes,
10.000% due 8/1/10 1,519,000
1,975,000 B FlowServe Corp., Sr. Sub. Notes, 12.250% due 8/15/10 2,286,063
1,175,000 B- Invensys PLC, Sr. Notes, 9.875% due 3/15/11 (b) 1,210,250
690,000 B+ NMHG Holding Co., 10.000% due 5/15/09 762,450
625,000 B- Rexnord Corp., Sr. Sub. Notes, 10.125% due 12/15/12 687,500
----------------------------------------------------------------------------------------------------------
8,353,463
----------------------------------------------------------------------------------------------------------
Industrial Service -- 1.7%
Allied Waste North America, Inc., Series B:
Sr. Notes:
2,580,000 BB- 8.500% due 12/1/08 2,902,500
80,000 BB- 7.875% due 1/1/09 83,600
3,680,000 B+ Sr. Sub. Notes, 10.000% due 8/1/09 3,965,200
1,600,000 B- Brand Services Inc., Sr. Notes, 12.000% due 10/15/12 1,872,000
----------------------------------------------------------------------------------------------------------
8,823,300
----------------------------------------------------------------------------------------------------------
International Cable -- 0.2%
1,420,000(GBP) C TeleWest Communications PLC, Bonds,
5.250% due 2/19/07 (b)(d) 1,332,855
----------------------------------------------------------------------------------------------------------
Leisure -- 0.5%
846,000 CCC+ AMC Entertainment Inc., Sr. Sub. Notes,
9.500% due 2/1/11 888,300
2,700,000 B- Cinemark, Inc., Sr. Discount Notes, step bond to yield
9.747% due 3/15/14 (b) 1,687,500
----------------------------------------------------------------------------------------------------------
2,575,800
----------------------------------------------------------------------------------------------------------
Lodging -- 2.5%
1,550,000 CCC+ Courtyard By Marriott II L.P., Sr. Notes, Series B,
10.750% due 2/1/08 1,561,625
2,600,000 B- Felcor Lodging L.P., Sr. Notes, 10.000% due 9/15/08 2,782,000
Hilton Hotels Corp., Sr. Notes:
1,360,000 BBB- 7.950% due 4/15/07 1,516,400
275,000 BBB- 7.625% due 12/1/12 317,281
2,920,000 B+ Host Marriott L.P., Notes, Series I, 9.500% due 1/15/07 3,285,000
2,550,000 CCC+ MeriStar Hospitality Operating Partnership, L.P.,
Sr. Notes, 10.500% due 6/15/09 2,754,000
1,250,000 BB+ Starwood Hotels & Resorts Worldwide, Inc., Notes,
7.875% due 5/1/12 1,418,750
----------------------------------------------------------------------------------------------------------
13,635,056
----------------------------------------------------------------------------------------------------------
Machinery -- 0.4%
2,280,000 CCC+ Park-Ohio Industries Inc., Sr. Sub. Notes,
9.250% due 12/1/07 2,291,400
----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Networks -- 5.3%
AT&T Corp., Sr. Notes:
2,250,000 BBB 8.050% due 11/15/11 $ 2,634,912
1,900,000 BBB 8.750% due 11/15/31 2,248,939
2,955,000(EUR) B- Colt Telecom Group PLC, Bonds, 2.000% due 4/3/07 (b) 4,200,002
Qwest Corp.:
2,100,000 B- Debentures, 6.875% due 9/15/33 1,869,000
4,025,000 B- Notes, 9.125% due 3/15/12 (b)(c) 4,588,500
1,583,000 CCC+ Qwest Services Corp., 14.000% due 12/15/14 (b) 1,919,387
Sprint Capital Corp.:
5,550,000 BBB- Notes, 8.750% due 3/15/32 7,040,042
3,250,000 BBB- Sr. Notes, 6.875% due 11/15/28 3,387,303
----------------------------------------------------------------------------------------------------------
27,888,085
----------------------------------------------------------------------------------------------------------
Paper & Forest Products -- 4.5%
2,250,000 BB Abitibi-Consolidated Inc., Debentures,
8.850% due 8/1/30 2,296,649
1,700,000 B+ Appleton Papers Inc., Sr. Sub. Notes, Series B,
12.500% due 12/15/08 1,929,500
850,000 B- Blue Ridge Paper Products Inc., Sr. Secured Notes,
9.500% due 12/15/08 (b) 845,750
3,000,000 BB Bowater Inc., Debentures, 9.500% due 10/15/12 3,420,000
Buckeye Technologies Inc., Sr. Sub. Notes:
875,000 B 9.250% due 9/15/08 879,375
2,930,000 B 8.000% due 10/15/10 2,886,050
1,875,000 B JSG Funding PLC, Sr. Notes, 9.625% due 10/1/12 2,128,125
2,500,000 B- Newark Group Inc., Sr. Sub. Notes,
9.750% due 3/15/14 (b) 2,475,000
4,635,000 B Stone Container Finance, Sr. Notes,
11.500% due 8/15/06 (b) 4,774,050
2,450,000 BB- Tembec Industries, Inc., Sr. Notes, 8.625% due 6/30/09 2,462,250
----------------------------------------------------------------------------------------------------------
24,096,749
----------------------------------------------------------------------------------------------------------
Publishing & Printing -- 2.5%
1,050,000 B Dex Media East LLC/Dex Media East Finance Co., Notes,
12.125% due 11/15/12 1,231,125
Dex Media Inc., Discount Notes:
3,000,000 B Step bond to yield 8.372% due 11/15/13 (b) 1,935,000
1,250,000 B Step bond to yield 9.161% due 11/15/13 (b) 806,250
1,450,000 B Dex Media West LLC/Dex Media Finance Co.,
Sr. Sub. Notes, 9.875% due 8/15/13 (b) 1,616,750
2,985,517 B- Hollinger Participation Trust, Sr. Notes, Payment-in-Kind,
12.125% due 11/15/10 (b) 3,459,468
2,300,000 B Houghton Mifflin Co., Sr. Discount Notes,
step bond to yield 11.240% due 10/15/13 (b) 1,253,500
875,000 B PEI Holdings Inc., Sr. Secured Notes,
11.000% due 3/15/10 1,015,000
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 13
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Publishing & Printing -- 2.5% (continued)
500,000 B+ R.H. Donnelley Finance Corp. I, Sr. Sub. Notes,
10.875% due 12/15/12 (b) $ 598,750
625,000 B- Vertis Inc., Secured Notes, 9.750% due 4/1/09 679,688
601,000 BB- Yell Finance BV, Sr. Discount Notes, step bond to yield
12.263% due 8/1/11 567,945
----------------------------------------------------------------------------------------------------------
13,163,476
----------------------------------------------------------------------------------------------------------
Radio -- 1.2%
3,602,000 B- Emmis Communications Corp., Sr. Discount Notes,
step bond to yield 12.307% due 3/15/11 3,466,925
375,000 B- NextMedia Operating, Inc., Sr. Sub. Notes,
10.750% due 7/1/11 421,875
1,235,000 B- Radio One, Inc., Sr. Sub. Notes, Series B,
8.875% due 7/1/11 1,377,025
850,000 CCC+ Spanish Broadcasting Systems, Sr. Sub. Notes,
9.625% due 11/1/09 904,188
----------------------------------------------------------------------------------------------------------
6,170,013
----------------------------------------------------------------------------------------------------------
Restaurant -- 0.5%
525,000 CCC- American Restaurant Group, Inc., Sr. Secured Notes,
Series D, 11.500% due 11/1/06 291,375
1,230,000 CCC CKE Restaurants, Inc., Sr. Sub. Notes, 9.125% due 5/1/09 1,282,275
885,000 CCC- Denny's Corp., Sr. Notes, 11.250% due 1/15/08 805,350
445,000 B- Friendly Ice Cream Corp., Sr. Notes,
10.500% due 12/1/07 462,800
----------------------------------------------------------------------------------------------------------
2,841,800
----------------------------------------------------------------------------------------------------------
Retail -- 2.9%
500,000 B Cole National Group, Inc., Sr. Sub. Notes,
8.625% due 8/15/07 517,500
700,000 B- Equinox Holdings Inc., Sr. Notes,
9.000% due 12/15/09 (b) 740,250
1,250,000 CCC+ Eye Care Centers of America, Inc., Sr. Sub. Notes,
9.125% due 5/1/08 1,254,688
The Gap, Inc., Notes:
525,000 BB+ 9.900% due 12/15/05 590,625
250,000 BB+ 6.900% due 9/15/07 278,750
1,800,000 BB+ 10.550% due 12/15/08 2,241,000
J.C. Penney Co. Inc., Notes:
2,325,000 BB+ 8.000% due 3/1/10 2,737,688
2,177,000 BB+ 9.000% due 8/1/12 2,775,675
897,000 Aa2* Pennzoil-Quaker State Co., Sr. Notes,
10.000% due 11/1/08 1,049,372
880,000 BB- The Pep Boys -- Manny, Moe & Jack, Medium-Term
Notes, Series A, 6.710% due 11/3/04 888,800
1,944,000 BB Saks Inc., Notes, 9.875% due 10/1/11 2,400,840
----------------------------------------------------------------------------------------------------------
15,475,188
----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Retail - Food & Drug -- 0.9%
165,000 NR Fleming Cos., Inc., Sr. Notes, 10.125% due 4/1/08 (d) $ 22,275
Rite Aid Corp.:
1,845,000 B- Notes, 7.125% due 1/15/07 1,854,225
Sr. Notes:
2,680,000 B- 7.625% due 4/15/05 2,733,600
75,000 B- 11.250% due 7/1/08 83,063
----------------------------------------------------------------------------------------------------------
4,693,163
----------------------------------------------------------------------------------------------------------
Steel/Metal -- 2.6%
3,100,000 B+ AK Steel Corp., Sr. Notes, 7.875% due 2/15/09 2,852,000
2,650,000 B- IMCO Recycling Inc., Sr. Secured Notes,
10.375% due 10/15/10 2,848,750
1,900,000 B- Ispat Inland ULC, Sr. Secured Notes,
9.750% due 4/1/14 (b) 1,985,500
1,315,000 BB Luscar Coal Ltd., Sr. Notes, 9.750% due 10/15/11 1,505,675
1,710,000 BBB- Phelps Dodge Corp., Sr. Notes, 8.750% due 6/1/11 2,143,632
2,110,000 B+ Wolverine Tube, Inc., Sr. Notes, 10.500% due 4/1/09 2,278,800
----------------------------------------------------------------------------------------------------------
13,614,357
----------------------------------------------------------------------------------------------------------
Supermarkets -- 0.7%
425,000 BB- Ahold Finance USA, Inc., Sr. Notes, 8.250% due 7/15/10 473,875
2,837,189 BB Ahold Lease USA, Inc., Series 01-A-1, Pass-Through
Certificates, 7.820% due 1/2/20 2,966,635
----------------------------------------------------------------------------------------------------------
3,440,510
----------------------------------------------------------------------------------------------------------
Technology -- 1.6%
653,000 B+ Avaya Inc., Sr. Secured Notes, 11.125% due 4/1/09 781,968
1,555,000 NR GT Group Telecom Inc., Sr. Discount Notes,
step bond to yield 15.233% due 2/1/10 (d) 156
3,350,000 B Lucent Technologies Inc., Debentures,
6.450% due 3/15/29 2,847,500
1,950,000 B Nortel Networks Corp., Notes, 6.875% due 9/1/23 1,872,000
895,000 B Northern Telecom Capital, Notes, 7.875% due 6/15/26 921,850
2,060,000 BBB- Thomas & Betts Corp., Medium-Term Notes,
6.625% due 5/7/08 2,240,250
----------------------------------------------------------------------------------------------------------
8,663,724
----------------------------------------------------------------------------------------------------------
Television - Other -- 1.0%
1,250,000 CCC Granite Broadcasting Corp., Sr. Secured Notes,
9.750% due 12/1/10 (b) 1,212,500
2,250,000 B- Nexstar Finance, Inc., Sr. Sub. Notes,
7.000% due 1/15/14 (b) 2,238,750
Paxson Communications Corp.:
1,370,000 CCC+ Sr. Sub. Discount Notes, step bond to yield
12.309% due 1/15/09 1,171,350
665,000 CCC+ Sr. Sub. Notes, 10.750% due 7/15/08 699,913
----------------------------------------------------------------------------------------------------------
5,322,513
----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 15
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Textile/Apparel -- 1.1%
2,000,000 B- Interface, Inc., Sr. Notes, 10.375% due 2/1/10 $ 2,270,000
Levi Strauss & Co.:
1,255,000 CCC Notes, 7.000% due 11/1/06 941,250
Sr. Notes:
1,560,000 CCC 11.625% due 1/15/08 1,201,200
1,015,000 CCC 12.250% due 12/15/12 771,400
777,000 B+ The William Carter Co., Sr. Sub. Notes, Series B,
10.875% due 8/15/11 907,148
----------------------------------------------------------------------------------------------------------
6,090,998
----------------------------------------------------------------------------------------------------------
Towers -- 2.2%
3,925,000 CCC American Tower Corp., Sr. Notes, 9.375% due 2/1/09 4,160,500
985,000 CCC American Tower Escrow Corp., Discount Notes,
zero coupon to yield 14.330% due 8/1/08 696,888
Crown Castle International Corp., Sr. Notes:
2,420,000 CCC 10.750% due 8/1/11 2,722,500
1,150,000 CCC 7.500% due 12/1/13 1,135,625
1,075,000 CCC- SBA Communications Corp., Sr. Notes,
10.250% due 2/1/09 1,064,250
1,700,000 CCC+ SpectraSite Inc., Sr. Notes, 8.250% due 5/15/10 1,827,500
----------------------------------------------------------------------------------------------------------
11,607,263
----------------------------------------------------------------------------------------------------------
Transportation -- Other -- 0.4%
1,000,000 B+ General Maritime Corp., Sr. Notes, 10.000% due 3/15/13 1,125,000
960,000 BB+ Windsor Petroleum Transport Corp., Notes,
7.840% due 1/15/21 (b) 993,600
----------------------------------------------------------------------------------------------------------
2,118,600
----------------------------------------------------------------------------------------------------------
Utilities -- 6.7%
The AES Corp.:
Sr. Notes:
3,455,000 B- 9.500% due 6/1/09 3,765,950
100,000 B- 7.750% due 3/1/14 100,625
400,000 B- Sr. Sub. Notes, 8.500% due 11/1/07 410,000
2,550,000 B Allegheny Energy Supply Statutory Trust 2001,
Secured Notes, 10.250% due 11/15/07 (b) 2,792,250
7,570,000 CCC+ Calpine Canada Energy Finance ULC, Sr. Notes,
8.500% due 5/1/08 5,639,650
Calpine Corp.:
1,025,000 B 2nd Priority Sr. Secured Notes, 8.500% due 7/15/10 (b) 948,125
1,690,000 CCC+ Sr. Notes, 8.625% due 8/15/10 1,250,600
845,000 B+ CMS Energy Corp., Sr. Notes, 7.625% due 11/15/04 871,406
Edison Mission Energy, Sr. Notes:
1,750,000 B 10.000% due 8/15/08 1,850,625
800,000 B 7.730% due 6/15/09 776,000
3,000,000 B 9.875% due 4/15/11 3,172,500
See Notes to Financial Statements.
--------------------------------------------------------------------------------
16 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
FACE
AMOUNT+ RATING(a) SECURITY VALUE
==========================================================================================================
Utilities -- 6.7% (continued)
1,225,000 D Mirant Americas Generation, LLC, Sr. Notes,
9.125% due 5/1/31 (d) $ 909,563
3,950,000 B+ NRG Energy, Inc., 2nd Priority Sr. Secured Notes,
8.000% due 12/15/13 (b) 4,098,125
2,350,000 B- Orion Power Holdings Inc., Sr. Notes,
12.000% due 5/1/10 2,919,875
Reliant Resources, Inc., Secured Notes:
2,925,000 B 9.250% due 7/15/10 3,188,250
2,725,000 B 9.500% due 7/15/13 3,017,938
----------------------------------------------------------------------------------------------------------
35,711,482
----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES
(Cost -- $475,151,274) 505,060,165
==========================================================================================================
CONVERTIBLE BONDS -- 0.9%
Drillers & Services -- 0.1%
410,000 CCC+ Parker Drilling Co., Sub. Notes, 5.500% due 8/1/04 412,050
----------------------------------------------------------------------------------------------------------
Technology -- 0.8%
1,980,000 CCC+ Amkor Technology, Inc., Sub. Notes, 5.000% due 3/15/07 1,913,175
4,405,000 B Sanmina-SCI Corp., Sub. Debentures, zero coupon
bond to yield 10.665% due 9/12/20 2,318,131
----------------------------------------------------------------------------------------------------------
4,231,306
----------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost -- $4,161,942) 4,643,356
==========================================================================================================
SHARES SECURITY VALUE
==========================================================================================================
CONVERTIBLE PREFERRED STOCK -- 0.7%
Aerospace & Defense -- 0.0%
1,700 Northrop Grumman Corp., 7.250% due 11/16/04 175,746
----------------------------------------------------------------------------------------------------------
Cellular & PCs -- 0.4%
4,661 Alamosa Holdings, Inc., Series B, 7.500% due 7/31/13 2,196,272
----------------------------------------------------------------------------------------------------------
Technology -- 0.1%
4,300 Motorola, Inc., 7.000% due 11/16/04 208,808
----------------------------------------------------------------------------------------------------------
Towers -- 0.2%
19,800 Crown Castle International Corp., 6.250% due 8/15/12 898,425
----------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost -- $2,449,020) 3,479,251
==========================================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 17
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
SHARES SECURITY VALUE
==========================================================================================================
COMMON STOCK (e) -- 0.2%
Cellular & PCs -- 0.1%
47,800 AirGate PCS, Inc. $ 716,952
20,125 WebLink Wireless, Inc. 201
----------------------------------------------------------------------------------------------------------
717,153
----------------------------------------------------------------------------------------------------------
Competitive Local Exchange Carrier -- 0.0%
3,736 McLeodUSA Inc., Class A Shares 5,567
----------------------------------------------------------------------------------------------------------
Food -- 0.0%
73,499 Aurora Foods Inc. 0
----------------------------------------------------------------------------------------------------------
Towers -- 0.1%
31,904 Crown Castle International Corp. 402,948
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $1,318,360) 1,125,668
==========================================================================================================
PREFERRED STOCK -- 0.0%
Cellular & PCs -- 0.0%
1,353 Dobson Communications Corp., Payment-in-Kind,
13.000% due 5/1/09 (f) 92,323
----------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $29,561) 92,323
==========================================================================================================
WARRANTS SECURITY VALUE
==========================================================================================================
WARRANTS (e) -- 0.0%
Cable & Media -- 0.0%
6,725 Iridium World Communications Ltd., Expire 7/15/05 (b) 67
----------------------------------------------------------------------------------------------------------
Cellular & PCs -- 0.0%
1,155 Horizon PCS Inc., Expire 10/1/10 (b) 0
1,185 IWO Holdings Inc., Expire 1/15/11 (b) 12
----------------------------------------------------------------------------------------------------------
12
----------------------------------------------------------------------------------------------------------
Competitive Local Exchange Carrier -- 0.0%
6,975 RSL Communications, Ltd., Expire 11/15/06 0
----------------------------------------------------------------------------------------------------------
Containers & Packaging -- 0.0%
245 Pliant Corp., Expire 6/1/10 (b) 2
----------------------------------------------------------------------------------------------------------
Financial & Leasing -- 0.0%
1,765 Merrill Lynch Corp., Expire 5/1/09 0
14,825 UIH Australia Pacific, Inc., Expire 5/15/06 0
----------------------------------------------------------------------------------------------------------
0
----------------------------------------------------------------------------------------------------------
Networks -- 0.0%
1,000 Jazztel PLC, Expire 7/15/10 0
----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
18 2004 Semi-Annual Report
================================================================================
Schedule of Investments (unaudited) (continued) March 31, 2004
================================================================================
WARRANTS SECURITY VALUE
==========================================================================================================
Technology -- 0.0%
1,705 Cybernet Internet Services International, Inc.,
Expire 7/1/09 (b) $ 0
1,555 GT Group Telecom Inc., Expire 2/1/10 (b) 1,166
3,510 Viasystems Group Inc. Expire 1/31/10 0
6,135 WAM!NET Inc., Expire 3/1/05 61
----------------------------------------------------------------------------------------------------------
1,227
----------------------------------------------------------------------------------------------------------
Towers -- 0.0%
985 American Tower Corp., Expire 8/1/08 (b) 140,363
----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,494,113) 141,671
==========================================================================================================
FACE
AMOUNT SECURITY VALUE
==========================================================================================================
REPURCHASE AGREEMENT -- 3.2%
$ 17,132,000 UBS Financial Services Inc. dated 3/31/04,
1.000% due 4/1/04; Proceeds at maturity --
$17,132,476; (Fully collateralized by U.S. Treasury Bills,
due 5/13/04 to 9/23/04; Market value -- $17,474,712)
(Cost -- $17,132,000) 17,132,000
==========================================================================================================
TOTAL INVESTMENTS -- 100.0%
(Cost -- $501,736,270**) $531,674,434
==========================================================================================================
+ Face amount denominated in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except for those
which are identified by an asterisk (*), are rated by Moody's Investors
Service.
(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. This security
has been deemed liquid pursuant to the guidelines approved by the Board of
Directors.
(c) Interest rate shown reflects current rate on instruments with multi-coupon
or variable rates.
(d) Security is currently in default.
(e) Non-income producing security.
(f) Payment-in-Kind security for which all or part of the income earned is
paid by the issuance of additional stock until May 1, 2004.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
---------------------------------------------
EUR -- Euro
GBP -- British Pound
See page 20 for definitions of ratings.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 19
================================================================================
Bond Ratings (unaudited)
================================================================================
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated 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", "CCC", "CC" and "C" are regarded, on balance,
CCC, CC as predominantly speculative with respect to capacity to pay
and C interest and repay principal in accordance with the terms of the
obligation. "BB" represents the lowest degree of speculation and "C"
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.
D -- Bonds rated "D" are in default, and payment of interest and/or
repayment of principal is in arrears.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2 and 3 may be
applied to each generic rating from "Aa" to "Caa", where 1 is the highest and 3
the lowest rating within its generic category.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
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 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.
C -- Bonds rated "C" are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
--------------------------------------------------------------------------------
20 2004 Semi-Annual Report
================================================================================
Statement of Assets and Liabilities (unaudited) March 31, 2004
================================================================================
ASSETS:
Investments, at value (Cost -- $501,736,270) $ 531,674,434
Cash 720
Interest and dividends receivable 10,770,989
Receivable for securities sold 1,771,000
Other receivables 199,868
Prepaid expenses 1,542
--------------------------------------------------------------------------------------
Total Assets 544,418,553
--------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 3,621,370
Management fee payable 527,669
Accrued expenses 331,431
--------------------------------------------------------------------------------------
Total Liabilities 4,480,470
--------------------------------------------------------------------------------------
Total Net Assets $ 539,938,083
======================================================================================
NET ASSETS:
Par value of capital shares $ 73,927
Capital paid in excess of par value 880,665,431
Overdistributed net investment income (2,520,338)
Accumulated net realized loss from investment transactions (368,222,220)
Net unrealized appreciation of investments and foreign currencies 29,941,283
--------------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $7.30 per share on 73,927,179 shares of
$0.001 par value outstanding; 500,000,000 shares authorized) $ 539,938,083
======================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 21
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended March 31, 2004
INVESTMENT INCOME:
Interest $24,250,732
Dividends 75,544
------------------------------------------------------------------------------------------------
Total Investment Income 24,326,276
------------------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2) 3,095,264
Shareholder communications 139,935
Audit and legal 100,267
Custody 33,851
Listing fees 30,362
Transfer agency services 15,000
Directors' fees 4,928
Other 6,153
------------------------------------------------------------------------------------------------
Total Expenses 3,425,760
------------------------------------------------------------------------------------------------
Net Investment Income 20,900,516
------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain From Investment Transactions (excluding short-term investments):
Proceeds from sales 79,702,907
Cost of securities sold 74,202,990
------------------------------------------------------------------------------------------------
Net Realized Gain 5,499,917
------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation From:
Investments 12,399,464
Foreign currencies 2,141
------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 12,401,605
------------------------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 17,901,522
------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $38,802,038
================================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
22 2004 Semi-Annual Report
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended March 31, 2004 (unaudited)
and the Year Ended September 30, 2003
2004 2003
======================================================================================
OPERATIONS:
Net investment income $ 20,900,516 $ 45,751,240
Net realized gain (loss) 5,499,917 (12,108,472)
Increase in net unrealized appreciation 12,401,605 87,563,555
--------------------------------------------------------------------------------------
Increase in Net Assets From Operations 38,802,038 121,206,323
--------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (22,174,037) (44,735,429)
Capital -- (5,250,728)
--------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (22,174,037) (49,986,157)
--------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued
for reinvestment of dividends 586,748 9,892,385
--------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 586,748 9,892,385
--------------------------------------------------------------------------------------
Increase in Net Assets 17,214,749 81,112,551
NET ASSETS:
Beginning of period 522,723,334 441,610,783
--------------------------------------------------------------------------------------
End of period* $ 539,938,083 $ 522,723,334
======================================================================================
* Includes overdistributed net investment income of: $ (2,520,338) $ (1,246,817)
======================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 23
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The High Income Opportunity Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
The following are significant accounting policies consistently followed by the
Fund and are in conformity with generally accepted accounting principles
("GAAP"): (a) security transactions are accounted for on trade date; (b)
securities are valued at the mean between the quoted bid and asked 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; securities listed on the NASDAQ National Market System for which
market quotations are available are valued at the official closing price or, if
there is no official closing price on that day, at the last sale price; (c)
securities for which market quotations are not available will be valued in good
faith at fair value by or under the direction of the Board of Directors; (d)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (e) gains or losses on the
sale of securities are calculated by using the specific identification method;
(f) 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; (g) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on an accrual basis; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; the Fund
distributes dividends monthly and capital gains, if any, at least annually; (i)
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;
(j) the character of income and gains to be distributed is determined in
accordance with income tax regulations which may differ from accounting
principles generally accepted in the United States of America; (k) the Fund
intends to comply with the applicable provisions 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 (l) estimates and assumptions are
--------------------------------------------------------------------------------
24 2004 Semi-Annual Report
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
The Fund may also enter into forward foreign 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 or offset by entering into another forward
foreign exchange contract.
In addition, the Fund invests in high-yield instruments that are subject to
certain credit and market risks. The yields of high-yield debt obligations
reflect, among other things, perceived credit risk. The Fund's investment in
securities rated below investment grade typically involve risks not associated
with higher rated securities including, among others, greater risk of timely and
ultimate payment of interest and principal, greater market price volatility and
less liquid secondary market trading.
2. Management Agreement
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager of the Fund. The
Fund pays SBFM 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 Citigroup or its
affiliates.
3. Investments
During the six months ended March 31, 2004, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
================================================================================
Purchases $78,885,376
--------------------------------------------------------------------------------
Sales 79,702,907
================================================================================
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 25
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At March 31, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 57,911,325
Gross unrealized depreciation (27,973,161)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 29,938,164
================================================================================
4. Repurchase Agreements
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
5. Capital Shares
Capital stock transactions were as follows:
Six Months Ended Year Ended
March 31, 2004 September 30, 2003
------------------ -------------------
Shares Amount Shares Amount
=============================================================================================
Shares issued on reinvestment 82,419 $586,748 1,497,997 $9,892,385
=============================================================================================
6. Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue guarantee
agreement with this sub-contractor providing that the sub-contractor would
guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee
Agreement"). In connection with the subsequent purchase of the sub-contractor's
business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by
CAM on many of the funds it manages, this Revenue Guarantee
--------------------------------------------------------------------------------
26 2004 Semi-Annual Report
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
The Fund's transfer agent is PFPC Inc., which is not affiliated with CAM.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 27
================================================================================
Financial Highlights
================================================================================
For a share of capital stock outstanding throughout each year ended September
30, unless otherwise noted:
2004(1)(2) 2003(2) 2002 2001 2000 1999
=========================================================================================================
Net Asset Value,
Beginning of Period $ 7.08 $ 6.10 $ 7.15 $ 9.42 $ 10.45 $ 11.24
---------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income(3) 0.28 0.63 0.66 0.94 1.06 1.03
Net realized and unrealized
gain (loss)(3) 0.24 1.03 (0.96) (2.20) (1.13) (0.79)
---------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.52 1.66 (0.30) (1.26) (0.07) 0.24
---------------------------------------------------------------------------------------------------------
Gain From Repurchase of
Treasury Stock -- -- -- -- 0.05 --
---------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.61) (0.67) (1.01) (1.01) (1.03)
Capital -- (0.07) (0.08) -- -- (0.00)*
---------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.68) (0.75) (1.01) (1.01) (1.03)
---------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 7.30 $ 7.08 $ 6.10 $ 7.15 $ 9.42 $ 10.45
---------------------------------------------------------------------------------------------------------
Total Return, Based on
Market Price(4) 5.28%++ 31.00% (8.20)% (7.85)% 9.75% (9.36)%
---------------------------------------------------------------------------------------------------------
Total Return, Based on
Net Asset Value(4) 7.49%++ 28.67% (4.85)% (14.25)% 0.98% 2.74%
---------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $ 540 $ 523 $ 442 $ 507 $ 652 $ 755
---------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.27%+ 1.28% 1.23% 1.26% 1.22% 1.20%
Net investment income(3) 7.77+ 9.46 10.04 11.22 10.21 9.28
---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 15% 37% 77% 83% 69% 83%
---------------------------------------------------------------------------------------------------------
Market Price,
End of Period $ 7.16 $ 7.09 $ 6.00 $ 7.290 $ 8.938 $ 9.125
=========================================================================================================
(1) For the six months ended March 31, 2004 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Effective October 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended
September 30, 2002, the net investment income, net realized and unrealized
loss and the ratio of net investment income to average net assets would
have been $0.68, $(0.98) and 10.13%, respectively. Per share information,
ratios and supplemental data for the periods prior to October 1, 2001 have
not been restated to reflect this change in presentation.
(4) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
28 2004 Semi-Annual Report
================================================================================
Financial Data (unaudited)
================================================================================
For a share of capital stock outstanding throughout each period:
Dividend
NYSE Net Asset Distribution Reinvestment
Closing Price Value* Paid Price
===============================================================================================
Fiscal Year 2002
October 23 $7.28 $7.24 $0.0700 $7.24
November 27 7.74 7.42 0.0700 7.42
December 24 7.24 7.26 0.0700 7.26
January 23 7.63 7.27 0.0650 7.27
February 19 7.27 7.07 0.0650 7.07
March 19 7.50 7.13 0.0650 7.13
April 23 7.18 7.13 0.0570 7.13
May 28 7.12 7.02 0.0570 7.02
June 25 6.33 6.71 0.0570 6.24
July 23 5.55 6.31 0.0570 5.81
August 27 6.18 6.25 0.0570 6.21
September 24 5.87 6.12 0.0570 6.06
Fiscal Year 2003
October 22 5.69 5.86 0.0570 5.83
November 25 6.36 6.26 0.0570 6.26
December 23 6.17 6.28 0.0570 6.28
January 28 6.70 6.40 0.0570 6.40
February 25 6.88 6.40 0.0570 6.54
March 25 6.91 6.51 0.0570 6.57
April 22 6.92 6.73 0.0570 6.73
May 27 7.13 6.88 0.0570 6.88
June 24 7.25 7.07 0.0570 7.07
July 22 6.93 7.05 0.0570 7.04
August 26 7.04 6.90 0.0570 6.90
September 23 7.00 7.05 0.0570 7.05
Fiscal Year 2004
October 28 7.09 7.12 0.0500 7.12
November 24 7.04 7.17 0.0500 7.13
December 22 7.12 7.30 0.0500 7.17
January 27 7.27 7.45 0.0500 7.36
February 24 7.20 7.30 0.0500 7.26
March 23 7.04 7.28 0.0500 7.10
===============================================================================================
* As of record date.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 29
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
Result of Annual Meeting to Shareholders
The Annual Meeting of Shareholders of High Income Opportunity Fund Inc. was held
on April 29, 2004, for the purpose of considering and voting upon the election
of three Class III Directors, each for a three year term. The following table
provides information concerning the matters voted upon at the Meeting:
Election of Directors*
Nominees Votes For Votes Withheld
================================================================================
Jane F. Dasher 59,610,939 1,968,675
Donald R. Foley 59,498,455 2,081,169
Paul Hardin 59,538,028 2,041,586
================================================================================
* The following Directors, representing the balance of the Board of
Directors, continue to serve as Directors: Lee Abraham, Allan J.
Bloostein, R. Jay Gerken, Richard E. Hanson, Jr., Roderick C. Rasmussen
and John P. Toolan.
--------------------------------------------------------------------------------
30 2004 Semi-Annual Report
================================================================================
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 Inc. ("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) 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 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.
--------------------------------------------------------------------------------
High Income Opportunity Fund Inc. 31
================================================================================
Dividend Reinvestment Plan (unaudited) (continued)
================================================================================
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 Inc., P.O. Box 43027, Providence, RI
02940-3027 or by telephone at 1-800-331-1710.
--------------------------------
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 price, shares of its common stock in the open market.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by telephoning the Fund (toll-free) at 1-800-451-2010 and by
visiting the SEC's web site at www.sec.gov.
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.
--------------------------------------------------------------------------------
32 2004 Semi-Annual Report
--------------------------------------------------------------------------------
HIGH INCOME
--------------------- [GRAPHIC OMITTED]
Opportunity Fund Inc.
--------------------------------------------------------------------------------
DIRECTORS
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
R. Jay Gerken, CFA
Chairman
Richard E. Hanson, Jr.
Paul Hardin
Roderick C. Rasmussen
John P. Toolan
OFFICERS
R. Jay Gerken, CFA
President and
Chief Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer
and Treasurer
Beth A. Semmel, CFA
Vice President and
Investment Officer
Peter J. Wilby, CFA
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
INVESTMENT MANAGER
Smith Barney Fund Management LLC
399 Park Avenue
New York, New York 10022
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
[LOGO]
HIO
------
Listed
------
NYSE
THE NEW YORK STOCK EXCHANGE
HIGH INCOME OPPORTUNITY FUND INC.
125 Broad Street
10th Floor, MF-2
New York, New York 10004
FD0802 5/04
04-6630
ITEM 2. CODE OF ETHICS.
Not Applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Directors of the Fund has delegated the authority to
develop policies and procedures relating to proxy voting to the
Manager. The Manager is part of Citigroup Asset Management ("CAM"), a
group of investment adviser affiliates of Citigroup, Inc.
("Citigroup"). Along with the other investment advisers that comprise
CAM, the Manager has adopted a set of proxy voting policies and
procedures (the "Policies") to ensure that the Manager votes proxies
relating to equity securities in the best interest of clients.
In voting proxies, the Manager is guided by general fiduciary
principles and seeks to act prudently and solely in the best interest
of clients. The Manager attempts to consider all factors that could
affect the value of the investment and will vote proxies in the manner
that it believes will be consistent with efforts to maximize
shareholder values. The Manager may utilize an external service
provider to provide it with information and/or a recommendation with
regard to proxy votes. However, such recommendations do not relieve the
Manager of its responsibility for the proxy vote.
In the case of a proxy issue for which there is a stated position in
the Policies, CAM generally votes in accordance with such stated
position. In the case of a proxy issue for which there is a list of
factors set forth in the Policies that CAM considers in voting on such
issue, CAM votes on a case-by-case basis in accordance with the general
principles set forth above and considering such enumerated factors. In
the case of a proxy issue for which there is no stated position or list
of factors that CAM considers in voting on such issue, CAM votes on a
case-by-case basis in accordance with the general principles set forth
above. Issues for which there is a stated position set forth in the
Policies or for which there is a list of factors set forth in the
Policies that CAM considers in voting on such issues fall into a
variety of categories, including election of directors, ratification of
auditors, proxy and tender offer defenses, capital structure issues,
executive and director
compensation, mergers and corporate restructurings, and social and
environmental issues. The stated position on an issue set forth in the
Policies can always be superseded, subject to the duty to act solely in
the best interest of the beneficial owners of accounts, by the
investment management professionals responsible for the account whose
shares are being voted. Issues applicable to a particular industry may
cause CAM to abandon a policy that would have otherwise applied to
issuers generally. As a result of the independent investment advisory
services provided by distinct CAM business units, there may be
occasions when different business units or different portfolio managers
within the same business unit vote differently on the same issue.
In furtherance of the Manager's goal to vote proxies in the best
interest of clients, the Manager follows procedures designed to
identify and address material conflicts that may arise between the
Manager's interests and those of its clients before voting proxies on
behalf of such clients. To seek to identify conflicts of interest, CAM
periodically notifies CAM employees (including employees of the
Manager) in writing that they are under an obligation (i) to be aware
of the potential for conflicts of interest with respect to voting
proxies on behalf of client accounts both as a result of their personal
relationships and due to special circumstances that may arise during
the conduct of CAM's and the Manager's business, and (ii) to bring
conflicts of interest of which they become aware to the attention of
compliance personnel. The Manager also maintains and considers a list
of significant relationships that could present a conflict of interest
for the Manager in voting proxies. The Manager is also sensitive to the
fact that a significant, publicized relationship between an issuer and
a non-CAM affiliate might appear to the public to influence the manner
in which the Manager decides to vote a proxy with respect to such
issuer. Absent special circumstances or a significant, publicized
non-CAM affiliate relationship that CAM or the Manager for prudential
reasons treats as a potential conflict of interest because such
relationship might appear to the public to influence the manner in
which the Manager decides to vote a proxy, the Manager generally takes
the position that non-CAM relationships between Citigroup and an issuer
(e.g. investment banking or banking) do not present a conflict of
interest for the Manager in voting proxies with respect to such issuer.
Such position is based on the fact that the Manager is operated as an
independent business unit from other Citigroup business units as well
as on the existence of information barriers between the Manager and
certain other Citigroup business units.
CAM maintains a Proxy Voting Committee, of which the Manager personnel
are members, to review and address conflicts of interest brought to its
attention by compliance personnel. A proxy issue that will be voted in
accordance with a stated position on an issue or in accordance with the
recommendation of an independent third party is not brought to the
attention of the Proxy Voting Committee for a conflict of interest
review because the Manager's position is that to the extent a conflict
of interest issue exists, it is resolved by voting in accordance with a
pre-determined policy or in accordance with the recommendation of an
independent third party. With respect to a conflict of interest brought
to its attention, the
Proxy Voting Committee first determines whether such conflict of
interest is material. A conflict of interest is considered material to
the extent that it is determined that such conflict is likely to
influence, or appear to influence, the Manager's decision-making in
voting proxies. If it is determined by the Proxy Voting Committee that
a conflict of interest is not material, the Manager may vote proxies
notwithstanding the existence of the conflict.
If it is determined by the Proxy Voting Committee that a conflict of
interest is material, the Proxy Voting Committee is responsible for
determining an appropriate method to resolve such conflict of interest
before the proxy affected by the conflict of interest is voted. Such
determination is based on the particular facts and circumstances,
including the importance of the proxy issue and the nature of the
conflict of interest. Methods of resolving a material conflict of
interest may include, but are not limited to, disclosing the conflict
to clients and obtaining their consent before voting, or suggesting to
clients that they engage another party to vote the proxy on their
behalf.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-
3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act")) are effective as of a date within 90 days of the
filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the
disclosure controls and procedures required by Rule 30a-3(b)
under the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934.
(b) There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under
the 1940 Act) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in
the case of an annual report) that have materially affected,
or are likely to materially affect the registrant's internal
control over financial reporting.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
High Income Opportunity Fund Inc.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
High Income Opportunity Fund Inc.
Date: June 4, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
High Income Opportunity Fund Inc.
Date: June 4, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
High Income Opportunity Fund Inc.
Date: June 4, 2004