N-30D 1 0001.txt SEMI-ANNUAL REPORT HIGH INCOME --------------------- Opportunity Fund Inc. [GRAPHIC] Quarterly Report June 30, 2000 [PHOTO] [PHOTO] HEATH B. JOHN C. MCLENDON BIANCHI, CFA Chairman Vice President High Income Opportunity Fund Inc. Dear Shareholder: We are pleased to provide the quarterly report for the High Income Opportunity Fund Inc. ("Fund") for the nine months ended June 30, 2000. Any discussion of the Fund's holdings is as of June 30, 2000. Please refer to pages six through 18 for a list of the Fund's holdings. During the past nine months, the Fund paid income dividends totaling $0.76 per share. The table below details the annualized distribution rate and the nine-month total return for the Fund based on its June 30, 2000 net asset value ("NAV") per share and the New York Stock Exchange ("NYSE") closing price:(1) Price Annualized Nine-Month Per Share Distribution Rate(2) Total Return(2) --------- -------------------- --------------- $9.85 (NAV) 10.23% 2.73% $9.00 (NYSE) 11.20% 7.49% Performance Update The Fund generated a return based on NAV of 2.73% for the past nine months. In comparison, the Lipper Inc. ("Lipper") peer group of non-leveraged, closed-end, high-yield bond funds returned a negative 1.00% for the same time period. ---------- (1) The NAV is calculated by subtracting total liabilities from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of shares outstanding. The NAV fluctuates with the changes in the market price of the securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is at its market (NYSE) price as determined by supply and demand. (2) Total returns are based on changes in NAV or the market value, respectively. Total returns assume the reinvestment of all dividends and/or capital gains distributions in additional shares. The annualized distribution rate is the Fund's current monthly income dividend rate, annualized, and then divided by the NAV or the market value noted in this report. The annualized distribution rate assumes a current monthly income dividend rate of $0.084 for twelve months. This rate is as of July 31, 2000 and is subject to change. The important difference between a total return and an annualized distribution rate is that the total return takes into consideration a number of factors including the fluctuation of the NAV or the market value during the period reported. The NAV fluctuation includes the effects of unrealized appreciation or depreciation in the Fund. Accordingly, since an annualized distribution rate only reflects the current monthly income dividend rate annualized, it should not be used as the sole indicator to judge the return you receive from your Fund investment. Past performance is not indicative of future results. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 1 Please note that past performance is not an indication of future results. (Lipper is an independent mutual fund-tracking organization.) During the past nine months, we generated relatively competitive performance in comparison to our peer group, but unfortunately the Fund generated weak total returns on an absolute basis. The Fund benefited from its overweight in the telecommunications, energy, cable, media and technology sectors. We attribute the Fund's relatively overweight in middle-quality B rated issues to its negative performance. However, we are happy to report that there were no defaults in the portfolio despite the overall increase in defaults in the high-yield bond market. Special Shareholder Notice -- Share Repurchase Program We are pleased to report that we have continued our effort of reducing the Fund's shares' discount to NAV. This program, which commenced on October 19, 1999, is believed to be an opportunity to take advantage of market price fluctuations with the objective of offering long-term value to the Fund's shareholders. The Fund intends to purchase shares of its stock in the open market at such times, prices and amounts deemed advisable and subsequently retire them. This repurchase program has added liquidity to the market for the benefit of investors who wish to sell their shares, while also seeking to benefit current shareholders by increasing the Fund's shares' NAV. Since the inception of the program, the Fund has repurchased and retired 3,003,100 shares with an average buyback price of $8.78 per share. As of June 30, 2000, this repurchase program has increased the Fund's shares' NAV by $0.06. The Board of Directors ("Board") believes that this share repurchase program is an opportunity to take advantage of market price fluctuations with the objective of increasing the Fund's per share NAV. However, there can be no assurance that the Board will continue this program. Market and Economic Overview The high-yield bond market rallied impressively in June as positive mutual fund flows and more stable interest rates improved overall market sentiment. Most of the major high-yield bond indices were up roughly 2% for the month of June, the highest monthly return since late 1998. However, since the other sectors of the bond market also rallied in June, spreads on high-yield bonds remained relatively wide against U.S. Treasuries at over 650 basis points.(3) Not surprisingly, the highest-quality, most liquid issues generated the strongest results while the lower-quality end of the market continued to labor under continued high default rates in the 5.00% range on an annualized basis. ---------- (3) A basis point is 0.01% or one one-hundredth of a percent. -------------------------------------------------------------------------------- 2 2000 Quarterly Report to Shareholders The best-performing segment of the high-yield bond market during the period were the highest-quality BB rated bonds. One of the most important aspects of the high-yield bond market, B rated issues, generated a negative 1.60% total return for the same time period. By far, the worst-performing credit segment of the high-yield bond market were the lower quality CCC rated issues which delivered negative total returns in the 4.50% to 5.00% range. We believe the high-yield bond market is discounting a potential economic slowdown in the second half of this year, given the Federal Reserve Board's ("Fed") multiple increases in short-term interest rates during the period. In addition, the lower-quality end of the high-yield bond market has continued to be negatively impacted by meaningfully higher default rates. The best-performing sectors of the high-yield bond market during the period were energy (oil and natural gas), technology, telecommunications, cable, media and operating utilities, which would fare better in an economic slowdown. The worst-performing sectors included basic materials, capital goods manufacturing, consumer related industries and transportation. From a technical standpoint, the high-yield bond market witnessed much smaller new issuance as most companies either postponed new issues or elected to seek alternative forms of financing such as convertible bond offerings or bank loans. For the first six months of 2000, new issues totaled $25 billion, down from $58 billion last year. At the same time, a total of $6 billion was withdrawn from open-end high-yield bond mutual funds. Despite this, we are confident that the high-yield bond market has discounted most of the negative sentiment concerning bond investing. We continue to believe that investing in high-yield bonds may represent a compelling opportunity for many long-term investors seeking income and total return. Our goal over the near term is to continue to reallocate cash reserves into the more liquid issues that we believe offer the most upside price potential. We remain positive on the total return prospects for the high-yield bond market, yet we realize that until the Fed completes its recent round of interest rate increases, the overall performance of the bond markets may remain largely unchanged. While we are confident that the Fed may be close to completing its interest rate increases, it may decide to raise rates later in the year if indications of a slowdown in the growth of the U.S. economy do not become apparent. And while the future is always uncertain, we remain confident that our patience may be rewarded later on this year since we expect that the Fed will be ultimately successful in limiting the amount of excess speculation in the financial markets. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 3 Should you have any questions about your investment in the High Income Opportunity Fund Inc., please call PFPC Global Fund Services at 1-800-331-1710. Thank you for your continued confidence in our investment management approach. Sincerely, /s/ Heath B. McLendon /s/ John C. Bianchi Heath B. McLendon John C. Bianchi, CFA Chairman Vice President July 18, 2000 -------------------------------------------------------------------------------- 4 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Take Advantage of the Fund's Dividend Reinvestment Plan! Did you know that fund investors who reinvest their dividends are taking advantage of one of the most effective wealth-building tools available today? Systematic investments put time to work for you through the strength of compounding. As an investor in the Fund, you can participate in its Dividend Reinvestment Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends and capital gains distributions, if any, in additional shares of the Fund. Below is a short summary of how the Plan works. Plan Summary If you are a Plan participant who has not elected to receive your dividends in the form of a cash payment, then your dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund. The number of common stock shares in the Fund you will receive in lieu of a cash dividend is determined in the following manner. If the market price of the common stock is equal to or exceeds the net asset value ("NAV") per share on the determination date, you will be issued shares by the Fund at a price reflecting the NAV, or 95% of the market price, whichever is greater. If the market price is less than the NAV at the time of valuation (the close of business on the determination date), or if the Fund declares a dividend or capital gains distribution payable only in cash, PFPC Global Fund Services ("Plan Agent"), will buy common stock for your account in the open market. If the Plan Agent begins to purchase additional shares in the open market and the market price of the shares subsequently rises above the NAV previously determined before the purchases are completed, the Plan Agent will attempt to terminate purchases and have the Fund issue the remaining dividend or distribution in shares at the greater of the previously determined NAV. In that case, the number of Fund shares you receive will be based on the weighted average of prices paid for shares purchased in the open market and the price at which the Fund issues the remaining shares. A more complete description of the current Plan appears in the section of this report beginning on page 31. To find out more detailed information about the Plan and about how you can participate, please call PFPC Global Fund Services at (800) 331-1710. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 5 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ CORPORATE BONDS & NOTES -- 95.1% Aerospace -- 0.9% BE Aerospace, Inc., Sr. Sub. Notes: 1,025,000 B 9.875% due 2/1/06 $ 978,875 1,990,000 B 8.000% due 3/1/08 1,691,500 1,235,000 B 9.500% due 11/1/08 1,142,375 2,005,000 B- Dunlop Standard Aerospace, Sr. Notes, 11.875% due 5/15/09 1,979,938 -------------------------------------------------------------------------------- 5,792,688 -------------------------------------------------------------------------------- Airlines -- 1.2% 9,956,016 BB Airplanes Pass-Through Trust, Series D, Company Gauranteed, 10.875% due 3/15/12 8,088,168 -------------------------------------------------------------------------------- Aluminium -- 1.4% Kaiser Aluminium Chemical Corp.: Sr. Notes: 435,000 B1* Series B, 10.875% due 10/15/06 415,425 755,000 B1* Series D, 10.875% due 10/15/06 721,025 9,175,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03 8,395,125 -------------------------------------------------------------------------------- 9,531,575 -------------------------------------------------------------------------------- Apparel -- 0.5% 2,360,000 BB- Levi Strauss Corp., Notes, 7.000% due 11/1/06 1,805,400 1,120,000 BBB- Tommy Hilfiger USA Inc., Company Guaranteed, 6.850% due 6/1/08 722,400 930,000 B- Tropical Sportswear International Corp., Series A, Company Guaranteed, 11.000% due 6/15/08 897,450 -------------------------------------------------------------------------------- 3,425,250 -------------------------------------------------------------------------------- Auto Parts: O.E.M. -- 0.9% 1,465,000 B Collins & Aikman Products Co., Company Guaranteed, 11.500% due 4/15/06 1,417,387 995,000 B Dura Operating Corp., Series B, Company Guaranteed, 9.000% due 5/1/09 870,625 Hayes Lemmerz International Inc., Company Guaranteed: 1,160,000 B 11.000% due 7/15/06 1,145,500 3,465,000 B Series B, 8.250% due 12/15/08 2,945,250 -------------------------------------------------------------------------------- 6,378,762 -------------------------------------------------------------------------------- Broadcasting -- 1.1% 3,955,700 NR AMFM Operating, Inc., Debentures, 12.625% due 10/31/06 4,638,058 890,000 B Capstar Broadcasting Partners, Inc., Sr. Discount Notes, step bond to yield 11.002% due 2/1/09 823,250 Young Broadcasting Corp., Sr. Sub. Notes: 1,140,000 B 11.750% due 11/15/04 1,165,650 1,055,000 B 10.125% due 2/15/05 1,044,450 -------------------------------------------------------------------------------- 7,671,408 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- 6 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Building Materials -- 0.2% 1,615,000 B- Nortek, Inc., Sr. Sub. Notes, 9.875% due 3/1/04 $ 1,542,325 -------------------------------------------------------------------------------- Building Products -- 1.0% 1,320,000 B Amatek Industries Property Ltd., Sr. Sub. Notes, 12.000% due 2/15/08 1,214,400 2,020,000 B Atrium Cos. Inc., Series B, Company Guaranteed, 10.500% due 5/1/09 1,711,950 3,915,000 B+ Nortek, Inc., Series B, Sr. Notes, 9.125% due 9/1/07 3,640,950 -------------------------------------------------------------------------------- 6,567,300 -------------------------------------------------------------------------------- Cable Television -- 11.1% 5,825,000 B+ Adelphia Communications Corp., Series B, Sr. Notes, 8.375% due 2/1/08 5,176,969 890,000 CCC+ Cable Satisfaction International Inc., Sr. Notes, 12.750% due 3/1/10 869,975 Century Communications Corp.: 4,760,000 BB- Series B, Sr. Discount Notes, step bond to yield 10.670% due 1/15/08 1,975,400 Sr. Notes: 700,000 BB- 9.750% due 2/15/02 703,500 3,640,000 BB- 8.750% due 10/1/07 3,321,500 Charter Communications Holdings Capital LLC: 8,500,000 B+ Sr. Discount Notes, step bond to yield 11.713% due 1/15/10 (b) 4,876,875 4,865,000 B+ Sr. Notes, 8.625% due 4/1/094,299,444 3,625,000 BB- CSC Holdings Inc., Sr. Sub. Debentures, 10.500% due 5/15/16 3,869,687 1,900,000 GBP B- Diamond Holdings PLC, Company Guaranteed, 10.000% due 2/1/08 2,675,044 1,410,000 B EchoStar DBS Corp., Sr. Notes, 9.375% due 2/1/09 1,360,650 6,485,000 B- NTL Inc., Series B, Sr. Notes, 11.500% due 10/1/08 6,485,000 7,260,000 BB- Rogers Cablesystems, Ltd., Company Guaranteed, 11.000% due 12/1/15 7,877,100 3,650,000 B+ TeleWest Communications PLC, Sr. Notes, 11.250% due 11/1/08 3,668,250 23,485,000 B- United International Holdings, Inc., Series B, Sr. Discount Notes, step bond to yield 11.281% due 2/15/08 16,556,925 22,000,000 B United Pan Europe Communications NV, Series B, Sr. Discount Notes, step bond to yield 12.500% due 8/1/09 11,165,000 -------------------------------------------------------------------------------- 74,881,319 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 7 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Casinos/Gambling -- 2.5% 705,000 BB+ Circus Circus Enterprises Inc., Sr. Sub. Debentures, 7.625% due 7/15/13 $ 581,625 3,880,000 B Hollywood Casino Corp., Company Guaranteed, 11.250% due 5/1/07 3,986,700 43,406 NR Jazz Casino Co. LLC, Sr. Sub. Notes, 5.867% due 11/15/09 7,596 1,915,000 B+ Station Casinos, Inc., Sr. Sub. Notes, 9.875% due 7/1/10 (b) 1,929,363 Sun International Hotels Ltd., Company Guaranteed: 3,445,000 Ba3* 9.000% due 3/15/07 3,203,850 3,710,000 Ba3* 8.625% due 12/15/07 3,376,100 Venetian Casino Resort LLC, Company Guaranteed: 3,230,000 B- 12.250% due 11/15/043,278,450 900,000 CCC+ 10.000% due 11/15/05 855,000 -------------------------------------------------------------------------------- 17,218,684 -------------------------------------------------------------------------------- Chemicals - Major -- 1.5% Huntsman Corp.: 3,880,000 B+ Company Guaranteed, 10.125% due 7/1/09 (b) 3,928,500 17,800,000 B+ Sr. Discount Notes, 12.710% due 12/31/09 5,963,000 -------------------------------------------------------------------------------- 9,891,500 -------------------------------------------------------------------------------- Chemicals - Specialty -- 0.7% 1,390,000 B Avecia Group PLC, Company Guaranteed, 11.000% due 7/1/09 1,369,150 1,050,000 EUR B+ Ineos Acrylics Finance, Company Guaranteed, 10.250% due 5/15/10 (b) 1,036,724 2,070,000 B+ Lyondell Chemical Co., Sr. Sub. Notes, 10.875% due 5/1/09 2,064,825 -------------------------------------------------------------------------------- 4,470,699 -------------------------------------------------------------------------------- Coal Mining -- 0.1% 4,750,000 Caa* AEI Resources Inc., Company Guaranteed, 10.500% due 12/15/05 (b) 973,750 -------------------------------------------------------------------------------- Construction/AG Equipment/Trucks -- 0.5% 3,775,000 B Columbus McKinnon Corp., Company Guaranteed, 8.500% due 4/1/08 3,265,375 -------------------------------------------------------------------------------- Consumer Specialties -- 0.3% 2,330,000 B Jostens, Inc., 12.750% due 5/1/10 (c) 2,306,700 -------------------------------------------------------------------------------- Containers/Packaging -- 2.0% 1,195,000 B BWAY Corp., Series B, Company Guaranteed, 10.250% due 4/15/07 1,153,175 6,285,000 B Stone Container Finance Corp., Company Guaranteed, 11.500% due 8/15/06 (b) 6,536,400 3,725,000 B- Sweetheart Cup Co. Inc., Sr. Sub. Notes, 10.500% due 9/1/03 3,408,375 2,080,000 B- Tekni-Plex, Inc., Sr. Sub. Notes, 12.750% due 6/15/10 2,090,400 -------------------------------------------------------------------------------- 13,188,350 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- 8 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Contract Drilling -- 2.0% Parker Drilling Co.: 595,000 B- 5.500% due 8/1/04 $ 490,131 2,035,000 B+ Series D, Company Guaranteed, 9.750% due 11/15/06 1,979,038 3,490,000 BB Pride International, Inc., Sr. Notes, 10.000% due 6/1/09 3,612,150 3,375,000 Ba3* R&B Falcon Co., Sr. Notes, 12.250% due 3/15/06 3,695,625 3,095,000 BB- RBF Finance Co., Company Guaranteed, 11.375% due 3/15/09 3,373,550 -------------------------------------------------------------------------------- 13,150,494 -------------------------------------------------------------------------------- Discount Stores -- 0.8% 3,340,000 B+ Ames Department Stores, Inc., Sr. Notes, 10.000% due 4/15/06 2,037,400 2,900,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05 3,175,500 -------------------------------------------------------------------------------- 5,212,900 -------------------------------------------------------------------------------- Diversified Commercial Services -- 1.5% 4,950,000 B2* Intertek Finance PLC, Series B, Company Guaranteed, 10.250% due 11/1/06 4,083,750 6,675,000 B- Outsourcing Solutions Inc., Series B, Sr. Sub. Notes, 11.000% due 11/1/06 5,840,625 -------------------------------------------------------------------------------- 9,924,375 -------------------------------------------------------------------------------- Diversified Financial Services -- 0.3% Amresco, Inc., Sr. Sub. Notes: 1,850,000 Caa* Series 97-A, 10.000% due 3/15/04 943,500 1,890,000 Caa* Series 98-A, 9.875% due 3/15/05 963,900 -------------------------------------------------------------------------------- 1,907,400 -------------------------------------------------------------------------------- Diversified Manufacturing -- 0.9% 1,175,000 B- Blount Inc., Company Guaranteed, 13.000% due 8/1/09 1,204,375 4,475,000 B+ Park-Ohio Industries Inc., Sr. Sub. Notes, 9.250% due 12/1/07 3,960,375 1,165,000 B Polymer Group, Inc., Series B, Company Guaranteed, 9.000% due 7/1/07 996,075 -------------------------------------------------------------------------------- 6,160,825 -------------------------------------------------------------------------------- Drugs - Generic -- 1.0% 6,890,000 BB ICN Pharmaceuticals, Inc., Series B, Sr. Notes, 9.250% due 8/15/05 6,855,550 -------------------------------------------------------------------------------- Electronic Components -- 1.0% 2,996,000 B+ Celestica International Inc., Sr. Sub. Notes, 10.500% due 12/31/06 3,145,800 3,445,000 Ba3* Flextronics International Ltd., Sr. Sub. Notes, 9.875% due 7/1/10 (b) 3,488,063 -------------------------------------------------------------------------------- 6,633,863 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 9 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Engineering & Construction -- 0.7% 1,285,000 B- American Plumbing & Mechanical Inc., Series B, Company Guaranteed, 11.625% due 10/15/08 $ 1,204,687 1,700,000 BB- Integrated Electrical Services, Inc., Series B, Company Guaranteed, 9.375% due 2/1/09 1,385,500 2,155,000 B- Orius Capital Corp., Sr. Sub. Notes, 2.750% due 2/1/10 (b) 2,230,425 -------------------------------------------------------------------------------- 4,820,612 -------------------------------------------------------------------------------- Environmental Services -- 3.1% Allied Waste Corp., Series B, Company Guaranteed: 2,305,000 BB 7.875% due 1/1/09 1,976,538 13,425,000 B+ 10.000% due 8/1/09 11,277,000 1,670,000 B+ IT Group, Inc., Series B, Company Guaranteed, 11.250% due 4/1/09 1,503,000 3,280,000 CCC+ Metal Management, Inc., Company Guaranteed, 10.000% due 5/15/08 1,820,400 3,870,000 B+ URS Corp., Series B, Sr. Sub. Notes, 12.250% due 5/1/09 3,986,100 -------------------------------------------------------------------------------- 20,563,038 -------------------------------------------------------------------------------- Food Distributors -- 2.4% 2,625,000 B- Agrilink Foods Inc., Company Guaranteed, 11.875% due 11/1/08 2,060,625 5,975,000 B2* Carrols Corp., Company Guaranteed, 9.500% due 12/1/08 5,019,000 2,215,000 B International Home Foods, Inc., Company Guaranteed, 10.375% due 11/1/06 2,381,125 2,535,000 B- Premier International Foods PLC, Sr. Notes, 12.000% due 9/1/09 (b) 2,281,500 4,870,000 B SC International Services, Inc., Series B, Company Guaranteed, 9.250% due 9/1/07 4,650,850 -------------------------------------------------------------------------------- 16,393,100 -------------------------------------------------------------------------------- Foods - Specialty/Candy -- 0.6% 4,575,000 B- B&G Foods Inc., Company Guaranteed, 9.625% due 8/1/07 3,225,375 5,340,000 B2* Imperial Holly Corp., Company Guaranteed, 9.750% due 12/15/07 1,047,975 -------------------------------------------------------------------------------- 4,273,350 -------------------------------------------------------------------------------- Forest Products -- 1.0% 4,955,000 B Ainsworth Lumber Co. Ltd., Sr. Notes, 12.500% due 7/15/07 4,942,613 2,070,000 B+ Millar Western Forest, Sr. Notes, 9.875% due 5/15/08 1,945,800 -------------------------------------------------------------------------------- 6,888,413 -------------------------------------------------------------------------------- Health Industry Services -- 0.3% 2,115,000 BBB Healthsouth Corp., Sr. Notes, 6.875% due 6/15/05 1,813,613 -------------------------------------------------------------------------------- Home Furnishing -- 0.3% 2,130,000 B Falcon Products, Inc., Series B, Company Guaranteed, 11.375% due 6/15/09 2,042,137 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- 10 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Homebuilding -- 0.8% 1,760,000 Ba1* D.R. Horton, Inc., Company Guaranteed, 8.000% due 2/1/09 $ 1,540,000 3,810,000 BB+ Lennar Corp., Sr. Notes, 9.950% due 5/1/10 (b) 3,771,900 -------------------------------------------------------------------------------- 5,311,900 -------------------------------------------------------------------------------- Hospital/Nursing Management -- 0.7% 4,810,000 Ba3* Fresenius Medical Care Capital Trust I, Company Guaranteed, Trust Preferred Securities, 9.000% due 12/1/06 4,581,525 -------------------------------------------------------------------------------- Hotel/Resort -- 1.6% 1,765,000 B- Courtyard By Marriott II LP, Series B, Sr. Notes, 10.750% due 2/1/08 1,734,113 2,825,000 BB HMH Properties, Inc., Series C, Sr. Notes, 8.450% due 12/1/08 2,630,781 Intrawest Corp., Sr. Notes: 3,150,000 B+ 9.750% due 8/15/08 (b) 3,134,250 3,490,000 B+ 10.500% due 2/1/10 3,577,250 -------------------------------------------------------------------------------- 11,076,394 -------------------------------------------------------------------------------- Internet Services -- 5.2% 920,000 NR Colo.com, 13.875% due 3/15/10 (c) 993,600 1,705,000 Caa* Cybernet Internet Services International, Sr. Notes, 14.000% due 7/1/09 861,025 Exodus Communications Inc., Sr. Notes: 4,350,000 B 10.750% due 12/15/09 4,219,500 5,640,000 B 11.625% due 7/15/10 (b) 5,682,300 PSINet Inc., Sr. Notes: 1,970,000 B- 11.500% due 11/1/08 1,861,650 9,380,000 B- 11.000% due 8/1/09 8,723,400 4,445,000 B3* Rhythms NetConnections Inc., Sr. Notes, 14.000% due 2/15/10 (b) 3,244,850 Verio Inc., Sr. Notes: 3,545,000 B- 11.250% due 12/1/08 3,996,987 3,530,000 B- 10.625% due 11/15/09 (b) 3,931,537 2,605,000 CCC+ WAM!NET Inc., Series B, Company Guaranteed, step bond to yield 12.812% due 3/1/05 1,475,081 -------------------------------------------------------------------------------- 34,989,930 -------------------------------------------------------------------------------- Leisure/Movies/Entertainment -- 0.9% 6,600,000 B- Premier Parks Inc., Sr. Discount Notes, step bond to yield 11.391% due 4/1/08 4,512,750 1,340,000 B- SFX Entertainment, Inc., Series B, Company Guaranteed, 9.125% due 2/1/08 1,353,400 -------------------------------------------------------------------------------- 5,866,150 -------------------------------------------------------------------------------- Medical Specialties -- 0.6% 4,380,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes, 11.250% due 6/15/09 3,832,500 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 11 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Multi-Sector Companies -- 0.6% 3,865,000 B- Triarc Consumer Beverage, Company Guaranteed, 10.250% due 2/15/09 $ 3,758,713 -------------------------------------------------------------------------------- Newspapers -- 0.6% 4,295,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes, 8.625% due 7/1/11 3,758,125 -------------------------------------------------------------------------------- Oil & Gas Production -- 3.4% Belco Oil & Gas Corp., Series B: 1,200,000 B1* Company Guaranteed, 10.500% due 4/1/06 1,213,500 2,195,000 B1* Sr. Sub. Notes, 8.875% due 9/15/07 2,041,350 645,000 B Canadian Forest Oil Ltd., Company Guaranteed, 8.750% due 9/15/07 609,525 3,850,000 B Chesapeake Energy Corp., Series B, Company Guaranteed, 9.625% due 5/1/05 3,753,750 3,780,000 B Forest Oil Corp., Company Guaranteed, 10.500% due 1/15/06 3,865,050 1,250,000 B Huston Exploration Corp., Series B, Sr. Sub. Notes, 8.625% due 1/1/08 1,168,750 4,225,000 B+ Nuevo Energy Co., Series B, Sr. Sub. Notes, 9.500% due 6/1/08 4,193,312 Plains Resources, Company Guaranteed: 1,190,000 B2* 10.250% due 3/15/06 (b) 1,204,875 395,000 B2* Series B, 10.250% due 3/15/06 399,938 950,000 B- Range Resources Corp., Company Guaranteed, 8.750% due 1/15/07 821,750 2,555,000 B Stone Energy Corp., Company Guaranteed, 8.750% due 9/15/07 2,440,025 1,165,000 B+ Vintage Petroleum, Inc., Sr. Sub. Notes, 9.750% due 6/30/09 1,191,213 -------------------------------------------------------------------------------- 22,903,038 -------------------------------------------------------------------------------- Oil & Gas Transmission -- 0.3% 2,175,000 BB- Leviathan Gas Pipeline Partners, LP, Series B, Company Guaranteed, 10.375% due 6/1/09 2,207,625 -------------------------------------------------------------------------------- Oil Refining/Marketing -- 0.2% 1,830,000 B Clark USA Inc., Series B, Sr. Notes, 10.875% due 12/1/05 1,015,650 -------------------------------------------------------------------------------- Paper -- 2.4% 3,005,000 B Doman Industries Ltd., Sr. Notes, 8.750% due 3/15/04 2,343,900 5,515,000 CCC+ Repap New Brunswick Inc., Sr. Notes, 10.625% due 4/15/05 4,880,775 Riverwood International Corp., Company Guaranteed: 3,430,000 B- 10.625% due 8/1/07 3,344,250 5,820,000 CCC+ 10.875% due 4/1/08 5,150,700 231,750 NR SD Warren Co., Debentures, 14.000% due 12/15/06 257,242 -------------------------------------------------------------------------------- 15,976,867 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- 12 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Pharmaceuticals -- 0.5% 3,510,000 B King Pharmaceuticals, Inc., Company Guaranteed, 10.750% due 2/15/09 $ 3,632,850 -------------------------------------------------------------------------------- Photographic Products -- 0.6% 3,820,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 3,991,900 -------------------------------------------------------------------------------- Printing/Forms -- 0.2% 900,000 GBP B Polestar Corp. PLC, Series B, Sr. Notes, 10.500% due 5/30/08 1,294,376 -------------------------------------------------------------------------------- Real Estate Investment Trusts (REIT) -- 0.4% 4,000,000 NR Ocwen Asset Investment Corp., Sr. Notes, 11.500% due 7/1/05 2,980,000 -------------------------------------------------------------------------------- Rental/Leasing Companies -- 1.0% 2,085,000 BB- Avis Rent a Car, Inc., Company Guaranteed, 11.000% due 5/1/09 2,184,038 820,000 B NationsRent, Inc., Company Guaranteed, 10.375% due 12/15/08 528,900 United Rentals, Inc., Series B, Company Guaranteed: 2,500,000 BB- 9.250% due 1/15/09 2,268,750 2,120,000 BB- 9.000% due 4/1/09 1,886,800 -------------------------------------------------------------------------------- 6,868,488 -------------------------------------------------------------------------------- Retail - Other Specialty Stores -- 0.4% 3,065,000 B- Advance Stores Co., Inc., Series B, Company Guaranteed, 10.250% due 4/15/08 2,543,950 -------------------------------------------------------------------------------- Savings & Loan Associations -- 0.8% Ocwen Capital Trust I Corp.: 5,500,000 B2* Company Guaranteed, 10.875% due 8/1/27 2,942,500 2,600,000 B+ Notes, 11.875% due 10/1/03 2,379,000 -------------------------------------------------------------------------------- 5,321,500 -------------------------------------------------------------------------------- Semiconductors -- 1.4% 865,000 B1* Amkor Technologies, Inc., Sr. Sub. Notes, 10.500% due 5/1/09 870,406 6,510,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes, 10.125% due 3/15/07 6,607,650 1,800,000 B SCG Holding & Semiconductor Co., Company Guaranteed, 12.000% due 8/1/09 1,930,500 -------------------------------------------------------------------------------- 9,408,556 -------------------------------------------------------------------------------- Steel/Iron Ore -- 1.0% 1,875,000 BB- LTV Corp., Company Guaranteed, 11.750% due 11/15/09 (b) 1,584,375 425,000 B+ Russel Metals Inc./RMI USA LLC, 10.000% due 6/1/09 (c) 406,406 4,075,000 B+ WCI Steel, Inc., Series B, Sr. Notes, 10.000% due 12/1/04 3,810,125 1,065,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 836,025 -------------------------------------------------------------------------------- 6,636,931 -------------------------------------------------------------------------------- See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 13 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Telecommunications - Other -- 14.7% 2,255,000 B+ Call-Net Enterprises, Inc., Sr. Notes, 9.375% due 5/15/09 $ 1,398,100 1,250,000 EUR B+ Esat Telecom Group PLC, Sr. Notes, 11.875% due 11/1/09 1,500,805 Esprit Telecom Group PLC, Sr. Notes: 3,900,000 B- 11.500% due 12/15/07 2,788,500 4,000,000 DEM B- 11.500% due 12/15/07 1,480,102 2,250,000 B- 10.875% due 6/15/08 1,541,250 2,000,000 EUR B Flag Telecom Holdings Ltd., Sr. Notes, 11.625% due 3/30/10 (b) 1,754,235 Focal Communications Corp.: 2,320,000 B Company Guaranteed, 11.875% due 1/15/10 (b) 2,343,200 2,250,000 B Series B, Sr. Discount Notes, Step bond to yield 13.097% due 2/15/08 1,530,000 4,100,000 BB Global Crossing Holdings Ltd., Sr. Notes, 9.500% due 11/15/09 (b) 3,977,000 3,400,000 EUR B Global TeleSystems Inc., Bonds, 11.000% due 12/1/09 (b) 2,558,498 2,490,000 CCC+ GT Group Telecom Inc., step bond to yield 13.250% due 2/1/10 (c) 1,394,400 Hermes Europe Railtel B.V., Sr. Notes: 1,645,000 B 11.500% due 8/15/07 1,414,700 7,345,000 B 10.375% due 1/15/09 6,022,900 1,885,000 B- ICG Holdings Inc., Sr. Discount Notes, step bond to yield 13.181% due 9/15/05 1,833,163 Jazztel PLC, Sr. Notes: 2,300,000 EUR CCC+ 13.250% due 12/15/09 (b) 1,995,322 1,500,000 EUR CCC+ 14.000% due 7/15/10 (b) 1,452,276 KMC Telecom Holdings, Inc.: 4,030,000 B- Sr. Discount Notes, step bond to yield 15.899% due 2/15/08 1,914,250 2,865,000 B- Sr. Notes, 13.500% due 5/15/09 2,535,525 Level 3 Communications, Inc.: 12,055,000 B Sr. Discount Notes, step bond to yield 12.846% due 3/15/10 (b) 6,660,387 5,300,000 EUR B Sr. Notes, 11.250% due 3/15/10 (b) 4,978,959 1,260,000 CCC+ Madison River Capital, Sr. Notes, 13.250% due 3/1/10 (b) 1,592,800 2,215,000 B+ McLeodUSA Inc., Sr. Notes, 8.125% due 2/15/09 2,004,575 3,765,000 B- MGC Communications Inc., Sr. Notes, 13.000% due 4/1/10 3,557,925 NEXTLINK Communications, Inc.: Sr. Discount Notes: 7,000,000 B Step bond to yield 12.051% due 6/1/09 4,340,000 8,045,000 B Step bond to yield 12.567% due 12/1/09 (b) 4,666,100 Sr. Notes: 4,610,000 B 12.500% due 4/15/06 4,840,500 3,020,000 B 10.750% due 6/1/09 2,989,800 6,035,000 B- Primus Telecommunications Group, Inc., Sr. Notes, 11.750% due 8/1/04 4,858,175 See Notes to Financial Statements. -------------------------------------------------------------------------------- 14 2000 Quarterly Report to Shareholders 15 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Telecommunications - Other -- 14.7% (continued) 3,260,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09 $ 3,325,200 Versatel Telecom International NV, Sr. Notes: 625,000 Caa* 13.250% due 5/15/08 639,063 3,700,000 EUR B- 11.250% due 3/30/10 (b) 3,342,871 7,500,000 B- Viatel, Inc., Sr. Notes, 11.500% due 3/15/09 5,850,000 6,575,000 B- World Access, Inc., Series B, Sr. Notes, 13.250% due 1/15/08 5,917,500 -------------------------------------------------------------------------------- 98,998,081 -------------------------------------------------------------------------------- Telephone - Cellular -- 10.8% 3,620,000 CCC AirGate PCS, Inc., Sr. Sub. Notes, step bond to yield 13.238% due 10/1/09 2,063,400 6,925,000 CCC+ Alamosa PCS Holdings, Inc., Company Guaranteed, step bond to yield 13.411% due 2/15/10 3,635,625 1,125,000 B- Centennial Cellular Corp., Sr. Sub. Notes, 10.750% due 12/15/08 1,098,281 Clearnet Communications: 5,250,000 CAD B Sr. Discount Notes, step bond to yield 13.450% due 5/15/08 2,232,233 3,000,000 NR Sr. Secured Notes, 10.125% due 7/7/07 (b) 2,983,500 Crown Castle International Corp.: 6,425,000 B Sr. Discount Notes, step bond to yield 11.322% due 5/15/11 3,959,406 1,630,000 B Sr. Notes, 10.750% due 8/1/11 1,660,563 2,655,000 NR Dobson/Sygnet Corp., Sr. Notes, 12.250% due 12/15/08 2,840,850 4,790,000 B- Microcell Telecommunications Inc., Sr. Discount Notes, step bond to yield 11.757% due 6/1/09 3,173,375 8,690,000 B- Millicom International Cellular S.A., Sr. Discount Notes, step bond to yield 14.059% due 6/1/06 7,429,950 Nextel Communications, Inc.: Sr. Discount Notes: 7,365,000 B1* Step bond to yield 10.985% due 9/15/07 5,818,350 16,735,000 B1* Step bond to yield 10.915% due 2/15/08 12,342,063 2,280,000 B1* Sr. Notes, 9.375% due 11/15/09 2,188,800 1,985,000 NR Spectrasite Holdings, Inc., Sr. Discount Notes, step bond to yield 11.250% due 4/15/09 1,171,150 Telesystem International Wireless Inc., Sr. Discount Notes: 8,160,000 CCC+ Series B, step bond to yield 13.368% due 6/30/07 5,712,000 3,825,000 CCC+ Series C, step bond to yield 12.641% due 11/1/07 2,314,125 4,305,000 B3* Triton PCS, Inc., Company Guaranteed, step bond to yield 11.513% due 5/1/08 3,142,650 VoiceStream Wireless Corp.: 1,760,000 B2* Series A, Sr. Notes, 11.625% due 8/15/06 1,909,600 2,515,000 B2* Sr. Discount Notes, step bond to yield 11.875% due 11/15/09 1,703,912 See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 15 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT+ RATING(a) SECURITY VALUE ================================================================================ Telephone - Cellular -- 10.8% (continued) 935,000 B2* Sr. Notes, 11.500% due 9/15/09 (b) $ 1,005,125 Winstar Communications Inc.: 4,315,000 B- Sr. Discount Notes, step bond to yield 15.313% due 4/15/10 (b) 2,028,050 2,585,000 B- Sr. Notes, 12.750% due 4/15/10 (b) 2,423,437 -------------------------------------------------------------------------------- 72,836,445 -------------------------------------------------------------------------------- Textiles -- 0.5% 4,000,000 CAD B3* Texon International PLC, Sr. Notes, 10.000% due 2/1/08 1,832,974 2,150,000 BB WestPoint Stevens Inc., Sr. Notes, 7.875% due 6/15/05 1,806,000 -------------------------------------------------------------------------------- 3,638,974 -------------------------------------------------------------------------------- Transportation - Marine -- 0.3% 2,125,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 1,944,375 -------------------------------------------------------------------------------- Unregulated Power Generation -- 3.1% AES Corp.: 8,995,000 Ba1* Sr. Notes, 9.500% due 6/1/09 8,860,075 6,250,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06 6,265,625 5,375,000 BB Calpine Corp., Sr. Notes, 10.500% due 5/15/06 5,616,875 -------------------------------------------------------------------------------- 20,742,575 -------------------------------------------------------------------------------- Wholesale Distributors -- 0.3% 1,775,000 B Buhrmann US, Inc., Company Guaranteed, 12.250% due 11/1/09 (b) 1,872,625 -------------------------------------------------------------------------------- TOTAL CORPORATE BONDS AND NOTES (Cost -- $682,892,951) 639,823,566 ================================================================================ SHARES SECURITY VALUE ================================================================================ COMMON STOCK -- 0.1% Telecommunications - Other -- 0.0% 20,125 Pagemart Nationwide, Inc. (b) 201,250 -------------------------------------------------------------------------------- Telecommunications Equipment -- 0.1% 20,659 World Access, Inc. 228,540 -------------------------------------------------------------------------------- TOTAL COMMON STOCK (Cost -- $574,570) 429,790 ================================================================================ See Notes to Financial Statements. -------------------------------------------------------------------------------- 16 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- SHARES SECURITY VALUE ================================================================================ PREFERRED STOCK -- 0.0% Electronic Components -- 0.0% 4,113 Viasystems Group Inc., Payment-in-kind, Series B $ 74,039 -------------------------------------------------------------------------------- Savings & Loan Associations -- 0.0% 3,100 California Federal Preferred Capital Corp., Series A, Exchangeable 9.125% 65,681 -------------------------------------------------------------------------------- Telephone - Cellular -- 0.0% 88 Dobson Communications Corp., Payment-in-kind, Exchangeable 13.000% 9,130 -------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost -- $139,589) 148,850 ================================================================================ WARRANTS (d) -- 0.5% Broadcasting -- 0.1% 14,825 UIH Australia/Pacific, Inc., Expire 5/15/06 444,750 -------------------------------------------------------------------------------- Cable-- 0.0% 890 Cable Satisfaction Corp., Expire 3/1/10 24,920 -------------------------------------------------------------------------------- Internet Services -- 0.2% 1,705 Cybernet Internet Services Inc., Expire 7/1/09 51,150 6,975 Splitrock Services, Inc., Expire 7/15/08 1,300,838 13,950 WAM!NET Inc., Expire 3/1/05 (b) 162,169 -------------------------------------------------------------------------------- 1,514,157 -------------------------------------------------------------------------------- Paper -- 0.0% 8,175 SDW Holdings Corp., Expire 12/15/06 (b) 143,880 -------------------------------------------------------------------------------- Printing/Forms -- 0.0% 1,765 Merrill Corp., Expire 5/1/09 177 -------------------------------------------------------------------------------- Telecommunications - Other -- 0.1% 43,470 Pagemart, Inc., Expire 12/31/03 347,760 6,975 RSL Communications, Ltd., Expire 11/15/06 319,978 -------------------------------------------------------------------------------- 667,738 -------------------------------------------------------------------------------- Telephone - Cellular -- 0.1% 3,485 AirGate PCS Inc., Expire 10/1/09 409,487 6,725 Iridium World Communications Ltd., Expire 7/15/05 (b) 67 -------------------------------------------------------------------------------- 409,554 -------------------------------------------------------------------------------- TOTAL WARRANTS (Cost -- $1,426,397) 3,205,176 ================================================================================ See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 17 -------------------------------------------------------------------------------- Schedule of Investments (unaudited) (continued) June 30, 2000 -------------------------------------------------------------------------------- FACE AMOUNT SECURITY VALUE ================================================================================ REPURCHASE AGREEMENT -- 4.3% $29,219,000 Goldman Sachs & Co., 6.450% due 7/3/00; Proceeds at maturity -- $29,234,705; (Fully collateralized by U.S. Treasury Bills, Notes and Bonds, 0.000% to 12.000% due 8/15/00 to 11/15/28; Market value -- $29,803,403) (Cost -- $29,219,000) $ 29,219,000 ================================================================================ TOTAL INVESTMENTS -- 100% (Cost -- $714,252,507**) $672,826,382 ================================================================================ + Face amount denominated in U.S. dollars unless otherwise indicated. (a) All ratings are by Standard & Poor's Ratings Service, except those identified by an asterisk (*), which are rated by Moody's Investors Service, Inc. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. (c) Security has been issued with attached warrants. (d) Non-income producing securities. ** Aggregate cost for Federal income tax purposes is substantially the same. See page 19 for definition of ratings. Currency abbreviations used in this schedule: --------------------------------------------- CAD -- Canadian Dollar. DEM -- German Mark. EUR -- Euro. GBP -- British Pound. See Notes to Financial Statements. -------------------------------------------------------------------------------- 18 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Bond Ratings (unaudited) -------------------------------------------------------------------------------- The definitions of the applicable rating symbols are set forth below: Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "BBB" to "CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major rating categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. BB, B -- Bonds rated "BB", "B" and "CCC" are regarded, on balance, as and CCC predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" represents a lower degree of speculation than "B", and "CCC" the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating from "Baa" to "Caa", where 1 is the highest and 3 the lowest rating within its generic category. Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that is, they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. These bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds that are rated "Caa" are of poor standing. These issues may be in default, or there may be present elements of danger with respect to principal or interest. NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 19 -------------------------------------------------------------------------------- Statement of Assets and Liabilities (unaudited) June 30, 2000 -------------------------------------------------------------------------------- ASSETS: Investments, at value (Cost -- $714,252,507) $ 672,826,382 Cash 468 Receivable for open forward foreign currency contracts (Note 8) 33,670 Interest and dividends receivable 14,720,502 Receivable for securities sold 6,907,244 -------------------------------------------------------------------------------------- Total Assets 694,488,266 -------------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased 9,865,007 Dividends payable 1,787,743 Management fees payable 642,922 Payable for open forward foreign currency contracts (Note 8) 55,860 Accrued expenses 157,773 -------------------------------------------------------------------------------------- Total Liabilities 12,509,305 -------------------------------------------------------------------------------------- Total Net Assets $ 681,978,961 ====================================================================================== NET ASSETS: Par value of capital shares $ 69,227 Capital paid in excess of par value 872,884,799 Undistributed net investment income 2,247,318 Accumulated net realized loss from security transactions (151,756,452) Net unrealized depreciation of investments and foreign currencies (41,465,931) -------------------------------------------------------------------------------------- Total Net Assets (Equivalent to $9.85 per share on 69,227,252 shares of $0.001 par value outstanding; 500,000,000 shares authorized) $ 681,978,961 ======================================================================================
See Notes to Financial Statements. -------------------------------------------------------------------------------- 20 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Statement of Operations (unaudited) -------------------------------------------------------------------------------- For the Nine Months Ended June 30, 2000 INVESTMENT INCOME: Interest $ 60,713,825 Dividends 439,303 ------------------------------------------------------------------------------- Total Investment Income 61,153,128 ------------------------------------------------------------------------------- EXPENSES: Management fees (Note 2) 6,232,327 Shareholder communications 145,316 Shareholder and system servicing fees 63,373 Custody 40,538 Audit and legal 34,452 Directors' fees 8,258 Other 53,397 ------------------------------------------------------------------------------- Total Expenses 6,577,661 ------------------------------------------------------------------------------- Net Investment Income 54,575,467 ------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTES 3 AND 8): Realized Gain (Loss) From: Security transactions (excluding short-term securities) (51,732,711) Foreign currency transactions 2,200,841 ------------------------------------------------------------------------------- Net Realized Loss (49,531,870) ------------------------------------------------------------------------------- Change in Net Unrealized Depreciation of Investments and Foreign Currencies: Beginning of period (43,005,972) End of period (41,465,931) ------------------------------------------------------------------------------- Decrease in Net Unrealized Depreciation 1,540,041 ------------------------------------------------------------------------------- Net Loss on Investments and Foreign Currencies (47,991,829) ------------------------------------------------------------------------------- Increase in Net Assets From Operations $ 6,583,638 =============================================================================== See Notes to Financial Statements. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 21 -------------------------------------------------------------------------------- Statements of Changes in Net Assets -------------------------------------------------------------------------------- For the Nine Months Ended June 30, 2000 (unaudited) and the Year Ended September 30, 1999
2000 1999 ========================================================================================= OPERATIONS: Net investment income $ 54,575,467 $ 73,859,720 Net realized loss (49,531,870) (41,919,147) (Increase) decrease in net unrealized depreciation 1,540,041 (14,161,100) ----------------------------------------------------------------------------------------- Increase in Net Assets From Operations 6,583,638 17,779,473 ----------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (53,139,970) (74,284,603) Capital -- (454,788) ----------------------------------------------------------------------------------------- Decrease in Net Assets From Distributions to Shareholders (53,139,970) (74,739,391) ----------------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 9): Treasury stock acquired (26,425,102) -- Net asset value of shares issued for reinvestment of dividends -- 2,293,455 ----------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets From Fund Share Transactions (26,425,102) 2,293,455 ----------------------------------------------------------------------------------------- Decrease in Net Assets (72,981,434) (54,666,463) NET ASSETS: Beginning of period 754,960,395 809,626,858 ----------------------------------------------------------------------------------------- End of period* $ 681,978,961 $ 754,960,395 ========================================================================================= * Includes undistributed (overdistributed) net investment income of: $ 2,247,318 $ (1,389,020) =========================================================================================
See Notes to Financial Statements. -------------------------------------------------------------------------------- 22 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- 1. Significant Accounting Policies The High Income Opportunity Fund Inc. ("Fund"), a Maryland corporation, is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The significant accounting policies consistently followed by the Fund are: (a) security transactions are accounted for on trade date; (b) securities are valued at the mean between the quoted bid and ask prices provided by an independent pricing service that are based on transactions in corporate obligations, quotations from corporate bond dealers, market transactions in comparable securities and various relationships between securities; (c) securities maturing within 60 days or less are valued at cost plus accreted discount or minus amortized premium, which approximates value; (d) gains or losses on the sale of securities are calculated by using the specific identification method; (e) dividend income is recorded on the ex-dividend date; foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence; (f) interest income, adjusted for accretion of original issue discount, is recorded on an accrual basis; (g) dividends and distributions to shareholders are recorded on the ex-dividend date; (h) the accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, and income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. Differences between income or expense amounts recorded and collected or paid are adjusted when reported by the custodian bank; (i) the character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At September 30, 1999, reclassifications were made to the Fund's capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income regulations. Accordingly, a portion of overdistributed net investment income tax and net realized gains amounting to $454,788 and $7,233, respectively, was reclassified to paid-in capital. Net investment income, net realized gains and net assets were not affected by this change; (j) the Fund intends to comply with the requirements of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal income and excise taxes; and (k) estimates and assumptions are required to be made regarding assets, -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 23 -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. In addition, the Fund may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked to market daily by recognizing the difference between the contract exchange rate and the current market rate as an unrealized gain or loss. Realized gains or losses are recognized when contracts are settled. 2. Management Agreement and Other Transactions SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., acts as investment manager of the Fund. The Fund pays SSBC a management fee calculated at an annual rate of 1.15% of the Fund's average daily net assets. This fee is calculated daily and paid monthly. All officers and one director of the Fund are employees of Salomon Smith Barney Inc., another subsidiary of SSBH. 3. Investments During the nine months ended June 30, 2000, the aggregate cost of pur chases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows: ================================================================================ Purchases $356,685,789 -------------------------------------------------------------------------------- Sales 391,903,613 ================================================================================ At June 30, 2000, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows: ================================================================================ Gross unrealized appreciation $ 11,298,486 Gross unrealized depreciation (52,724,611) -------------------------------------------------------------------------------- Net unrealized depreciation $(41,426,125) ================================================================================ -------------------------------------------------------------------------------- 24 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- 4. Capital Loss Carryforward At September 30, 1999, the Fund had, for Federal tax purposes, approximately $65,210,000 of capital loss carryforwards available to offset future realized capital gains. To the extent that these capital loss carryforwards can be used to offset net realized capital gains, such gains, if any, will not be distributed. The amounts and expiration of carryforwards are indicated below. Expiration occurs on September 30 in the year indicated: 2003 2004 2007 ================================================================================ Carryforward Amounts $16,016,600 $38,118,000 $11,075,400 ================================================================================ 5. Futures Contracts Initial margin deposits are made upon entering into futures contracts and are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contract. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. The Fund enters into such contracts to hedge a portion of its portfolio. The Fund bears the market risk that arises from changes in the value of the financial instruments and securities indices (futures contracts). At June 30, 2000, the Fund did not have any open futures contracts. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 25 -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- 6. Options Contracts Premiums paid when call or put options are purchased by the Fund, represent investments, which are marked-to-market daily. When a purchased option expires, the Fund will realize a loss in the amount of the premium paid. When the Fund enters into a closing sales transaction, the Fund will realize a gain or loss depending on whether the proceeds from the closing sales transaction are greater or less than the premium paid for the option. When the Fund exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Fund exercises a call option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. At June 30, 2000, the Fund did not have any open purchased call or put option contracts. When the Fund writes a call or put option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily. When a written option expires, the Fund realizes a gain equal to the amount of the premium received. When the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss depending upon whether the cost of the closing transaction is greater or less than the premium received, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When a written call option is exercised, the cost of the security sold will be decreased by the premium originally received. When a written put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Fund purchased upon exercise. When written index options are exercised, settlement is made in cash. The risk associated with purchasing options is limited to the premium originally paid. The Fund enters into options for hedging purposes. The risk in writing a covered call option is that the Fund gives up the opportunity to participate in any increase in the price of the underlying security beyond the exercise price. The risk in writing a put option is that the Fund is exposed to the risk of loss if the market price of the underlying security declines. During the nine months ended June 30, 2000, the Fund did not write any call or put option contracts. -------------------------------------------------------------------------------- 26 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) (continued) -------------------------------------------------------------------------------- 7. Repurchase Agreements The Fund purchases (and its custodian takes possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date, (generally, the next business day) at an agreed-upon higher repurchase price. The Fund requires continual maintenance of the market value of the collateral in amounts at least equal to the repurchase price. 8. Forward Foreign Currency Contracts At June 30, 2000, the Fund had open forward foreign currency contracts as described below. The Fund bears the market risk that arises from changes in foreign currency exchange rates. The unrealized gain (loss) on the contracts is re flected as follows:
Local Market Settlement Unrealized Foreign Currency Currency Value Date Gain (Loss) ========================================================================================= To Buy: Euro 1,986,094 $ 1,903,866 7/5/00 $ 26,961 ----------------------------------------------------------------------------------------- To Sell: British Pound 2,612,500 3,969,5611 2/22/00 (41,144) Canadian Dollar 3,307,500 2,241,838 12/8/00 6,709 Euro 11,672,702 11,303,726 12/15/00 (14,716) ----------------------------------------------------------------------------------------- (49,151) ----------------------------------------------------------------------------------------- Net Unrealized Loss on Open Forward Foreign Currency Contracts $ (22,190) =========================================================================================
9. Capital Shares At June 30, 2000, the Fund had 500,000,000 shares of common stock authorized with a par value of $0.001. On October 19, 1999, the Fund commenced a share repurchase plan. As of June 30, 2000, repurchased shares totaled 3,003,100 with a total cost of $26,425,102. -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 27 -------------------------------------------------------------------------------- Financial Highlights -------------------------------------------------------------------------------- For a share of capital stock outstanding throughout each year ended September 30, except where noted:
2000(1) 1999 1998 1997 1996 1995 ================================================================================================================= Net Asset Value, Beginning of Period $10.45 $11.24 $ 12.43 $ 11.72 $ 11.48 $ 11.20 ----------------------------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income 0.81 1.03 1.08 1.15 1.14 1.14 Net realized and unrealized gain (loss) (0.69) (0.79) (1.14) 0.68 0.22 0.28 ----------------------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 0.12 0.24 (0.06) 1.83 1.36 1.42 ----------------------------------------------------------------------------------------------------------------- Gains From Repurchase of Treasury Stock 0.04 -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------- Less Distributions From: Net investment income (0.76) (1.03) (1.13) (1.12) (1.12) (1.12) Capital -- (0.00)* -- -- -- (0.02) ----------------------------------------------------------------------------------------------------------------- Total Distributions (0.76) (1.03) (1.13) (1.12) (1.12) (1.14) ----------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 9.85 $10.45 $ 11.24 $ 12.43 $ 11.72 $ 11.48 ----------------------------------------------------------------------------------------------------------------- Total Return, Based on Market Value(2) 7.49%++ (9.36)% (1.65)% 18.18% 21.07% 9.90% ----------------------------------------------------------------------------------------------------------------- Total Return, Based on Net Asset Value(2) 32.73%++ 2.74% (0.58)% 16.48% 12.86% 13.99% ----------------------------------------------------------------------------------------------------------------- Net Assets, End of Period (millions) $ 682 $ 755 $ 810 $ 883 $ 819 $ 802 ----------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: Expenses 1.22%+ 1.20% 1.18% 1.21% 1.21% 1.20% Net investment income 10.10+ 9.28 8.81 9.63 9.85 10.02 ----------------------------------------------------------------------------------------------------------------- Portfolio Turnover Rate 53% 83% 98% 87% 73% 59% ----------------------------------------------------------------------------------------------------------------- Market Value, End of Period $9.000 $9.125 $11.125 $12.438 $11.500 $10.500 =================================================================================================================
(1) For the nine months ended June 30, 2000 (unaudited). (2) The total return calculation assumes that dividends are reinvested in accordance with the Fund's dividend reinvestment plan. * Amount represents less than $0.01 per share. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. -------------------------------------------------------------------------------- 28 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Financial Data (unaudited) -------------------------------------------------------------------------------- For a share of capital stock outstanding throughout each period: Income Dividend NYSE Net Asset Dividend Reinvestment Closing Price Value Paid Price ================================================================================ 1998 October 28 $11.69 $12.30 $0.0930 $12.200 November 24 12.31 12.23 0.0930 12.230 December 22 12.44 12.26 0.0930 12.260 December 31 12.50 12.24 0.0375 12.240 January 27 12.63 12.24 0.0930 12.240 February 24 12.69 12.30 0.0930 12.300 March 24 11.88 12.29 0.0930 11.990 April 21 11.94 12.32 0.0890 11.880 May 26 11.50 12.25 0.0890 11.930 June 23 11.81 12.16 0.0890 11.900 July 28 11.56 12.21 0.0890 11.790 August 25 11.69 11.82 0.0890 10.810 September 22 10.69 11.16 0.0890 10.850 1999 October 27 11.06 10.73 0.0890 10.730 November 23 11.19 11.29 0.0890 11.150 December 21 10.44 11.18 0.0890 10.610 January 26 10.38 11.30 0.0860 10.390 February 23 10.50 11.16 0.0860 10.560 March 23 10.69 11.15 0.0860 10.570 April 27 10.50 11.27 0.0860 10.720 May 25 10.38 10.97 0.0860 10.530 June 22 10.44 10.80 0.0860 10.450 July 23 10.19 10.83 0.0840 9.860 August 20 9.31 10.55 0.0840 9.460 September 17 9.00 10.46 0.0840 9.040 2000 October 22 8.63 10.36 0.0840 9.190 November 18 8.94 10.40 0.0840 8.570 December 22 8.56 10.49 0.0840 8.490 January 21 9.00 10.42 0.0840 8.940 February 17 8.56 10.35 0.0840 8.430 March 24 8.63 10.07 0.0840 8.570 April 20 8.63 9.96 0.0840 8.670 May 19 8.81 9.71 0.0840 8.850 June 23 9.00 9.85 0.0840 9.070 ================================================================================ -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 29 -------------------------------------------------------------------------------- Additional Shareholder Information (unaudited) -------------------------------------------------------------------------------- On February 23, 2000, the Annual Meeting of shareholders of the Fund was held for the purpose of voting on the following matters: 1. To vote on the election of Heath B. McLendon, Roderick C. Rasmussen and John P. Toolan, as Directors; and 2. To approve or disapprove the selection of KPMG LLP as the independent auditors for the current fiscal year of the Fund. The results of the vote on Proposal 1 were as follows: Shares Percentage Shares Percentage Voted of Shares Voted of Shares Name of Directors* For Voted Against Voted ================================================================================ Heath B. McLendon 66,260,425.057 98.177% 1,230,404.269 1.823% Roderick C. Rasmussen 66,225,233.057 98.125 1,265,596.269 1.875 John P. Toolan 66,123,119.283 97.973 1,367,710.043 2.027 ================================================================================ The results of the vote on Proposal 2 were as follows: Shares Percentage Shares Percentage Percentage Voted of Shares Voted of Shares Shares of Shares For Voted Against Voted Abstaining Abstained ================================================================================ 66,525,198.300 98.569% 323,025.109 0.479% 642,605.917 0.952% ================================================================================ * The following Directors, representing the balance of the Board of Directors, continue to serve as Directors: Lee Abraham, Allan J. Bloostein, Jane F. Dasher, Donald R. Foley, Richard E. Hanson, Jr. and Paul Hardin. -------------------------------------------------------------------------------- 30 2000 Quarterly Report to Shareholders -------------------------------------------------------------------------------- Dividend Reinvestment Plan (unaudited) -------------------------------------------------------------------------------- Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose shares of Common Stock are registered in his own name will have all distributions from the Fund reinvested automatically by PFPC Global Fund Services ("PFPC"), as purchasing agent under the Plan, unless the shareholder elects to receive cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in "street name") will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own common stock registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to share holders who do not participate in the Plan will be paid by check mailed directly to the record holder by or under the direction of PFPC as dividend paying agent. The number of shares of common stock distributed to participants in the Plan in lieu of a cash dividend is determined in the following manner. When the market price of the common stock is equal to or exceeds the net asset value ("NAV") per share of the common stock on the determination date (generally, the record date for the distribution), the Plan participants will be issued shares of common stock by the Fund at a price equal to the greater of NAV determined as described below or 95% of the market price of the common stock. If the market price of the common stock is less than the NAV of the common stock at the time of valuation (which is the close of business on the determination date), or if the Fund declares a dividend or capital gains distribution payable only in cash, PFPC will buy common stock in the open market, on the stock exchange or elsewhere, for the participants' accounts. If following the commencement of the purchases and before PFPC has completed its purchases, the market price exceeds the NAV of the common stock as of the valuation time, PFPC will attempt to terminate purchases in the open market and cause the Fund to issue the remaining portion of the dividend or distribution in shares at a price equal to the greater of (a) NAV as of the valuation time or (b) 95% of the then current market price. In this case, the number of shares received by a Plan participant will be based on the weighted average of prices paid for shares purchased in the open market and the price at which the Fund issues the remaining shares. To the extent PFPC is unable to stop open market purchases and cause the Fund to issue the remaining shares, the average per share purchase price paid by PFPC may exceed the NAV of the common stock as of the valuation time, resulting in the acquisition of fewer shares than if the -------------------------------------------------------------------------------- High Income Opportunity Fund Inc. 31 -------------------------------------------------------------------------------- Dividend Reinvestment Plan (unaudited) (continued) -------------------------------------------------------------------------------- dividend or capital gains distribution had been paid in common stock issued by the Fund at such net asset value. PFPC will begin to purchase common stock on the open market as soon as practicable after the determination date for the dividend or capital gains distribution, but in no event shall such purchases continue later than 30 days after the payment date for such dividend or distribution, or the record date for a succeeding dividend or distribution, except when necessary to comply with applicable provisions of the federal securities laws. PFPC maintains all shareholder accounts in the Plan and furnishes written confirmation of all transactions in each account, including information needed by a shareholder for personal and tax records. The automatic reinvestment of dividends and capital gains distributions will not relieve Plan participants of any income tax that may be payable on the dividends or capital gains distributions. Common stock in the account of each Plan participant will be held by PFPC in uncertificated form in the name of each Plan participant. Plan participants are subject to no charge for reinvesting dividends and capital gains distributions under the Plan. PFPC's fees for handling the reinvestment of dividends and capital gains distributions will be paid by the Fund. No brokerage charges apply with respect to shares of common stock issued directly by the Fund under the Plan. Each Plan participant will, however, bear a proportionate share of any brokerage commissions actually incurred with respect to any open market purchases made under the Plan. Experience under the Plan may indicate that changes to it are desirable. The Fund reserves the right to amend or terminate the Plan as applied to any dividend or capital gains distribution paid subsequent to written notice of the change sent to participants at least 30 days before the record date for the dividend or capital gains distribution. The Plan also may be amended or terminated by PFPC, with the Fund's prior written consent, on at least 30 days' written notice to Plan participants. All correspondence concerning the Plan should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-331-1710. -------------------------------------------------------------------------------- Additional Shareholder Information (unautited) -------------------------------------------------------------------------------- Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its common stock in the open market. -------------------------------------------------------------------------------- 32 2000 Quarterly Report to Shareholders