[PHOTO OMITTED]

                                  HIGH INCOME

                              -------------------

                              Opportunity Fund Inc.


                                                              Semi-Annual Report
                                                              March 31, 1998
<PAGE>

                        High Income Opportunity Fund Inc.

Dear Shareholder:

We are pleased to provide the semi-annual report for the High Income Opportunity
Fund Inc. ("Fund") for the period ended March 31, 1998. Over the past six months
the Fund paid income dividends totaling $0.60 per share. The table below shows
the annualized distribution rate and six-month total return for the Fund based
on its March 31, 1998 net asset value ("NAV") per share and its New York Stock
Exchange ("NYSE") closing price.

        Price                         Annualized                    Six-Month
      Per Share                      Distribution                 Total Return
      ---------                     --------------                 ----------
     $12.34 (NAV)                       8.65%                        4.22%
     $11.875 (NYSE)                     8.99%                        0.23%

The Fund generated a total return on NAV of 4.22% for the six-month ended March
31, 1998. In comparison, the six-month average total return for closed-end high
yield bond funds for the same time period was 5.55%, according to Lipper
Analytical Services, Inc., an independent fund-tracking organization. A full
discussion of the past six-month's economic and market conditions as well as the
investment strategy employed by the Fund during this time follows.

Market and Economic Overview

The high yield bond market generated positive performance during the six months
ended March 31, 1998 with total returns in the 5% to 6% range. In the first
quarter of 1998, the high yield bond market continued to generate competitive
performance returns. The lower quality issues generally outperformed the higher
quality issues as the performance of the lower quality issues tends to correlate
more closely to the U.S. stock market.

During the first quarter of 1998 the U.S. stock market rose by 10% to 15%
depending upon which stock market index was used. A strong U.S. economy, ample
liquidity in the financial markets and moderate inflation continued to help fuel
the stock markets' performance. Interest rates remained confined to a narrow
range with little change in the rates of intermediate- and long-term U.S.
Treasury securities. The Federal Reserve Board ("Fed") continued to remain on
the sidelines, and the federal-funds rate remained unchanged at 5.50%.

While the Asian crisis did not dampen U.S. economic growth, it did keep pressure
on worldwide inflation with price declines on a number of important global
commodities such as oil. The net result was extremely positive for U.S.
financial markets, particularly the U.S. stock market. The U.S. bond market

                                                                               1
<PAGE>

was stuck in a narrow trading range and we believe the bond market will probably
continue to trade in a narrow range as long as the Fed's monetary policy remains
on hold. However, in recent weeks, the Fed has grown more concerned over strong
U.S. economic growth and the possibility that inflation may be increasing. Yet
the evidence so far suggests otherwise, with most statistics indicating
relatively tame inflation during the first quarter of 1998.

During the first three months of 1998, the stock markets experienced high
volatility with most major indices again moving toward record highs. Despite
record new issuance, the high yield bond market also generated strong
performance results in the first quarter. In our view, this was likely in
reaction to continued strength in the U.S. stock markets.

As previously noted, the lower quality segment of the high yield bond market
tends to more closely track the performance of the U.S. stock market rather than
the higher quality segments. The Fund's relatively higher-quality orientation
caused its performance to lag the high yield bond averages modestly during the
past six months. Despite the Fund's modest underperformance, we remain committed
to our strategy of emphasizing the better quality issues, especially in light of
the increased turbulence in a number of Asian economies.

Portfolio Strategy and Market Outlook

During the past six months, we became more conservative and increased our
weighting in  higher-quality,  defensive issues. We continue to believe that the
U.S. economy's outlook remains mixed and that many consumer-sensitive industries
will  continue  to  experience  fierce  price  competition.   In  addition,  the
significant  problems in Asia could also put severe  pressure on commodity goods
prices as troubled Asian companies attempt to increase their exports to the rest
of the world to make up for the expected  economic declines in their own region.
Moreover,  we believe that a slowdown in overall world economic growth may occur
in the coming  months as the severe  economic  decline in Asia  sharply  reduces
demand for many U.S. and European products. Consequently, the first half of 1998
could  experience  a slight  increase in the default  rates of select high yield
credits, especially weaker, more vulnerable companies that are having difficulty
competing.  Given the  increased  uncertainty  over Asia,  we would expect stock
market volatility to further rise in the coming months.

We will, therefore, still avoid these areas of the U.S. economy where consumer
spending is weak as well as industries facing heavy pricing competition. Our
emphasis will be on industries that are experiencing strong growth such as
telecommunications, media, and cable television. We also plan on owning stronger
rated B and BB bonds and avoiding the weaker, lower tier issues that are
generally in the CCC/Caa rating category. We believe our conservative investment
strategy is a prudent course of action given the higher risks and


2
<PAGE>

volatility we expect in the world's financial markets going forward. Yet,
despite our general cautiousness, we plan to take advantage of select high
growth potential opportunities, especially the telecommunications and media
industries where total returns were the strongest in 1997.

In closing, thank you for investing in the High Income Opportunity Fund. We look
forward to continuing to help you pursue your investment goals. If you have any
questions about the Fund, please call The First Data Investor Services Group,
Inc. at (800) 331-1710.

Sincerely,


/s/ Heath B. McLendon                              /s/ John C. Bianchi, C.F.A.

Heath B. McLendon                                  John C. Bianchi, C.F.A.
Chairman                                           Vice President

May 4, 1998


                                                                               3
<PAGE>

Take Advantage of the Fund's Dividend Reinvestment Policy!

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, a convenient, simple and efficient way to reinvest your dividends and
capital gains, if any, in additional shares of the Fund. The Fund's complete
Dividend Reinvestment Plan begins on page 24. Below is a short summary of how
the Dividend Reinvestment 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
date of valuation, you will be issued shares for the equivalent of the most
recently determined NAV per share or 95% of the market price, whichever is
greater.

If the NAV per share at the time of valuation is greater than the market price
of the common stock, or if the Fund declares a dividend or capital gains
distribution payable only in cash, the Fund will buy common stock for your
account in the open market or on the New York Stock Exchange.

If the Fund begins to purchase additional shares in the open market and the
market price of the shares subsequently rises above the NAV before the purchases
are completed, the Fund will attempt to cancel any remaining orders and issue
the remaining dividend or distribution in shares at the Fund's NAV per share. 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.

To find out more detailed information about the Dividend Reinvestment Plan and
about how you can participate, please call First Data Investors Services Group
at (800) 331-1710.


4
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited)                               March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT        RATINGS                           SECURITY                                     VALUE
===========================================================================================================
CORPORATE BONDS AND NOTES -- 92.0%
===========================================================================================================
Aerospace/Defense -- 2.0%
<S>                 <C>      <C>                                                               <C>
   $11,275,000      Ba2*     Airplanes Pass Through Trust, Corporate Collateralized
                               Mortgage Obligation, Series D, 10.875% due 3/15/19              $ 12,696,439
     4,375,000      BB       Morgan Stanley Aircraft Finance, 8.700% due 3/15/23(a)               4,451,563
-----------------------------------------------------------------------------------------------------------
                                                                                                 17,148,002
-----------------------------------------------------------------------------------------------------------
Banks/Savings and Loans -- 3.7%
                             Amresco Inc., Sr. Sub. Notes:
     4,250,000      B          10.000% due 3/15/04                                                4,430,625
     1,000,000      B          9.875% due 3/15/05                                                 1,020,000
    14,900,000      B        First Nationwide Holdings, Sr. Notes, 12.500%
                                due 4/15/03                                                      17,097,750
     5,500,000      B2*      Ocwen Capital Corp., Sr. Notes, 11.875% due 8/1/27                   6,105,000
     3,400,000      BB-      Ocwen Financial Corp., Sr. Notes, 11.875% due 10/1/03                3,884,500
-----------------------------------------------------------------------------------------------------------
                                                                                                 32,537,875
-----------------------------------------------------------------------------------------------------------
Broadcasting- TV, Cable, and Radio -- 12.4%
                             Cablevision Systems Corp., Sr. Sub. Debentures:
    15,725,000      BB-        9.875% due 2/15/13                                                17,415,438
     5,525,000      BB-        10.500% due 5/15/16                                                6,491,875
     5,900,000      BB-        9.875% due 4/1/23                                                  6,563,750
     6,250,000      Ba3*     Century Communications, Sr. Notes, 8.750% due 10/1/07                6,515,625
     7,950,000      B2*      Comcast UK Cable, Sr. Unsecured Discount Debentures,
                                step bond to yield 11.535% due 11/15/07                           6,618,375
     2,600,000      BB+      Le Groupe Videotron, Sr. Notes, 10.625% due 2/15/05                  2,918,500
                             Marcus Cable Capital Corp., Sr. Discount Notes:
     4,100,000      B3*        Step bond to yield 11.210% due 8/1/04                              3,915,500
     2,590,000      B1*        Step bond to yield 12.748% due 12/15/05                            2,356,900
     6,000,000      B-       PX Escrow Corp., Sr. Discount Notes, step bond to
                                yield 9.322% due 2/1/06(a)                                        4,282,500
                             Rogers Cablesystems, Sr. Secured Second Priority:
     4,000,000      BB+        Debentures 10.000% due 3/15/05                                     4,460,000
     4,400,000      BB+        Debentures 10.000% due 12/1/07                                     4,917,000
    11,195,000      BB-        Sr. Sub. Debentures, 11.000% due 12/1/15                          13,224,094
     4,950,000      BB-      Rogers Communications, Sr. Notes, 8.875%
                                due 7/15/07                                                       5,036,625
                             TV Azteca SA De CV, Sr. Sub. Notes:
     3,925,000      Ba3*       10.125% due 2/15/04                                                4,121,250
     6,450,000      Ba3*       10.500% due 2/15/07                                                6,901,500
    21,225,000      B        United International Holdings Inc., Sr. Discount Notes,
                               Step bond to yield 10.669% due 2/15/08(a)                         13,292,156
-----------------------------------------------------------------------------------------------------------
                                                                                                109,031,088
-----------------------------------------------------------------------------------------------------------
</TABLE>

                       See Notes to Financial Statements.


                                                                               5
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT        RATINGS                           SECURITY                                     VALUE
===========================================================================================================
<S>                 <C>      <C>                                                                <C>
Building/Construction -- 0.7%
   $ 3,825,000      NR       CIA Latino Americana, Company Guaranteed, 11.625%
                               due 6/1/04(a)                                                    $ 3,958,875
     2,000,000      BB+      Trizec Finance, Sr. Notes, 10.875% due 10/15/05                      2,267,500
-----------------------------------------------------------------------------------------------------------
                                                                                                  6,226,375
-----------------------------------------------------------------------------------------------------------
Chemicals -- 1.7%
     1,125,000      BB-      American Pacific Corp., Sr. Notes, 9.250% due 3/1/05(a)              1,164,375
     3,875,000      B3*      Interlake Corp., Sr. Sub. Notes, 12.125% due 3/1/02                  4,020,313
     5,000,000      B1*      NL Industries, Sr. Secured Notes, 11.750% due
                                10/15/03                                                          5,550,000
     4,350,000      B        Unifrax Investment Corp., Sr. Notes, 10.500%
                               due 11/1/03                                                        4,545,750
-----------------------------------------------------------------------------------------------------------
                                                                                                 15,280,438
-----------------------------------------------------------------------------------------------------------
Consumer Durables -- 0.9%
     4,000,000      B-       Eagle-Picher Industrial Inc., Sr. Sub. Notes, 9.375%
                               due 3/1/08(a)                                                      4,080,000
     6,050,000      B        Texon International, Sr. Notes, 10.000% due 2/1/08(a)                3,394,006
-----------------------------------------------------------------------------------------------------------
                                                                                                  7,474,006
-----------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 1.1%
     4,950,000      B2*      Intertek Finance PLC, Sr. Sub. Notes, 10.250% due 11/1/06            5,265,563
     4,475,000      B+       Park-Ohio Industries, Sr. Sub. Notes, 9.250%
                               due 12/1/07                                                        4,721,125
-----------------------------------------------------------------------------------------------------------
                                                                                                  9,986,688
-----------------------------------------------------------------------------------------------------------
Diversified/Conglomerate Services -- 0.9%
     2,900,000      B-       Alvey Systems Inc., Sr. Sub. Notes, 11.375%
                               due 1/31/03                                                        3,034,125
     4,675,000      B-       Outsourcing Solutions, Sr. Sub. Notes, 11.000%
                               due 11/1/06                                                       5,148,344
-----------------------------------------------------------------------------------------------------------
                                                                                                  8,182,469
-----------------------------------------------------------------------------------------------------------
Electric Utilities -- 4.7%
                             AES Corp., Sr. Sub. Notes:
     2,150,000      Ba1*       10.250% due 7/15/06                                                2,375,750
     2,300,000      Ba1*       8.375% due 8/15/07                                                 2,363,250
    11,025,000      Ba1*       8.500% due 11/1/07(a)                                             11,410,875
                             Calpine Corp., Sr. Notes:
     6,675,000      Ba2*       10.500% due 5/15/06                                                7,375,875
     2,400,000      Ba2*       8.750% due 7/15/07                                                 2,478,000
     3,425,000      BB+      Cleveland Electric, Sr. Notes, 7.430% due 11/1/09(a)                 3,549,156
     5,525,000      BB+      El Paso Electric Co., First Mortgage, 8.900% due 2/1/06              6,146,563
     1,624,341      BB       Midland Cogeneration Venture Limited Partnership,
                             Midland Funding, Debentures, Sr. Secured Lease
                               Obligation Bond, Series C, 10.330% due 7/23/02                     1,748,197
     3,400,000      BBB-     Niagara Mohawk Power, First Mortgage, 7.750%
                               due 5/15/06                                                        3,591,250
-----------------------------------------------------------------------------------------------------------
                                                                                                 41,038,916
-----------------------------------------------------------------------------------------------------------
</TABLE>

                       See Notes to Financial Statements.


6
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT          RATINGS                           SECURITY                                     VALUE
==========================================================================================================
<S>                 <C>      <C>                                                                <C>
Electronics/Computers -- 6.5%
     3,100,000      B-       Axiohm Transaction Services, Sr. Sub. Notes, 9.750%
                               due 10/1/07                                                        3,162,000
     3,925,000      B        Celestica International, Sr. Sub. Notes, 10.500%
                               due 12/31/06                                                       4,288,063
     8,225,000      B        Fairchild Semiconductor Corp., Sr. Sub. Notes, 10.125%
                               due 3/15/07                                                        8,595,125
     4,725,000      B-       Graphic Controls Corp., Sr. Sub. Notes, 12.000%
                               due 9/15/05                                                        5,303,813
                             Unisys Corp., Sr. Notes:
    10,875,000      B+         12.000% due 4/15/03                                               12,397,500
    12,550,000      B+         11.750% due 10/15/04                                              14,573,688
     8,000,000      B-       Viasystems Inc., Sr. Sub. Notes, 9.750% due 6/1/07                   8,400,000
-----------------------------------------------------------------------------------------------------------
                                                                                                 56,720,189
-----------------------------------------------------------------------------------------------------------
Financial Services -- 0.6%
     4,950,000      B2*      Intertek Finance PLC, Sr. Sub. Notes, 10.250% due 11/1/06            5,265,563
-----------------------------------------------------------------------------------------------------------
Food -- 2.3%
     2,275,000      B+       Ameriserve Food Distributors Company Guaranteed,
                               8.875% due 10/15/06                                                2,348,938
     4,575,000      B-       B & G Foods Inc., Sr. Sub. Notes, 9.625% due 8/1/07                  4,700,813
     7,075,000      B        Imperial Holly Corp., Sr. Sub. Notes, 9.750%
                               due 12/15/07                                                       7,304,938
     3,000,000      B        Purina Mills Inc., Sr. Sub. Notes, 9.000% due 3/15/10(a)             3,105,000
     2,335,000      B-       Van de Kamp Inc., Sr. Sub. Notes, 12.000% due 9/15/05                2,615,200
-----------------------------------------------------------------------------------------------------------
                                                                                                 20,074,889
-----------------------------------------------------------------------------------------------------------
Health Care -- 5.6%
     4,275,000      B-       Fisher Scientific International Inc., Sr. Sub. Notes,
                               9.000% due 2/1/08(a)                                               4,371,188
     3,950,000      B+       Frensenius Medical Capital Trust II, Company Guaranteed,
                               7.875% due 2/1/08(a)                                               3,950,000
     8,750,000      BB       ICN Pharmaceuticals Inc., Sr. Notes, 9.250%
                               due 8/15/05                                                        9,296,875
     4,125,000      B2*      Integrated Health Services Inc., Sr. Sub. Notes,
                               9.250% due 1/15/08                                                 4,346,719
    14,400,000      B-       Magellan Health Services, Sr. Sub. Notes, 9.000%
                               due 2/15/08(a)                                                    14,580,000
     7,625,000      B-       Paragon Health Network, Sr. Sub. Notes, 9.500%
                               due 11/1/07                                                        7,872,813
     4,425,000      B-       Pharmaceutical Fine Chemicals, Sr. Sub. Notes,
                               9.750% due 11/15/07(a)                                             4,574,344
-----------------------------------------------------------------------------------------------------------
                                                                                                 48,991,939
-----------------------------------------------------------------------------------------------------------
</TABLE>

                       See Notes to Financial Statements.                      7
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT          RATINGS                           SECURITY                                     VALUE
===========================================================================================================
<S>                 <C>      <C>                                                                <C>
Hotel, Casinos and Gaming -- 7.2%

   $ 2,350,000      B        Aztar Corp., Sr. Sub. Notes, 13.750% due 10/1/04                   $ 2,711,313
     7,350,000      B+       Clark USA Inc., Sr. Notes, 10.875% due 12/1/05                       8,112,563
     5,375,000      B-       Courtyard by Marriott, Sr. Secured Notes, 10.750%
                                due 2/1/08                                                        5,952,813
     3,125,000      B2*      Extended Stay America, Sr. Sub. Notes, 9.150%
                                due 3/15/08(a)                                                    3,156,250
     1,500,000      Ba3*     HMC Acquisition Properties, Sr. Notes, 9.000%
                                due 12/15/07                                                      1,578,750
                             HMH Properties, Sr. Notes:
    17,550,000      BB-         9.500% due 5/15/05                                               18,690,732
     4,350,000      BB-         8.875% due 7/15/07                                                4,600,125
     5,125,000      Ba1*     Mohegan Tribal Gaming Authority, Sr. Secured Notes,
                                13.500% due 11/15/02                                              6,624,063
     5,500,000      B        Showboat Inc., Sr. Sub. Notes, 13.000% due 8/1/09                    6,696,250
     5,025,000      B        Signature Resorts Inc., Sr. Sub. Notes, 9.750%
                                due 10/1/07                                                       5,125,500
-----------------------------------------------------------------------------------------------------------
                                                                                                 63,248,359
-----------------------------------------------------------------------------------------------------------
Insurance -- 1.1%
     5,500,000      BB+      SIG Capital Trust, Company Guaranteed, 9.500%
                               due 8/15/27                                                        5,671,875
     4,175,000      BB-      Veritas Capital Trust, Company Guaranteed, 10.000%
                               due 1/2/28                                                         4,394,188
-----------------------------------------------------------------------------------------------------------
                                                                                                 10,066,063
-----------------------------------------------------------------------------------------------------------
Leisure -- 1.0%
                             Premier Parks Inc., Sr. Notes:
     2,750,000      B-         9.250% due 4/1/06                                                  2,818,750
     2,750,000      B-         Step bond to yield 10.000% due 4/1/08                              1,756,563
     4,225,000      B3*      SFX Entertainment Inc., Sr. Sub. Notes, 9.125%
                               due 2/1/08(a)                                                      4,182,750
-----------------------------------------------------------------------------------------------------------
                                                                                                  8,758,063
-----------------------------------------------------------------------------------------------------------
Metals/Mining -- 2.5%
     9,350,000      B-       Haynes International Inc., Sr. Notes, 11.625%
                               due 9/1/04                                                        10,600,563
     8,700,000      B2*      Kaiser Aluminum and Chemical, Sr. Sub. Notes,
                               12.750% due 2/1/03                                                 9,265,500
     2,275,000      B2*      Koppers Industry Inc., Sr. Sub. Notes, 9.875%
                               due 12/1/07                                                        2,411,500
-----------------------------------------------------------------------------------------------------------
                                                                                                 22,277,563
-----------------------------------------------------------------------------------------------------------
Oil and Natural Gas -- 8.6%
     4,350,000      B        Canadian Forest Oil Ltd., Sr. Sub. Notes, 8.750%
                               due 9/15/07                                                        4,447,875
     2,425,000      B2*      Coho Energy, Sr. Sub. Notes, 8.875% due 10/15/07                     2,315,875
</TABLE>

8                      See Notes to Financial Statements.
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT          RATINGS                           SECURITY                                     VALUE
===========================================================================================================
<S>                 <C>      <C>                                                                <C>
Oil and Natural Gas-- 8.6% (continued)

   $ 8,475,000      B+       Dawson Production Services, Sr. Sub. Notes,
                                9.375% due 2/1/07                                               $ 8,739,844
     3,950,000      Baa3*    Deeptech International, Sr. Sub. Notes, 12.000%
                                due 12/15/00                                                      4,384,500
     7,025,000      Ba2*     Gulf Canada Resources Ltd., Sub. Debentures,
                                9.625% due 7/1/05                                                 7,639,688
     3,600,000      B+       ICO Inc., Sr. Notes, 10.375% due 6/1/07                              3,780,000
     2,275,000      BB-      J. Ray McDermott SA, Sr. Sub. Notes, 9.375%
                                due 7/15/06                                                       2,462,688
                             Ocean Energy Inc., Company Guaranteed,
     4,675,000      B           10.375% due 10/15/05                                              5,189,250
     3,600,000      BB-         9.750% due 10/1/06                                                3,969,000
     2,325,000      B-          8.875% due 7/15/07                                                2,481,938
                             Parker Drilling, Debentures:
     9,525,000      B+          9.750% due 11/15/06                                              10,215,563
     4,200,000      B+          9.750% due 11/15/06(a)                                            4,504,500
     4,425,000      BB-      Pride Petroleum, Sr. Sub. Notes, 9.375% due 5/1/07                   4,723,688
     6,025,000      BB+      Santa Fe Energy Resources, Sr. Sub. Debentures,
                                11.000% due 5/15/04                                               6,552,188
     3,675,000      B2*      Stone Energy Corp., Sr. Sub. Notes, 8.750%
                                due 9/15/07                                                       3,771,469
-----------------------------------------------------------------------------------------------------------
                                                                                                 75,178,066
-----------------------------------------------------------------------------------------------------------
Packaging and Containers -- 1.6%
     2,000,000      B+       Container Corp. of America, Sr. Notes, 11.250%
                                due 5/1/04                                                        2,190,000
     4,250,000      B        Huntsman Packaging Corp., Sr. Sub. Notes, 9.125%
                                due 10/1/07(a)                                                    4,340,313
     5,125,000#     B        Impress Metal Packaging, Sr. Sub. Notes, 9.875%
                                due 5/29/07                                                       2,968,615
     4,250,000      B-       Tekni-Plex, Inc., Sr. Sub. Notes, 9.250% due 3/1/08(a)               4,377,500
-----------------------------------------------------------------------------------------------------------
                                                                                                 13,876,428
-----------------------------------------------------------------------------------------------------------
Paper/Forest Products/Printing -- 1.9%
     1,677,000      B-       American Pad & Paper Co., Sr. Sub. Notes, 13.000%
                                due 11/15/05                                                      1,697,963
     3,400,000      B        Goss Graphic Systems, Sr. Sub. Notes, 12.000%
                                due 10/15/06                                                      3,867,500
    10,075,000      B+       SD Warren Corp., Sr. Sub. Notes, 12.000% due 12/15/04               11,271,406
-----------------------------------------------------------------------------------------------------------
                                                                                                 16,836,869
-----------------------------------------------------------------------------------------------------------
Pollution Control/Waste Removal --  0.5%
     3,925,000      B+       Allied Waste North America, Sr. Sub. Notes, 10.250%
                                due 12/1/06                                                       4,376,375
-----------------------------------------------------------------------------------------------------------
Real Estate Development/ REITS -- 0.4%
     3,200,000      B-       BF Saul REIT, Sr. Notes, 9.750% due 4/1/08(a)                        3,240,000
-----------------------------------------------------------------------------------------------------------
</TABLE>

                       See Notes to Financial Statements.                      9
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT          RATINGS                           SECURITY                                     VALUE
===========================================================================================================
<S>                 <C>      <C>                                                                <C>
Telecommunications -- 22.9%

   $ 4,400,000      NR       Allegiance Telecom Inc., Units, step bond to yield
                               11.713% due 2/15/08(a)                                           $ 2,552,000
     2,250,000      NR       American Mobile Satellite, Units, 12.250% due 4/1/08(a)              2,340,000
     3,375,000#     B2*      Cellular Communications International Inc.,
                               Sr. Discount Notes, 9.500% due 4/1/05                              2,413,384
    11,100,000      B3*      Clearnet Communications, Inc., Sr. Discount Notes,
                               step bond to yield 13.507% due 12/15/05                            9,213,000
     8,000,000      NR       Colt Telecommunications, Units, step bond to yield
                               11.615% due 12/15/06(a)                                            7,040,000
       400,000#     NR       Colt Telecommunications, Sr. Notes, 10.125%
                               due 11/30/07                                                         723,424
                             Esprit Telecom Group, Sr. Notes:
     3,900,000      B-         11.500% due 12/15/07(a)                                            4,304,625
     7,375,000#     B-         11.500% due 12/15/07                                               4,386,558
     4,325,000      NR       Facilicom International Inc., Sr. Notes, 10.500%
                               due 1/15/08(a)                                                     4,530,438
     6,450,000      B2*      Fonorola Inc., Sr. Secured Notes, 12.500% due 8/15/02                7,215,938
     4,550,000      B        Hermes Europe Railtel Intelcom, Sr. Notes, 11.500%
                               due 8/15/07                                                        5,164,250
    10,225,000      B        Intermedia Communications of Florida, Sr. Discount
                               Unsecured Notes, step bond to yield 11.961%
                               due 5/15/06                                                        8,448,406
    12,925,000      B-       Iridium LLC/Capital Corp., Sr. Notes, 14.000%
                               due 7/15/05                                                       15,041,469
     9,450,000      B+       McLeod Inc., Sr. Discount Debentures, step bond to
                               yield 10.704% due 3/1/07                                           7,241,063
    10,225,000      NR       Metronet Communications, Sr. Notes, 12.000%
                               due 8/15/07                                                       11,835,438
     8,925,000      B        Millicom International Cellular S.A., Sr. Discount Notes,
                               step bond to yield 13.500% due 6/1/06                              6,905,719
     3,875,000      B        Netia Holdings B.V., Company Guaranteed Notes,
                               10.250% due 11/1/07(a)                                             3,991,250
                             Nextel Communications Inc., Sr. Discount Notes:
    15,125,000      B2*        Step bond to yield 11.206% due 8/15/04                            14,557,813
     1,000,000      B3*        Step bond to yield 9.844% due 9/15/07                                670,000
    10,125,000      B        Nextlink Communications, Sr. Notes, 12.500%
                               due 4/15/06                                                       11,732,344
     1,250,000      NR       Orbital Imaging Corp., Units, 11.625% due 3/1/05(a)                  1,375,000
     5,500,000      Caa2*    Pagemart Nationwide, Inc., Sr. Discount Notes,
                               step bond to yield 13.344% due 2/1/05(a)                           4,867,500
    11,075,000      Caa2*    Pagemart Wireless Inc., Sr. Discount Notes, step bond
                               to yield 11.250% due 2/1/08(a)                                     6,811,125
     8,600,000      B-       Primus Telecomm Group, Sr. Notes, 11.750% due 8/1/04                 9,632,000
                             Qwest Communications:
    10,825,000      B+         Sr. Discount Notes, step bond to yield 9.378%
                                 due 10/15/07                                                     7,969,906
     3,625,000      B+         Sr. Notes, 10.875% due 4/1/07                                      4,205,000
</TABLE>

10                      See Notes to Financial Statements.
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
     FACE
    AMOUNT          RATINGS                           SECURITY                                     VALUE
==========================================================================================================
<S>                 <C>      <C>                                                                <C>
Telecommunications--         22.9% (continued) RCN Corp.:

   $ 9,025,000      B3*         Sr. Discount Notes, step bond to yield 11.140%
                                  due 10/15/07                                                 $  6,114,438
     4,000,000      B3*         Sr. Notes, 10.000% due 10/15/07                                   4,280,000
     6,975,000      B-       RSL Communications Ltd., Units, 12.250% due 11/15/06                 7,942,781
     2,125,000      B-       Satelites Mexicanos SA, Sr. Notes, 10.125%
                                due 11/1/04                                                       2,188,750
                             Telesystems Communications, Sr. Discount Debentures:
    15,850,000      B           Step bond to yield 12.405% due 6/30/07                           11,095,000
     3,450,000      CCC+        Step bond to yield 10.513% due 11/1/07                            2,208,000
     3,150,000      NR       Wam!Net Inc., Units, Step bond to yield 13.250%
                                due 3/1/05(a)                                                     1,921,500
-----------------------------------------------------------------------------------------------------------
                                                                                                200,918,119
-----------------------------------------------------------------------------------------------------------
Transportation -- 1.8%
     2,750,000      B+       American Reefer Co. Ltd., 1st Mortgage, 10.250%
                                due 3/1/08(a)                                                     2,763,750
     5,800,000      BB       GS Superhighway Holdings, Sr. Notes, 10.250%
                                due 8/15/07                                                       4,937,250
                             Sea Containers Ltd.:
     2,100,000      BB-         Sr. Notes., 7.875% due 2/15/08(a)                                 2,079,000
     5,700,000      BB-         Sr. Sub. Debentures, 12.500% due 12/1/04                          6,441,000
-----------------------------------------------------------------------------------------------------------
                                                                                                 16,221,000
-----------------------------------------------------------------------------------------------------------
                             TOTAL CORPORATE BONDS AND NOTES
                             (Cost-- $762,814,348)                                              807,689,779
===========================================================================================================
       SHARES                                         SECURITY                                      VALUE
===========================================================================================================
PREFERRED STOCK -- 4.8%
===========================================================================================================
Banks/Savings and Loans -- 0.3%
       108,000               California Federal, Series A, Exchangeable 9.125%                    2,970,000
-----------------------------------------------------------------------------------------------------------
Cable -- 4.5%
        33,800               Time Warner Inc., Series K, Exchangeable 10.250%                    37,813,750
        61,200               Viasystems Inc.                                                      1,277,550
-----------------------------------------------------------------------------------------------------------
                                                                                                 39,091,300
-----------------------------------------------------------------------------------------------------------
                             TOTAL PREFERRED STOCK
                             (Cost-- $40,024,321)                                                42,061,300
===========================================================================================================
COMMON STOCK -- 0.1%
===========================================================================================================
Telecommunications -- 0.1%
        21,302               Nextel  Communications, Inc                                            718,943
        20,125               Pagemart Nationwide Inc.                                               174,836
-----------------------------------------------------------------------------------------------------------
                             TOTAL COMMON STOCK
                             (Cost-- $343,738)                                                      893,779
===========================================================================================================
</TABLE>

                       See Notes to Financial Statements.                     11
<PAGE>

--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
    SHARES                                            SECURITY                                     VALUE
===========================================================================================================
WARRANTS -- 0.4%
===========================================================================================================
<S>                          <C>                                                                 <C>
Broadcasting-TV, Cable and Radio -- 0.0%
         9,225               Australis Holdings Ltd., Expire 10/30/01(a)(b)                      $        1
        14,825               United International Holdings Australia Inc.,
                                Expire 5/15/06(b)                                                   177,900
         5,700               Wireless One, Inc., Expire 10/15/03(b)                                   1,424
-----------------------------------------------------------------------------------------------------------
                                                                                                    179,325
-----------------------------------------------------------------------------------------------------------
Paper/Forest Products/Printing  -- 0.0%
         8,175               SD Warren Corp., Expire 12/5/06(a)(b)                                  143,880
-----------------------------------------------------------------------------------------------------------
Telecommunications -- 0.4%
        55,110               Clearnet Communications Inc., Expire 9/15/05(b)                        330,660
         7,500               Globalstar LP, Expire 2/15/04(b)                                     1,050,000
         6,725               Iridium LLC Corp., Expire 7/15/05(b)                                   941,500
       102,250               Metronet Communications, Expire 8/15/07(b)                             204,500
        11,959               Nextel  Communications, Inc., Expire 12/15/98(a)(b)                      5,023
         6,575               Nextel  Communications, Inc., Expire 4/25/99(a)(b)                      19,002
        43,470               Pagemart Inc., Expire 12/31/03(a)(b)                                   326,025
         7,600               Primus Telecomm Group, Expire 8/1/04(b)                                243,200
         6,975               RSL Communications Ltd., Expire 11/15/06(b)                            279,000
-----------------------------------------------------------------------------------------------------------
                                                                                                  3,398,910
-----------------------------------------------------------------------------------------------------------
                             TOTAL WARRANTS
                             (Cost-- $1,764,450)                                                  3,722,115
===========================================================================================================
       FACE
      AMOUNT                                          SECURITY                                      VALUE
===========================================================================================================
REPURCHASE AGREEMENT -- 2.7%
   $23,633,000               Goldman Sachs Inc., 5.843% due 4/1/98; Proceeds
                             at maturity -- $23,636,836; (Fully collateralized by
                             U.S. Treasury Notes, 5.375% due 2/15/01; Market
                             value-- $24,116,045) (Cost -- $23,633,000)                          23,633,000

===========================================================================================================
                             TOTAL INVESTMENTS -- 100%
                             (Cost-- $828,579,857**)                                           $877,999,973

===========================================================================================================
</TABLE>

(a)   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.
(b)   Non-income producing security. 
#     Represents local currency. 
**    Aggregate cost for Federal income tax purposes is substantially the same.

      See page 13 for definition of ratings.

12                     See Notes to Financial Statements.
<PAGE>

--------------------------------------------------------------------------------
Definition of Ratings (unaudited)
--------------------------------------------------------------------------------

All ratings are by Standard & Poor's Ratings Services ("Standard & Poor's")
except that those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below: 

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" and "B" are regarded, on balance, as
and CCC           predominantly speculative and 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     --    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 may have speculative characteristics as
                  well.

Ba          --    Bonds that are 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 that are rated "B" generally lack characteristics of
                  desirable investments. Assurance of interest and principal
                  payments or of 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 present  elements of danger may
                  exist with respect to principal or interest.

NR          --    Indicates that the bond is not rated by Standard & Poor's or
                  Moody's.


                                                                              13
<PAGE>

--------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited)                   March 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                    <C>
ASSETS:
  Investments, at value (Cost-- $828,579,857)                          $ 877,999,973
  Cash                                                                           290
  Receivable for securities sold                                             740,628
  Receivable for open forward foreign currency contracts (Note 8)            227,530
  Dividend and interest receivable                                        17,551,438
------------------------------------------------------------------------------------

  Total Assets                                                           896,519,859
------------------------------------------------------------------------------------

LIABILITIES:
  Payable for securities purchased                                         4,438,253
  Dividends payable                                                        2,032,254
  Management fees payable                                                    893,224
  Accrued expenses                                                           359,414
------------------------------------------------------------------------------------

  Total Liabilities                                                        7,723,145
------------------------------------------------------------------------------------

Total Net Assets                                                        $888,796,714
====================================================================================
NET ASSETS:
  Par value of capital shares                                           $     72,017
  Capital paid in excess of par value                                    898,171,021
  Overdistributed net investment income                                     (364,297)
  Accumulated net realized loss on security
    transactions, futures contracts and options                          (58,724,201)
  Net unrealized appreciation of investments and foreign currencies       49,642,174
------------------------------------------------------------------------------------
Total Net Assets
  (Equivalent to $12.34 a share on 72,016,610 shares of
  $0.001 par value outstanding; 500,000,000 shares authorized)          $888,796,714
====================================================================================
</TABLE>

14                     See Notes to Financial Statements.
<PAGE>

--------------------------------------------------------------------------------
Statement of Operations (unaudited)
--------------------------------------------------------------------------------

For the Six Months Ended March 31, 1998

INVESTMENT INCOME:
   Interest                                                         $41,332,459
   Dividends                                                          3,310,986
--------------------------------------------------------------------------------
   Total Investment Income                                           44,643,445
--------------------------------------------------------------------------------
EXPENSES:
   Management fees (Note 2)                                           5,060,661
   Shareholder communication fees                                       151,176
   Shareholder and system servicing fees                                 18,949
   Audit and legal                                                       15,170
   Custody fees                                                          15,062
   Directors' fees                                                        4,488
   Other                                                                 21,640
--------------------------------------------------------------------------------
   Total Expenses                                                     5,287,146
--------------------------------------------------------------------------------
Net Investment Income                                                39,356,299
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS, OPTIONS AND FOREIGN CURRENCIES
(NOTES 3, 5 AND 6):
   Realized Gain (Loss) From:
     Security transactions (excluding short-term securities)          5,078,663
     Futures contracts                                                 (462,223)
     Options purchased                                                 (648,905)
     Foreign currency transactions                                      466,987
--------------------------------------------------------------------------------
   Net Realized Gain                                                  4,434,522
--------------------------------------------------------------------------------
   Change in Net Unrealized Appreciation of Investments
     and Foreign Currencies:
     Beginning of period                                             56,962,467
     End of period                                                   49,642,174
--------------------------------------------------------------------------------
   Decrease in Net Unrealized Appreciation                           (7,320,293)
--------------------------------------------------------------------------------
Net Loss on Investments, Futures Contracts, Options
  and Foreign Currencies                                             (2,885,771)
--------------------------------------------------------------------------------

Increase in Net Assets From Operations                              $36,470,528
================================================================================

                       See Notes to Financial Statements.                     15
<PAGE>

--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------

For the Six Months Ended March 31, 1998 (unaudited) 
and the Year Ended September 30, 1997

<TABLE> 
<CAPTION>
                                                               1998            1997
=========================================================================================
<S>                                                       <C>              <C>
OPERATIONS:
  Net investment income                                   $  39,356,299    $  80,776,721
  Net realized gain                                           4,434,522        7,070,567
  Increase (decrease) in net unrealized appreciation         (7,320,293)      40,292,499
-----------------------------------------------------------------------------------------
  Increase in Net Assets From Operations                     36,470,528      128,139,787
-----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
  Net investment income                                     (42,574,158)     (78,232,239)
-----------------------------------------------------------------------------------------
  Decrease in Net Assets From
    Distributions to Shareholders                           (42,574,158)     (78,232,239)
-----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
  Net asset value of shares issued
    for reinvestment of dividends                            12,211,727       14,041,863
-----------------------------------------------------------------------------------------
  Increase in Net Assets From
    Fund Share Transactions                                  12,211,727       14,041,863
-----------------------------------------------------------------------------------------
Increase in Net Assets                                        6,108,097       63,949,411
NET ASSETS:
  Beginning of period                                       882,688,617      818,739,206
-----------------------------------------------------------------------------------------
  End of period*                                           $888,796,714     $882,688,617
=========================================================================================
* Includes undistributed (overdistributed)
  net investment income of:                                   $(364,297)      $2,386,575
=========================================================================================
</TABLE>

16                     See Notes to Financial Statements.
<PAGE>

--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------

      1. Significant Accounting Policies

      The High Income Opportunity Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.

      The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid and ask prices provided by an
independent pricing service that are based on transactions in corporate
obligations, quotations from corporate bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days or less are valued at cost plus accreted
discount or minus amortized premium, which approximates value; (d) gains or
losses on the sale of securities are calculated by using the specific
identification method; (e) dividend income is recorded on the ex-dividend date;
foreign dividend income is recorded on the ex-dividend date or as soon as
practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (f) interest income, adjusted for
accretion of original issue discount, is recorded on an accrual basis; (g)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) the accounting records are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, and income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian bank;
(i) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At September 30, 1997, reclassifications were made to the
Fund's capital accounts to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations; (j) the Fund
intends to comply with the requirements of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.

                                                                              17
<PAGE>

--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------

      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

      Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), acts as investment manager of the Fund. The Fund pays
MMC 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 Smith Barney
Inc., another subsidiary of SSBH.

      3. Investments

      During  the six  months  ended  March  31,  1998,  the  aggregate  cost of
purchases  and proceeds from sales of  investments  (including  maturities,  but
excluding short-term securities) were as follows:

================================================================================
Purchases                                                           $405,007,887
--------------------------------------------------------------------------------
Sales                                                                408,972,793
================================================================================

      At March  31,  1998,  the  aggregate  gross  unrealized  appreciation  and
depreciation of investments  for Federal income tax purposes were  substantially
as follows:

================================================================================
Gross unrealized appreciation                                       $50,689,782
Gross unrealized depreciation                                        (1,269,666)
--------------------------------------------------------------------------------
Net unrealized appreciation                                         $49,420,116
================================================================================

      4. Capital Loss Carryforward

      At September 30, 1997, the Fund had, for Federal tax purposes,
approximately $62,721,000 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
================================================================================
Carryforward Amounts                               $24,603,000       $38,118,000
================================================================================

18
<PAGE>

--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------

      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 March 31, 1998, the Fund had no open futures contracts.

      6. Options Contracts

      Premiums paid when put or call options are purchased by the Fund,
represent investments, which are marked-to-market daily. When a purchased option
expires, the Fund will realize a loss in the amount of the premium paid. When
the Fund enters into a closing sales transaction, the Fund will realize a gain
or loss depending on whether the proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the Fund exercises a
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Fund exercises a call option, the cost of the security
which the Fund purchases upon exercise will be increased by the premium
originally paid.

      At March 31, 1998, the Fund had no open purchased call or put option
contracts.

      When a 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


                                                                              19
<PAGE>

--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------

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 six months ended March 31, 1998, the Fund had not written any
call or put options.

      7. Repurchase Agreements

      The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date, (generally, the next business day)
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.

      8. Forward Foreign Currency Contracts

      At March 31, 1998, 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 on the contracts is
reflected as follows:

                               Local        Market      Settlement    Unrealized
Foreign Currency             Currency        Value         Date          Gain
================================================================================
To Sell:
British Pound              $ 1,394,820    $ 2,329,241      5/26/98     $ 4,530
European Currency Unit       2,125,806      2,293,223      6/18/98      33,408
German Mark                 19,480,534     10,571,770       6/2/98     189,592
--------------------------------------------------------------------------------
Total Unrealized Gain on Forward
  Foreign Currency Contracts                                          $227,530
================================================================================


20
<PAGE>

      9. Capital Shares

      During the six months  ended March 31,  1998 and the year ended  September
30, 1997, capital stock transactions were as follows:

                                         1998                      1997
                                 --------------------    -----------------------
                                  Shares    Amount        Shares       Amount
================================================================================
Shares issued on reinvestment    995,988  $12,211,727    1,162,622   $14,041,863
================================================================================

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------

For a share of capital stock outstanding throughout each period:

<TABLE>
<CAPTION>
                                          1998(1)        1997          1996          1995        1994(2)(3)
============================================================================================================
<S>                                       <C>           <C>           <C>           <C>           <C>
Net Asset Value,
  Beginning of Period                     $12.43        $11.72        $11.48        $11.20        $12.50
------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net investment income                     0.56          1.15          1.14          1.14          1.01*
  Net realized and unrealized
    gain (loss)                            (0.05)         0.68          0.22          0.28         (1.30)
------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
  Operations                                0.51          1.83          1.36          1.42         (0.29)
------------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                    (0.60)        (1.12)        (1.12)        (1.12)        (1.01)
  Capital                                     --            --            --         (0.02)           --
------------------------------------------------------------------------------------------------------------
Total Distributions                        (0.60)        (1.12)        (1.12)        (1.14)        (1.01)
------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period            $12.34        $12.43        $11.72        $11.48        $11.20
------------------------------------------------------------------------------------------------------------
Total Return,
  Based on Market Value                     0.23%++      18.18%        21.07%         9.90%        (7.33)%++
------------------------------------------------------------------------------------------------------------
Total Return,
  Based on Net Asset Value**                4.22%++      16.48%        12.86%        13.99%        (2.31)%++
------------------------------------------------------------------------------------------------------------
Net Assets,
  End of Period (millions)                  $889          $883          $819          $802          $783
------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                  1.20%+        1.21%         1.21%         1.20%         1.15%+*
  Net investment income                     8.94+         9.63          9.85         10.02          9.09+
------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                       48%           87%           73%           59%           69%
------------------------------------------------------------------------------------------------------------
Market Value, End of Period              $11.875       $12.438       $11.500       $10.500       $10.625
============================================================================================================
</TABLE>

(1)   For the six months ended March 31, 1998 (unaudited). 
(2)   For the period from October 22, 1993 (commencement of operations) to
      September 30, 1994
(3)   Based on the weighted average shares outstanding for the period.
*     The Manager waived a part of its fee for the period ended September 30,
      1994.  If such  fees  were  not  waived,  the per  share  decrease  in net
      investment  income  would  have been  $0.01 and the ratio of  expenses  to
      average net assets would have been 1.21% (annualized).
**    The total return  calculation  assumes that  dividends  are  reinvested in
      accordance with the Fund's dividend reinvestment plan.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.


21
<PAGE>

--------------------------------------------------------------------------------
Financial Data (unaudited)
--------------------------------------------------------------------------------

For a share of capital stock outstanding throughout each period:

                                                        Income        Dividend
                            NYSE          Net Asset    Dividend     Reinvestment
                       Closing Price*       Value        Paid           Price
================================================================================
1996
  January 23               $11.00          $11.68       $0.0930        $11.339
  February 20               11.13           11.85        0.0930         11.242
  March 26                  11.13           11.62        0.0930         11.135
  April 23                  11.00           11.56        0.0930         11.010
  May 28                    10.81           11.62        0.0930         10.880
  June 25                   10.69           11.48        0.0930         11.020
  July 23                   11.13           11.44        0.0930         11.270
  August 27                 11.25           11.47        0.0930         11.300
  September 24              11.13           11.61        0.0930         11.430
  October 22                11.38           11.65        0.0930         11.375
  November 25               11.25           11.77        0.0930         11.375
  December 23               11.38           11.84        0.0930         11.490
1997
  January 28                11.75           11.94        0.0930         11.872
  February 25               11.75           12.09        0.0930         11.895
  March 24                  11.75           11.81        0.0930         11.710
  April 22                  11.75           11.67        0.0930         11.670
  May 27                    11.88           11.92        0.0930         11.920
  June 24                   12.06           12.13        0.0930         12.120
  July 22                   12.31           12.17        0.0930         12.170
  August 26                 12.25           12.24        0.0930         12.240
  September 23              12.38           12.38        0.0930         12.380
  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
1998
  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
================================================================================

* In December 1995, the valuation  date,  which is the date that  determines the
  dividend reinvestment price, was changed from payable date to record date.

                                                                              22
<PAGE>

--------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited)
--------------------------------------------------------------------------------

      Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of Common Stock are registered in his own name will have all
distributions from the Fund reinvested automatically by First Data Investor
Services Group, Inc. ("First Data") as purchasing agent under the Plan, unless
the shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in "street
name") will be reinvested by the broker-dealer or nominee in additional shares
under the Plan, unless the service is not provided by the broker-dealer 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 Fund
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 First Data as
dividend-paying agent.

      The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Common Stock is equal to or exceeds the net asset value
per share on the date of valuation, Plan participants will be issued shares of
Common Stock at a price equal to the greater of (1) the net asset value per
share most recently determined (as described under "Net Asset Value" in the
Statement of Additional Information) or (2) 95% of the market price.

      If the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock, or if the Fund declares a dividend
or capital gains distribution payable only in cash, First Data will buy Common
Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before First Data
has completed its purchases, the market price exceeds the net asset value of the
Common Stock, First Data will attempt to terminate purchases in the open market
and cause the Fund to issue the remaining portion of the dividend or
distribution by issuing shares at a price equal to the greater of (a) net asset
value or (b) 95% of the then current market price. In this case, the number of
shares of Common Stock received by a Plan participant will be based on the
weighted average of prices paid for shares purchased in the open market and the
price at which the Fund issues the remaining shares. To the extent First Data is
unable to stop open market purchases and cause the Fund to issue the remaining
shares, the average per share purchase price paid by First Data may exceed the
net asset value of the Common Stock, 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 net asset value. First Data will begin to
purchase Common Stock on the open market as soon as


23
<PAGE>

--------------------------------------------------------------------------------
Dividend Reinvestment Plan (unaudited) (continued)
--------------------------------------------------------------------------------

practicable after the payment date of the dividend or capital gains
distribution, but in no event shall such purchases continue later than 30 days
after that date, except when necessary to comply with applicable provisions of
the federal securities laws.

      First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of each Plan participant.

      Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of Common Stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to any open
market purchases made under the Plan.

      Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data Investor Services Group, Inc.,
P.O. Box 8030, Boston, Massachusetts 02266-8030 or by telephone at
1-800-331-1710.

--------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
--------------------------------------------------------------------------------

      Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase,
at market prices, shares of its common stock in the open market.


                                                                              24
<PAGE>

------------------------------
         High Income

        --------------

     Opportunity Fund Inc.
------------------------------

Directors

Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan

Joseph H. Fleiss, Emeritus
C. Richard Youngdahl, Emeritus

Officers

Heath B. McLendon
President and
Chief Executive Officer

Lewis E. Daidone
Senior Vice President
and Treasurer

John C. Bianchi
Vice President

Thomas M. Reynolds
Controller

Christina T. Sydor
Secretary

Investment Manager

Mutual Management Corp.

Custodian

PNC Bank, N.A.

Shareholder
Servicing Agent

First Data Investor Services Group, Inc.
P.O. Box 8030
Boston, MA 02266-8030

This report is intended only for the shareholders of the High Income Opportunity
Fund Inc. It is not a Prospectus, circular or representation intended for use in
the purchase or sale of shares of the Fund or of any securities mentioned in the
report.

[GRAPHIC OMITTED]

High Income Opportunity Fund Inc.
388 Greenwich Street
New York, New York 10013

FD0850 5/98