INCOME
OPPORTUNITIES
FUND 1999, INC.
FUND LOGO
Annual Report
December 31, 1995
Officers and Directors
Arthur Zeikel, President and Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Jeffrey B. Hewson, Vice President
Gregory Mark Maunz, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
<PAGE>
Custodian and Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
NYSE Symbol
IOF
This report, including the financial information herein, is
transmitted to the shareholders of Income Opportunities Fund 1999,
Inc. for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance.
The Fund has leveraged its Common Stock to provide Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risk for Common Stock shareholders, including the likelihood
of greater volatility of net asset value and market price of Common
Stock shares, and the risk that fluctuations in short-term interest
rates may reduce the Common Stock's yield. Statements and other
information herein are as dated and are subject to change.
<PAGE>
Income Opportunities
Fund 1999, Inc.
Box 9011
Princeton, NJ
08543-9011
INCOME OPPORTUNITIES FUND 1999, INC.
The Benefits and
Risks of
Leveraging
Income Opportunities Fund 1999, Inc. is authorized to borrow funds
and utilize leverage in amounts not exceeding 331/3% of its total
assets (including the amount borrowed). The Fund's ability to
leverage creates an opportunity for increased net income, but, at
the same time, creates special risks. The Fund will only borrow or
use leverage when the Investment Adviser believes that it will
benefit the Fund. To the extent that the income derived from
securities purchased with borrowed funds exceeds the cost of
borrowing, the Fund's net income will be greater than if borrowing
had not been used.
Conversely, if the income from the securities purchased with
borrowed funds is not sufficient to cover the cost of borrowing, the
net income of the Fund will be less than if borrowing had not been
used, reducing the amount available for distribution to
shareholders. In this case, the Fund may nevertheless maintain its
leveraged position in order to avoid capital losses on securities
purchased with the leverage.
<PAGE>
<TABLE>
Per Share
Selected Quarterly
Financial Data*
(unaudited)
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Capital
For the Quarter Income (Losses) (Losses) Income Gains
<S> <C> <C> <C> <C> <C>
January 1, 1994 to March 31, 1994 $.16 $(.05) $(.44) $.10 --
April 1, 1994 to June 30, 1994 .14 (.24) (.10) .16 --
July 1, 1994 to September 30, 1994 .15 (.01) (.03) .14 --
October 1, 1994 to December 31, 1994 .15 (.09) (.15) .19 --
January 1, 1995 to March 31, 1995 .13 (.07) .46 .08 --
April 1, 1995 to June 30, 1995 .14 (.02) .50 .13 --
July 1, 1995 to September 30, 1995 .12 .03 .09 .10 --
October 1, 1995 to December 31, 1995 .16 .03 .21 .19 --
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
January 1, 1994 to March 31, 1994 $9.46 $8.88 $8.75 $7.875 6,084
April 1, 1994 to June 30, 1994 8.81 8.52 8.25 7.625 4,210
July 1, 1994 to September 30, 1994 8.76 8.50 8.25 7.50 5,988
October 1, 1994 to December 31, 1994 8.54 8.20 8.00 6.875 5,801
January 1, 1995 to March 31, 1995 8.69 8.21 7.75 7.25 5,854
April 1, 1995 to June 30, 1995 9.24 8.73 8.125 7.375 5,463
July 1, 1995 to September 30, 1995 9.33 9.11 8.375 7.75 6,740
October 1, 1995 to December 31, 1995 9.50 9.34 8.375 8.00 6,427
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
DEAR SHAREHOLDER
For the year ended December 31, 1995, Income Opportunities Fund
1999, Inc. earned $0.500 per share income dividends, which included
earned and unpaid dividends of $0.042 per share, representing a net
annualized yield of 5.26%, based on a month-end net asset value of
$9.50 per share. Over the same period, the Fund's total investment
return was +22.94%, based on an increase in per share net asset
value from $8.22 to $9.50, and assuming reinvestment of $0.500 per
share income dividends.
<PAGE>
Economic Environment
Economic data released during December 1995 indicated a slowing
economy. Gross domestic product (GDP) growth was forecast at 2.6%
for the year, and even slower in 1996. Retail sales for the holiday
period appeared weak, signaling a possible retrenchment by the
consumer. Consumer activity represents two thirds of the GDP, and
consumers are currently saddled with record levels of debt.
Leading economic indicators (LEI) were negative for seven of the
last nine months. During the one-year period ended December 31,
1995, LEI were negative for four consecutive months. In the June 30,
1995 shareholders' letter, we reported that negative LEI for three
consecutive months has been a predictor of all nine recessions since
World War II, but has also occurred three times when a recession did
not follow.
The National Association of Purchasing Managers (NAPM) Index surveys
purchasing managers for information relating to the manufacturing
sector. A rating below 50 indicates a contraction in the
manufacturing sector. The NAPM Index has been below 50 for seven of
the last eight months. In addition, housing starts continued to
decline since August 1995, even though the decline in interest rates
has meant very attractive mortgage financing. This, in turn, does
not bode well for durable good expenditures which turned negative in
October 1995.
The good news is that inflation remains well under control with the
Consumer Price Index (CPI) at 2.6% and slowing. In addition, the CPI
annualized rate was only 1.8% for the past six months. We expect the
Federal Reserve Board to look at the combination of slow growth and
low inflation and it is likely to further reduce short-term interest
rates in its orchestration of a soft landing for the economy.
Federal Reserve Board Chairman Alan Greenspan appears intent on
controlling inflation. Therefore, with low inflation, real interest
rates are high especially at the short end of the yield curve. Long-
term interest rates are at appropriate levels given the rate of
inflation, but near term there is uncertainty regarding the budget
negotiations between Congress and President Clinton which may cause
fluctuations within a trading range.
Although 1996 may be a more temperate year for returns on fixed-
income investments, the expected steepening of the yield curve will
provide many opportunities. Also, there will be a greater focus on
yield and coupon flow as these components will play a more important
role in investment returns.
<PAGE>
Investment Activities
1995 was a strong bull market for fixed-income securities. Yield
declines on the five-year Treasury note and 30-year Treasury bond
were 245 basis points (2.45%) and 193 basis points, respectively,
with year-end yields at 5.37% and 5.95%. This strong bull market was
evidenced by the Fund's total investment return of +22.94%. This
helps offset the impact of 1994--the worst bond market on record--
when the Fund's total investment return was -4.97%.
But 1995's rally still did not bring us back to the low interest
rates seen in late 1993. This is especially true for the short end
of the yield curve where the three-month Treasury bill only declined
61 basis points in 1995. While the ten-year Treasury note yield is
only 40 basis points above its 1993 low, the one-year Treasury bill
yield is 198 basis points over its 1993 low. This exemplifies the
flattening of the yield curve.
Although the general decline in interest rates during 1995 led to an
increase in the Fund's net asset value from $8.22 to $9.50, the
relatively high level of short-term interest rates kept borrowing
costs high, which subsequently hampered the portfolio yield and
dividend payout.
In 1996, we expect short-term interest rates to decline. This would
be beneficial to the Fund both in terms of yield and price
appreciation. The Fund's yield would benefit from a reduction in
borrowing costs. In addition, an interest rate decline would
generate higher coupons on the positions of inverse floating rate
securities backed by balloon mortgages. Finally, for most of the
interest rate swap agreements--for which we pay a floating rate and
collect a fixed rate--the reset would be in the Fund's favor.
However, the Fund's adjustable rate assets would go down in coupon.
In such a scenario, price appreciation would likely come from the
increased value of the front loaded cash flows of mortgage-backed
securities and from "rolling down" the yield curve.
Our primary focus continues to be the return of $10.00 per share on
the Fund's termination date. Therefore, we continue to structure the
portfolio to limit cash flows beyond the Fund's maturity which helps
us avoid sales at prevailing market rates. Municipal securities
continued to provide tax-exempt income, which is retained to
increase the Fund's net asset value. Also, we are in the process of
completing the Fund's second share repurchase program. These
repurchases, made when the stock price is 10% or more below the net
asset value, both support the market price of the Fund's shares and
increase their net asset value as the discount on the shares
repurchased accrues to the Fund.
<PAGE>
As of December 31, 1995, 3.4% of the Fund's net assets was invested
in interest only (IO) securities and 12.7% was invested in inverse
floating rate (IF) securities. The IFs are all based on seven-year
balloon mortgages and most were purchased at a large discount which
assures a minimum return even if the coupon declines to zero and
mortgage prepayments stop completely.
However, while IOs are generating positive returns at current
prepayment speeds, these returns are offsetting the negative yield
carryforwards that occurred in 1992 and 1993. Also, with the return
to lower interest rates, an increase in prepayment speeds is
possible. On a positive note, the underlying mortgages are aged and
may exhibit "burnout" characteristics. This means that those
mortgagors that did not refinance before are less likely to act now.
In Conclusion
We thank you for your continued investment in Income Opportunities
Fund 1999, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Gregory Mark Maunz)
Gregory Mark Maunz
Vice President and Portfolio Manager
February 6, 1996
Proxy Results
During the six-month period ended December 31, 1995, Income
Opportunities Fund 1999, Inc. shareholders voted on the following
proposals. The proposals were approved at a special shareholders'
meeting on October 13, 1995. The description of each proposal and
number of shares voted are as follows:
<PAGE>
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Joe Grills 48,264,532 1,623,270
Walter Mintz 48,262,192 1,625,610
Melvin R. Seiden 48,255,276 1,632,526
Stephen B. Swensrud 48,264,371 1,623,431
Harry Woolf 48,225,688 1,662,114
Arthur Zeikel 48,221,519 1,666,283
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as the independent auditors
of the Fund to serve for the current fiscal year. 48,296,732 461,414 1,129,656
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value Percent of
Rating Rating Amount Issue Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Adjustable Rate++ AAA Aaa $ 35,000,000 Prudential Home Mortgage Securities
Mortgage-Backed Company, Inc., REMIC** 93-25-A1,
Obligations*-- 8.40% due 7/25/2023 $ 35,994,343 $ 36,050,000 7.6%
Constant Maturity
Treasury Indexed
Obligations
Adjustable Rate++ NR+++ AA++++ 10,000,000 Homart Pooled Asset Finance Trust
Mortgage-Backed Corporation, CMO*** 93-A2, 7.50%
Obligations*-- due 12/29/2001++++++++ 10,000,000 10,028,125 2.1
London Interbank A Aa2 26,000,000 Saxon Mortgage Securities
Offered Rate Corporation, REMIC** 92-2-B,
Indexed 7.931% due 10/25/2022 26,762,843 26,325,000 5.6
Obligations AAA Aaa 6,247,686 Sears Mortgage Securities
Corporation, REMIC** 92-18-A2,
7.5828% due 9/25/2022 6,383,802 6,310,163 1.4
------------ ------------ ------
43,146,645 42,663,288 9.1
Total Investments in Adjustable
Rate Mortgage-Backed Obligations 79,140,988 78,713,288 16.7
<PAGE>
Fixed Rate AAA++++++ Aaa 7,377,550 American Southwest Financial
Mortgage-Backed Securities Corp., 95-C1-A1A,
Obligations* 7.30% due 10/17/2001 7,480,636 7,663,430 1.6
AAA AAA++++++ 22,000,000 CBA Mortgage Inc., CMO*** 93-
C1-A2, 7.154% due 12/25/2003 22,303,079 22,783,750 4.8
AAA Aaa 5,366,245 CMC Securities Corporation,
REMIC** 93-B-2, 11% due
4/25/2023 (b) 5,412,888 5,465,185 1.2
AAA AAA++++++ 21,000,000 CS First Boston Mortgage
Securities Corp., REMIC**
95-WF1-A1, 6.452% due
12/21/2027 (d) 21,000,000 21,078,750 4.5
AAA AAA++++++ 4,600,000 Debartolo Corp., CMO***A2,
7.48% due 5/01/2001++++++++ 4,555,348 4,864,500 1.0
A AA++++++ 14,585,000 DLJ Mortgage Acceptance Corp.,
REMIC** 93-MF7-A2, 7.95% due
6/18/2003 14,531,959 15,314,250 3.3
Federal Home Loan Mortgage
Corporation, Pool (1):
NR+++ NR+++ 4,079,897 #W00062, 7.225% due 11/01/1997 4,150,235 4,148,745 0.9
NR+++ NR+++ 14,730,015 #W00058, 6.925% due 6/01/2001 14,958,469 15,016,482 3.2
Federal Home Loan Mortgage
Corporation, REMIC**(1):
NR+++ NR+++ 3,500,000 1341-G, 7% due 12/15/2003 (c) 3,514,324 3,536,094 0.7
NR+++ NR+++ 2,000,000 1224-F, 6.80% due 8/15/2005 (b) 2,010,721 2,020,000 0.4
NR+++ NR+++ 5,642,600 1784-PD, 7% due 9/15/2014 (c) 5,635,547 5,749,280 1.2
Federal National Mortgage
Association, Pool (1):
NR+++ NR+++ 15,000,000 #160159, 7.516% due 7/01/1999 15,024,264 15,759,375 3.3
NR+++ NR+++ 29,760,182 #80306, 8% due 3/01/2000 30,556,892 31,369,092 6.7
NR+++ NR+++ 4,246,939 #160238, 8.18% due 4/01/2001 4,365,434 4,525,644 1.0
NR+++ NR+++ 5,532,598 #160239, 8.305% due 4/01/2001 5,716,590 5,906,048 1.3
NR+++ NR+++ 10,673,218 #160240, 8.43% due 4/01/2001 11,308,068 11,433,685 2.4
NR+++ NR+++ 9,237,924 #73063, 8.20% due 1/01/2002 9,155,649 9,844,163 2.1
NR+++ NR+++ 1,935,401 #190626, 11.25% due 2/01/2016 (c) 2,203,269 2,175,178 0.5
Federal National Mortgage
Association, REMIC**(1):
NR+++ NR+++ 9,728,538 94-M2-A, 6.625% due 2/25/2001 9,591,730 9,716,377 2.1
NR+++ NR+++ 11,000,000 92-20-PG, 7% due 5/25/2005 11,049,454 11,103,070 2.4
NR+++ NR+++ 6,299,047 92-2-Z, 7.50% due 5/25/2005 6,349,454 6,344,274 1.3
NR+++ NR+++ 9,440,637 94-M5-A, 8.40% due 2/25/2009 9,754,904 10,089,680 2.1
NR+++ NR+++ 7,280,000 G93-26-PE, 5.90% due 7/25/2015 (c) 6,864,813 7,254,957 1.5
NR+++ NR+++ 5,223,000 G93-16-E, 5% due 11/25/2015 (c) 4,743,137 5,072,839 1.1
NR+++ NR+++ 5,000,000 G93-3-E, 6% due 1/25/2016 (c) 4,759,375 4,976,550 1.1
NR+++ NR+++ 5,000,000 G93-20-PE, 5.90% due 5/25/2016
(c) 4,912,500 4,975,000 1.1
NR+++ NR+++ 5,000,000 92-122-PG, 7.50% due 9/25/2017
(b) 5,060,790 5,065,625 1.1
<PAGE>
AA AA++++ 4,451,682 FSA Capital Inc., 95-A, 7.42%
due 6/01/2007++++++++ 4,479,449 4,649,921 1.0
AAA AA++++ 11,138,000 GE Capital Mortgage Services,
Inc., REMIC** 95-9-DG, 6.375%
due 11/25/2025 11,037,062 11,207,612 2.4
Kidder Peabody Acceptance
Corporation, REMIC**:
NR+++ AAA++++ 5,000,000 93-M2-A, 6.05% due
8/01/2003++++++++ 4,650,000 4,953,125 1.0
AA++++++ Aa2 9,660,000 93-M3-B, 6.50% due
11/25/2025 (d) 9,572,456 9,660,000 2.0
AAA++++ AAA++++++ 4,160,228 Nomura Assets Securities Corp.,
REMIC** 94-MD1-A1A, 7.376% due
3/15/2018 (c) 4,167,935 4,278,535 0.9
Prudential Home Mortgage
Securities Company, Inc.,
REMIC**:
AAA++++ Aaa 18,760,000 92-36-A8, 6.50% due
10/01/1999 (1) 18,461,013 18,806,900 4.0
AAA++++ Aaa 16,800,000 93-40-A3, 6.50% due
12/25/2023 (1)(c) 16,485,000 16,653,000 3.5
AAA++++ Aaa 4,836,199 94-32-A5, 8.25% due
12/25/2024 (b) 4,869,212 4,957,104 1.1
Resolution Trust Corporation,
REMIC**:
A++++++ A2 7,971,919 92-C7-B, 7.15% due 6/25/2023 (b) 8,047,146 8,036,068 1.7
AA++++++ Aa2 7,714,525 92-C7-1C, 7.90% due 6/25/2023 (a) 8,058,946 7,772,384 1.5
A2 AA++++ 22,518,151 92-C6-B, 7.70% due 7/25/2024 (b) 22,631,151 23,017,773 4.9
AA AA+++++++ 5,000,082 93-C2-B, 7.75% due 3/25/2025 (d) 5,090,972 5,196,960 1.1
AA AA++++++ 2,629,780 92-C5-A1C, 7.85% due 5/25/2025 (b) 2,636,327 2,638,820 0.6
AA AA++++ 19,559,445 Ryland Mortgage Securities
Corporation, REMIC** 93-M1-A,
7.55% due 5/15/2000 19,756,198 20,146,228 4.3
AA++++ Aa2 10,000,000 Salomon Brothers Mortgage
Securities VII, Inc., REMIC**
93-C1-A2, 6.90% due 1/18/2023 (c) 10,291,877 10,025,000 2.1
AA++++ Aa2 27,350,000 Town & Country Funding Corpor-
ation, CMO***, 5.85% due
8/15/1998 27,169,578 27,055,133 5.8
AAA AAA++++++ 40,375,000 Vornado Finance Corp., CMO***,
6.36% due 12/01/2000++++++++ 36,531,172 40,753,516 8.7
Total Investments in Fixed Rate
Mortgage-Backed Obligations 460,905,023 473,060,102 100.5
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value Percent of
Rating Rating Amount Issue Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Derivative AAA Aaa $ 37,929,224 CMC Securities Corporation II,
Mortgage-Backed REMIC** 93-21-A3, 0.50% due
Obligations*-- 9/25/2023 $ 505,537 $ 227,575 0.0%
Interest Only (3) DLJ Mortgage Acceptance Corpor-
ation, REMIC**:
AAA Aaa 94,994,458 92-9-A1, 0.615% due 10/25/2022 1,548,492 1,206,430 0.3
AAA Aaa 36,355,421 93-20-1S, 0.747% due 11/25/2023 753,386 505,340 0.1
Federal Home Loan Mortgage
Corporation, REMIC**:
NR+++ NR+++ 9,399,791 G-24-IA, 6.50% due 8/25/2013 (1) 767,923 806,326 0.2
NR+++ NR+++ 49,566,711 1547-SC, 3.331% due 3/15/2017 (5) 3,758,318 2,184,033 0.5
NR+++ NR+++ 10,449,360 92-1392, 8% due 7/15/2022 (1) 4,333,455 2,298,859 0.5
NR+++ NR+++ 5,788,278 92-1397, 8% due 10/15/2022 2,460,484 1,155,847 0.2
Federal National Mortgage
Association, REMIC**:
NR+++ NR+++ 9,287,542 92-G-5H, 9% due 1/25/2022 3,864,933 1,953,286 0.4
NR+++ NR+++ 2,713,275 92-15-W, 8% due 2/25/2022 1,273,073 569,788 0.1
NR+++ NR+++ 8,803,668 120-2, 8% due 3/25/2022 (1) 4,810,663 2,013,839 0.4
NR+++ NR+++ 74,354 92-196-L, 1,187.608% due
8/25/2006 1,982,324 1,375,364 0.3
AAA AAA++++ 86,293,830 Fund America Investors Corpor-
ation II, REMIC** 93-J,
0.25% due 11/25/2023 576,904 334,389 0.1
AAA++++ AAA++++ 54,621,130 Mortgage Capital Fund Inc.,
REMIC** 94-MCI-11, 1.028%
due 6/25/2019 1,237,317 1,263,114 0.3
------------ ------------ ------
27,872,809 15,894,190 3.4
Derivative NR+++ NR+++ 8,448,443 Government National Mortgage
Mortgage-Backed Association, REMIC** 94-5-PA,
Obligations*-- 8.024% (2) due 6/16/2012 (1) 7,417,056 7,545,516 1.6
Principal Only (4)
<PAGE>
Derivative Federal Home Loan Mortgage
Mortgage-Backed Corporation, REMIC**:
Obligations*-- NR+++ NR+++ 11,244,406 1453-SC, 6.36% due
Inverse 1/15/2000 (1) 10,285,117 11,065,198 2.4
Floaters (5) NR+++ NR+++ 3,101,660 1516-SC, 4.212% due 6/15/2000 2,334,968 2,838,019 0.6
NR+++ NR+++ 9,871,865 1765-A-S, 5.98% due 1/15/2002
(1) 8,181,308 9,618,898 2.0
NR+++ NR+++ 6,556,127 1743-S, 5.10% due 8/15/2001 (1) 5,482,561 6,162,759 1.3
Federal National Mortgage
Association, REMIC**:
NR+++ NR+++ 5,003,830 93-81-S, 1.509% due 6/25/2000
(1) 3,366,640 4,178,198 0.9
NR+++ NR+++ 10,000,000 93-123-S, 7.332% due 7/25/2000 11,103,295 9,900,000 2.1
NR+++ NR+++ 10,000,000 X-169-B, 3.423% due 9/25/2000
(1) 7,650,000 9,000,000 1.9
Prudential Home Mortgage
Securities Company, Inc.,
REMIC** (1):
AAA++++ Aaa 3,319,298 93-59-A6, 1.86% due 12/25/2000 2,602,537 2,804,807 0.6
AAA++++ Aaa 5,203,532 93-59-A8, 2.36% due 12/25/2000 4,162,826 4,449,020 0.9
------------ ------------ ------
55,169,252 60,016,899 12.7
Total Investments in Derivative
Mortgage-Backed Obligations 90,459,117 83,456,605 17.7
Total Investments in Mortgage-
Backed Obligations 630,505,128 635,229,995 134.9
Municipal Bonds AA Aa 4,600,000 Alabama State Refunding Bonds,
5.70% (2) due 9/01/2000 3,518,971 3,751,852 0.8
AAA Aaa 2,445,000 Allegheny County, Pennsylvania,
Sanitation Authority Revenue Bonds,
5.75% (2) due 12/01/2000 (7) 1,846,961 1,975,047 0.4
AAA Aaa 1,500,000 Austin, Texas, Utility Systems,
Revenue Refunding Bonds, Series A,
5.69% (2) due 5/15/2000 (7) 1,168,406 1,240,607 0.3
AAA Aaa 1,190,000 Conroe, Texas, Independent School
District, Schoolhouse Refunding
Bonds, 5.75% (2) due 2/01/2000 (9) 939,729 996,006 0.2
Contra Costa, California, School
Funding Authority Revenue Bonds
(Site A) (8):
AAA Aaa 1,325,000 5.85% (2) due 9/01/1999 1,072,614 1,141,540 0.2
AAA Aaa 1,325,000 6.10% (2) due 9/01/2000 1,001,113 1,085,652 0.2
AAA Aaa 12,260,000 Houston, Texas, Water & Sewer
System, Revenue Refunding Bonds,
5.65% (2) due 12/01/2000 (6) 9,301,359 9,860,595 2.1
Maricopa County, Arizona, School
District No. 28, Refunding Bonds,
Second Series (7):
AAA Aaa 3,000,000 5.55% (2) due 1/01/1999 2,545,610 2,661,750 0.6
AAA Aaa 4,000,000 5.70% (2) due 1/01/2000 3,194,624 3,379,360 0.7
AAA Aaa 9,350,000 5.70% (2) due 7/01/2000 7,260,554 7,704,400 1.6
<PAGE>
Maricopa County, Arizona, School
District No. 41, Refunding Bonds,
Second Series (7):
AAA Aaa 1,000,000 5.65% (2) due 1/01/2000 799,212 844,840 0.2
AAA Aaa 1,500,000 5.65% (2) due 7/01/2000 1,165,692 1,236,000 0.3
AAA Aaa 3,500,000 5.90% (2) due 1/01/2001 2,616,943 2,815,960 0.6
AAA Aaa 5,000,000 5.90% (2) due 7/01/2001 3,631,363 3,909,700 0.8
AA- A 2,045,000 Michigan State Building Authority
Revenue Bonds, Series I, 5.20%
due 10/01/2001 2,001,217 2,125,143 0.4
AAA Aaa 7,000,000 North Slope Boro, Alaska, Revenue
Refunding Bonds, Series A, 5.90%
(2) due 6/30/2001 (9) 5,080,997 5,444,880 1.2
AAA Aaa 2,265,000 Penn Hills, Pennsylvania, School
District Refunding Bonds, 5.75%
(2) due 10/01/2000 (9) 1,726,220 1,844,367 0.4
AAA Aaa 2,510,000 Rosemont, Illinois, Revenue
Bonds, Series B (Tax Increment 2),
5.80% (2) due 12/01/2001 (7) 1,778,206 1,912,821 0.4
AAA Aaa 3,000,000 Round Rock, Texas, Independent
School District Refunding Bonds,
5.74% (2) due 2/15/2001 2,248,829 2,382,900 0.5
AA Aa 6,000,000 Washington State Public Power
Supply Systems, Revenue Refunding
Bonds (Nuclear Project No. 3),
Series B, 5.98% (2) due 7/01/2001 4,308,076 4,579,500 1.0
Total Investments in Municipal
Bonds 57,206,696 60,892,920 12.9
US Government NR+++ NR+++ 6,000,000 United States Treasury Notes,
Obligations 5.25% due 12/31/1997 5,992,500 6,010,320 1.3
Total Investments in US Government
Obligations 5,992,500 6,010,320 1.3
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
<S> <S> <C> <S> <S> <S> <C>
Short-Term Repurchase $ 2,285,000 Nikko Securities International,
Securities Agreements+++++ Inc., purchased on 12/29/1995
to yield 5.80% to 1/02/1996 $ 2,285,000 $ 2,285,000 0.5%
5,000,000 Nikko Securities International,
Inc., purchased on 12/29/1995
to yield 5.85% to 1/02/1996 5,000,000 5,000,000 1.1
------------ ------------ ------
7,285,000 7,285,000 1.6
US Government & 14,000 United States Treasury Bills,
Agency 5.22% due 7/25/1996 (10) 13,601 13,595 0.0
Obligations****
Total Investments in Short-Term
Securities 7,298,601 7,298,595 1.6
Total Investments $701,002,925 709,431,830 150.7
============
Interest Rate Swaps (278,000) (0.1)
Variation Margin on Financial
Futures Contracts***** (12,992) (0.0)
Liabilities in Excess of Other
Assets (238,458,093) (50.6)
------------ ------
Net Assets $470,682,745 100.0%
============ ======
<FN>
Average life estimates are made using realistic prepayment
assumptions. Corresponding average life estimates for bonds are as
follows:
(a)0--1 years.
(b)1--2 years.
(c)2--4 years.
(d)4--6 years.
*Mortgage-Backed Obligations are subject to principal paydowns as a
result of prepayments or refinancings of the underlying mortgage
instruments. As a result, the average life may be substantially less
than the original maturity.
**Real Estate Mortgage Investment Conduits (REMIC) are identified by
the year created, series issued, and the particular tranche.
***Collateralized Mortgage Obligation (CMO).
****Certain US Government & Agency Obligations are traded on a
discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
*****Financial futures contracts sold as of December 31, 1995 were
as follows:
<PAGE>
Number of Expiration Value
Contracts Issue Date (Note 1a)
30 Eurodollar June 1996 $28,479,000
Total Financial Futures Contracts Sold
(Total Contract Price--$28,463,758) $28,479,000
===========
++Adjustable Rate Mortgage-Backed Obligations have coupon rates
which reset periodically to reflect changes in a referenced interest
rate.
++++Rating of issue is by Fitch Investors Service.
++++++Rating of issue is by Duff & Phelps.
(1)Security represents collateral in connection with a Reverse
Repurchase Agreement (Note 5).
(2)Represents the approximate yield to maturity.
(3)Securities which receive some or all of the interest portion of
the under-lying collateral and little or no principal. Interest only
securities have either a nominal or a notional amount of principal.
(4)Represents the principal only portion of a mortgage-backed
obligation.Stripped securities are traded on a discount basis and
amortized to maturity.
(5)Instruments with variable or floating interest rates that move in
the opposite direction of short-term interest rates.
(6)AMBAC Insured.
(7)FGIC Insured.
(8)FSA Insured.
(9)MBIA Insured.
(10)Security represents collateral in connection with financial
futures contracts.
+++Not Rated.
+++++Repurchase Agreements are fully collateralized by US Government
& Agency Obligations.
++++++++Restricted security. The value of the Fund's investment in
restricted securities was approximately $65,249,000, representing
13.8% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Debartolo Corp., CMOA2,
7.48% due 5/01/2001 2/27/1995 $ 4,555,348 $ 4,864,500
FSA Capital Inc., 95-A,
7.42% due 6/01/2007 5/23/1995 4,479,449 4,649,921
Homart Pooled Asset Finance
Trust Corporation, CMO93-A2,
7.50% due 12/29/2001 12/29/1993 10,000,000 10,028,125
Kidder Peabody Acceptance
Corporation, REMIC, 93-M2-A,
6.05% due 8/01/2003 4/11/1995 4,650,000 4,953,125
Vornado Finance Corp., CMO,
6.36% due 12/01/2000 12/08/1994 36,531,172 40,753,516
Total $ 60,215,969 $ 65,249,187
============ ============
<PAGE>
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of December 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$701,002,925) (Note 1a) $709,431,830
Cash 286,931
Receivables:
Interest $ 4,714,098
Principal paydowns 91,575
Interest rate swap contracts 8,974 4,814,647
------------
Deferred organization expenses (Note 1e) 21,804
Prepaid expenses and other assets 10,210
------------
Total assets 714,565,422
------------
Liabilities: Interest rate swaps, at value (Notes 1b & 3) 278,000
Payables:
Reverse repurchase agreements (Note 5) 228,654,332
Securities purchased 5,992,500
Interest expense (Note 5) 5,724,594
Dividends to shareholders (Note 1f) 2,067,829
Capital shares repurchased 739,530
Investment adviser (Note 2) 227,647
Variation margin (Note 1b) 12,992 243,419,424
------------
Accrued expenses and other liabilities 185,253
------------
Total liabilities 243,882,677
------------
<PAGE>
Net Assets: Net assets $470,682,745
============
Capital: Capital stock, $0.10 par value, 200,000,000 shares authorized $ 4,956,733
Paid-in capital in excess of par 475,281,793
Undistributed investment income--net 7,383,175
Accumulated realized capital losses on investments--net (Note 6) (25,074,619)
Unrealized appreciation on investments--net 8,135,663
------------
Net assets--Equivalent to $9.50 per share based on 49,567,327
shares outstanding (market price--$8.25) $470,682,745
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 44,415,957
(Note 1d): Other 17,316
------------
Total income 44,433,273
============
Expenses: Interest expense (Note 5) $ 13,848,130
Investment advisory fees (Note 2) 2,529,176
Accounting services (Note 2) 134,913
Printing and shareholder reports 114,207
Transfer agent fees 104,865
Professional fees 90,552
Custodian fees 49,321
Trustees' fees and expenses 45,226
Amortization of organization expenses (Note 1e) 13,176
Pricing fees 4,288
Listing fees 375
Other 68,918
------------
Total expenses 17,003,147
------------
Investment income--net 27,430,126
------------
<PAGE>
Realized & Realized loss on investments--net (1,876,062)
Unrealized Gain Change in unrealized appreciation/depreciation on
(Loss) on investments--net 61,650,129
Investments ------------
(Notes 1b, Net Increase in Net Assets Resulting from Operations $ 87,204,193
1d & 3): ============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended Dec. 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 27,430,126 $ 33,431,042
Realized loss on investments--net (1,876,062) (22,098,045)
Change in unrealized appreciation/depreciation on
investments--net 61,650,129 (40,418,007)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 87,204,193 (29,085,010)
------------ ------------
Dividends to Investment income--net (25,472,302) (32,680,981)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends
to shareholders (25,472,302) (32,680,981)
------------ ------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (30,816,624) (15,613,310)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 30,915,267 (77,379,301)
Beginning of year 439,767,478 517,146,779
------------ ------------
End of year* $470,682,745 $439,767,478
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 7,383,175 $ 5,428,500
============ ============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Year Ended December 31, 1995
<S> <S> <C>
Cash Provided Net increase in net assets resulting from operations $ 87,204,193
by Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Decrease in receivables 687,431
Decrease in other assets 11,795
Increase in other liabilities 4,024,808
Realized and unrealized gain on investments--net (59,774,067)
Amortization of premium and discount--net 6,065,471
------------
Net cash provided by operating activities 38,219,631
------------
Cash Provided Proceeds from principal payments and sales of long-term securities 425,884,838
by Investing Purchases of long-term securities (411,739,146)
Activities: Purchases of short-term investments (505,147,601)
Proceeds from sales and maturities of short-term investments 498,589,000
------------
Net cash provided by investing activities 7,587,091
------------
Cash Used for Increase of borrowings--net 11,418,582
Financing Cash payments on capital shares repurchased (30,967,135)
Activities: Dividends paid to shareholders (25,971,238)
------------
Net cash used for financing activities (45,519,791)
------------
Cash: Net increase in cash 286,931
Cash at beginning of year 0
------------
Cash at end of year $ 286,931
------------
Cash Flow Cash paid for interest $ 9,928,825
Information: ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
The following per share data and ratios have Period
been derived from information provided in Aug. 28,
the financial statements. For the Year Ended 1992++ to
December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.22 $ 9.32 $ 9.37 $ 9.50
Operating -------- -------- -------- --------
Performance: Investment income--net .55 .60 .65 .21
Realized and unrealized gain (loss) on
investments--net 1.23 (1.11) (.01) (.15)
-------- -------- -------- --------
Total from investment operations 1.78 (.51) .64 .06
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.50) (.59) (.59) (.18)
Realized gain on investments--net -- -- (.08) --
In excess of realized gain on investments--net -- -- (.02) --
-------- -------- -------- --------
Total dividends and distributions (.50) (.59) (.69) (.18)
-------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- (.01)
-------- -------- -------- --------
Net asset value, end of period $ 9.50 $ 8.22 $ 9.32 $ 9.37
======== ======== ======== ========
Market price per share, end of period $ 8.25 $ 7.375 $ 8.75 $ 9.25
======== ======== ======== ========
Total Investment Based on market price per share 19.00% (9.18%) 1.77% (5.78%)+++
Return:** ======== ======== ======== ========
Based on net asset value per share 22.94% (4.97%) 7.02% .46%+++
======== ======== ======== ========
Ratios to Expenses, net of reimbursement and excluding
Average Net interest expense. .69% .67% .83% .47%*
Assets: ======== ======== ======== ========
Expenses, excluding interest expense .69% .67% .83% .91%*
======== ======== ======== ========
Expenses 3.70% 2.80% 2.30% 1.63%*
======== ======== ======== ========
Investment income--net 5.98% 6.93% 6.86% 6.54%*
======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in thousands) $470,683 $439,767 $517,147 $520,319
Data: ======== ======== ======== ========
Portfolio turnover 60.70% 94.71% 185.21% 48.17%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
++Commencement of Operations
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Income Opportunities Fund 1999, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, closed-
end management investment company. The Fund determines and makes
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol IOF. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Corporate debt securities, mortgage-
backed securities, municipal securities, asset-backed securities and
other debt securities are valued on the basis of valuations provided
by dealers or by a pricing service, approved by the Fund's Board of
Directors. Securities having a remaining maturity of sixty days or
less are valued at amortized cost, which approximates market value.
Any securities or other assets for which current market quotations
are not readily available are valued at their fair value as
determined in good faith by and under the direction of the Fund's
Board of Directors. Any securities denominated in a currency other
than US dollars will be translated into US dollars on the valuation
date.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--The Fund is authorized to purchase and write call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. In an interest rate swap, the Fund exchanges with another
party their respective commitments to pay or receive interest on a
specified notional principal amount. The purchase of an interest
rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest
rate, to receive payments of interest equal to the difference
between the index and the predetermined rate on a notional principal
amount from the party selling such interest rate cap (or floor).
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
<PAGE>
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. The Fund may at times pay out
less than the entire amount of taxable net investment income earned
in any particular period and may at times pay out such accumulated
undistributed income in addition to taxable net investment income
earned in other periods in order to permit the Fund to maintain a
more stable level of distribution.
NOTES TO FINANCIAL STATEMENTS (concluded)
(g) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds received by the Fund is reflected as an asset
and equivalent liability. The amount of the liability is
subsequently marked to market to reflect the market value of the
short sale. The Fund maintains a segregated account of securities as
collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock
exceeds the market value of the securities in the segregated
account.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
<PAGE>
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.55% of
average weekly net assets from January 19, 1994 to September 1,
1997, and 0.40% of average weekly net assets from September 1, 1997
through termination of the Fund.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1995 were $415,049,778 and
$425,500,398, respectively.
Net realized and unrealized gains (losses) as of December 31, 1995
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $(1,822,166) $8,428,911
Short-term investments -- (6)
Interest rate swaps -- (278,000)
Financial futures contracts -- (15,242)
Short-sales (94,911) --
Options written 41,015 --
----------- ----------
Total $(1,876,062) $8,135,663
=========== ==========
The Fund has entered into the following interest rate swaps as of
December 31, 1995:
Notional Interest Received Interest Paid Expiration
Amount Current Rate Type Current Rate Type Date
$ 4,000,000 5.938% Variable* 4.82 % Fixed 4/09/1996
25,000,000 5.226% Fixed 5.8731% Variable* 3-5 years
25,000,000 5.50 % Fixed 5.5547% Variable** 3-5 years
[FN]
*3-Month LIBOR at reset date.
**6-Month LIBOR at reset date.
<PAGE>
As of December 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $8,428,905, of which $22,900,237
related to appreciated securities and $14,471,332 related to
depreciated securities. The aggregate cost of investments at
December 31, 1995 for Federal income tax purposes was $701,002,925.
Transactions in call options for the year ended December 31, 1995
were as follows:
Number of Premiums
Call Options Written Contracts Received
Outstanding call options written
at beginning of year -- --
Options written 15 $ 41,015
Options expired (15) (41,015)
-------- ----------
Outstanding call options written
at end of period -- $ --
======== ==========
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
par value $.10 per share. At December 31, 1995, total paid-in
capital amounted to $480,238,526.
During the period, the Fund repurchased 3,904,800 shares of capital
stock, at an average market price of $7.90, all of which have been
retired.
5. Reverse Repurchase Agreements:
Under a reverse repurchase agreement, the Fund sells securities and
agrees to repurchase them at a mutually agreed upon date and price.
At the time the Fund enters into a reverse repurchase agreement, it
may establish a segregated account with the custodian containing
cash, cash equivalents or liquid high grade debt securities having a
value at least equal to the repurchase price.
As of December 31, 1995, the Fund had entered into reverse
repurchase agreements in the amount of $228,654,332. For the year
ended December 31, 1995, the maximum amount of reverse repurchase
agreements outstanding was $254,746,519, the average amount
outstanding was $226,187,623, and the daily weighted average
interest rate was 6.12%.
6. Capital Loss Carryforward:
At December 31, 1995, the Fund had a net capital loss carryforward
of approximately $25,075,000, of which $17,404,000 expires in 2002
and $7,671,000 expires in 2003. This amount will be available to
offset like amounts of any future taxable gains.
<PAGE>
7. Subsequent Event:
On February 9, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.041666 per share, payable on February 29, 1996 to shareholders
of record as of February 20, 1996.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Income Opportunities Fund 1999, Inc.
We have audited the accompanying statement of assets, liabilities
and capital of Income Opportunities Fund 1999, Inc., including the
schedule of investments, as of December 31, 1995, and the related
statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the two years in the
period then ended and financial highlights for each of the periods
indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Income Opportunities Fund 1999, Inc. at
December 31, 1995, the results of its operations and its cash flows
for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights
for each of the indicated periods, in conformity with generally
accepted accounting principles.
(Ernst & Young LLP)
Princeton, New Jersey
February 6, 1996
</AUDIT-REPORT>
