INCOME
OPPORTUNITIES
FUND 2000, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 1998
<PAGE>
INCOME OPPORTUNITIES FUND 2000, INC.
The Benefits and Income Opportunities Fund 2000, Inc. is authorized to
Risks of borrow funds and utilize leverage in amounts not
Leveraging exceeding 331 1/43% 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. ToEthe 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>
Income Opportunities Fund 2000, Inc., June 30, 1998
DEAR SHAREHOLDER
For the six months ended June 30, 1998, Income Opportunities Fund 2000, Inc.
earned $0.315 per share income dividends, which included earned and unpaid
dividends of $0.050 per share. This represents a net annualized yield of 6.31%,
based on a month-end net asset value of $10.06 per share. Over the same period,
the Fund's total investment return was +3.16%, based on a change in per share
net asset value from $10.02 to $10.06, and assuming reinvestment of $0.265 per
share income dividends.
Economic Environment
The US economy continued to expand at an above-trend pace for the six months
ended June 30, 1998. Despite declining export growth and a relatively high real
interest rate environment, gross domestic product (GDP) rose 5.4% in the first
quarter of 1998, marking the sixth consecutive quarter that the annualized
growth rate of GDP has exceeded 3.0%. Consumer spending, which has more than
offset the trade drag resulting from the Asian financial crisis, rose 6.1% in
the first quarter and has been largely responsible for the strong showing of the
US economy. Nonetheless, despite continued overall economic strength, the
Federal Reserve Board refrained from raising interest rates during the period.
Two fundamental catalysts contributing to the surge in consumer spending have
been the strength of the job market and the strength of the US equity market.
With an average gain of 243,000 new jobs per month through the first six months
of 1998, employment growth in the United States remains strong. As a result, the
unemployment rate has fallen to a 28-year low of 4.3%. More important, labor
costs continue to trend upward. Average hourly earnings rose 4.1% over the 12
months ended June 30, 1998 (the highest year-over-year pace in the current
economic expansion) and well above the current rate of inflation. Consumer
spending has also been influenced by the strength of the US stock market. In the
three years since December 1994, the overall net wealth of US households has
risen 38% in response to the climb of equity prices. As a result, US households
are spending more and saving less of their personal income, while still seeing
their overall net wealth increase.
The strength of consumer demand has carried over to other sectors of the economy
as well. Reflecting a confluence of favorable factors (low mortgage rates,
strong income growth and high consumer confidence), housing remains
exceptionally strong. New housing starts rose to an annualized 1.58 million-unit
rate in the first quarter of 1998, the fastest pace in ten years. In addition,
both new and existing home sales are currently at or near record levels. Despite
rising wage growth and strong domestic demand, the lack of corporate pricing
power has kept inflation subdued. During the 12-month period ended June 30,
1998, the consumer price index rose just 1.7%, while the producer price index
fell 0.8%.
Although the Asian crisis should continue to hamper export growth and act as a
drag on GDP, we do not expect consumer spending to slow significantly in the
second half of 1998, barring a major stock market correction. Since domestic
demand accounts for nearly two-thirds of GDP, we expect economic growth to
remain moderately strong throughout 1998. Meanwhile, should labor markets
tighten further, the current benign inflationary environment could be threatened
by escalating wage pressures. Consequently, we believe that the risk of a
tightening in monetary policy by the Federal Reserve Board has increased and
that interest rates could rise in the near term.
Portfolio Matters
At the meeting of the Fund's Board of Directors held on July 9, 1997, a dividend
increase of 35 basis points (0.35%) was approved, which raised the dividend of
Income Opportunities Fund 2000, Inc. shares from 6.00% to 6.35%, based on the
original offering price of $10.00 per share. To a large extent that increase was
a result of slow prepayment speeds which increased the yields on many of the
Fund's collateralized mortgage obligations. In addition, we had collected
sizeable prepayment penalties on many commercial mortgage-backed securities.
However, one year later the environment is quite different. Interest rates are
lower by over 100 basis points, as measured by the ten-year Treasury note.
Mortgage prepayments have soared as the MBA Mortgage Refinance Index has
recently hit an all-time high. Yet our borrowing costs have remained high as the
Federal Reserve Board has kept short-term interest rates high in an effort to
slow the robust economic growth. For example, the one-month London Interbank
Offered Rate (LIBOR) ended the month of June at 5.66%, just 3 basis points lower
from a year earlier. These events, coupled with a portfolio structured with the
shorter time horizon in mind, necessitate a modest reduction in the dividend
rate. Therefore, effective with the July 1998 distribution, the annualized
distribution rate will be 6.00%.
Our primary investment strategy continues to focus on seeking to return a $10.00
per share net asset value upon the Fund's maturity. As such, our portfolio
structure and dividend policy at this time are in keeping with that goal at the
Fund's termination date.
In Conclusion
We thank you for your continued investment in Income Opportunities Fund 2000,
Inc., and we look forward to discussing our outlook and strategy with you in our
next report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Gregory Mark Maunz
Gregory Mark Maunz
Senior Vice President and
Portfolio Manager
August 4, 1998
2 & 3
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Value Percent of
Rating Rating Amount Issue Cost (Note 1a) Net Assets
===============================================================================================================================
Adjustable Rate* Mortgage-Backed Obligations**--London
Interbank Offered Rate Indexed Obligations
<S> <C> <C> <C> <C> <C> <C>
NR++ A2 $ 5,000,000 DLJ Commercial Mortgage Corp.,
98-STFA-A3, 6.32% due 12/08/2000@@@ $ 5,000,000 $ 5,009,375 4.5%
AAA NR++ 4,963,550 OUC Commercial Mortgage Securities Inc.,
98-1-A, 7.502% due 1/27/2028 (a) 5,004,398 4,984,491 4.5
A BBB@@@ 660,971 Resolution Trust Corp., REMIC (5) 91-M4-B,
7.688% due 2/25/2020 670,275 660,971 0.6
Sears Mortgage Securities Corporation, REMIC (5):
AAA A1 2,357,048 91-M-A2, 6.906% due 11/25/2021 2,365,608 2,358,226 2.1
AA+ Aaa 1,322,935 92-18B-A2, 7.506% due 9/25/2022 1,350,790 1,347,411 1.2
NR++ A1 1,437,594 92-2-A1, 7.616% due 12/25/2024 1,456,631 1,462,393 1.3
NR++ AAA@ 2,403,391 Structured Asset Securities Corporation,
97-C1-A, 5.856% due 1/25/2000@@@@ (b) 2,403,391 2,403,391 2.2
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments in Adjustable Rate Mortgage-Backed
Obligations--London Interbank Offered Rate
Indexed Obligations 18,251,093 18,226,258 16.4
===============================================================================================================================
Fixed Rate Mortgage-Backed Obligations**
AAA@@ Aaa 3,418,036 American Southwest Financial Securities Corp.,
95-C1-A1A, 7.30% due 10/17/2001 (b) 3,464,574 3,463,966 3.1
AA- Aa3 5,000,000 Associates Corp. N.A., 6% due 6/15/2001 (b) 4,989,000 4,975,000 4.5
NR++ AA@ 5,766,000 Blackrock Capital Finance L.P., CMO (4)
96-C2-B, 7.788% due 11/15/2026@@@ (1)(a) 5,801,317 5,768,652 5.2
NR++ A2 5,000,000 CS First Boston Mortgage Securities Corp.,
98-FL1-D, 6.156% due 12/10/2000 5,000,000 5,000,000 4.5
Federal Home Loan Mortgage Association, Pool (1):
NR++ NR++ 311,018 #M80294, 5% due 10/01/2000 300,083 307,544 0.3
NR++ NR++ 551,136 #L90202, 5.50% due 12/01/2000 540,974 545,531 0.5
Federal National Mortgage Association, Pool (1):
NR++ NR++ 358,970 #199718, 5.50% due 8/01/2000 350,613 355,194 0.3
NR++ NR++ 455,069 #227383, 5.50% due 9/01/2000 443,906 450,282 0.4
NR++ NR++ 287,074 #50932, 5.50% due 11/01/2000 279,718 284,054 0.2
NR++ NR++ 352,295 #241824, 5.50% due 12/01/2000 343,212 348,589 0.3
NR++ NR++ 1,088,035 #250038, 5.50% due 4/01/2001 1,057,774 1,076,589 1.0
NR++ NR++ 3,716,094 #73046, 7.60% due 10/01/2001 3,678,933 3,802,029 3.4
NR++ NR++ 5,424,728 #73059, 8.375% due 12/01/2001 5,635,493 5,556,956 5.0
NR++ NR++ 3,124,139 #73181, 7.14% due 9/01/2002 3,104,613 3,179,788 2.9
Federal National Mortgage Association, REMIC (1)(5):
NR++ NR++ 8,090,822 94-M2-A, 6.625% due 2/25/2001 7,950,714 8,146,446 7.3
NR++ NR++ 15,112,896 G-92-39-Z, 7% due 10/25/2016 (a) 15,158,578 15,117,581 13.6
NR++ NR++ 5,000,000 97-7-PK, 6.50% due 10/18/2017 (b) 5,004,594 5,017,335 4.5
AAA Aaa 5,825,000 Ford Credit Auto Owner Trust, 98-B-A3, 5.85%
due 10/15/2001 5,822,270 5,825,000 5.2
AAA AAA@ 5,000,000 GE Capital Mortgage Services, Inc., REMIC (5)
98-9-A1, 6.50% due 6/25/2028 (b) 5,014,817 5,020,312 4.5
Kidder Peabody Acceptance Corp., REMIC (5)(b):
AA AA+@ 2,000,000 94-C1-B, 6.85% due 2/01/2006 2,020,818 1,993,750 1.8
NR++ A+@ 4,000,000 94-C1-C, 7% due 2/01/2006 4,043,864 4,027,500 3.6
PNC Mortgage Securities Corp., CMO (4):
AAA Aaa 7,054,551 97-6-A1, 6.49% due10/25/2026 (b) 7,053,669 7,069,983 6.4
AAA AAA@@ 5,000,000 98-6-1A3, 6.40% due 9/25/2028 5,010,756 5,010,938 4.5
NR++ AAA@ 5,000,000 Paine Webber Mortgage Acceptance Corp., CMO (4)
96-M1-A1, 6.80% due 1/02/2012@@@ (b) 5,046,949 5,100,000 4.6
Resolution Trust Corporation, REMIC (5):
AAA AA+@ 922,876 92-C5-B, 6.90% due 5/25/2022 (a) 926,316 921,145 0.8
A+@@ A2 1,471,278 92-C7-B, 7.15% due 6/25/2023 (a) 1,485,972 1,474,497 1.3
AA-@@ A2 360,276 92-C6-B, 7.70% due 7/25/2024 (a) 368,166 361,514 0.3
AA AA+@@ 3,771,211 93-C2-B, 7.75% due 3/25/2025 (b) 3,851,627 3,764,140 3.4
AA@ Aa2 5,000,000 Town & Country Funding Corporation, CMO (4),
5.85% due 8/15/1998 (1) 4,988,200 4,992,625 4.5
AAA AAA@@ 11,025,000 Vornado Finance Corp., CMO (4), 6.36%
due 12/01/2000@@@ 9,980,621 10,983,656 9.9
NR++ A3 5,000,000 World Omni Automobile Lease Securitization Corp.,
97-B-B, 6.46% due 11/25/2003@@@ (b) 5,020,729 5,006,250 4.5
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments in Fixed Rate
Mortgage-Backed Obligations 123,738,870 124,946,846 112.3
===============================================================================================================================
Derivative Mortgage-Backed Obligations**--Interest Only (2)
Federal National Mortgage Association, REMIC (5)(b):
NR++ NR++ 4,026,619 93-221-JD, 6% due 11/25/2006 358,760 285,459 0.2
NR++ NR++ 5,278,328 94-23-PN, 6% due 7/25/2017 522,814 453,606 0.4
NR++ Aaa 28,608,472 Fund America Investors Corporation II, CMO (4)
93-E-SIO, 0.50% due 9/25/2023 476,295 202,691 0.2
AAA@@ Aaa 4,649,524 Mortgage Capital Funding Inc., REMIC (5)
94-MC1-I1, 0.865% due 6/25/2019 71,388 72,533 0.1
------------ ------------ ----
1,429,257 1,014,280 0.9
===============================================================================================================================
Derivative Mortgage-Backed Obligations**--Inverse Floaters (3)
Federal Home Loan Mortgage Corporation, REMIC (5):
NR++ NR++ 2,251,618 1557-S, 3.187% due 8/15/1998 2,086,265 2,256,543 2.0
NR++ NR++ 86,094 1330-I, 8.995% due 9/15/1999 81,359 85,959 0.1
NR++ NR++ 2,948,826 1743-S, 5.55% due 8/15/2001 2,476,092 2,896,835 2.6
NR++ NR++ 9,150,000 Federal National Mortgage Association, REMIC (5)
93-227-S, 3.768% due 12/25/2000 (1) 6,567,281 8,596,260 7.8
------------ ------------ ----
11,210,997 13,835,597 12.5
===============================================================================================================================
Total Investments in Derivative
Mortgage-Backed Obligations 12,640,254 14,849,886 13.4
===============================================================================================================================
Total Investments in Mortgage-Backed Obligations 154,630,217 158,022,990 142.1
===============================================================================================================================
</TABLE>
4 & 5
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Issue Cost (Note 1a) Net Assets
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Short-Term US Government$ 25,000 US Treasury Bills, 4.94% due 7/02/1998 (6) $ 24,997 $ 24,998 0.0%
Securities Obligations***
===============================================================================================================================
Total Investments in Short-Term Securities 24,997 24,998 0.0
===============================================================================================================================
Total Investments $154,655,214 158,047,988 142.1
============
Variation Margin on Financial Futures
Contracts**** 6,750 0.0
Liabilities in Excess of Other Assets (46,826,332) (42.1)
------------ -----
Net Assets $111,228,406 100.0%
============ =====
===============================================================================================================================
</TABLE>
Average life estimates are made using realistic prepayment assumptions.
Actual maturities could differ from those estimates. Corresponding average
life estimates for bonds are as follows:
(a) Less than 1 year.
(b) 1-3 years.
(1) Security represents collateral in connection with Reverse Repurchase
Agreements (Note 5).
(2) Securities which receive some or all of the interest portion of the
underlying collateral and little or no principal. Interest only securities
have either a nominal or a notional amount of principal.
(3) Instruments with variable or floating interest rates that move in the
opposite direction of short-term interest rates.
(4) Collateralized Mortgage Obligation (CMO).
(5) Real Estate Mortgage Investment Conduits (REMICs) are identified by the
year created, series issued and the particular tranche.
(6) All or portion of the security held as collateral in connection with open
financial futures contracts.
* Adjustable Rate Mortgage-Backed Obligations have coupon rates which reset
periodically to reflect changes in a referenced interest rate.
** 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.
*** Certain US Government Obligations are traded on a discount basis; the
interest rate shown is the discount rate paid at the time of purchase by
the Fund.
**** Financial futures contracts sold as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
- --------------------------------------------------------------------------------
10 Eurodollar CME December 1998 $2,356,750
10 Eurodollar CME March 1999 2,358,125
10 Eurodollar CME June 1999 2,357,500
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$7,077,125) $7,072,375
==========
- --------------------------------------------------------------------------------
++ Not Rated.
@ Rating of issue is by Fitch Investors Service.
@@ Rating of issue is by Duff & Phelps.
@@@ The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
@@@@ Restricted security as to resale. The value of the Fund's investments in
restricted securities was approximately $2,403,000, representing 2.2% of
net assets.
- --------------------------------------------------------------------------------
Value
Issue Acquisition Date Cost (Note 1a)
- --------------------------------------------------------------------------------
Structured Asset Securities
Corporation, 97-C1-A,
5.856% due 1/25/2000 2/09/1998 $2,403,391 $2,403,391
- --------------------------------------------------------------------------------
Total $2,403,391 $2,403,391
========== ==========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of June 30, 1998
<TABLE>
===========================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$154,655,214) (Note 1a) ..... $ 158,047,988
Cash ................................................................ 68,164
Receivables:
Securities sold .................................................. $ 12,457,500
Interest ......................................................... 983,392
Principal paydowns ............................................... 56,153
Variation margin (Note 1c) ....................................... 6,750 13,503,795
--------------
Prepaid expenses and other assets ................................... 9,113
-------------
Total assets ........................................................ 171,629,060
-------------
===========================================================================================================================
Liabilities: Payables:
Reverse repurchase agreements (Note 5) ........................... 54,637,000
Securities purchased ............................................. 5,037,604
Interest expense (Note 5) ........................................ 502,099
Investment adviser (Note 2) ...................................... 27,441
Dividends to shareholders (Note 1f) .............................. 1,088 60,205,232
--------------
Accrued expenses and other liabilities .............................. 195,422
-------------
Total liabilities ................................................... 60,400,654
-------------
===========================================================================================================================
Net Assets: Net assets .......................................................... $ 111,228,406
=============
===========================================================================================================================
Capital: Capital stock, $0.10 par value, 200,000,000 shares authorized ....... $ 1,105,773
Paid-in capital in excess of par .................................... 106,408,040
Undistributed investment income--net ................................ 2,892,912
Accumulated realized capital losses on investments--net (Note 6) .... (2,575,843)
Unrealized appreciation on investments--net ......................... 3,397,524
-------------
Net assets-Equivalent to $10.06 per share based on 11,057,727 shares
outstanding (market price-$9.6875) .................................. $ 111,228,406
=============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
===========================================================================================================================
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ........ $ 5,089,984
(Note 1e): Other ........................................................... 19,824
-------------
Total income .................................................... 5,109,808
-------------
===========================================================================================================================
Expenses: Interest expense (Note 5) ....................................... $ 1,488,160
Investment advisory fees (Note 2) ............................... 165,147
Professional fees ............................................... 46,414
Accounting services (Note 2) .................................... 37,989
Trustees' fees and expenses ..................................... 21,350
Transfer agent fees ............................................. 15,255
Printing and shareholder reports ................................ 9,611
Custodian fees .................................................. 7,016
Pricing fees .................................................... 1,126
Other ........................................................... 20,756
-------------
Total expenses .................................................. 1,812,824
-------------
Investment income-net ........................................... 3,296,984
-------------
===========================================================================================================================
Realized & Realized loss on investments--net ............................... (17,964)
Unrealized Gain Change in unrealized appreciation on investments--net ........... 28,734
(Loss) on -------------
Investments Net Increase in Net Assets Resulting from Operations ............ $ 3,307,754
(Notes 1c, 1e & 3): =============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1998 1997
===========================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .............................................. $ 3,296,984 $ 6,845,910
Realized gain (loss) on investments--net ............................ (17,964) 174,115
Change in unrealized appreciation on investments--net ............... 28,734 1,650,568
------------- -----------
Net increase in net assets resulting from operations ................ 3,307,754 8,670,593
------------- -----------
===========================================================================================================================
Dividends to Investment income--net .............................................. (2,925,653) (7,090,766)
Shareholders Net decrease in net assets resulting from dividends ------------- -----------
(Note 1f): to shareholders ..................................................... (2,925,653) (7,090,766)
------------- -----------
===========================================================================================================================
Capital Stock Net decrease in net assets derived from capital stock transactions .. -- (1,583,324)
Transactions ------------- -----------
(Note 4):
===========================================================================================================================
Net Assets: Total increase (decrease) in net assets ............................. 382,101 (3,497)
Beginning of period ................................................. 110,846,305 110,849,802
------------- -----------
End of period* ...................................................... $ 111,228,406 $ 110,846,305
============= =============
===========================================================================================================================
* Undistributed investment income--net ............................... $ 2,892,912 $ 2,521,581
============= =============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
===============================================================================================================
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations ....................... $ 3,307,754
Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Decrease in receivables ................................................. 96,824
Increase in other liabilities ........................................... 18,483
Realized and unrealized gain on investments--net ........................ (10,770)
Amortization of premium and discount--net ............................... 597,334
------------
Net cash provided by operating activities .................................. 4,009,625
------------
===============================================================================================================
Cash Used for Proceeds from principal payments and sales of long-term securities ......... 40,080,246
Investing Purchases of long-term securities .......................................... (48,462,995)
Activities: Purchases of short-term investments ........................................ (65,516,171)
Proceeds from sales and maturities of short-term investments ............... 66,771,000
------------
Net cash used for investing activities ..................................... (7,127,920)
------------
===============================================================================================================
Cash Provided by Cash receipts from borrowings .............................................. 27,127,000
Financing Cash payments on borrowings ................................................ (20,223,000)
Activities: Dividends paid to shareholders ............................................. (3,734,718)
------------
Net cash provided by financing activities .................................. 3,169,282
------------
===============================================================================================================
Cash: Net increase in cash ....................................................... 50,987
Cash at beginning of period ................................................ 17,177
------------
Cash at end of period ...................................................... $ 68,164
============
===============================================================================================================
Cash Flow Cash paid for interest ..................................................... $ 1,543,347
Information: ============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
The following per share data and ratios have been derived Six Months For the Year Ended
from information provided in the financial statements. Ended December 31,
June 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 1998@ 1997@ 1996@ 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ............................... $ 10.02 $ 9.87 $ 9.83 $ 8.51 $ 10.00
--------- --------- --------- --------- ---------
Investment income--net .......................................... .30 .62 .63 .60 .64
Realized and unrealized gain (loss) on investments--net ......... --@@ .17 (.03) 1.27 (1.50)
--------- --------- --------- --------- ---------
Total from investment operations ................................... .30 .79 .60 1.87 (.86)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net .......................................... (.26) (.64) (.56) (.55) (.63)
Realized gain on investments--net ............................... -- -- -- -- --@@
--------- --------- --------- --------- ---------
Total dividends and distributions to Common Stock shareholders ..... (.26) (.64) (.56) (.55) (.63)
--------- --------- --------- --------- ---------
Net asset value, end of period ..................................... $ 10.06 $ 10.02 $ 9.87 $ 9.83 $ 8.51
========= ========= ========= ========= =========
Market price per share, end of period .............................. $ 9.6875 $ 9.625 $ 9.00 $ 8.75 $ 7.375
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Return:**
Based on market price per share .................................... 3.41%++ 14.47% 9.63% 26.77% (13.91%)
========= ========= ========= ========= =========
Based on net asset value per share ................................. 3.16%++ 8.67% 7.02% 23.42% (8.11%)
========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Net Assets:
Expenses, excluding interest expense ............................... .59%* .81% .81% .89% .90%
========= ========= ========= ========= =========
Expenses ........................................................... 3.29%* 3.50% 3.36% 3.90% 3.05%
========= ========= ========= ========= =========
Investment income--net ............................................. 5.99%* 6.22% 6.46% 6.34% 6.79%
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Data:
Net assets, end of period (in thousands) ........................... $ 111,228 $ 110,846 $ 110,850 $ 119,328 $ 109,879
========= ========= ========= ========= =========
Portfolio turnover ................................................. 32.30% 22.35% 112.97% 32.78% 109.96%
========= ========= ========= ========= =========
==================================================================================================================================
Leverage:
Amount of borrowings outstanding, end of period (in thousands) ..... $ 54,637 $ 47,733 $ 49,781 $ 53,070 $ 55,195
========= ========= ========= ========= =========
Average amount of borrowings outstanding during
the period (in thousands) ......................................... $ 52,091 $ 51,306 $ 51,951 $ 56,355 $ 61,771
========= ========= ========= ========= =========
Average amount of borrowings outstanding per share
during the period ................................................. $ 4.71 $ 4.64 $ 4.44 $ 4.50 $ 4.68
========= ========= ========= ========= =========
==================================================================================================================================
</TABLE>
* 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.
@ Based on average shares outstanding.
@@ Amount is less than $.01 per share.
++ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Income Opportunities Fund 2000, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. These unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are of a normal
recurring nature. The Fund is anticipated to terminate on or about December 31,
2000. 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 IFT. 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. Options written are
valued at the last sale price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Securities having a remaining
maturity of sixty days or less are valued at amortized cost, which approximates
market value. Other investments, including financial futures contracts and
related options, are stated at 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) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund takes
possession of the underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the contract is
fully collateralized.
(c) 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 market. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o 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.
o 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).
(d) 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.
(e) 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.
(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.
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.
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 0.30% of the Fund's average weekly net assets from December 1,
1997 through termination of the Fund.
During the six months ended June 30, 1998, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Inc.,
$698 for security price quotations to compute the net asset value 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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1998 were $53,500,599 and $52,593,899, respectively.
Net realized losses for the six months ended June 30, 1998 and net unrealized
gains as of June 30, 1998 were as follows:
- ---------------------------------------------------------------------------
Realized Unrealized
Losses Gains
- ---------------------------------------------------------------------------
Long-term investments ......................... $(12,495) $ 3,392,774
Financial futures contracts ................... -- 4,750
Options purchased ............................. (5,469) --
-------- -----------
Total ......................................... $(17,964) $ 3,397,524
======== ===========
- ---------------------------------------------------------------------------
12 & 13
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
As of June 30, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $3,392,774, of which $4,184,360 related to appreciated securities and
$791,586 related to depreciated securities. The aggregate cost of investments at
June 30, 1998 for Federal income tax purposes was $154,655,214.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10 per share.
Shares issued and outstanding during the six months ended June 30, 1998 remained
constant and during the year ended December 31, 1997 the Fund repurchased
173,000 shares of capital stock at an average market price of $9.15, 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 June 30, 1998, the Fund had entered into reverse repurchase agreements in
the amount of $54,637,000. For the six months ended June 30, 1998, the average
amount outstanding was approximately $52,091,000 and the daily weighted average
interest rate was 5.79%.
6. Capital Loss Carryforward:
At December 31, 1997, the Fund had a net capital loss carryforward of
approximately $2,422,000, of which $2,217,000 expires in 2002 and $205,000
expires in 2003. This amount will be available to offset like amounts of any
future taxable gains.
7. Subsequent Event:
On July 8, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.050000 per share,
payable on July 31, 1998 to shareholders of record as of July 23, 1998.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Jeffrey B. Hewson, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian and Transfer Agent
The Bank of New York
90 Washington Street
New York, NY 10286
NYSE Symbol
IFT
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of Income Opportunities Fund 2000, 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. Statements and other information herein
are as dated and are subject to change.
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.
Income Opportunities
Fund 2000, Inc.
Box 9011
Princeton, NJ
08543-9011 #16523-6/98
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