INCOME
OPPORTUNITIES
FUND 2000, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 1999
<PAGE>
INCOME OPPORTUNITIES FUND 2000, INC.
The Benefits and Risks of Leveraging
Income Opportunities Fund 2000, Inc. is authorized to borrow funds and utilize
leverage in amounts not exceeding 33 1/3% 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>
Income Opportunities Fund 2000, Inc., June 30, 1999
DEAR SHAREHOLDER
For the six months ended June 30, 1999, Income Opportunities Fund 2000, Inc.
earned $0.273 per share income dividends, which included earned and unpaid
dividends of $0.044 per share. This represents a net annualized yield of 5.49%,
based on a month-end net asset value of $10.02 per share. Over the same period,
the Fund's total investment return was +1.83%, based on a change in per share
net asset value from $10.07 to $10.02, and assuming reinvestment of $0.229 per
share income dividends.
Economic Environment
Gross domestic product (GDP) rose 4.1% in the first quarter of 1999, as robust
consumer spending continued to fuel US growth and prop up flagging economies
globally. US consumer spending rose 6.8% in the first quarter of 1999, the
fastest pace in nearly 15 years. In addition, had the US trade deficit not
reached record levels in the quarter, GDP growth would have been reported much
higher. Consequently, as a result of excessive growth, inflationary fears
entered the financial markets and interest rates rose during the three-month
period ended June 30, 1999.
Many sectors of the US economy continued to show strength during the June
quarter. In April, new home sales were reported at a 978,000-unit rate, the
second highest level ever recorded while vehicle sales in April rose to a
13-year high. The manufacturing sector was strong, and the National Association
of Purchasing Managers Index (NAPM), a measure of strength within the
manufacturing sector of the US economy, rose to a 19-month high in May. More
interestingly, strength within the manufacturing sector appeared to be broad
based as every component within the NAPM Index rose in May, with the exception
of inventory accumulation. US labor market conditions remain taut. The US
unemployment rate continued to decline and hit a 29-year low of 4.2% in May.
Significantly, hourly wages rose 0.4% in May and are up 3.6% from a year ago,
the first year-over-year increase in 13 months. As a result of these series of
strong economic reports, the Federal Reserve Board raised short-term interest
rates at its Federal Open Market Committee meeting in June.
Although inflation is currently at a 33-year low, the Federal Reserve Board
raised interest rates as a pre-emptive measure to counter potential inflationary
pressures resulting from tight labor market conditions. While investors are
pricing in two more interest rate hikes, we believe the Federal Reserve Board
will remain on hold for the rest of 1999. We believe there is little reason to
increase interest rates further. First, with the possible exception of wage
pressures, there are no indications other sectors of the economy are
experiencing inflationary strains. Second, while many foreign countries have
rebounded nicely from last year's global economic turmoil, there are still
several countries in the midst of the recovery process. A sharp increase in US
interest rates could be detrimental to the global economy. Key economic
indicators, which will dictate Federal Reserve Board policy, are employment
reports, retail sales reports and consumer price index reports.
Portfolio Matters
On June 30, 1999, the Fund's net asset value was $10.02, down $0.11 from its
high reached in mid-April 1999. There are two primary reasons for this decline.
First, interest rates moved higher by more than 60 basis points (0.60%), as
measured by the two-year US Treasury note. Second, there are growing
expectations that the Federal Reserve Board could raise interest rates further.
Most securities, including those in which the Fund invests, have their cash
flows priced in the marketplace based on expectations of future interest rates.
With higher interest rates and expectations that rates will continue to rise,
there were significant price declines for many of the Fund's holdings.
As a result of these price declines, the overall portfolio at June 30, 1999 was
priced at a slight discount to expected maturity value. As the securities in the
Fund approach maturity and prices approach par, we would expect the Fund's net
asset value to move upward. In addition, the securities will roll down the steep
yield curve (that is, appreciate over time if interest rates remain unchanged),
which could further enhance appreciation potential. Since investors are
projecting two more interest rate increases, the Fund's net asset value could
benefit if the Federal Reserve Board were to deem further interest rates
unnecessary.
Although the portfolio is fully leveraged at approximately 50% of net assets, we
believe the Fund is well insulated against rising interest rates. This reflects
the Fund's balance between London Interbank Offered Rate floaters and short-term
issues relative to offsetting inverse floating rate securities and borrowings.
(Inverse floaters are securities whose coupons vary inversely with interest
rates). In fact, there is some concern about the early run-off of
mortgage-related securities and other assets. At current prepayment projections,
there will be 75% of the Fund's current investments outstanding as of September
2000 and only 47% by December 2000. This means that the Fund would need to
reinvest those assets until the Fund's maturity, perhaps at less than current
yields, if interest rates were to move lower, which would cut the Fund's
earnings as it moves closer to maturity. However, at this time significantly
lower interest rates do not seem likely and we are prepared to better structure
the portfolio closer to the termination date.
In Conclusion
We thank you for your investment in Income Opportunities Fund 2000, Inc., and we
look forward to reviewing our strategy with you in our next report to
shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Gregory Mark Maunz
Gregory Mark Maunz
Senior Vice President and
Portfolio Manager
August 9, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on Income Opportunities Fund 2000, Inc.'s Board of Directors.
We are pleased to announce that Terry K. Glenn has been elected President and
Director of the Fund. Mr. Glenn has held the position of Executive Vice
President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
2 & 3
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Percent
S&P Moody's Face Value of Net
Rating Rating Amount Issue Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustable Rate* DLJ Commercial Mortgage Corp.:
Mortgage-Backed NR++++ Aa2 $ 5,000,000 98-ST2A-A2, 5.78% due 11/05/2000 $ 5,000,000 $ 5,013,281 4.5%
Obligations**-- NR++++ A2 5,000,000 98-ST1A-A3, 5.51% due 12/08/2000+++ 5,000,000 4,994,531 4.5
London Interbank AAA NR++++ 4,909,550 OUC Commercial Mortgage Securities Inc., 98-1-A,
Offered Rate 7.116% due 1/27/2028 (a) 4,934,520 4,909,550 4.4
Indexed A BBB+++ 163,584 Resolution Trust Corporation, REMIC (5) 91-M4-B,
Obligations 7.125% due 2/25/2020 (a) 165,821 163,583 0.2
Sears Mortgage Securities Corporation, REMIC
(5)(b):
AAA A1 1,614,739 91-MA-A2, 6.276% due 11/25/2021 1,617,428 1,620,504 1.5
AA+ Aaa 1,014,900 92-18B-A2, 6.773% due 9/25/2022 (1) 1,019,799 998,976 0.9
NR++++ A1 766,333 92-2A-A1, 7.107% due 12/25/2024 773,574 766,234 0.7
------------------------------------------------------------------------------------------------------------------
Total Investments in Adjustable Rate
Mortgage-Backed Obligations--London Interbank
Offered Rate Indexed Obligations 18,511,142 18,466,659 16.7
====================================================================================================================================
Fixed Rate AAA++ Aaa 670,216 American Southwest Financial Securities Corp.,
Mortgage-Backed 95-C1-A1A, 7.30% due 10/17/2001 676,786 670,216 0.6
& Asset-Backed AAA Aaa 3,000,000 Americredit Automobile Receivables Trust,
Obligations** 99-B-A2, 5.304% due 10/12/2002 3,000,000 2,993,190 2.7
Arcadia Automobile Receivables Trust:
AAA Aaa 7,991,496 98-E-A1, 5.429% due 7/15/2002 (1) 7,991,496 7,962,776 7.2
AAA Aaa 5,550,000 98-A-A3, 5.90% due 11/15/2002 5,575,614 5,563,764 5.0
AAA Aaa 5,000,000 Banc One Credit Card Master Trust, 95-B-A,
6.30% due 10/15/2002 5,073,038 5,034,000 4.5
NR++++ A2 10,000,000 CS First Boston Mortgage Securities Corp.,
98-FL1-D, 6.156% due 12/10/2000 (6) 9,983,594 9,925,000 9.0
AAA Aaa 5,000,000 Chemical Master Credit Card Trust 1, 95-2-A,
6.23% due 6/15/2003 5,071,646 5,029,350 4.5
Federal Home Loan Mortgage Association, Pool:
NR++++ NR++++ 198,348 M80294, 5% due 10/01/2000 191,375 191,225 0.2
NR++++ NR++++ 393,351 L90202, 5.50% due 12/01/2000 386,099 389,497 0.4
Federal Home Loan Mortgage Corporation, REMIC
(1)(5):
NR++++ NR++++ 5,866,197 1332-KC, 8% due 5/15/2001 6,029,582 5,972,856 5.4
NR++++ NR++++ 8,924,502 1627-PZ, 5.60% due 8/15/2017 (b) 8,932,794 8,905,493 8.0
Federal National Mortgage Association, Pool:
NR++++ NR++++ 326,565 199718, 5.50% due 8/01/2000 318,963 323,535 0.3
NR++++ NR++++ 243,395 227383, 5.50% due 9/01/2000 237,424 241,136 0.2
NR++++ NR++++ 208,172 50932, 5.50% due 11/01/2000 202,838 206,240 0.2
NR++++ NR++++ 287,163 241824, 5.50% due 12/01/2000 279,759 284,498 0.3
NR++++ NR++++ 826,257 250038, 5.50% due 4/01/2001 (1) 803,277 818,590 0.7
NR++++ NR++++ 3,071,093 73181, 7.14% due 9/01/2002 (1) 3,051,898 3,099,224 2.8
Federal National Mortgage Association, REMIC
(1)(5):
NR++++ NR++++ 5,265,350 94-M2-A, 6.625% due 2/25/2001 5,165,841 5,289,728 4.8
NR++++ NR++++ 1,991,586 97-7-PK, 6.50% due 10/18/2017 (a) 1,991,871 1,994,052 1.8
AAA Aaa 5,825,000 Ford Credit Auto Owner Trust, 98-B-A3, 5.85%
due 10/15/2001 5,822,270 5,836,067 5.3
AAA AAA+ 5,000,000 GE Capital Mortgage Services, Inc., REMIC (5)
98-9-A1, 6.50% due 6/25/2028 (1)(b) 5,007,652 5,012,900 4.5
Kidder Peabody Acceptance Corp., REMIC (5)(b):
AA AA++ 2,000,000 94-C1-B, 6.85% due 2/01/2006 2,011,096 2,022,740 1.8
NR++++ A++ 4,000,000 94-C1-C, 7% due 2/01/2006 4,023,286 4,054,560 3.7
PNC Mortgage
Securities Corp., CMO (1)(4)(b):
AAA Aaa 3,298,347 97-6-A1, 6.49% due 10/25/2026 3,297,935 3,239,066 2.9
AAA AAA++ 5,250,000 98-6-1A3, 6.40% due 9/25/2028 5,256,555 5,240,655 4.7
AAA AA+++ 5,000,000 Sawgrass Finance LLC, 93-1-A, 6.45% due
1/20/2006 (1)(b) 5,059,152 5,025,300 4.5
AAA AAA++ 10,544,562 Vornado Finance Corp., CMO (4), 6.36% due
12/01/2000+++ 9,780,580 10,442,411 9.4
AAA Aaa 5,000,000 WFS Financial Owner Trust, 99-A-A3, 5.55% due
2/20/2003 (b) 4,996,004 4,973,438 4.5
NR++++ A3 5,725,725 World Omni Automobile Lease Securitization
Corp., 97-B-B, 6.46% due 11/25/2003 (b) 5,738,888 5,747,998 5.2
------------------------------------------------------------------------------------------------------------------
Total Investments in Fixed Rate Mortgage-Backed
& Asset-Backed Obligations 115,957,313 116,489,505 105.1
====================================================================================================================================
Derivative Federal National Mortgage Association, REMIC
Mortgage-Backed (5)(b):
Obligations**-- NR++++ NR++++ 2,424,397 93-221-JD, 6% due 11/25/2006 183,506 120,413 0.1
Interest Only (2) NR++++ NR++++ 4,014,167 94-23-PN, 6% due 7/25/2017 249,607 193,198 0.2
NR++++ Aaa 16,175,815 Fund America Investors Corporation II, CMO (4)
93-E-SIO, 0.50% due 9/25/2023 (b) 366,525 52,529 0.0
------------ ------------ -----
799,638 366,140 0.3
====================================================================================================================================
Derivative NR++++ NR++++ 61,361 Federal Home Loan Mortgage Corporation, REMIC
Mortgage-Backed (5) 1330-I, 10.92% due 9/15/1999 57,986 61,898 0.1
Obligations**-- NR++++ NR++++ 9,150,000 Federal National Mortgage Association, REMIC
Inverse (5) 93-227-S, 5.074% due 12/25/2000 (1) 6,567,281 8,702,395 7.8
Floaters (3) ------------ ------------ -----
6,625,267 8,764,293 7.9
====================================================================================================================================
Total Investments in Derivative
Mortgage-Backed Obligations 7,424,905 9,130,433 8.2
====================================================================================================================================
Total Investments in Mortgage-Backed &
Asset-Backed Obligations 141,893,360 144,086,597 130.0
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Percent
S&P Moody's Face Value of Net
Rating Rating Amount Issue Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate Bonds BBB Baa3 $ 5,000,000 AT & T Capital Corporation, 6.346% due
6/07/2000 (6) $ 5,000,000 $ 5,000,000 4.5%
Associates Corporation of North America:
AA- Aa3 2,150,000 5.60% due 1/15/2001 (Callable) 2,141,808 2,134,563 1.9
AA- Aa3 5,000,000 6% due 6/15/2001 4,989,000 4,981,250 4.5
AAA Aaa 750,000 General Electric Capital Corporation, 5.19% due
1/16/2001 744,292 741,750 0.7
A A3 3,625,000 New Century Energies, 6.24% due 11/27/2000 3,654,212 3,627,972 3.3
------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds 16,529,312 16,485,535 14.9
====================================================================================================================================
Total Investments $158,422,672 160,572,132 144.9
============
Liabilities in Excess of Other Assets (49,774,592) (44.9)
------------ -----
Net Assets $110,797,540 100.0%
============ =====
====================================================================================================================================
</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 that 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) Floating rate note.
* Adjustable Rate Mortgage-Backed Obligations have coupon rates, which
reset periodically to reflect changes in a referenced interest rate.
** Mortgage-Backed & Asset-Backed Obligations are subject to principal
paydowns as a result of prepayments or refinancings of the
underlying instruments. As a result, the average life may be
substantially less than the original maturity.
+ 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.
++++ Not Rated.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 1999
=================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$158,422,672) (Note 1a) ..................... $160,572,132
Receivables:
Principal paydowns ................................................................ $ 2,774,878
Interest .......................................................................... 1,104,044 3,878,922
------------
Prepaid expenses and other assets ................................................... 7,355
------------
Total assets ........................................................................ 164,458,409
------------
=================================================================================================================================
Liabilities: Payables:
Reverse repurchase agreements (Note 5) ............................................ 52,666,000
Custodian bank (Note 1h) .......................................................... 389,863
Interest expense (Note 5) ......................................................... 263,158
Investment adviser (Note 2) ....................................................... 27,415 53,346,436
------------
Accrued expenses and other liabilities .............................................. 314,433
------------
Total liabilities ................................................................... 53,660,869
------------
=================================================================================================================================
Net Assets: Net assets .......................................................................... $110,797,540
============
=================================================================================================================================
Capital: Capital stock, $.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 ................................................ 3,016,400
Accumulated realized capital losses on investments--net (Note 6) .................... (1,882,133)
Unrealized appreciation on investments--net ......................................... 2,149,460
------------
Net assets--Equivalent to $10.02 per share based on 11,057,727 shares outstanding
(market price--$9.8125) ............................................................. $110,797,540
============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
===========================================================================================================================
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ............. $ 4,807,609
(Note 1e): Other ................................................................ 76,627
------------
Total income ......................................................... 4,884,236
------------
===========================================================================================================================
Expenses: Interest expense (Note 5) ............................................ $ 1,358,118
Investment advisory fees (Note 2) .................................... 163,117
Professional fees .................................................... 41,164
Accounting services (Note 2) ......................................... 35,860
Trustees' fees and expenses .......................................... 19,701
Transfer agent fees .................................................. 17,216
Printing and shareholder reports ..................................... 11,839
Custodian fees ....................................................... 6,992
Pricing fees ......................................................... 2,042
Other ................................................................ 18,401
------------
Total expenses ....................................................... 1,674,450
------------
Investment income--net ............................................... 3,209,786
------------
===========================================================================================================================
Realized & Realized gain on investments--net .................................... 528,512
Unrealized Gain Change in unrealized appreciation on investments--net ................ (1,736,937)
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations ................. $ 2,001,361
(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: 1999 1998
===========================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ............................................... $ 3,209,786 $ 6,614,836
Realized gain on investments--net .................................... 528,512 147,234
Change in unrealized appreciation on investments--net ................ (1,736,937) 517,607
------------ ------------
Net increase in net assets resulting from operations ................. 2,001,361 7,279,677
------------ ------------
===========================================================================================================================
Dividends to Investment income--net ............................................... (2,533,945) (6,795,858)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders .. (2,533,945) (6,795,858)
------------ ------------
===========================================================================================================================
Net Assets: Total increase (decrease) in net assets .............................. (532,584) 483,819
Beginning of period .................................................. 111,330,124 110,846,305
------------ ------------
End of period* ....................................................... $110,797,540 $111,330,124
============ ============
===========================================================================================================================
* Undistributed investment income--net ................................. $ 3,016,400 $ 2,340,559
============ ============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
=================================================================================================================================
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations .......................................... $ 2,001,361
Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Increase in receivables ..................................................................... (170,445)
Increase in other liabilities ............................................................... 336,942
Realized and unrealized loss on investments--net ............................................ 1,208,425
Amortization of premium and discount--net ................................................... 266,588
------------
Net cash provided by operating activities ..................................................... 3,642,871
------------
=================================================================================================================================
Cash Used for Proceeds from principal payments and sales of long-term securities ............................ 59,373,851
Investing Purchases of long-term securities ............................................................. (79,197,114)
Activities: Purchases of short-term investments ........................................................... (224,216,522)
Proceeds from sales and maturities of short-term investments .................................. 228,096,117
------------
Net cash used for investing activities ........................................................ (15,943,668)
------------
=================================================================================================================================
Cash Provided by Cash receipts from borrowings ................................................................. 48,250,584
Financing Cash payments on borrowings ................................................................... (32,870,000)
Activities: Dividends paid to shareholders ................................................................ (3,086,830)
------------
Net cash provided by financing activities ..................................................... 12,293,754
------------
=================================================================================================================================
Cash: Net decrease in cash .......................................................................... (7,043)
Cash at beginning of period ................................................................... 7,043
------------
Cash at end of period ......................................................................... $ 0
============
=================================================================================================================================
Cash Flow Cash paid for interest ........................................................................ $ 1,610,174
Information: ============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
Six
Months For the Year Ended
The following per share data and ratios have been derived Ended December 31,
from information provided in the financial statements. June 30, -----------------------------------------
Increase (Decrease) in Net Asset Value: 1999+ 1998+ 1997+ 1996+ 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .................... $ 10.07 $ 10.02 $ 9.87 $ 9.83 $ 8.51
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................................ .29 .60 .62 .63 .60
Realized and unrealized gain (loss) on investments--
net ................................................... (.11) .06 .17 (.03) 1.27
-------- -------- -------- -------- --------
Total from investment operations ........................ .18 .66 .79 .60 1.87
-------- -------- -------- -------- --------
Less dividends from investment income--net .............. (.23) (.61) (.64) (.56) (.55)
-------- -------- -------- -------- --------
Net asset value, end of period .......................... $ 10.02 $ 10.07 $ 10.02 $ 9.87 $ 9.83
======== ======== ======== ======== ========
Market price per share, end of period ................... $ 9.8125 $ 9.6875 $ 9.625 $ 9.00 $ 8.75
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share ......................... 3.66%++ 7.16% 14.47% 9.63% 26.77%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ...................... 1.83%++ 7.00% 8.67% 7.02% 23.42%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses, excluding interest expense .................... .58%* .57% .81% .81% .89%
Net Assets: ======== ======== ======== ======== ========
Expenses ................................................ 3.08%* 2.96% 3.50% 3.36% 3.90%
======== ======== ======== ======== ========
Investment income--net .................................. 5.90%* 5.89% 6.22% 6.46% 6.34%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ................ $110,798 $111,330 $110,846 $110,850 $119,328
Data: ======== ======== ======== ======== ========
Portfolio turnover ...................................... 38.75% 56.38% 22.35% 112.97% 32.78%
======== ======== ======== ======== ========
===================================================================================================================================
Leverage: Amount of borrowings outstanding, end of period (in
thousands) .............................................. $ 52,666 $ 37,285 $ 47,733 $ 49,781 $ 53,070
======== ======== ======== ======== ========
Average amount of borrowings outstanding during the
period (in thousands) ................................... $ 53,700 $ 46,747 $ 51,306 $ 51,951 $ 56,355
======== ======== ======== ======== ========
Average amount of borrowings outstanding per share
during the period ....................................... $ 4.86 $ 4.23 $ 4.64 $ 4.44 $ 4.50
======== ======== ======== ======== ========
===================================================================================================================================
</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.
++ Aggregate total investment return.
See Notes to Financial Statements.
10 & 11
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
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. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. 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 or
purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). 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.
(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 an 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 securities
sold short exceeds the market value of the securities in the segregated account.
(h) Custodian bank--The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft, which resulted from unprojected payment of
net investment income dividends.
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.
12 & 13
<PAGE>
Income Opportunities Fund 2000, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
During the six months ended June 30, 1999, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, $306 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, 1999 were $79,197,114 and $62,075,026, respectively.
Net realized gains (losses) for the six months ended June 30, 1999 and net
unrealized gains as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ............................ $ 556,394 $2,149,460
Financial futures contracts ...................... (27,882) --
--------- ----------
Total ............................................ $ 528,512 $2,149,460
========= ==========
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $2,149,460, of which $3,096,816 related to appreciated securities and
$947,356 related to depreciated securities. The aggregate cost of investments at
June 30, 1999 for Federal income tax purposes was $158,422,672.
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, 1999 and the
year ended December 31, 1998 remained constant.
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.
For the six months ended June 30, 1999, the average amount outstanding was
approximately $53,700,000 and the daily weighted average interest rate was
5.19%.
6. Capital Loss Carryforward:
At December 31, 1998, the Fund had a net capital loss carryforward of
approximately $2,444,000, of which $2,217,000 expires in 2002, $205,000 expires
in 2003 and $22,000 expires in 2006. This amount will be available to offset
like amounts of any future taxable gains.
7. Subsequent Event:
On July 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.043750 per share,
payable on July 30, 1999 to shareholders of record as of July 23, 1999.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Gregory Mark Maunz, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Jeffrey B. Hewson, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of Income Opportunities Fund 2000, Inc. has
recently retired. His colleagues at Merrill Lynch Asset Management, L.P. join
the Fund's Board of Directors in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
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 Opportu-nities 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 volatil-ity 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--6/99
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