INCOME
OPPORTUNITIES
FUND 2000, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
December 31, 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., December 31, 1999
DEAR SHAREHOLDER
For the year ended December 31, 1999, Income Opportunities Fund 2000, Inc.
earned $0.557 per share income dividends, which included earned and unpaid
dividends of $0.065 per share. This represents a net annualized yield of 5.59%,
based on a month-end net asset value of $9.96 per share. Over the same period,
the Fund's total investment return was +4.64%, based on a change in per share
net asset value from $10.07 to $9.96, and assuming reinvestment of $0.557 per
share income dividends.
Economic Commentary
The economy continues to be extraordinarily strong. The strength is widespread
since consumers are spending on homes, cars and retail goods. Unemployment is
low, consumer confidence is high, and the stock market continues to expand.
However, the economic expansion has created a very tight labor market and wage
pressures are starting to build. This does not bode well for inflation remaining
in check. It seems inevitable that the Federal Reserve Board will raise interest
rates early in 2000. In fact, the Federal Reserve Board probably would have
increased interest rates in December were it not for concerns about Year
2000-related disruptions. At this time, the question is not whether the Federal
Reserve Board will increase interest rates but rather how many times it will
increase them and to what level. (The Federal Reserve Board did raise the
Federal Funds rate by 0.25% on February 2, 2000.)
While we are not indifferent to rising interest rates, we are not overly
concerned about the impact to the portfolio and the effect on our objective to
return a $10.00 per share net asset value at the end of 2000. Most of the
securities in the portfolio mature by the Fund's termination date, which means
we will have very few forced sales. Although our borrowing costs will move
higher, we also have a significant position in adjustable rate assets to offset
much of the overall impact.
Portfolio Matters
On December 31, 1999, the Fund's per share net asset value was $9.96. The drop
below $10.00 per share reflects the fact that the Fund "went ex-dividend" twice
in December. This means that the Fund's January dividend came out of the Fund's
net asset value in December, along with its December dividend. Additionally,
there was a special distribution of more than $.02 that was added to the normal
January distribution.
This should not materially effect our ability to meet our objective of returning
$10.00 per share at the Fund's termination date of December 31, 2000. In fact,
going into the year 2000, we have several things working in our favor. First,
with the January dividend already accounted for, all income earned in January
(approximately $.04) will go into increasing the Fund's net asset value. Second,
many of the Fund's investments are currently being priced at a discount. As a
result, we expect their price, and therefore the Fund's net asset value, to move
higher as we approach the corresponding maturity dates. Although certain Fund
holdings mature beyond the life of the Fund and will have to be sold prior to
the Fund's termination date, the prices of these assets should not be materially
different from par since their maturity date is close to the Fund's termination
date. Very few of the Fund's assets mature significantly beyond December 31,
2000.
However, our dividend distribution rate will come under some pressure as we move
through the year. First, borrowing costs have moved higher and are expected to
continue to do so. While much of the impact is offset with adjustable rate
assets, the contribution of the leveraged portfolio is being reduced.
Additionally, we expect to start reducing leverage as we enter the second half
of 2000. (For a complete explanation of the benefits and risks of leverage, see
page 1 of this report to shareholders.) Also, some of our high-yielding assets
are continu ing to prepay or mature. Even though interest rates have backed up,
our time frame for reinvestment is shorter and reinvestment yields are lower.
In Conclusion
We thank you for your investment in Income Opportunities Fund 2000, Inc.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Gregory Mark Maunz
Gregory Mark Maunz
Senior Vice President and
Portfolio Manager
February 9, 2000
PROXY RESULTS
During the six-month period ended December 31, 1999, Income Opportunities Fund
2000, Inc.'s stockholders voted on the following proposals. The proposals were
approved at a stockholders' meeting on August 25, 1999. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 10,334,002 176,290
Joe Grills 10,333,092 177,200
Walter Mintz 10,305,272 205,020
Robert S. Salomon Jr. 10,333,092 177,200
Melvin R. Seiden 10,314,177 196,115
Stephen B. Swensrud 10,328,027 182,265
Arthur Zeikel 10,332,337 177,955
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
2. To ratify the selection of Ernst & Young llp as the Fund's independent auditors
for the current fiscal year. 10,327,633 118,367 64,292
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2 & 3
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Percent of
Rating Rating Amount Issue Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Adjustable Rate* DLJ Commercial Mortgage Corp.:
Mortgage-Backed NR++++ Aaa $ 504,119 98-ST1A-A1, 6.783% due 2/08/2000+++ $ 504,119 0.5%
Obligations**-- NR++++ Aa2 5,000,000 98-ST2A-A2, 6.673% due 11/05/2000 5,001,563 4.5
London Interbank NR++++ Aa2 5,000,000 98-ST1A-A3, 7.133% due 12/08/2000+++ 4,996,875 4.5
Offered Rate AAA NR++++ 4,701,711 OUC Commercial Mortgage Securities Inc.,
Indexed Obligations 98-1-A, 6.859% due 1/27/2028 (a) 4,701,711 4.3
Sears Mortgage Securities Corporation, REMIC (5)(b):
AAA A1 1,294,283 91-MA-A2, 6.664% due 11/25/2021 1,293,536 1.2
AA+ Aaa 873,021 92-18B-A2, 7.182% due 9/25/2022 868,805 0.8
NR++++ A1 683,823 92-2A-A1, 7.612% due 12/25/2024 683,584 0.6
-----------------------------------------------------------------------------------------------------------
Total Investments in Adjustable Rate Mortgage-Backed
Obligations--London Interbank Offered Rate Indexed
Obligations (Cost--$18,081,812) 18,050,193 16.4
====================================================================================================================================
Fixed Rate AAA Aaa 2,866,804 Americredit Automobile Receivables Trust, 99-B-A2,
Mortgage-Backed & 5.304% due 10/12/2002 2,849,833 2.6
Asset-Backed Arcadia Automobile Receivables Trust (1)(a):
Obligations** AAA Aaa 5,054,374 98-E-A1, 5.429% due 7/15/2002 5,019,626 4.6
AAA Aaa 5,290,483 98-A-A3, 5.90% due 11/15/2002 5,277,786 4.8
AAA Aaa 5,000,000 Banc One Credit Card Master Trust, 95-B-A, 6.30%
due 10/15/2002 (1)(b) 4,992,650 4.5
AAA Aaa 5,000,000 Chemical Master Credit Card Trust 1, 95-2-A, 6.23%
due 6/15/2003 (a) 4,986,550 4.5
Federal Home Loan Mortgage Association, Pool:
NR++++ NR++++ 174,261 M80294, 5% due 10/01/2000 168,699 0.2
NR++++ NR++++ 348,821 L90202, 5.50% due 12/01/2000 344,049 0.3
Federal Home Loan Mortgage Corporation, REMIC (1)(5):
NR++++ NR++++ 5,421,848 1332-KC, 8% due 5/15/2001 5,465,819 5.0
NR++++ NR++++ 6,134,069 1627-PZ, 5.60% due 8/15/2017 (b) 6,098,062 5.5
Federal National Mortgage Association, Pool:
NR++++ NR++++ 234,820 199718, 5.50% due 8/01/2000 233,023 0.2
NR++++ NR++++ 168,247 227383, 5.50% due 9/01/2000 166,960 0.2
NR++++ NR++++ 176,526 50932, 5.50% due 11/01/2000 175,175 0.2
NR++++ NR++++ 227,928 241824, 5.50% due 12/01/2000 226,184 0.2
NR++++ NR++++ 742,189 250038, 5.50% due 4/01/2001 730,559 0.7
NR++++ NR++++ 3,042,943 73181, 7.14% due 9/01/2002 (1) 3,038,591 2.8
Federal National Mortgage Association, REMIC (5):
NR++++ NR++++ 4,936,756 94-M2-A, 6.625% due 2/25/2001 (1)(b) 4,914,836 4.5
NR++++ NR++++ 3,380,188 97-67-PC, 6.25% due 3/18/2005 (1)(a) 3,371,535 3.1
NR++++ NR++++ 13,909 92-44-G, 7.25% due 10/25/2005 (a) 13,855 0.0
NR++++ NR++++ 77,743 G93-16-E, 5% due 11/25/2015 (a) 77,402 0.1
NR++++ NR++++ 113,712 G93-20-PE, 5.90% due 5/25/2016 (a) 113,213 0.1
AAA Aaa 15,000,000 Ford Credit Auto Loan Master Trust, 96-1-A, 5.50%
due 2/15/2003 (b) 14,787,000 13.4
AAA Aaa 5,488,376 Ford Credit Auto Owner Trust, 98-B-A3, 5.85%
due 10/15/2001 5,478,387 5.0
AAA AAA+ 4,581,732 GE Capital Mortgage Services, Inc., REMIC (5)
98-9-A1, 6.50% due 6/25/2028 (1)(b) 4,558,595 4.1
PNC Mortgage Securities Corp., CMO (4)(b):
AAA Aaa 2,755,914 97-6-AI, 6.49% due 10/25/2026 (1) 2,694,432 2.4
AAA AAA++ 5,250,000 98-6-1A3, 6.40% due 9/25/2028 5,209,260 4.7
AAA AA+++ 5,000,000 Sawgrass Finance LLC, 93-1-A, 6.45% due 1/20/2006 (a) 4,964,850 4.5
AAA Aaa 40,618 UCFC Home Equity Loan, 96-D1-A3, 6.541% due
11/15/2013 (a) 40,514 0.0
AAA AAA++ 10,540,000 Vornado Finance Corp., CMO (4), 6.36% due
12/01/2000+++ 10,507,063 9.5
AAA Aaa 5,000,000 WFS Financial Owner Trust, 99-A-A3, 5.55%
due 2/20/2003 (b) 4,900,000 4.4
NR++++ A3 5,659,537 World Omni Automobile Lease Securitization Corp.,
97-B-B, 6.46% due 11/25/2003 (b) 5,662,310 5.1
-----------------------------------------------------------------------------------------------------------
Total Investments in Fixed Rate
Mortgage-Backed & Asset-Backed
Obligations (Cost--$106,953,911) 107,066,818 97.2
====================================================================================================================================
Derivative Federal National Mortgage Association, REMIC (5)(b):
Mortgage-Backed NR++++ NR++++ 1,735,235 93-221-JD, 6% due 11/25/2006 63,623 0.0
Obligations**-- NR++++ NR++++ 2,805,643 94-23-PN, 6% due 7/25/2017 96,801 0.1
Interest Only (2) NR++++ Aaa 13,462,499 Fund America Investors Corporation II, CMO (4)
93-E-SIO, 0.50% due 9/25/2023 (b) 89,982 0.1
------------ -----
250,406 0.2
====================================================================================================================================
Derivative NR++++ NR++++ 8,821,572 Federal National Mortgage Association, REMIC (5)
Mortgage-Backed 93-227-S, 1.98% due 12/25/2000 (1) 8,612,059 7.8
Obligations**-- -----------------------------------------------------------------------------------------------------------
Inverse Floaters (3) Total Investments in Derivative Mortgage-Backed
Obligations (Cost--$6,986,062) 8,862,465 8.0
====================================================================================================================================
Total Investments in Mortgage-Backed & Asset-Backed
Obligations (Cost--$132,021,785) 133,979,476 121.6
====================================================================================================================================
Corporate Bonds A+ A1 5,000,000 AT&T Capital Corporation, 7.374% due 6/07/2000 (6) 5,012,500 4.5
Associates Corp. NA:
AA- Aa3 2,150,000 5.60% due 1/15/2001 2,125,340 1.9
AA- Aa3 5,000,000 6% due 6/15/2001 (Callable) 4,930,000 4.5
AAA Aaa 750,000 General Electric Capital Corporation, 5.19%
due 1/16/2001 741,750 0.7
A A3 3,625,000 New Century Energies, 6.24% due 11/27/2000 3,615,575 3.3
-----------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds
(Cost--$16,519,068) 16,425,165 14.9
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Percent of
Amount Issue Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Short-Term Repurchase $ 1,500,000 Donaldson, Lufkin & Jenrette, Inc., purchased
Securities Agreements*** on 12/31/1999 to yield 2.50% to 1/03/2000 $ 1,500,000 1.4%
-----------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$1,500,000) 1,500,000 1.4
====================================================================================================================================
Total Investments (Cost--$150,040,853) 151,904,641 137.9
Liabilities in Excess of Other Assets (41,784,019) (37.9)
------------ -----
Net Assets $110,120,622 100.0%
============ =====
====================================================================================================================================
</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.
(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 6 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 the prepayments or refinancings of the
underlying instruments. As a result, the average life may be
substantially less than the original maturity.
*** Repurchase Agreements are fully collateralized by US Government
Agency Obligations.
+ 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.
Ratings of issues shown have not been audited by Ernst & Young llp.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of December 31, 1999
==================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$150,040,853) .......................... $ 151,904,641
Receivables:
Interest ..................................................................... $ 1,158,880
Principal paydowns ........................................................... 912,066 2,070,946
-------------
Prepaid expenses ............................................................... 6,573
-------------
Total assets ................................................................... 153,982,160
-------------
==================================================================================================================================
Liabilities: Payables:
Reverse repurchase agreements ................................................ 42,721,000
Dividends to shareholders .................................................... 718,786
Custodian bank ............................................................... 207,854
Interest expense ............................................................. 50,632
Investment adviser ........................................................... 31,817 43,730,089
-------------
Accrued expenses ............................................................... 131,449
-------------
Total liabilities .............................................................. 43,861,538
-------------
==================================================================================================================================
Net Assets: Net assets ..................................................................... $ 110,120,622
=============
==================================================================================================================================
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 ........................................... 2,588,128
Accumulated realized capital losses on investments--net ........................ (1,845,107)
Unrealized appreciation on investments--net .................................... 1,863,788
-------------
Net assets--Equivalent to $9.96 per share based on 11,057,727 shares outstanding
(market price--$9.8125) ........................................................ $ 110,120,622
=============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
6 & 7
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
==================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ....................... $ 9,668,054
Income: Other .......................................................................... 92,840
-------------
Total income ................................................................... 9,760,894
-------------
==================================================================================================================================
Expenses: Interest expense ............................................................... $ 2,714,131
Investment advisory fees ....................................................... 332,693
Professional fees .............................................................. 83,872
Accounting services ............................................................ 69,798
Transfer agent fees ............................................................ 41,664
Trustees' fees and expenses .................................................... 40,636
Listing fees ................................................................... 24,260
Printing and shareholder reports ............................................... 19,443
Custodian fees ................................................................. 14,203
Pricing fees ................................................................... 4,201
Other .......................................................................... 13,041
-------------
Total expenses ................................................................. 3,357,942
-------------
Investment income--net ......................................................... 6,402,952
-------------
==================================================================================================================================
Realized & Realized gain on investments--net .............................................. 565,538
Unrealized Change in unrealized appreciation on investments--net .......................... (2,022,609)
Gain (Loss) on -------------
Investments-- Net Increase in Net Assets Resulting from Operations ........................... $ 4,945,881
Net: =============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
Increase (Decrease) in Net Assets: 1999 1998
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 6,402,952 $ 6,614,836
Realized gain on investments--net .............................................. 565,538 147,234
Change in unrealized appreciation on investments--net .......................... (2,022,609) 517,607
------------- -------------
Net increase in net assets resulting from operations ........................... 4,945,881 7,279,677
------------- -------------
==================================================================================================================================
Dividends to Investment income--net ......................................................... (6,155,383) (6,795,858)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends to shareholders ............ (6,155,383) (6,795,858)
------------- -------------
==================================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................................ (1,209,502) 483,819
Beginning of year .............................................................. 111,330,124 110,846,305
------------- -------------
End of year* ................................................................... $ 110,120,622 $ 111,330,124
============= =============
==================================================================================================================================
* Undistributed investment income--net ........................................... $ 2,588,128 $ 2,340,559
============= =============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
==================================================================================================================================
<S> <C> <C>
Cash Provided Net increase in net assets resulting from operations ........................... $ 4,945,881
by Operating Adjustments to reconcile net increase in net assets resulting
Activities: from operations to net cash provided by operating activities:
Increase in receivables .................................................... (225,281)
Decrease in other assets ................................................... 782
Decrease in other liabilities .............................................. (236,175)
Realized and unrealized loss on investments--net ........................... 1,457,071
Amortization of premium and discount--net .................................. 436,377
-------------
Net cash provided by operating activities ...................................... 6,378,655
-------------
==================================================================================================================================
Cash Used for Proceeds from principal payments and sales of long-term securities ............. 103,698,749
Investing Purchases of long-term securities .............................................. (111,910,145)
Activities: Purchases of short-term investments ............................................ (319,959,522)
Proceeds from sales and maturities of short-term investments ................... 322,339,118
-------------
Net cash used for investing activities ......................................... (5,831,800)
-------------
==================================================================================================================================
Cash Used for Cash receipts from borrowings .................................................. 72,519,584
Financing Cash payments on borrowings .................................................... (67,084,000)
Activities: Dividends paid to shareholders ................................................. (5,989,482)
-------------
Net cash used for financing activities ......................................... (553,898)
-------------
==================================================================================================================================
Cash: Net decrease in cash ........................................................... (7,043)
Cash at beginning of year ...................................................... 7,043
-------------
Cash at end of year ............................................................ $ --
=============
==================================================================================================================================
Cash Flow Cash paid for interest ......................................................... $ 3,178,713
Information: =============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended December 31,
------------------------------------------------------
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 year ........................... $ 10.07 $ 10.02 $ 9.87 $ 9.83 $ 8.51
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ..................................... .58 .60 .62 .63 .60
Realized and unrealized gain (loss) on investments--net .... (.13) .06 .17 (.03) 1.27
-------- -------- -------- -------- --------
Total from investment operations ............................. .45 .66 .79 .60 1.87
-------- -------- -------- -------- --------
Less dividends from investment income--net ................... (.56) (.61) (.64) (.56) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year ................................. $ 9.96 $ 10.07 $ 10.02 $ 9.87 $ 9.83
======== ======== ======== ======== ========
Market price per share, end of year .......................... $ 9.8125 $ 9.6875 $ 9.625 $ 9.00 $ 8.75
======== ======== ======== ======== ========
====================================================================================================================================
Total Based on market price per share .............................. 7.16% 7.16% 14.47% 9.63% 26.77%
Investment ======== ======== ======== ======== ========
Return:* Based on net asset value per share ........................... 4.64% 7.00% 8.67% 7.02% 23.42%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Expenses, excluding interest expense ......................... .58% .57% .81% .81% .89%
Average ======== ======== ======== ======== ========
Net Assets: Expenses ..................................................... 3.03% 2.96% 3.50% 3.36% 3.90%
======== ======== ======== ======== ========
Investment income--net ....................................... 5.77% 5.89% 6.22% 6.46% 6.34%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ....................... $110,121 $111,330 $110,846 $110,850 $119,328
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................................... 66.27% 56.38% 22.35% 112.97% 32.78%
======== ======== ======== ======== ========
====================================================================================================================================
Leverage: Amount of borrowings outstanding, end of year (in thousands) . $ 42,721 $ 37,285 $ 47,733 $ 49,781 $ 53,070
======== ======== ======== ======== ========
Average amount of borrowings outstanding during
the year (in thousands)....................................... $ 51,025 $ 46,747 $ 51,306 $ 51,951 $ 56,355
======== ======== ======== ======== ========
Average amount of borrowings outstanding per share during
the year ..................................................... $ 4.61 $ 4.23 $ 4.64 $ 4.44 $ 4.50
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
* 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 charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
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. 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. If the counterparty defaults and the fair value of the
collateral declines, liquidation of the collateral by the Fund may be delayed or
limited.
(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
10 & 11
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 management estimates of
available cash.
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 .30% of the Fund's average weekly net assets from December 1,
1997 through termination of the Fund.
During the year ended December 31, 1999, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, $977 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
year ended December 31, 1999 were $111,910,145 and $104,537,112, respectively.
Net realized gains (losses) for the year ended December 31, 1999 and net
unrealized gains as of December 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 593,420 $1,863,788
Financial futures contracts ............. (27,882) --
---------- ----------
Total ................................... $ 565,538 $1,863,788
========== ==========
- --------------------------------------------------------------------------------
As of December 31, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $1,863,788, of which $3,138,529 related to appreciated
securities and $1,274,741 related to depreciated securities. The aggregate cost
of investments at December 31, 1999 for Federal income tax purposes was
$150,040,853.
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 years ended December 31, 1999 and
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 year ended December 31, 1999, the average amount outstanding was
approximately $51,025,000 and the daily weighted average interest rate was
5.33%.
6. Capital Loss Carryforward:
At December 31, 1999, the Fund had a net capital loss carryforward of
approximately $1,843,000, of which $1,616,000 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.
12 & 13
<PAGE>
Income Opportunities Fund 2000, Inc., December 31, 1999
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Income Opportunities Fund 2000, Inc.
We have audited the accompanying statement of assets, liabilities and capital of
Income Opportunities Fund 2000, Inc., including the schedule of investments, as
of December 31, 1999, 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
years 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 auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999 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 2000, Inc. at December 31, 1999, 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 years, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 27, 2000
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
Custodian and Transfer Agent
The Bank of New York
100 Church 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--12/99
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