-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lwal8RwWVkou7upFq/dAcx1dweedWhiE8aViiQ0cGOHzuG9QNt30lYvPwg8E9ke+ AJDZZ6Yp6YyXDStcy9fSiA== 0000927405-98-000307.txt : 19981014 0000927405-98-000307.hdr.sgml : 19981014 ACCESSION NUMBER: 0000927405-98-000307 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981013 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREFERRED INCOME OPPORTUNITY FUND INC CENTRAL INDEX KEY: 0000882071 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954355600 STATE OF INCORPORATION: MD FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-06495 FILM NUMBER: 98724644 BUSINESS ADDRESS: STREET 1: 301 E COLORADO BLVD STE 720 STREET 2: C/O FLAHERTY & CRUMRINE INC CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8187957300 MAIL ADDRESS: STREET 1: 301 COLORADO BLVD STREET 2: STE 720 CITY: PASADENA STATE: CA ZIP: 91101 N-30B-2 1 THE PREFERRED INCOME OPPORTUNITY FUND Dear Shareholder: The Preferred Income Opportunity Fund continues on a steady course despite tumultuous economic and political conditions around the world. Total return on net asset value, including both income and principal change, was 1.1% for the quarter ended August 31, 1998 and 7.7% for the first three quarters of fiscal 1998. Tumbling common stock prices in this country and near economic collapse in Russia and parts of Asia have resulted in a classic "flight to safety." The yields of U.S. Treasury bonds have fallen, causing their prices to rise strongly while, at the same time, the markets for junk bonds and emerging market debt are in shambles. Better quality domestic corporate bonds and preferreds, in which the Fund invests, have been caught in the middle, sharing neither the prosperity of Treasuries nor the misery of distressed markets. Our strategy of hedging by purchasing put options on Treasury bond futures was up to the challenge of these difficult markets. We expect the Fund to lose money on its hedges when the prices of long term Treasury bonds rise. However, the maximum loss on purchased put options is limited to the comparatively small amount paid for the options, which kept our hedge losses under control. Thus, even though the Fund's preferred stock holdings did not match the strength in Treasuries, we were still able to produce positive returns after hedging. "All's well that ends well." A chaotic investment climate usually helps patient investors once the smoke clears. We believe select hybrid preferreds now present exceptional opportunities, even for corporate investors that normally favor traditional preferreds eligible for the Dividend Received Deduction. In response, we have roughly doubled the Fund's position in hybrids over the course of the current fiscal year to approximately 44% of the portfolio. Adjustable rate preferreds (ARPs) have been a welcome source of cash for adding to hybrids. In part, this has been due to redemptions of ARPs by issuers at prices that we were happy to get. ARPs now account for roughly 12% of the Fund's portfolio, down from approximately 24% at the start of the current fiscal year and a high of 32% less than two years ago. The Fund has realized substantial capital gains in the current fiscal year, as shown in the "Statement of Changes In Net Assets" contained in this report. This makes a special year-end distribution quite likely, although we are living in a volatile world where things can change quickly. Sincerely yours, /s/ Robert T. Flaherty Robert T. Flaherty Chairman of the Board September 11, 1998 - -------------------------------------------------------------------------------- Preferred Income Opportunity Fund Incorporated SUMMARY OF INVESTMENTS AUGUST 31, 1998 (UNAUDITED) - ---------------------------------------------
PERCENT VALUE OF TOTAL (000'S) NET ASSETS -------- ---------- ADJUSTABLE RATE PREFERRED STOCKS Utilities.............................................. $ 17,004 7.7% Banking................................................ 10,944 4.9 -------- ----- Total Adjustable Rate............................. 27,948 12.6 -------- ----- FIXED RATE PREFERRED STOCKS AND SECURITIES Utilities.............................................. 79,445 35.8 Banking................................................ 34,433 15.5 Financial Services..................................... 33,417 15.0 Industrial............................................. 12,099 5.4 Insurance.............................................. 20,571 9.3 -------- ----- Total Fixed Rate.................................. 179,965 81.0 -------- ----- TOTAL PREFERRED STOCKS AND SECURITIES....................... 207,913 93.6 COMMON STOCKS Utilities.............................................. 9,742 4.4 REPURCHASE AGREEMENT........................................ 2,692 1.2 PURCHASED PUT OPTIONS....................................... 303 0.1 -------- ----- TOTAL INVESTMENTS........................................... 220,650 99.3 OTHER ASSETS AND LIABILITIES (NET).......................... 1,607 0.7 -------- ----- TOTAL NET ASSETS.................................. $222,257 100.0% ======== =====
FINANCIAL DATA PER SHARE OF COMMON STOCK (UNAUDITED) - -------------------------------------------------
DIVIDEND DIVIDEND NET ASSET NYSE REINVESTMENT PAID VALUE CLOSING PRICE PRICE(1) -------- --------- ------------- ------------ December 31, 1997.............................. $0.325 $13.46 $13.0000 $13.40 January 31, 1998............................... 0.068 13.52 12.8750 12.95 February 28, 1998.............................. 0.068 13.52 12.8750 12.96 March 31, 1998................................. 0.068 13.62 12.8125 12.92 April 30, 1998................................. 0.068 13.59 12.6250 12.75 May 31, 1998................................... 0.068 13.70 12.8125 12.92 June 30, 1998.................................. 0.068 13.80 13.1250 13.11 July 31, 1998.................................. 0.068 13.59 12.8750 12.86 August 31, 1998................................ 0.068 13.64 12.8750 12.92
- --------------- (1) Whenever the net asset value per share of the Fund's common stock is less than or equal to the market price per share on the payment date, new shares issued will be valued at the higher of net asset value or 95% of the then current market price. Otherwise, the reinvestment shares of common stock will be purchased in the open market. 2 - -------------------------------------------------------------------------------- Preferred Income Opportunity Fund Incorporated STATEMENT OF CHANGES IN NET ASSETS(1) NINE MONTHS ENDED AUGUST 31, 1998 (UNAUDITED) ------------------------------------------------------------------ OPERATIONS: Net investment income................................... $ 9,422,161 Net realized gain on investments sold................... 8,379,829 Net unrealized depreciation of investments during the period................................................. (4,591,569) ------------ Net increase in net assets from operations.......... 13,210,421 DISTRIBUTIONS: Dividends paid from net investment income to MMP* Shareholders........................................... (2,461,229) Distributions paid from net realized capital gains to MMP* Shareholders(3)................................... (32,478) Dividends paid from net investment income to Common Stock Shareholders(2).................................. (7,646,437) Distributions paid from net realized capital gains to Common Stock Shareholders(3)........................... (2,044,031) ------------ Net increase in net assets.......................... 1,026,246 NET ASSETS: Beginning of period..................................... 221,230,471 ------------ End of period........................................... $222,256,717 ============
FINANCIAL HIGHLIGHTS(1) NINE MONTHS ENDED AUGUST 31, 1998 (UNAUDITED) FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD. ------------------------------------------------------------------- OPERATING PERFORMANCE: Net asset value, beginning of period.................... $ 13.53 ----------- Net investment income................................... 0.84 Net realized gain and unrealized depreciation on investments............................................ 0.34 ----------- Net increase in net asset value resulting from investment operations.................................. 1.18 DISTRIBUTIONS: Dividends declared to MMP* Shareholders................. (0.22) Distributions paid from net realized capital gains to MMP* Shareholders(3)................................... (0.00)# Dividends paid from net investment income to Common Stock Shareholders(2).................................. (0.68) Distributions paid from net realized capital gains to Common Stock Shareholders(3)........................... (0.18) Change in accumulated undeclared dividends on MMP* shareholders........................................... 0.01 ----------- Total distributions..................................... (1.07) ----------- Net asset value, end of period.......................... $ 13.64 =========== Market value, end of period............................. $ 12.875 =========== Common shares outstanding, end of period................ 11,151,287 =========== RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS: Net investment income................................... 6.22%** Operating expenses...................................... 1.48%** SUPPLEMENTAL DATA: Portfolio turnover rate................................. 82% - ------------------------------------------------------------ Ratio of operating expenses to Total Average Net Assets including MMP*............................................ 1.01%**
(1) These tables summarize the nine months ended August 31, 1998 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 1997. (2) Includes dividends earned, but not paid out, in prior fiscal year. (3) Paid from capital gains realized, but not paid out, in prior fiscal year. * Money Market Cumulative Preferred(TM) Stock. ** Annualized. # Amount represents less than $0.01 per share. 3 DIRECTORS Martin Brody Donald F. Crumrine, CFA Robert T. Flaherty, CFA David Gale Morgan Gust Robert F. Wulf, CFA OFFICERS Robert T. Flaherty, CFA Chairman of the Board and President Donald F. Crumrine, CFA Vice President and Secretary Robert M. Ettinger, CFA Vice President Peter C. Stimes, CFA Vice President and Treasurer Carl D. Johns Assistant Treasurer INVESTMENT ADVISER Flaherty & Crumrine Incorporated e-mail: flaherty@westworld.com QUESTIONS CONCERNING YOUR SHARES OF PREFERRED INCOME OPPORTUNITY FUND? - If your shares are held in a Brokerage Account, contact your Broker. - If you have physical possession of your shares in certificate form, contact the Fund's Transfer Agent & Shareholder Servicing Agent -- First Data Investor Services Group, Inc. P.O. Box 1376 Boston, MA 02104 1-800-331-1710 THIS REPORT IS SENT TO SHAREHOLDERS OF PREFERRED INCOME OPPORTUNITY FUND INCORPORATED FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT. [PREFERRED INCOME OPPORTUNITY LOGO] Quarterly Report August 31, 1998 -----END PRIVACY-ENHANCED MESSAGE-----