-----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, Gs130vO8NpytYuEhKD72bo+mWv7P/3A1EBHtpVeVvLQ6X+INONdysEC3UB6845q0 g0R5S0JVM9bsWf/YVqTNdg== 0000927405-99-000336.txt : 19991019 0000927405-99-000336.hdr.sgml : 19991019 ACCESSION NUMBER: 0000927405-99-000336 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991018 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: 99729959 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 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 INVESTMENT ADVISER Flaherty & Crumrine Incorporated e-mail: flaherty@fin-mail.com web site: www.preferredincome.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. 3202 [Preferred Income Opportunity Fund] Quarterly Report August 31, 1999 PREFERRED INCOME OPPORTUNITY FUND INCORPORATED Dear Shareholder: The fixed income markets have been fighting an uphill battle lately. This shows up in the Preferred Income Opportunity Fund's total return on net asset value of -0.8% for the first three quarters of fiscal 1999. Interest rates increased significantly in the first nine months of fiscal 1999, reflecting strength in the domestic economy and two recent moves by the Federal Reserve Board to tighten credit. This led to a decline in the market prices of long term Treasury bonds as their yields rose more than a full percentage point. Corporate bonds and preferreds were generally hit even harder by rising interest rates, resulting in bigger price declines and larger yield increases compared to Treasuries. The sub-par performance of corporate bonds and preferreds was due to a flood of new issues hitting the market in the last few months. This reflected an active economy and, perhaps, a rush to catch up by corporate treasurers who missed the bottom of interest rates earlier. Some financing may also have been accelerated to avoid the risk of the "Y2K" problem impacting the market later in the year. Corporate bonds were particularly affected, but the fall-out also hit preferreds. The stars of our portfolio were the put options on Treasury bond futures contracts that the Fund purchased as hedges against rising interest rates. In the first three quarters of fiscal 1999, those puts added approximately $4.8 million to the Fund's total return. We would have made even more on our hedges if Treasury bonds had declined in price as much as corporate bonds and preferreds. We are very comfortable with the Fund's portfolio at this time. Present market prices of corporate bonds and preferreds seem quite attractive. In comparison, Treasury bonds appear to be somewhat overvalued, which is good since we make money on our hedges when the prices of Treasuries decline. Furthermore, at current price levels, many individual issues offer better protection against the risk of redemptions by issuers. This typically results in greater upside potential. We hope that those of you who have access to the Internet will check out our new web site at WWW.PREFERREDINCOME.COM. It provides basic information about the Fund, recent news and up-to-date "vital statistics" on the Fund's performance, dividends, net asset value, market discount and the like. We would welcome your comments on it. As everyone knows, "Y2K" is coming. We have done everything we can to prepare for it, although there are still risks of market disruptions and problems originating elsewhere cascading through the system. Nonetheless, we are sleeping soundly at night and are looking forward to January 1, 2000 when we hope to be able to get on with life as usual. Sincerely, /s/ Robert T. Flaherty Robert T. Flaherty Chairman of the Board September 17, 1999 - -------------------------------------------------------------------------------- Preferred Income Opportunity Fund Incorporated SUMMARY OF INVESTMENTS AUGUST 31, 1999 (UNAUDITED) - ---------------------------------------------
PERCENT VALUE OF TOTAL (000'S) NET ASSETS -------- ---------- ADJUSTABLE RATE PREFERRED STOCKS Utilities............................................... $ 13,592 6.7% Banking................................................. 8,196 4.0 -------- ----- Total Adjustable Rate............................... 21,788 10.7 -------- ----- FIXED RATE PREFERRED STOCKS AND SECURITIES Utilities............................................... 68,810 33.7 Banking................................................. 35,597 17.4 Financial Services...................................... 28,025 13.7 Insurance............................................... 20,983 10.3 Miscellaneous Industries................................ 18,250 9.0 -------- ----- Total Fixed Rate.................................... 171,665 84.1 -------- ----- TOTAL PREFERRED STOCKS AND SECURITIES....................... 193,453 94.8 COMMON STOCKS Utilities............................................... 1,052 0.5 REPURCHASE AGREEMENT........................................ 4,379 2.1 PURCHASED PUT OPTIONS....................................... 3,975 2.0 -------- ----- TOTAL INVESTMENTS........................................... 202,859 99.4 OTHER ASSETS AND LIABILITIES (NET).......................... 1,294 0.6 -------- ----- TOTAL NET ASSETS.................................... $204,153 100.0% ======== =====
FINANCIAL DATA PER SHARE OF COMMON STOCK (UNAUDITED) - -------------------------------------------------
DIVIDEND DIVIDEND NET ASSET NYSE REINVESTMENT PAID VALUE CLOSING PRICE PRICE(1) -------- --------- ------------- ------------ December 31, 1998........................................... $0.8100 $12.75 $12.5000 $12.53 January 31, 1999............................................ 0.0655 12.67 11.9375 11.92 February 28, 1999........................................... 0.0655 12.68 11.3125 11.62 March 31, 1999.............................................. 0.0655 12.61 11.6250 11.57 April 30, 1999.............................................. 0.0655 12.65 11.1875 11.15 May 31, 1999................................................ 0.0655 12.56 11.1875 11.38 June 30, 1999............................................... 0.0710 12.41 11.6250 11.57 July 31, 1999............................................... 0.0710 12.13 11.1250 11.12 August 31, 1999............................................. 0.0710 12.00 10.9375 10.87
- --------------- (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, 1999 (UNAUDITED) ------------------------------------------------------------------ OPERATIONS: Net investment income.................................... $ 9,475,465 Net realized gain on investments sold.................... 6,600,661 Net unrealized depreciation of investments during the period................................................. (15,147,484) ------------ Net increase in net assets from operations........... 928,642 DISTRIBUTIONS: Dividends paid from net investment income to MMP* Shareholders........................................... (2,157,830) Distributions paid from net realized capital gains to MMP* Shareholders(3)................................... (247,384) Dividends paid from net investment income to Common Stock Shareholders(2)........................................ (8,370,009) Distributions paid from net realized capital gains to Common Stock Shareholders(3)........................... (6,689,804) NET DECREASE IN NET ASSETS:................................. (16,536,385) NET ASSETS: Beginning of period...................................... 220,689,622 ------------ End of period............................................ $204,153,237 ============
FINANCIAL HIGHLIGHTS(1) NINE MONTHS ENDED AUGUST 31, 1999 (UNAUDITED) FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD. ------------------------------------------------------------------- OPERATING PERFORMANCE: Net asset value, beginning of period..................... $ 13.50 ----------- Net investment income.................................... 0.85 Net realized gain and unrealized depreciation on investments............................................ (0.77) ----------- Net increase in net asset value resulting from investment operations............................................. 0.08 DISTRIBUTIONS: Dividends paid from net investment income to MMP* Shareholders........................................... (0.19) Distributions paid from net realized capital gains to MMP* Shareholders(3)................................... (0.02) Dividends paid from net investment income to Common Stock Shareholders(2)........................................ (0.75) Distributions paid from net realized capital gains to Common Stock Shareholders(3)........................... (0.60) Change in accumulated undeclared dividends on MMP*....... (0.02) ----------- Total distributions...................................... (1.58) ----------- Net asset value, end of period........................... $ 12.00 =========== Market value, end of period.............................. $ 10.9375 =========== Common shares outstanding, end of period................. 11,151,287 =========== RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS: Net investment income(4)................................. 6.52%** Operating expenses....................................... 1.53%** SUPPLEMENTAL DATA: Portfolio turnover rate.................................. 40% - ------------------------------------------------------------ Ratio of operating expenses to total average net assets including MMP*............................................. 1.02%**
(1) These tables summarize the nine months ended August 31, 1999 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 1998. (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. (4) Not necessarily reflective of results on an annual basis due to impact of Fiscal 1998 Additional Distributions to MMP*, all of which were paid in the first quarter of Fiscal 1999. * Money Market Cumulative Preferred(TM) Stock ** Annualized 3 -----END PRIVACY-ENHANCED MESSAGE-----