PREFERRED INCOME OPPORTUNITY FUND INC
N-30B-2, 1999-04-16
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<PAGE>
                 PREFERRED INCOME OPPORTUNITY FUND INCORPORATED

Dear Shareholder:

     The bottom line for the fiscal first quarter ending February 28, 1999 was
that the Preferred Income Opportunity Fund's portfolio made money in a market
that most fixed income investors found difficult. The return on the net asset
value ("NAV") of the Fund's shares was 0.9% for the quarter and 5.3% for the
last twelve months, taking into account the special distribution of $0.81 per
share paid to shareholders on December 31, 1998.

     Interest rates have again demonstrated their ability to confound the
so-called experts. Just when everyone "knew" that rates would go down, interest
rates spiked up in February, returning roughly to the levels of last summer.
This time the surprise was the strength in the domestic economy, which pushed
aside the market's previous preoccupation with depressed economic conditions
elsewhere around the world. Perhaps all this proves is that the crystal ball is
basically an inferior tool for dealing with interest rate fluctuations.

     Rising interest rates caused the prices of most bonds and preferreds to
fall, but there was little visible impact on the Fund because of the gains on
our hedges. As a reminder, we typically hedge by purchasing put options on
Treasury futures and creating a "safety net" that is initially somewhat below
the level of the market. For the hedge to pay off, rising interest rates must
push market values down enough to reach that safety net. That is exactly what
happened in February.

     Strange as it may seem, it helps us when interest rates move suddenly in
EITHER direction. Throughout its history, the Fund has typically turned in
strong performance in good markets and held up well in weak markets. This is at
least partially due to the combination of leverage and hedging used by the Fund.
We actually distinguish ourselves least in flat, boring markets, but markets
like that, fortunately, never seem to last very long!

     The preferred market also gave us a helping hand in the fiscal first
quarter by generally outperforming Treasury bonds, on which our hedges are
based. This allowed us to regain some of the ground lost last year when
preferreds trailed Treasuries during the "flight to quality" caused by
international financial fears. Market activity has improved significantly since
then, and we are coming across many interesting investment opportunities.

     The discount of the market price of the Fund's shares from their NAV
widened rather suddenly to roughly 10% near the end of the fiscal first quarter.
This has happened before as interest rates have surged and bond and preferred
prices have weakened. So far, at least, the market does not seem to be paying
much attention to the remarkable stability of the Fund's NAV throughout this
period of stress.

                                                        Sincerely

                                                        /s/ Robert T. Flaherty  
                                                         
                                                        Robert T. Flaherty
                                                        CHAIRMAN OF THE BOARD

March 15, 1999


<PAGE>
Preferred Income Opportunity Fund Incorporated
SUMMARY OF INVESTMENTS
FEBRUARY 28, 1999 (UNAUDITED)
- ----------------------------------------------


<TABLE>
<CAPTION>


                                                                                                          PERCENT OF
                                                                                          VALUE           TOTAL NET
                                                                                         (000'S)            ASSETS
                                                                                         -------          ----------        
                                                                                  
<S>                                                                                      <C>              <C>

ADJUSTABLE RATE PREFERRED STOCKS                                                                          
    Banking ......................................................................       $ 14,712              7.0%
    Utilities ....................................................................         10,469              4.9
                                                                                         --------            -----
        Total Adjustable Rate ....................................................         25,181             11.9
                                                                                         --------            -----


FIXED RATE PREFERRED STOCKS AND SECURITIES
    Utilities ....................................................................         71,171             33.6
    Banking ......................................................................         37,650             17.8
    Financial Services ...........................................................         27,789             13.1
    Insurance ....................................................................         18,113              8.6
    Miscellaneous Industries .....................................................         17,244              8.2
                                                                                         --------            -----
        Total Fixed Rate .........................................................        171,967             81.3
                                                                                         --------            -----
TOTAL PREFERRED STOCKS AND SECURITIES ............................................        197,148             93.2
COMMON STOCKS
    Utilities ....................................................................            243              0.1
REPURCHASE AGREEMENT .............................................................          8,547              4.1
PURCHASED PUT OPTIONS ............................................................          5,168              2.4
                                                                                         --------            -----
TOTAL INVESTMENTS ................................................................        211,106             99.8
OTHER ASSETS AND LIABILITIES (NET) ...............................................            411              0.2
                                                                                         --------            -----
    TOTAL NET ASSETS .............................................................       $211,517            100.0%
                                                                                         ========            =====

</TABLE>




FINANCIAL DATA
PER SHARE OF COMMON STOCK (UNAUDITED)
- -------------------------------------

<TABLE>
<CAPTION>


                                                                                                       DIVIDEND
                                                     DIVIDEND        NET ASSET          NYSE         REINVESTMENT
                                                       PAID            VALUE       CLOSING PRICE       PRICE (1)
                                                     --------        ---------     -------------     ------------
<S>                                                   <C>              <C>            <C>              <C>

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

</TABLE>

- ----------

(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

<PAGE>

                                  Preferred Income Opportunity Fund Incorporated
                                          STATEMENT OF CHANGES IN NET ASSETS (1)
                                THREE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
                                ------------------------------------------------

 
<TABLE>

<S>                                                                                                         <C>

OPERATIONS:
    Net investment income ..............................................................................    $  3,154,657
    Net realized gain on investments sold ..............................................................         776,297
    Net unrealized depreciation of investments during the period .......................................      (1,237,621)
                                                                                                            ------------
        Net increase in net assets from operations .....................................................       2,693,333

DISTRIBUTIONS:
    Dividends paid from net investment income to MMP* shareholders .....................................      (1,125,407)
    Distributions paid from net realized capital gains to MMP* shareholders(3) .........................        (247,384)
    Dividends paid from net investment income to Common Stock shareholders(2) ..........................      (5,192,039)
    Distributions paid from net realized capital gains to Common Stock Shareholders(3) .................      (5,301,322)

NET DECREASE IN NET ASSETS: ............................................................................      (9,172,819)

NET ASSETS:
    Beginning of period ................................................................................     220,689,622
                                                                                                            ------------
    End of period ......................................................................................    $211,516,803
                                                                                                            ============


</TABLE>


                                                        FINANCIAL HIGHLIGHTS (1)
                                THREE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
                           FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD.
                           ---------------------------------------------------- 

<TABLE>
<S>                                                                                                         <C>

OPERATING PERFORMANCE:
    Net asset value, beginning of period ...............................................................    $     13.50
                                                                                                            -----------
    Net investment income ..............................................................................           0.28
    Net realized gain and unrealized depreciation on investments .......................................          (0.04)
                                                                                                            -----------
    Net increase in net asset value resulting from investment operations ...............................           0.24

DISTRIBUTIONS:
    Dividends paid from net investment income to MMP* Shareholders .....................................          (0.10)
    Distributions paid from net realized capital gains to MMP* Shareholders(3) .........................          (0.02)
    Dividends paid from net investment income to Common Stock Shareholders(2) ..........................          (0.47)
    Distributions paid from net realized capital gains to Common Stock Shareholders(3) .................          (0.48)
    Change in accumulated undeclared dividends on MMP* .................................................           0.01
                                                                                                            -----------
    Total distributions ................................................................................          (1.06)
                                                                                                            -----------
    Net asset value, end of period .....................................................................    $     12.68
                                                                                                            ===========
    Market value, end of period ........................................................................    $   11.3125
                                                                                                            ===========
    Common shares outstanding, end of period ...........................................................     11,151,287
                                                                                                            ===========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
    Net investment income (4) ..........................................................................           5.24%**
    Operating expenses .................................................................................           1.49%**
SUPPLEMENTAL DATA:
    Portfolio turnover rate ............................................................................             14%
- --------------------------------------------------------------------------------
Ratio of operating expenses to total average net assets including MMP* .................................           1.00%**

</TABLE>


(1)  These tables summarize the three months ended February 28, 1999 and should
     be read in conjunction with the Fund's audited financial statements,
     including footnotes, in its Annual Report for the year ended 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
<PAGE>



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: [email protected]

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 FUND]



                                   Quarterly
                                     Report



                               February 28, 1999





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