Reports Mailed to Shareholders (registered Investment Company) (n-30b-2)
October 28 2013 - 2:32PM
Edgar (US Regulatory)
FLAHERTY & CRUMRINE PREFERRED INCOME FUND
To the Shareholders of Flaherty & Crumrine Preferred Income Fund:
Total return on net asset value (NAV)
1
was -4.6% during the third fiscal
quarter
2
, reducing total return on NAV fiscal year-to-date to +2.2%. In
addition, during the quarter the Fund, like many other closed-end income-oriented funds, saw the relationship between its market price and NAV swing from a premium to a discount, resulting in total return on market value of -11.1%. Clearly, this
represented a setback in what had been a sustained period of positive returns in both the Funds NAV and market valuation. During the quarter, prices of all fixed-income securities, including preferred securities, declined and yields increased
as markets reacted swiftly to expectations that the Federal Reserve might taper its quantitative easing earlier than anticipated.
Virtually all sectors of the fixed-income market turned in negative results during the quarter. U.S. Treasury 10-year notes and 30-year bonds
experienced the largest declines with total returns of -4.6% and
-6.5%,
as their yields increased by 0.7% and 0.4%, respectively. Long-term corporate bonds performed moderately better than long-term U.S.
Treasuries, with a total return of -4.7% for the Barclays Long U.S. Corporate Bond Index. Even including the impact of expenses and leverage, the Funds NAV performed as well as
unlevered
total returns on those other long-term segments
of fixed-income markets.
The quarter began with the Federal Open Market Committee (FOMC) having just indicated that it might
begin tapering the pace of its program of securities purchases sooner than the market was expecting. Longer-term interest rates moved higher with a fair amount of consistency throughout the quarter, as markets digested the news and adjusted
expectations for future monetary policy actions. Markets are driven by
expectations
more than actual results, and while we believe the market priced in more risk than was justified based on the outlook for growth in the U.S. economy,
uncertainty surrounding a potential change in policy outlook led investors to reduce portfolio duration substantially. At its September meeting, the FOMC surprised the market yet again by continuing its program of securities purchases without
tapering its pace. Since then, we have seen some recovery in fixed-income markets. Although we do not expect long-term Treasury rates to decline significantly, interest-rate risk premiums still appear high, providing investors with some protection
against eventual removal of highly accommodative monetary policy.
The preferred securities market was not immune to the change in
outlook for interest rates and a desire by many investors to reduce duration in their portfolios. In many cases, spreads on preferred securities widened relative to Treasuries, adding to price declines already associated with higher rates. Retail
preferred securities were particularly weak as we witnessed meaningful reductions in the sizes of preferred-securities exchange-traded fundswhich had grown in size to represent about 9% of the retail market at the beginning of this quarter.
Preferred securities issued in the early part of the year, most with very low coupons, were among the worst performers. Fortunately, we werent tempted by many of those new issuesmuch preferring the higher coupons available in the
secondary market. Institutional preferred securities fared much better, and as they have a larger allocation in the portfolio they were partially responsible for limiting negative returns during the quarter.
Creditworthiness of most preferred-securities issuers continues to improve. Corporate earnings are growing at a moderate pace and corporate leverage
remains low. Banks problem loans are declining,
1
|
Following the methodology required by the SEC, total return assumes dividend
reinvestment and includes income and principal change, plus the impact of the Funds leverage and expenses.
|
2
|
June 1
st
August 31
st
.
|
capital levels are healthy (especially in the U.S.) and new lending is slowly picking up. Rising home prices are bolstering consumer balance sheets and trimming foreclosure losses. These
favorable credit developments should continue to benefit preferred securities.
While prices have fallen, market conditions for preferred
securities remain healthy. Higher interest rates and wider spreads have resulted in a material slowdown in issuer redemptions. For the year, redemptions are still running ahead of new supply, with the preferred-securities market shrinking more than
$10 billion, but the pace of redemptions slowed significantly this past quarterwith the Fund seeing approximately 90% of its redemptions this fiscal year occurring during the first half. This recent slowdown in issuer redemptions has been
welcome news on the income side of the equation, as the Fund is able to keep more of the higher-coupon preferred securities longer than we expected earlier in the year.
After a long wait, we now have largely final rules on the regulatory treatment of preferred securities issued by banks, foreign and domestic. Crafted in response to the financial crisis, new legislation and
regulations shift loss burdens towards investors and away from taxpayers (government support). Under the new rules, banks will have an incentive to replace debt-like preferred securities with ones that have more characteristics of equity
(deeper subordination, non-cumulative dividends, and no maturity date). The new rules include various implementation schedules, depending on the jurisdiction, with most being fully implemented within the next 3-8 years.
To conform to the new rules, we estimate U.S. banks will need to issue an additional $60 billion or more of new preferred stock. That is certainly a
big number compared to $73 billion of currently outstanding bank preferred stock. While we think issuance will be manageable and spread out over several years, it will influence preferred securities prices when it happens. We are also likely
to see more contingent capital issued in the coming years, as issuers look to fill different buckets of loss-absorbing capital required under the new rules. This market has so far been limited in size and breadth, but it is likely to grow and is
part of the ongoing evolution of the broader subordinated capital market.
Looking ahead, moderate economic growth should provide a
constructive environment for preferred-securities investors. We anticipate that economic growth will be fast enough to facilitate continued improvement in corporate and household balance sheets and better loan performance, while being slow enough to
restrain inflation and keep monetary policy accommodative for some time. Spreads on preferred securities should recover as fears of further rapid increases in long-term interest rates recede and investors refocus on steadily improving credit
conditions. Volatility is likely to remain elevated over the coming months, but we believe the preferred-securities market has priced in a good amount of risk related to the end of quantitative easing.
As always, we encourage you to visit the Funds website
www.preferredincome.com
.
Sincerely,
|
|
|
|
|
|
Donald F. Crumrine
Chairman
|
|
Robert M. Ettinger
President
|
|
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September 30, 2013
|
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2
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OVERVIEW
August 31, 2013 (Unaudited)
|
|
|
|
|
Fund Statistics
|
|
|
|
|
|
Net Asset Value
|
|
$
|
12.90
|
|
|
|
Market Price
|
|
$
|
12.35
|
|
|
|
Discount
|
|
|
4.26
|
%
|
|
|
Yield on Market Price
|
|
|
8.74
|
%
|
|
|
Common Stock Shares Outstanding
|
|
|
10,985,567
|
|
|
|
|
|
|
Moodys Ratings
|
|
% of Net Assets
|
|
|
|
A
|
|
|
0.7%
|
|
|
|
BBB
|
|
|
58.1%
|
|
|
|
BB
|
|
|
32.3%
|
|
|
|
Below BB
|
|
|
3.5%
|
|
|
|
Not Rated*
|
|
|
4.0%
|
|
|
|
Below Investment Grade**
|
|
|
24.1%
|
|
*
|
Does not include net other assets and liabilities of 1.4%.
|
**
|
Below investment grade by all of Moodys, S&P, and Fitch.
|
|
|
|
Industry Categories
|
|
% of Net Assets
|
|
|
|
|
|
Top 10 Holdings by Issuer
|
|
% of Net Assets
|
|
|
|
HSBC PLC
|
|
|
4.5%
|
|
|
|
Banco Santander, S.A.
|
|
|
4.4%
|
|
|
|
MetLife
|
|
|
4.3%
|
|
|
|
Liberty Mutual Group
|
|
|
4.0%
|
|
|
|
Goldman Sachs Group
|
|
|
3.9%
|
|
|
|
Wells Fargo & Company
|
|
|
3.6%
|
|
|
|
Barclays Bank PLC
|
|
|
3.1%
|
|
|
|
XL Group PLC
|
|
|
2.9%
|
|
|
|
Enbridge Energy Partners
|
|
|
2.6%
|
|
|
|
Unum Group
|
|
|
2.5%
|
|
|
|
|
|
|
|
|
|
|
|
% of Net Assets***
|
|
|
|
Holdings Generating Qualified Dividend Income (QDI) for Individuals
|
|
|
47%
|
|
|
|
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)
|
|
|
28%
|
|
***
|
This does not reflect
year-end
results or actual tax categorization of Fund distributions. These percentages can, and do, change, perhaps
significantly, depending on market conditions. Investors should consult their tax advisor regarding their personal situation.
|
|
Net Assets includes assets attributable to the use of leverage.
|
3
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
August 31, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Preferred Securities 89.9%
|
|
|
|
|
|
|
|
|
|
|
Banking 36.6%
|
|
|
|
|
|
|
|
17,500
|
|
|
Astoria Financial Corp., 6.50% Pfd., Series C
|
|
$
|
409,019
|
*
|
|
|
|
|
|
|
Banco Bilbao Vizcaya Argentaria, S.A.:
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
BBVA International Preferred, 5.919%
|
|
|
1,342,500
|
**
(1)(3)
|
|
|
|
|
|
|
Banco Santander, S.A.:
|
|
|
|
|
|
|
|
355,000
|
|
|
Banco Santander, 10.50% Pfd., Series 10
|
|
|
9,557,487
|
**
(1)(3)
|
|
|
|
|
|
|
Bank of America:
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
Bank of America Corporation, 8.125%
|
|
|
1,664,989
|
*
(1)
|
|
|
|
2,500
|
|
|
Countrywide Capital IV, 6.75% Pfd. 04/01/33
|
|
|
62,656
|
|
|
|
|
25,000
|
|
|
Countrywide Capital V, 7.00% Pfd. 11/01/36
|
|
|
627,562
|
|
|
|
|
|
|
|
Barclays Bank PLC:
|
|
|
|
|
|
|
$
|
3,250,000
|
|
|
Barclays Bank PLC, 6.278%
|
|
|
2,949,937
|
**
(1)(2)(3)
|
|
|
|
58,000
|
|
|
Barclays Bank PLC, 7.10% Pfd.
|
|
|
1,443,040
|
**
(3)
|
|
|
|
3,700
|
|
|
Barclays Bank PLC, 7.75% Pfd., Series 4
|
|
|
92,870
|
**
(3)
|
|
|
|
90,000
|
|
|
Barclays Bank PLC, 8.125% Pfd., Series 5
|
|
|
2,272,500
|
**
(1)(3)
|
|
|
$
|
1,925,000
|
|
|
BNP Paribas, 7.195%, 144A****
|
|
|
1,910,562
|
**
(1)(2)(3)
|
|
|
|
|
|
|
Citigroup:
|
|
|
|
|
|
|
$
|
2,750,000
|
|
|
Citigroup, Inc., 8.40%, Series E
|
|
|
3,027,931
|
*
(1)
|
|
|
|
19,600
|
|
|
Citigroup Capital XIII, 7.875% Pfd.
|
|
|
538,388
|
|
|
|
|
|
|
|
CoBank ACB:
|
|
|
|
|
|
|
|
12,500
|
|
|
CoBank ACB, 6.125% Pfd., Series G, 144A****
|
|
|
1,178,516
|
*
|
|
|
|
10,000
|
|
|
CoBank ACB, 6.25% Pfd., 144A****
|
|
|
1,022,188
|
*
|
|
|
$
|
5,210,000
|
|
|
Colonial BancGroup, 7.114%, 144A****
|
|
|
7,815
|
(4)(5)
|
|
|
|
15,200
|
|
|
Cullen/Frost Bankers, Inc., 5.375% Pfd., Series A
|
|
|
333,663
|
*
|
|
|
|
|
|
|
Fifth Third Bancorp:
|
|
|
|
|
|
|
$
|
750,000
|
|
|
Fifth Third Capital Trust IV, 6.50% 04/15/37
|
|
|
747,188
|
|
|
|
|
|
|
|
First Horizon:
|
|
|
|
|
|
|
|
795
|
|
|
First Tennessee Bank, Adj. Rate Pfd., 3.75%
(6)
, 144A****
|
|
|
585,567
|
*
(1)
|
|
|
$
|
500,000
|
|
|
First Tennessee Capital II, 6.30% 04/15/34, Series B
|
|
|
488,750
|
|
|
|
|
1
|
|
|
FT Real Estate Securities Company, 9.50% Pfd., 144A****
|
|
|
1,100,625
|
|
|
|
|
112,500
|
|
|
First Niagara Financial Group, Inc., 8.625% Pfd.
|
|
|
3,132,427
|
*
(1)
|
|
|
|
32,050
|
|
|
First Republic Bank, 6.70% Pfd.
|
|
|
782,741
|
*
|
|
|
|
|
|
|
Goldman Sachs Group:
|
|
|
|
|
|
|
|
17,500
|
|
|
Goldman Sachs, 5.95% Pfd., Series I
|
|
|
399,766
|
*
|
|
|
|
15,000
|
|
|
Goldman Sachs, 6.20% Pfd., Series B
|
|
|
366,095
|
*
|
|
|
$
|
2,000,000
|
|
|
Goldman Sachs, Capital I, 6.345% 02/15/34
|
|
|
1,919,332
|
(1)(2)
|
|
|
4
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Preferred Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Banking (Continued)
|
|
|
|
|
|
|
|
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|
|
HSBC PLC:
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
HSBC Capital Funding LP, 10.176%, 144A****
|
|
$
|
2,124,375
|
(1)(2)(3)
|
|
|
|
132,900
|
|
|
HSBC Holdings PLC, 8.00% Pfd., Series 2
|
|
|
3,609,072
|
**
(1)(3)
|
|
|
$
|
130,000
|
|
|
HSBC USA Capital Trust I, 7.808% 12/15/26, 144A****
|
|
|
132,600
|
|
|
|
$
|
145,000
|
|
|
HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****
|
|
|
147,354
|
(1)
|
|
|
|
118,813
|
|
|
HSBC USA, Inc., 6.50% Pfd., Series H
|
|
|
2,959,192
|
*
(1)
|
|
|
|
|
|
|
ING Groep NV:
|
|
|
|
|
|
|
|
40,000
|
|
|
ING Groep NV, 6.375% Pfd.
|
|
|
916,400
|
**
(3)
|
|
|
|
35,000
|
|
|
ING Groep NV, 7.05% Pfd.
|
|
|
863,538
|
**
(3)
|
|
|
|
23,400
|
|
|
ING Groep NV, 7.20% Pfd.
|
|
|
582,719
|
**
(3)
|
|
|
|
47,500
|
|
|
ING Groep NV, 7.375% Pfd.
|
|
|
1,200,800
|
**
(3)
|
|
|
|
15,000
|
|
|
ING Groep NV, 8.50% Pfd.
|
|
|
382,800
|
**
(3)
|
|
|
$
|
4,000,000
|
|
|
JPMorgan Chase & Company, 7.90%, Series I
|
|
|
4,414,320
|
*
(1)
|
|
|
$
|
550,000
|
|
|
Lloyds Banking Group PLC, 6.657%, 144A****
|
|
|
503,250
|
**
(3)
|
|
|
$
|
2,000,000
|
|
|
M&T Bank Corporation, 6.875%, 144A****
|
|
|
2,030,706
|
*
(1)
|
|
|
|
|
|
|
Morgan Stanley:
|
|
|
|
|
|
|
|
40,000
|
|
|
Morgan Stanley Capital Trust VI, 6.60% Pfd. 02/01/46
|
|
|
995,000
|
|
|
|
|
82,500
|
|
|
PNC Financial Services, 6.125% Pfd., Series P
|
|
|
2,102,306
|
*
(1)
|
|
|
$
|
2,160,000
|
|
|
RaboBank Nederland, 11.00%, 144A****
|
|
|
2,812,389
|
(1)(3)
|
|
|
|
|
|
|
Royal Bank of Scotland:
|
|
|
|
|
|
|
|
7,500
|
|
|
Royal Bank of Scotland Group PLC, 6.40%, Pfd., Series M
|
|
|
152,700
|
**
(3)
|
|
|
|
15,000
|
|
|
Royal Bank of Scotland Group PLC, 6.60%, Pfd., Series S
|
|
|
312,450
|
**
(3)
|
|
|
|
45,000
|
|
|
Royal Bank of Scotland Group PLC, 7.25% Pfd., Series T
|
|
|
1,032,300
|
**
(3)
|
|
|
|
|
|
|
Sovereign Bancorp:
|
|
|
|
|
|
|
|
1,750
|
|
|
Sovereign REIT, 12.00% Pfd., Series A, 144A****
|
|
|
2,267,195
|
|
|
|
|
10,000
|
|
|
Texas Capital Bancshares Inc., 6.50% Pfd., Series A
|
|
|
227,015
|
*
|
|
|
|
12,500
|
|
|
US Bancorp, 6.50%, Pfd.
|
|
|
326,954
|
*
|
|
|
|
|
|
|
Wells Fargo:
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
First Union Capital II, 7.95% 11/15/29
|
|
|
1,803,642
|
(1)(2)
|
|
|
|
1,750
|
|
|
Wells Fargo & Company, 7.50% Pfd., Series L
|
|
|
1,982,313
|
*
(1)
|
|
|
|
144,500
|
|
|
Wells Fargo & Company, 8.00% Pfd., Series J
|
|
|
4,109,797
|
*
(1)
|
|
|
|
|
|
|
Zions Bancorporation:
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
Zions Bancorporation, 7.20%, Series J
|
|
|
997,500
|
*
(1)
|
|
|
|
93,000
|
|
|
Zions Bancorporation, 7.90% Pfd., Series F
|
|
|
2,582,145
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,534,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Preferred Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Financial Services 1.6%
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse Group:
|
|
|
|
|
|
|
$
|
1,280,000
|
|
|
Claudius, Ltd. - Credit Suisse AG, 7.875%, Series B, 144A****
|
|
$
|
1,368,000
|
(3)
|
|
|
$
|
1,000,000
|
|
|
General Electric Capital Corp., 7.125%, Series A
|
|
|
1,104,287
|
*
(1)
|
|
|
|
|
|
|
HSBC PLC:
|
|
|
|
|
|
|
|
36,537
|
|
|
HSBC Finance Corporation, 6.36% Pfd., Series B
|
|
|
858,345
|
*
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,330,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance 24.8%
|
|
|
|
|
|
|
|
|
|
|
Ace Ltd.:
|
|
|
|
|
|
|
$
|
975,000
|
|
|
Ace Capital Trust II, 9.70% 04/01/30
|
|
|
1,372,312
|
(1)(2)(3)
|
|
|
$
|
400,000
|
|
|
Aon Corporation, 8.205% 01/01/27
|
|
|
491,298
|
|
|
|
|
108,700
|
|
|
Arch Capital Group, Ltd., 6.75% Pfd., Series C
|
|
|
2,632,584
|
**
(1)(3)
|
|
|
|
|
|
|
AXA SA:
|
|
|
|
|
|
|
$
|
2,800,000
|
|
|
AXA SA, 6.379%, 144A****
|
|
|
2,744,000
|
**
(1)(2)(3)
|
|
|
$
|
500,000
|
|
|
AXA SA, 8.60% 12/15/30
|
|
|
593,750
|
(3)
|
|
|
|
201,600
|
|
|
Axis Capital Holdings, 6.875% Pfd., Series C
|
|
|
4,888,800
|
**
(1)(3)
|
|
|
|
90,600
|
|
|
Delphi Financial Group, 7.376% Pfd. 05/15/37
|
|
|
2,267,836
|
(1)(2)
|
|
|
|
37,400
|
|
|
Endurance Specialty Holdings, 7.50% Pfd.
|
|
|
936,178
|
**
(3)
|
|
|
$
|
4,350,000
|
|
|
Everest Re Holdings, 6.60% 05/15/37
|
|
|
4,339,125
|
(1)(2)
|
|
|
|
|
|
|
Liberty Mutual Group:
|
|
|
|
|
|
|
$
|
500,000
|
|
|
Liberty Mutual Group, 7.80% 03/15/37, 144A****
|
|
|
565,000
|
(1)
|
|
|
$
|
4,100,000
|
|
|
Liberty Mutual Group, 10.75% 06/15/58, 144A****
|
|
|
6,088,500
|
(1)(2)
|
|
|
$
|
190,000
|
|
|
Lincoln National Corporation, 7.00% 05/17/66
|
|
|
193,800
|
|
|
|
|
|
|
|
MetLife:
|
|
|
|
|
|
|
$
|
2,846,000
|
|
|
MetLife, Inc., 10.75% 08/01/39
|
|
|
4,226,310
|
(1)(2)
|
|
|
$
|
279,000
|
|
|
MetLife Capital Trust IV, 7.875% 12/15/37, 144A****
|
|
|
318,060
|
(1)(2)
|
|
|
$
|
3,635,000
|
|
|
MetLife Capital Trust X, 9.25% 04/08/38, 144A****
|
|
|
4,725,500
|
(1)(2)
|
|
|
|
36,010
|
|
|
PartnerRe Ltd., 7.250% Pfd., Series E
|
|
|
911,053
|
**
(1)(3)
|
|
|
|
90,000
|
|
|
Principal Financial Group, 6.518% Pfd., Series B
|
|
|
2,256,525
|
*
(1)
|
|
|
$
|
500,000
|
|
|
Prudential Financial, Inc., 5.625% 06/15/43
|
|
|
470,000
|
|
|
|
|
|
|
|
QBE Insurance:
|
|
|
|
|
|
|
$
|
1,100,000
|
|
|
QBE Capital Funding III Ltd., 7.25% 05/24/41, 144A****
|
|
|
1,162,217
|
(1)(3)
|
|
|
$
|
2,250,000
|
|
|
StanCorp Financial Group, 6.90% 06/01/67
|
|
|
2,255,625
|
(1)(2)
|
|
|
|
|
|
|
The Travelers Companies:
|
|
|
|
|
|
|
$
|
679,500
|
|
|
USF&G Capital, 8.312% 07/01/46, 144A****
|
|
|
848,369
|
(1)(2)
|
|
|
|
|
|
|
Unum Group:
|
|
|
|
|
|
|
$
|
2,820,000
|
|
|
Provident Financing Trust I, 7.405% 03/15/38
|
|
|
3,128,553
|
(1)(2)
|
|
|
|
8,954
|
|
|
W.R. Berkley Corporation, 5.625% Pfd.
|
|
|
192,232
|
|
|
|
6
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Preferred Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Insurance (Continued)
|
|
|
|
|
|
|
|
|
|
|
XL Group PLC:
|
|
|
|
|
|
|
$
|
6,440,000
|
|
|
XL Capital Ltd., 6.50%, Series E
|
|
$
|
6,262,900
|
(1)(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,870,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities 15.5%
|
|
|
|
|
|
|
|
10,350
|
|
|
Alabama Power Company, 6.45% Pfd.
|
|
|
269,100
|
*
(1)
|
|
|
|
|
|
|
Baltimore Gas & Electric:
|
|
|
|
|
|
|
|
10,000
|
|
|
Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993
|
|
|
1,021,563
|
*
(1)
|
|
|
|
2,400
|
|
|
Baltimore Gas & Electric Company, 7.125% Pfd., Series 1993
|
|
|
243,675
|
*
|
|
|
|
|
|
|
Commonwealth Edison:
|
|
|
|
|
|
|
$
|
2,953,000
|
|
|
COMED Financing III, 6.35% 03/15/33
|
|
|
2,805,350
|
(1)(2)
|
|
|
$
|
3,500,000
|
|
|
Dominion Resources, Inc., 7.50% 06/30/66
|
|
|
3,782,408
|
(1)(2)
|
|
|
|
|
|
|
Energy Future Competitive Holdings Corp:
|
|
|
|
|
|
|
$
|
636,000
|
|
|
TXU Electric Capital V, 8.175% 01/30/37
|
|
|
155,820
|
(4)
|
|
|
|
62,500
|
|
|
Entergy Arkansas, Inc., 6.45% Pfd.
|
|
|
1,550,781
|
*
(1)
|
|
|
|
30,000
|
|
|
Entergy Louisiana, Inc., 6.95% Pfd.
|
|
|
3,012,189
|
*
(1)
|
|
|
|
25,000
|
|
|
Georgia Power Company, 6.50% Pfd., Series 2007A
|
|
|
2,554,687
|
*
(1)
|
|
|
|
26,000
|
|
|
Indianapolis Power & Light Company, 5.65% Pfd.
|
|
|
2,639,814
|
*
|
|
|
|
42,100
|
|
|
Integrys Energy Group, Inc., 6.00% Pfd.
|
|
|
1,034,081
|
|
|
|
|
|
|
|
Nextera Energy:
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
FPL Group Capital, Inc., 6.65% 06/15/67
|
|
|
1,580,065
|
(1)
|
|
|
|
|
|
|
PECO Energy:
|
|
|
|
|
|
|
$
|
500,000
|
|
|
PECO Energy Capital Trust III, 7.38% 04/06/28, Series D
|
|
|
495,804
|
(1)(2)
|
|
|
|
|
|
|
PPL Corp:
|
|
|
|
|
|
|
|
69,000
|
|
|
PPL Capital Funding, Inc., 5.90% Pfd., Series B
|
|
|
1,587,000
|
|
|
|
$
|
2,250,000
|
|
|
PPL Capital Funding, Inc., 6.70% 03/30/67, Series A
|
|
|
2,330,586
|
(1)(2)
|
|
|
$
|
2,850,000
|
|
|
Puget Sound Energy, Inc., 6.974% 06/01/67
|
|
|
3,011,655
|
(1)(2)
|
|
|
|
47,392
|
|
|
Scana Corporation, 7.70% Pfd. 01/30/65
|
|
|
1,252,926
|
(1)(2)
|
|
|
|
35,410
|
|
|
Southern California Edison, 6.50% Pfd., Series D
|
|
|
3,746,821
|
*
(1)
|
|
|
|
3,000
|
|
|
Virginia Electric & Power Company, $6.98 Pfd.
|
|
|
305,438
|
*
|
|
|
|
3,700
|
|
|
Wisconsin Public Service Corporation, 6.88% Pfd.
|
|
|
374,394
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,754,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy 6.2%
|
|
|
|
|
|
|
$
|
5,000,000
|
|
|
Enbridge Energy Partners LP, 8.05% 10/01/37
|
|
|
5,601,100
|
(1)(2)
|
|
|
$
|
4,150,000
|
|
|
Enterprise Products Partners, 8.375% 08/01/66, Series A
|
|
|
4,619,880
|
(1)(2)
|
|
|
|
3,500
|
|
|
Kinder Morgan GP, Inc., 4.188%
(6)
, Pfd., 144A****
|
|
|
3,212,563
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,433,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Preferred Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trust (REIT) 2.7%
|
|
|
|
|
|
|
|
|
|
|
Duke Realty Corp.:
|
|
|
|
|
|
|
|
4,000
|
|
|
Duke Realty Corp, 6.50% Pfd., Series K
|
|
$
|
94,250
|
|
|
|
|
24,900
|
|
|
Duke Realty Corp, 6.60% Pfd., Series L
|
|
|
591,375
|
|
|
|
|
12,500
|
|
|
Kimco Realty Corporation, 6.90% Pfd., Series H
|
|
|
316,125
|
|
|
|
|
22,500
|
|
|
National Retail Properties, Inc., 5.70% Pfd., Series E
|
|
|
460,159
|
|
|
|
|
|
|
|
PS Business Parks:
|
|
|
|
|
|
|
|
4,000
|
|
|
PS Business Parks, Inc., 5.70% Pfd., Series V
|
|
|
84,360
|
|
|
|
|
50,000
|
|
|
PS Business Parks, Inc., 6.45% Pfd., Series S
|
|
|
1,165,075
|
(1)(2)
|
|
|
|
7,500
|
|
|
PS Business Parks, Inc., 6.875% Pfd., Series R
|
|
|
185,325
|
|
|
|
|
125,000
|
|
|
Realty Income Corporation, 6.625% Pfd., Series F
|
|
|
3,017,500
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,914,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous Industries 2.5%
|
|
|
|
|
|
|
|
37,400
|
|
|
Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A****
|
|
|
3,344,963
|
*
|
|
|
|
11,000
|
|
|
Stanley Black & Decker, Inc., 5.75% Pfd. 07/25/52
|
|
|
252,313
|
(1)
|
|
|
$
|
2,125,000
|
|
|
Textron Financial Corporation, 6.00% 02/15/67, 144A****
|
|
|
1,896,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,493,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Securities
(Cost $184,029,871)
|
|
|
195,331,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities 8.7%
|
|
|
|
|
|
|
|
|
|
|
Banking 4.8%
|
|
|
|
|
|
|
$
|
5,500,000
|
|
|
Goldman Sachs Group, Inc., 6.75% 10/01/37, Sub Notes
|
|
|
5,693,116
|
(1)(2)
|
|
|
$
|
2,710,000
|
|
|
Regions Financial Corporation, 7.375% 12/10/37, Sub Notes
|
|
|
2,934,304
|
(1)(2)
|
|
|
|
76,000
|
|
|
Texas Capital Bancshares Inc., 6.50% 09/21/42, Sub Notes
|
|
|
1,712,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,339,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services 0.3%
|
|
|
|
|
|
|
|
20,825
|
|
|
Affiliated Managers Group, Inc., 6.375% 08/15/42
|
|
|
489,835
|
|
|
|
|
6,500
|
|
|
Raymond James Financial, 6.90% 03/15/42
|
|
|
166,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
656,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance 2.0%
|
|
|
|
|
|
|
$
|
2,000,000
|
|
|
Liberty Mutual Insurance, 7.697% 10/15/97, 144A****
|
|
|
2,112,548
|
(1)(2)
|
|
|
8
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Shares/$ Par
|
|
|
|
|
Value
|
|
|
|
|
Corporate Debt Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
Insurance (Continued)
|
|
|
|
|
|
|
|
|
|
|
Unum Group:
|
|
|
|
|
|
|
$
|
2,000,000
|
|
|
UnumProvident Corporation, 7.25% 03/15/28
|
|
$
|
2,276,940
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,389,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy 1.5%
|
|
|
|
|
|
|
$
|
2,700,000
|
|
|
Energy Transfer Partners LP, 8.25%, 11/15/2029, 144A****
|
|
|
3,311,466
|
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,311,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trust (REIT) 0.1%
|
|
|
|
|
|
|
|
12,500
|
|
|
CommonWealth REIT, 7.50% 11/15/19
|
|
|
260,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate Debt Securities
(Cost $17,034,894)
|
|
|
18,958,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock 0.2%
|
|
|
|
|
|
|
|
|
|
|
Banking 0.1%
|
|
|
|
|
|
|
|
3,620
|
|
|
CIT Group, Inc.
|
|
|
173,289
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance 0.0%
|
|
|
|
|
|
|
|
19,801
|
|
|
WMI Holdings Corporation, 144A****
|
|
|
20,197
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities 0.1%
|
|
|
|
|
|
|
|
9,380
|
|
|
Exelon Corporation
|
|
|
285,996
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stock
(Cost $1,728,325)
|
|
|
479,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Fund 0.1%
|
|
|
|
|
|
|
|
|
|
|
BlackRock Liquidity Funds:
|
|
|
|
|
|
|
|
187,323
|
|
|
T-Fund
|
|
|
187,323
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Money Market Fund
(Cost $187,323)
|
|
|
187,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (Continued)
August 31, 2013
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
(Cost $202,980,413***)
|
|
|
98.9%
|
|
|
$
|
214,956,911
|
|
|
|
|
Other Assets And Liabilities (Net)
|
|
|
1.1%
|
|
|
|
2,437,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Managed Assets
|
|
|
100.0%
|
|
|
$
|
217,394,862
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Principal Balance
|
|
|
|
(75,700,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Assets Available To Common Stock
|
|
|
$
|
141,694,862
|
|
|
|
|
|
|
|
|
|
|
*
|
Securities eligible for the Dividends Received Deduction and distributing Qualified Dividend Income.
|
**
|
Securities distributing Qualified Dividend Income only.
|
***
|
Aggregate cost of securities held.
|
****
|
Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified
institutional buyers. At August 31, 2013, these securites amounted to $47,541,088 or 21.9% of total managed assets.
|
(1)
|
All or a portion of this security is pledged as collateral for the Funds loan. The total value of such securities was $142,799,249 at August 31, 2013.
|
(2)
|
All or a portion of this security has been rehypothecated. The total value of such securities was $71,419,951 at August 31, 2013.
|
(5)
|
Valued at fair value as determined in good faith by or under the direction of the Board of Directors as of August 31, 2013.
|
(6)
|
Represents the rate in effect as of the reporting date.
|
|
The issuer has filed for bankruptcy protection. As a result, the Fund may not be able to recover the principal invested and also does not expect to receive income on this
security going forward.
|
|
The percentage shown for each investment category is the total value of that category as a percentage of total managed assets.
|
|
|
|
|
|
|
|
|
|
ABBREVIATIONS:
|
Pfd.
|
|
|
|
Preferred Securities
|
REIT
|
|
|
|
Real Estate Investment Trust
|
10
Flaherty & Crumrine Preferred Income Fund Incorporated
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE TO COMMON STOCK
(1)
For the period from December 1, 2012 through August 31, 2013 (Unaudited)
|
|
|
|
|
|
|
Value
|
|
OPERATIONS:
|
|
|
|
|
Net investment income
|
|
$
|
9,229,660
|
|
Net realized gain/(loss) on investments sold during the period
|
|
|
(5,248,550
|
)
|
Change in net unrealized appreciation/depreciation of investments
|
|
|
(494,961
|
)
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
3,486,149
|
|
|
|
DISTRIBUTIONS:
|
|
|
|
|
Dividends paid from net investment income to Common Stock Shareholders
(2)
|
|
|
(10,189,907
|
)
|
|
|
|
|
|
Total Distributions to Common Stock Shareholders
|
|
|
(10,189,907
|
)
|
|
|
FUND SHARE TRANSACTIONS:
|
|
|
|
|
Increase from shares issued under the Dividend Reinvestment and
Cash Purchase Plan
|
|
|
876,507
|
|
|
|
|
|
|
Net increase in net assets available to Common Stock resulting from
Fund share transactions
|
|
|
876,507
|
|
|
|
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
|
|
|
|
|
FOR THE PERIOD
|
|
$
|
(5,827,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS AVAILABLE TO COMMON STOCK:
|
|
|
|
|
Beginning of period
|
|
$
|
147,522,113
|
|
Net decrease in net assets during the period
|
|
|
(5,827,251
|
)
|
|
|
|
|
|
End of period
|
|
$
|
141,694,862
|
|
|
|
|
|
|
(1)
|
These tables summarize the nine months ended August 31, 2013 and should be read
in conjunction with the Funds audited financial statements, including footnotes, in its Annual Report dated November 30, 2012.
|
(2)
|
May include income earned, but not paid out, in prior fiscal year.
|
11
Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS
(1)
For the period from December 1, 2012 through August 31, 2013 (Unaudited)
For a Common Stock share outstanding throughout the period
|
|
|
|
|
PER SHARE OPERATING PERFORMANCE:
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
13.51
|
|
|
|
|
|
|
INVESTMENT OPERATIONS:
|
|
|
|
|
Net investment income
|
|
|
0.84
|
|
Net realized and unrealized gain/(loss) on investments
|
|
|
(0.52
|
)
|
|
|
|
|
|
Total from investment operations
|
|
|
0.32
|
|
|
|
|
|
|
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
|
|
|
|
|
From net investment income
|
|
|
(0.93
|
)
|
|
|
|
|
|
Total distributions to Common Stock Shareholders
|
|
|
(0.93
|
)
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
12.90
|
|
|
|
|
|
|
Market value, end of period
|
|
$
|
12.35
|
|
|
|
|
|
|
Common Stock shares outstanding, end of period
|
|
|
10,985,567
|
|
|
|
|
|
|
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:
|
|
Net investment income
|
|
|
8.28
|
%*
|
Operating expenses including interest expense.
|
|
|
1.87
|
%*
|
Operating expenses excluding interest expense
|
|
|
1.33
|
%*
|
|
|
|
|
|
|
|
SUPPLEMENTAL DATA:
|
|
|
|
|
Portfolio turnover rate
|
|
|
23
|
%**
|
Total managed assets, end of period (in 000s)
|
|
$
|
217,395
|
|
Ratio of operating expenses including interest expense to total managed assets
|
|
|
1.24
|
%*
|
Ratio of operating expenses excluding interest expense to total managed assets
|
|
|
0.89
|
%*
|
(1)
|
These tables summarize the nine months ended August 31, 2013 and should be read in conjunction with the Funds audited financial statements, including
footnotes, in its Annual Report dated November 30, 2012.
|
|
The net investment income ratios reflect income net of operating expenses, including interest expense.
|
|
Information presented under heading Supplemental Data includes loan principal balance.
|
12
Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS (Continued)
Per Share of Common Stock (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Dividends
Paid
|
|
|
Net Asset
Value
|
|
|
NYSE
Closing Price
|
|
|
Dividend
Reinvestment
Price
(1)
|
|
December 31, 2012
|
|
$
|
0.2100
|
|
|
$
|
13.44
|
|
|
$
|
13.63
|
|
|
$
|
13.44
|
|
January 31, 2013
|
|
|
0.0900
|
|
|
|
13.64
|
|
|
|
15.09
|
|
|
|
14.34
|
|
February 28, 2013
|
|
|
0.0900
|
|
|
|
13.68
|
|
|
|
14.96
|
|
|
|
14.21
|
|
March 28, 2013
|
|
|
0.0900
|
|
|
|
13.73
|
|
|
|
14.82
|
|
|
|
14.08
|
|
April 30, 2013
|
|
|
0.0900
|
|
|
|
13.92
|
|
|
|
15.45
|
|
|
|
14.68
|
|
May 31, 2013
|
|
|
0.0900
|
|
|
|
13.81
|
|
|
|
14.18
|
|
|
|
13.81
|
|
June 28, 2013
|
|
|
0.0900
|
|
|
|
13.25
|
|
|
|
14.08
|
|
|
|
13.38
|
|
July 31, 2013
|
|
|
0.0900
|
|
|
|
13.20
|
|
|
|
13.42
|
|
|
|
13.20
|
|
August 30, 2013
|
|
|
0.0900
|
|
|
|
12.90
|
|
|
|
12.35
|
|
|
|
12.46
|
|
(1)
|
Whenever the net asset value per share of the Funds Common Stock is less than or
equal to the market price per share on the reinvestment 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.
|
13
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1.
|
Aggregate Information for Federal Income Tax Purposes
|
At August 31, 2013, the aggregate cost of securities for federal income tax purposes was $203,116,787, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax
cost was $20,707,461 and the aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $8,867,337.
2.
|
Additional Accounting Standards
|
Fair
Value Measurements:
The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of all inputs to their fair value determination. The levels of fair value inputs used to
measure the Funds investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest
level input that is significant to that investments valuation. The three levels of the fair value hierarchy are described below:
|
|
|
Level 1 quoted prices in active markets for identical securities
|
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
|
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
|
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with
investing in those securities. Transfers in and out of levels are recognized at market value at the end of the period. A summary of the inputs used to value the Funds investments as of August 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Value at
August 31, 2013
|
|
|
Level 1
Quoted
Price
|
|
|
Level 2
Significant
Observable
Inputs
|
|
|
Level 3
Significant
Unobservable
Inputs
|
|
Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
$
|
79,534,946
|
|
|
$
|
53,604,794
|
|
|
$
|
25,922,337
|
|
|
$
|
7,815
|
|
Financial Services
|
|
|
3,330,632
|
|
|
|
1,962,632
|
|
|
|
1,368,000
|
|
|
|
|
|
Insurance
|
|
|
53,870,527
|
|
|
|
34,102,442
|
|
|
|
19,768,085
|
|
|
|
|
|
Utilities
|
|
|
33,754,157
|
|
|
|
11,567,066
|
|
|
|
22,187,091
|
|
|
|
|
|
Energy
|
|
|
13,433,543
|
|
|
|
10,220,980
|
|
|
|
3,212,563
|
|
|
|
|
|
Real Estate Investment Trust (REIT)
|
|
|
5,914,169
|
|
|
|
5,914,169
|
|
|
|
|
|
|
|
|
|
Miscellaneous Industries
|
|
|
5,493,839
|
|
|
|
252,313
|
|
|
|
5,241,526
|
|
|
|
|
|
Corporate Debt Securities
|
|
|
18,958,293
|
|
|
|
8,323,035
|
|
|
|
10,635,258
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
173,289
|
|
|
|
173,289
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
20,197
|
|
|
|
20,197
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
285,996
|
|
|
|
285,996
|
|
|
|
|
|
|
|
|
|
Money Market Fund
|
|
|
187,323
|
|
|
|
187,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
214,956,911
|
|
|
$
|
126,614,236
|
|
|
$
|
88,334,860
|
|
|
$
|
7,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Continued)
During the reporting period, there were no transfers into Level 1 from Level 2. During the
reporting period, securities with an aggregate market value of $2,932,750 were transferred into Level 2 from Level 1. The securities were transferred because of a reduction in the amount of observable market data, resulting from: a decrease in
market activity for the securities, reduced availability of quoted prices for the securities, or
de-listing
of securities from a national securities exchange that resulted in a material decrease in activity.
The fair values of the Funds investments are generally based on market information and quotes received from brokers or independent
pricing servicesapproved by the Board and unaffiliated with the Adviser. To assess the continuing appropriateness of security valuations, management, in consultation with the Adviser, regularly compares current prices to prior prices, prices
across comparable securities, actual sale prices for securities in the Funds portfolio, and market information obtained by the Adviser as a function of being an active participant in the markets.
Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or near the measurement
date are classified as Level 1. Securities that are priced using quotes derived from implied values, indicative bids and offers, or a limited number of actual tradesor the same information for securities that are similar in many respects to
those being valuedare classified as Level 2. If market information is not available for securities being valued, or materially-comparable securities, then those securities are classified as Level 3. In considering market information,
management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of prices from pricing services, and the existence of observable trades in the market.
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
Preferred Securities
|
|
|
|
Total Investments
|
|
|
Banking
|
|
Balance as of 11/30/12
|
|
$
|
12,315
|
|
|
$
|
12,315
|
|
Accrued discounts/premiums
|
|
|
|
|
|
|
|
|
Realized gain/(loss)
|
|
|
(8,967,000
|
)
|
|
|
(8,967,000
|
)
|
Change in unrealized appreciation/(depreciation)
|
|
|
8,962,500
|
|
|
|
8,962,500
|
|
Purchases
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
Transfer in
|
|
|
|
|
|
|
|
|
Transfer out
|
|
|
|
|
|
|
|
|
Balance as of 08/31/13
|
|
$
|
7,815
|
|
|
$
|
7,815
|
|
For the nine months ended August 31, 2013, total change in unrealized gain/(loss) on Level 3 securities still held
at
period-end
and included in the change in net assets was $0.
15
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES
TO FINANCIAL STATEMENTS (Unaudited) (Continued)
The following table summarizes the valuation techniques used and unobservable inputs developed to
determine the fair value of Level 3 investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Fair Value
at
08/31/13
|
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Input Range (Wgt Avg)
|
|
Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
$
|
7,815
|
|
|
Bankruptcy recovery
|
|
Credit/Structure-specific
recovery
|
|
|
0.00% - 0.50% (0.15%)
|
|
The significant unobservable inputs used in the fair value measurement technique for bankruptcy recovery are based
on recovery analysis that is specific to the security being valued, including the level of subordination and structural features of the security, and the current status of any bankruptcy or liquidation proceedings. Observable market trades in
bankruptcy claims are utilized by management, when available, to assess the appropriateness of valuations, although the frequency of trading depends on the specific credit and seniority of the claim. Expected recoveries in bankruptcy by security
type and industry do not tend to deviate much from historical recovery rates, which are very low (sometimes zero) for preferred securities and more moderate for senior debt. Significant changes in these inputs would result in a significantly higher
or lower fair value measurement.
16
Directors
Donald F. Crumrine, CFA
Chairman of the Board
David Gale
Morgan Gust
Karen H. Hogan
Robert F. Wulf, CFA
Officers
Donald F. Crumrine, CFA
Chief Executive Officer
Robert M. Ettinger, CFA
President
R. Eric Chadwick, CFA
Chief Financial Officer, Vice President and Treasurer
Chad C. Conwell
Chief Compliance Officer, Vice President and Secretary
Bradford S. Stone
Vice President and Assistant
Treasurer
Laurie C. Lodolo
Assistant Compliance Officer, Assistant Treasurer and Assistant Secretary
Linda M. Puchalski
Assistant Treasurer
Investment Adviser
Flaherty & Crumrine Incorporated
e-mail:
flaherty@pfdincome.com
Questions concerning your shares of Flaherty & Crumrine Preferred Income 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 Funds Transfer Agent & Shareholder
Servicing Agent
|
BNY Mellon Investment Servicing (US) Inc.
P.O. Box 358035
Pittsburgh, PA 15252-8035
1-866-351-7446
This report is sent to shareholders of Flaherty & Crumrine Preferred Income 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.
Quarterly Report
August 31, 2013
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