-----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, Tdr1ncASWVmKfO5h9BGRov83u2nRmPBklJIKQ30awis//iDnCHhtJHMgIujXcHgB ondOvHSFYMEavu2+0So9fA== 0000927405-96-000394.txt : 19961010 0000927405-96-000394.hdr.sgml : 19961010 ACCESSION NUMBER: 0000927405-96-000394 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961009 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREFERRED INCOME FUND INC CENTRAL INDEX KEY: 0000868578 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954305694 STATE OF INCORPORATION: MD FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-06179 FILM NUMBER: 96640935 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 PREFERRED INCOME FUND INCORPORATED Dear Shareholder: The Preferred Income Fund has stayed on track very well in the first three quarters of fiscal 1996 despite the weak bond market. The return on net asset value ("NAV") was 4.3% over the first nine months, and the Fund's dividend rate was increased in May. Furthermore, the market price of the shares recently hit a new high for the past twelve months as the discount from NAV narrowed. Rapidly rising interest rates underscore the value of the Fund's hedging strategy. On August 31, 1996 the Fund's NAV was essentially unchanged from mid-February when the bond market started its fall. The decline in the value of the Fund's holdings of preferred stocks caused by rising interest rates was offset by gains on our hedges. Normally we would expect the NAV to decline moderately under these conditions because the "safety net" of our hedges was initially set slightly below the market (i.e., our put options on Treasury bond futures were "out-of-the-money"). However, we also benefited from our preferred stock holdings generally outperforming the Treasury bonds on which our hedges are based. Preferred stocks took a "breather" in the latest quarter as the market absorbed the liquidation of a large institutional portfolio. Nonetheless, we still see "creeping scarcity" of traditional preferreds eligible for the intercorporate Dividends Received Deduction. As discussed in our previous letters, there is a strong tax motivation for issuers to retire such preferreds. In the last few months, the discount of the market price of the Fund's shares from their NAV has generally narrowed, from around 15% earlier this year. The strong NAV performance of the Fund and the increased dividend rate have probably helped. We have also made a serious effort to draw the Fund's accomplishments to the attention of securities analysts and investment publications. At this moment, the discount is approximately 11%, although it can be erratic from week to week. The Fund will probably be able to make a special year-end distribution this December. To date, realized capital gains have exceeded losses available to offset them, due in part to the success of our hedges. To the extent that any year-end distribution is attributable to capital gains, it will not qualify for the Dividends Received Deduction available to corporate investors. Of course, the year is not over, and the situation could change. The Preferred Income Fund is intended to be an alternative to bond funds for investors who want less exposure to fluctuating interest rates than is normally associated with fixed income investments. It's working! Sincerely, /s/ Robert T. Flaherty Robert T. Flaherty Chairman of the Board September 25, 1996 - ---------------------------------------------------------------------------------------------------- Preferred Income Fund Incorporated SUMMARY OF INVESTMENTS AUGUST 31, 1996 (UNAUDITED) - ----------------------------------
PERCENT VALUE OF TOTAL (000'S) NET ASSETS -------- ---------- ADJUSTABLE RATE PREFERRED STOCK Utilities............................................................. $ 20,062 9.5% Banking............................................................... 47,020 22.4 -------- ----- Total Adjustable Rate............................................ 67,082 31.9 -------- ----- FIXED RATE PREFERRED STOCK Utilities............................................................. 73,574 35.0 Banking............................................................... 31,740 15.1 Financial Services.................................................... 12,207 5.8 Industrial............................................................ 7,749 3.7 Insurance............................................................. 3,545 1.6 -------- ----- Total Fixed Rate................................................. 128,815 61.2 -------- ----- TOTAL PREFERRED STOCK...................................................... 195,897 93.1 OTHER SECURITIES........................................................... 8,780 4.2 COMMERCIAL PAPER........................................................... 548 0.3 PURCHASED PUT OPTIONS...................................................... 3,626 1.7 -------- ----- TOTAL INVESTMENTS.......................................................... 208,851 99.3 OTHER ASSETS AND LIABILITIES (NET)......................................... 1,531 0.7 -------- ----- TOTAL NET ASSETS................................................. $210,382 100.0% ======== =====
FINANCIAL DATA PER SHARE OF COMMON STOCK (UNAUDITED) - -------------------------------------
DIVIDEND DIVIDEND NET ASSET NYSE REINVESTMENT PAID VALUE CLOSING PRICE PRICE (1) -------- --------- ------------- ------------ December 29, 1995.............................. $0.087 $15.54 $13.500 $13.48 January 31, 1996............................... 0.087 15.61 13.625 13.74 February 29, 1996.............................. 0.087 15.33 13.625 13.65 March 29, 1996................................. 0.087 15.45 13.125 13.22 April 30, 1996................................. 0.087 15.43 13.250 13.20 May 31, 1996................................... 0.092 15.63 13.875 13.80 June 28, 1996.................................. 0.092 15.64 14.000 14.03 July 31, 1996.................................. 0.092 15.58 14.125 14.09 August 30, 1996................................ 0.092 15.54 14.500 14.53 - --------------- (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 Fund Incorporated STATEMENT OF CHANGES IN NET ASSETS(1) NINE MONTHS ENDED AUGUST 31, 1996 (UNAUDITED) --------------------------------------------- OPERATIONS: Net investment income................................................................................. $ 10,200,816 Net realized gain on investments sold................................................................. 10,545,004 Net unrealized depreciation of investments during the period.......................................... (13,584,688) ------------ Net increase in net assets from operations........................................................ 7,161,132 DISTRIBUTIONS: Dividends paid from net investment income to Money Market Cumulative Preferred[Trademark] Stock Shareholders............................................................. (1,931,557) Dividends paid from net investment income to Common Stock Shareholders................................ (7,900,373) ------------ Net decrease in net assets........................................................................ (2,670,798) NET ASSETS: Beginning of period................................................................................... 213,053,235 ------------ End of period......................................................................................... $210,382,437 ============
FINANCIAL HIGHLIGHTS(1) NINE MONTHS ENDED AUGUST 31, 1996 (UNAUDITED) FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD. ----------------------------------------------------- OPERATING PERFORMANCE: Net asset value, beginning of period.................................................................. $ 15.80 ------------ Net investment income................................................................................. 1.04 Net realized gain and unrealized depreciation on investments.......................................... (0.31) ------------ Net increase in net asset value resulting from investment operations.................................. 0.73 DISTRIBUTIONS: Dividends declared to Money Market Cumulative Preferred[Trademark] Stock Shareholders................. (0.20) Dividends paid from net investment income............................................................. (0.80) Change in accumulated undeclared dividends on Money Market Cumulative Preferred[Trademark] Stock...... 0.01 ------------ Total from distributions.............................................................................. (0.99) ------------ Net asset value, end of period........................................................................ $ 15.54 ============= Market value, end of period........................................................................... $ 14.500 ============= Net assets, end of period............................................................................. $210,382,437 ============= Common shares outstanding, end of period.............................................................. 9,838,571 ============= RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS/SUPPLEMENTAL DATA: Net investment income................................................................................. 7.33%* Operating expenses.................................................................................... 1.52%* Portfolio turnover rate............................................................................... 76% - --------------- (1) These tables summarize the nine months ended August 31, 1996 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 1995. * Annualized.
3 DIRECTORS Martin Brody Donald F. Crumrine, CFA Robert T. Flaherty, CFA Morgan Gust Robert F. Wulf 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 QUESTIONS CONCERNING YOUR SHARES OF 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 Fund's Transfer Agent & Shareholder Servicing Agent -- First Data Investor Services Group, Inc. (FDISG) P.O. Box 1376 Boston, MA 02104 1-800-331-1710 THIS REPORT IS SENT TO SHAREHOLDERS OF 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. [LOGO] Quarterly Report August 31, 1996 -----END PRIVACY-ENHANCED MESSAGE-----