-----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, PINcD84p9I5akTyV/OfylktBbVSqje3BCSmBJZ5Lx4dL9LEniFUJdaiRec37meDl 8kWxRHQj7C/pz1zh4vAuYA== 0000927405-97-000444.txt : 19971104 0000927405-97-000444.hdr.sgml : 19971104 ACCESSION NUMBER: 0000927405-97-000444 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971103 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: SEC FILE NUMBER: 811-06179 FILM NUMBER: 97706413 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 ANNUAL REPORT THE PREFERRED INCOME FUND Dear Shareholder: The Preferred Income Fund produced very strong total returns on net asset value ("NAV") of 4.7% in the fiscal third quarter and 19.2% for the 12 months through August 31, 1997. The total return on market price for the 12 months was even better at 21.7% reflecting a narrowing of the discount of the market price from NAV. The Fund's hedging strategies worked like clockwork in the third quarter. Wide swings in interest rates caused bond and preferred stock prices first to rise sharply and then to give up a good portion of those gains. NAV increased when prices were rising, as the appreciation in the Fund's portfolio easily outdistanced the decline in the value of our put option hedges. When the market reversed itself, our hedges helped stabilize the NAV against decline. Combined with some successful "mid-course adjustments" in the hedge along the way, this produced very good results overall. Active portfolio management in the trenches also paid off in the third quarter. Some sectors of the preferred market performed well while others lagged, which put a premium on being in the right place at the right time. When the smoke cleared, all areas of the Fund's preferred portfolio produced strong returns for the quarter. There were no unpleasant surprises in the tax package finally enacted in Washington. It did not include the Administration's previous proposals to reduce the Dividends Received Deduction ("DRD") for corporate investors and to restrict newer forms of hybrid preferreds, which look very much like traditional preferreds but do not qualify for the DRD. In the eyes of the market, this has officially "blessed" the tax law interpretations that have led to the increasing scarcity of traditional preferred stocks eligible for the DRD and the rapid growth of the hybrid market. The Fund's portfolio reflects the changing nature of the preferred market. We continue to buy traditional preferreds when they are attractive relative to hybrids. In some instances, however, their prices do not make sense, even for corporate investors taking the DRD into account, and we opt for more attractive hybrid preferreds. At quarter's end, hybrids accounted for roughly 21% of the Fund's portfolio. We are pleased with the accomplishments of the Fund and hope that our shareholders share that sense of satisfaction. Sincerely yours, /s/ Robert T. Flaherty Robert T. Flaherty Chairman of the Board September 18, 1997 - -------------------------------------------------------------------------------- Preferred Income Fund Incorporated SUMMARY OF INVESTMENTS AUGUST 31, 1997 (UNAUDITED) - ---------------------------
PERCENT OF VALUE TOTAL NET (000'S) ASSETS -------- ---------- ADJUSTABLE RATE PREFERRED STOCKS Utilities.............................................................. $ 15,231 6.9% Banking................................................................ 58,337 26.6 Financial Services..................................................... 328 0.1 -------- ----- Total Adjustable Rate............................................. 73,896 33.6 -------- ----- FIXED RATE PREFERRED STOCKS AND SECURITIES Utilities.............................................................. 77,333 35.2 Banking................................................................ 23,475 10.7 Financial Services..................................................... 27,575 12.6 Industrial............................................................. 8,323 3.8 Insurance.............................................................. 3,756 1.7 -------- ----- Total Fixed Rate.................................................. 140,462 64.0 -------- ----- TOTAL PREFERRED STOCKS AND SECURITIES....................................... 214,358 97.6 COMMON STOCK Utilities.............................................................. 834 0.4 REPURCHASE AGREEMENT........................................................ 1,292 0.6 PURCHASED PUT OPTIONS....................................................... 1,893 0.9 -------- ----- TOTAL INVESTMENTS........................................................... 218,377 99.5 OTHER ASSETS AND LIABILITIES (NET).......................................... 1,325 0.5 -------- ----- TOTAL NET ASSETS.................................................. $219,702 100.0% ======== =====
FINANCIAL DATA PER SHARE OF COMMON STOCK (UNAUDITED) - -------------------------------------
DIVIDEND DIVIDEND NET ASSET NYSE REINVESTMENT PAID VALUE CLOSING PRICE PRICE (1) -------- --------- ------------- ------------ December 31, 1996.............................. $0.840 $ 15.57 $ 14.7500 $15.23 January 31, 1997............................... 0.087 15.46 14.7500 14.73 February 28, 1997.............................. 0.087 15.74 14.7500 14.88 March 31, 1997................................. 0.087 15.95 15.1250 15.16 April 30, 1997................................. 0.087 15.84 14.8750 14.94 May 31, 1997................................... 0.087 15.99 15.2500 15.27 June 30, 1997.................................. 0.087 16.12 15.5625 15.59 July 31, 1997.................................. 0.087 16.55 15.9375 16.03 August 31, 1997................................ 0.087 16.47 15.6875 15.86
- --------------- (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, 1997 (UNAUDITED) --------------------------------------------- OPERATIONS: Net investment income................................................................................. $ 9,338,792 Net realized gain on investments sold................................................................. 4,082,797 Net unrealized appreciation of investments during the period.......................................... 3,416,078 ------------ Net increase in net assets from operations........................................................ 16,837,667 DISTRIBUTIONS: Dividends paid from net investment income to MMP* Shareholders........................................ (2,017,501) Distributions paid from net realized capital gains to MMP* Shareholders............................... (93,525) Dividends paid from net investment income to Common Stock Shareholders................................ (8,725,313) Distributions paid from net realized capital gains to Common Stock Shareholders....................... (6,386,813) ------------ Net decrease in net assets........................................................................ (385,485) NET ASSETS: Beginning of period................................................................................... 220,087,941 ------------ End of period......................................................................................... $219,702,456 ============
FINANCIAL HIGHLIGHTS(1) NINE MONTHS ENDED AUGUST 31, 1997 (UNAUDITED) FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD. ----------------------------------------------------- OPERATING PERFORMANCE: Net asset value, beginning of period.................................................................. $ 16.50 ------------ Net investment income................................................................................. 0.95 Net realized gain and unrealized appreciation on investments.......................................... 0.77 ------------ Net increase in net asset value resulting from investment operations.................................. 1.72 DISTRIBUTIONS: Dividends declared to MMP* Shareholders............................................................... (0.21) Distributions paid from net realized capital gains to MMP* Shareholders............................... (0.01) Dividends paid from net investment income(2).......................................................... (0.89) Distributions paid from net realized capital gains(3)................................................. (0.65) Change in accumulated undeclared dividends on MMP* Shareholders....................................... 0.01 ------------ Total from distributions.............................................................................. (1.75) ------------ Net asset value, end of period........................................................................ $ 16.47 ============ Market value, end of period........................................................................... $ 15.6875 ============ Net assets, end of period............................................................................. $219,702,456 ============ Common shares outstanding, end of period.............................................................. 9,838,571 ============ RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS/SUPPLEMENTAL DATA: Net investment income................................................................................. 6.22%** Operating expenses.................................................................................... 1.34%** Portfolio turnover rate............................................................................... 55% EXPENSE RATIO TO TOTAL AVERAGE NET ASSETS (WHICH INCLUDES MMP*) Operating expenses.................................................................................... 0.98%**
- --------------- (1) These tables summarize the nine months ended August 31, 1997 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 1996. (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 Shareholders. ** Annualized. 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 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 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 FUND LOGO] Quarterly Report August 31, 1997 -----END PRIVACY-ENHANCED MESSAGE-----