-----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, Ut1zRIWCF+XKwEZezKpFcBq2CArh1Rj3tVvHp6YetGmnSuwFuKOsdNMlVtMbz0S6 FIs6UUAwgcI90z6mbqmt3A== 0000935069-05-002913.txt : 20051024 0000935069-05-002913.hdr.sgml : 20051024 20051024124705 ACCESSION NUMBER: 0000935069-05-002913 CONFORMED SUBMISSION TYPE: N-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051024 DATE AS OF CHANGE: 20051024 EFFECTIVENESS DATE: 20051024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLAHERTY & CRUMRINE PREFERRED INCOME FUND INC CENTRAL INDEX KEY: 0000868578 IRS NUMBER: 954305694 STATE OF INCORPORATION: MD FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-Q SEC ACT: 1940 Act SEC FILE NUMBER: 811-06179 FILM NUMBER: 051151392 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: (626) 795-7300 MAIL ADDRESS: STREET 1: 301 E COLORADO BLVD STE 720 STREET 2: C/O FLAHERTY & CRUMRINE INC CITY: PASADENA STATE: CA ZIP: 91101 FORMER COMPANY: FORMER CONFORMED NAME: PREFERRED INCOME FUND INC DATE OF NAME CHANGE: 19920703 N-Q 1 nq.txt FLAHERTY PFD NQ 08/05 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-Q QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY Investment Company Act file number 811-06179 ---------------------------- FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED --------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 301 E. Colorado Boulevard, Suite 720 PASADENA, CA 91101 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Donald F. Crumrine Flaherty & Crumrine Incorporated 301 E. Colorado Boulevard, Suite 720 PASADENA, CA 91101 --------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 626-795-7300 -------------- Date of fiscal year end: NOVEMBER 30, 2005 ------------------- Date of reporting period: AUGUST 31, 2005 ----------------- Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule(s) of Investments is attached herewith. FLAHERTY & CRUMRINE PREFERRED INCOME FUND Dear Shareholder: During the third fiscal quarter of 2005, the Flaherty & Crumrine Preferred Income Fund continued to deliver steady performance. For the three month period ended August 31, 2005, the Fund produced a total return on net asset value ("NAV") of 0.9% 1. During the first three quarters of fiscal 2005, the Fund's return on NAV has been 8.8%. The Fund's interest rate hedging strategy normally works best when long-term interest rates are rising OR falling. In periods of relatively stable long-term interest rates, such as we've experienced for several quarters now, the costs of implementing the strategy can drag down investment performance--much like paying on-going premiums on an insurance policy but never making a claim. Given the Fund's policy of maintaining a continuing interest-rate hedge on the portfolio, the Fund's NAV returns are respectable. And don't forget, the Fund still owns the "insurance policy"! The country is still coming to grips with the impact of Hurricanes Katrina and Rita; our thoughts are very much with the victims of these terrible events. We are closely watching the effect on the Fund's investment portfolio, and, so far, we have seen no material impact. Insurance companies have become much more adept at managing the financial risk they face from hurricanes and other catastrophic events. While claims from the hurricanes certainly will adversely impact insurance industry earnings, we believe there is no threat to industry solvency. Utilities in the region should be able to recover most of the expense they will incur in returning to operation from their customers. (The New Orleans subsidiary of Entergy Corp. has filed for bankruptcy protection; however, the Fund does not own any securities issued by this company.) Changes in the banking industry have encouraged companies to expand across state lines, resulting in larger, healthier banks that are unlikely to be hurt by the hurricanes. Diversification across companies, industries and geography is an important element of the Fund's investment strategy, and helps to limit the impact of economic shocks, such as those delivered by Hurricanes Katrina and Rita. Recently, we have seen a pick-up in the supply of new preferred securities. Some were issued simply to take advantage of the low level of long-term interest rates and lock-in attractive financing costs. Other issues, however, have introduced new twists to the structure that are intended to help the issuer achieve specific financial objectives. Time will tell how broadly these new features get incorporated into the market, but for now, many of the recent new issues have fit nicely into the Fund's investment portfolio. There is not much new to report regarding the outlook for the Fund's dividend rate. Several similar funds have recently reduced their dividends, but we don't think any change is warranted at present for Flaherty & Crumrine Preferred Income Fund. We encourage you to take advantage of the Fund's website, WWW.PREFERREDINCOME.COM. It contains a wide range of useful and up-to-date information about the Fund, including the factors which impact the Fund's dividend policy. In addition, the website includes summaries of the Fund's investment objective, its hedging strategy, its use of leverage and the risks applicable to the Fund. Sincerely, /S/ Donald F. Crumrine /S/ Robert M. Ettinger Donald F. Crumrine Robert M. Ettinger Chairman of the Board President October 17, 2005 - -------------------------- (1) Based on monthly data provided by Lipper Inc. Distributions are assumed to be reinvested at NAV in accordance with Lipper's practice. DIVIDEND REINVESTMENT: BUILDING WEALTH ONE DIVIDEND AT A TIME The Flaherty & Crumrine Preferred Income Fund offers a Dividend Reinvestment and Cash Purchase Plan, unglamorously nicknamed the "DRIP", for those investors who desire a steady, reliable approach to building wealth. Why invest in the DRIP? o Disciplined monthly investing in both good and bad markets, o When shares trade below the NAV, the Fund purchases shares in the market, o When shares trade above the NAV, shares are issued at the higher of NAV or 95% of the market price. Participating shareholders get the benefit! o $1,000 invested at inception, January 1991, with dividend reinvestment would be worth over $5,400 as of August 31, 2005 (12.28% annualized return). To obtain information on the DRIP, contact your brokerage firm and ask if they are set up to participate. Information can also be found on the Fund's website at WWW.PREFERREDINCOME.COM. Select the appropriate Fund and then select the link "Dividend Reinvestment Plan". For investors who hold their shares in registered form, contact the DRIP's agent, PFPC Inc., at 1-800-331-1710. Past performance is no guarantee of future results. Participation in the DRIP does not relieve the investor of any income tax associated with the distribution. For additional performance information please refer to the attached quarterly report. 2 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OVERVIEW AUGUST 31, 2005 (UNAUDITED) - ------------------------------------------------------ FUND STATISTICS ON 08/31/05 - -------------------------------------------- Net Asset Value $ 15.93 Market Price $ 17.74 Premium 11.36% Yield on Market Price 6.12% Common Shares Outstanding 10,348,459 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: INDUSTRY CATEGORIES % OF PORTFOLIO - ------------------------------------------------------ Utilities 37% Banks 27% Insurance 15% Financial Services 11% Oil and Gas 5% Other 3% REITs 2% MOODY'S RATINGS % OF PORTFOLIO - ------------------------------------------- AAA 0.5% AA 5.2% A 23.2% BBB 46.3% BB 15.0% Not Rated 8.7% - ------------------------------------------- Below Investment Grade* 16.3% * BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P. TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO - ------------------------------------------------------- Interstate Power 5.3% Lehman Brothers 4.4% Alabama Power 4.0% North Fork Bancorporation 3.6% ABN AMRO 3.4% Xcel Energy 3.2% Principal Financial Group 3.0% Cobank 2.8% SLM Corporation 2.7% EOG Resources 2.6%
% OF PORTFOLIO** - --------------------------------------------------------------------------------------------------------------------------- Holdings Generating Qualified Dividend Income (QDI) for Individuals 73% Holdings Generating Income Eligible for the Corporate Dividend Received Deduction (DRD) 71% - --------------------------------------------------------------------------------------------------------------------------- ** 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.
3 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS AUGUST 31, 2005 (UNAUDITED) - ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- 96.7% BANKING -- 26.8% - ----------------------------------------------------------------------------------------------------------------------- ABN AMRO North America, Inc.: 3,625 6.46% Pfd., 144A**** ........................................................... $ 3,749,809* 4,500 6.59% Pfd., 144A**** ........................................................... 4,646,497* 54,700 BAC Capital Trust I, 7.00% Pfd. 12/15/31 ......................................... 1,423,020 400 BancWest Capital I, 9.50% Pfd. 12/01/30 .......................................... 10,168(1) $ 750,000 Barnett Capital II, 7.95% 12/01/26 Capital Security .............................. 810,446 $ 1,500,000 BT Preferred Capital Trust II, 7.875% 02/25/27 Capital Security .................. 1,618,927(1) $ 250,000 Chase Capital I, 7.67% 12/01/26 Capital Security ................................. 268,427 Citigroup, Inc.: 9,876 6.213% Pfd., Series G .......................................................... 510,787* 26,200 6.231% Pfd., Series H .......................................................... 1,368,426* 65,350 6.365% Pfd., Series F .......................................................... 3,418,459* Cobank, ACB: 50,000 7.00% Pfd., 144A**** ........................................................... 2,658,500* 75,000 Adj. Rate Pfd., 144A**** ....................................................... 4,179,375* $ 500,000 Comerica (Imperial) Capital Trust I, 9.98% 12/31/26 Capital Security, Series B ... 571,260 3,300 FBOP Corporation, Adj. Rate Pfd., 144A**** ....................................... 3,308,250* $ 2,250,000 First Hawaiian Capital I, 8.343% 07/01/27 Capital Security, Series B ............. 2,468,036(1) First Republic Bank: 200,000 6.25% Pfd. ..................................................................... 5,181,000* 10,000 6.70% Pfd. .................................................................... 259,900* $ 1,500,000 First Union Capital II, 7.95% 11/15/29 Capital Security .......................... 1,964,573 $ 906,000 First Union Institutional Capital I, 8.04% 12/01/26 Capital Security ............. 978,996 $ 1,820,000 First Union Institutional Capital II, 7.85% 01/01/27 Capital Security ............ 1,964,990 $ 7,820,000 GreenPoint Capital Trust I, 9.10% 06/01/27 Capital Security ...................... 8,718,205 $ 2,500,000 HBOS Capital Funding LP, 6.85% Pfd. .............................................. 2,586,888(1) 36,455 J.P. Morgan Chase & Co., 6.625% Pfd., Series H ................................... 1,864,856* $ 2,000,000 Keycorp Capital VII, 5.70% 06/15/35 Capital Security ............................. 1,980,890 $ 270,000 Keycorp Institutional Capital B, 8.25% 12/15/26 Capital Security ................. 292,316 $ 674,000 NB Capital Trust II, 7.83% 12/15/26 Capital Security ............................. 726,946 16,000 PFGI Capital Corporation, 7.75% Pfd. ............................................. 437,200 $ 1,700,000 RBS Capital Trust B, 6.80% Pfd. .................................................. 1,749,181**(1) 16,500 Regions Financial Trust I, 8.00% Pfd. ............................................ 424,875 $ 2,635,000 Republic New York Capital II, 7.53% 12/04/26 Capital Security .................... 2,819,187(1) 10 Roslyn Real Estate, 8.95% Pfd., Pvt., Series C, 144A**** ......................... 1,130,254 $ 1,200,000 Wachovia Capital Trust V, 7.965% 06/01/27 Capital Security, 144A**** ............. 1,312,932 7,500 Wachovia Preferred Funding, 7.25% Pfd., Series A ................................. 216,338 - ------------------------------------------------------------------------------------------------------------------- 65,619,914 ----------------
4 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- (CONTINUED) FINANCIAL SERVICES -- 11.0% - ------------------------------------------------------------------------------------------------------------------------ 175,000 CIT Group, Inc., 6.35% Pfd., Series A .......................................... $ 4,543,875* 50,000 Fannie Mae, 4.75% Pfd., Series M ............................................... 2,171,000* Freddie Mac: 17,825 5.00% Pfd., Series F ......................................................... 825,476* 28,350 5.30% Pfd .................................................................... 1,386,599* Lehman Brothers Holdings, Inc.: 48,280 5.67% Pfd., Series D ......................................................... 2,457,693* 154,475 5.94% Pfd., Series C ......................................................... 8,015,708* 15,000 6.50% Pfd., Series F ......................................................... 395,925* 19,700 National Rural Utility CFC, 5.95% Pfd. 02/15/45 ................................ 483,241 115,805 SLM Corporation, 6.97% Pfd., Series A .......................................... 6,516,926* - ------------------------------------------------------------------------------------------------------------------- 26,796,443 ---------------- INSURANCE -- 13.7% - ------------------------------------------------------------------------------------------------------------------------ 40,000 ACE Ltd., 7.80% Pfd., Series C ................................................. 1,067,000**(1) 40,000 Aegon NV, 6.375% Pfd. .......................................................... 1,033,600**(1) $ 2,000,000 AON Capital Trust A, 8.205% 01/01/27 Capital Security .......................... 2,367,620 17,000 Berkley W.R. Capital Trust II, 6.75% 07/26/45 .................................. 427,295 21,000 Everest Re Capital Trust II, 6.20% Pfd., Series B .............................. 511,245(1) 140,000 MetLife Inc., 6.50% Pfd., Series B ............................................. 3,649,100* $ 5,150,000 MMI Capital Trust I, 7.625% 12/15/27 Capital Security, Series B ................ 5,990,763 275,000 Principal Financial Group, 6.518% Pfd. ......................................... 7,466,250* $ 4,000,000 Provident Financing Trust I, 7.405% 03/15/38 Capital Security .................. 3,657,340 89,000 Scottish Re Group Ltd., 7.25% Pfd. ............................................. 2,249,920**(1) 7,000 St. Paul Capital Trust I, 7.60% Pfd. ........................................... 181,895 Zurich RegCaPS Funding Trust: 2,050 6.01% Pfd., 144A**** ......................................................... 2,052,860* 2,800 6.58% Pfd., 144A**** ......................................................... 2,968,280* - ------------------------------------------------------------------------------------------------------------------- 33,623,168 ---------------- UTILITIES -- 36.6% - ------------------------------------------------------------------------------------------------------------------------ Alabama Power Company: 300 4.52% Pfd. ................................................................... 27,621* 5,734 4.72% Pfd. ................................................................... 551,295* 89,100 5.20% Pfd. ................................................................... 2,275,168* 275,000 5.30% Pfd. ................................................................... 7,022,125* 10,000 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ...................... 1,041,100*
5 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) - ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- (CONTINUED) UTILITIES -- (CONTINUED) - --------------------------------------------------------------------------------------------------------------------- Central Hudson Gas & Electric Corporation: 5,000 4.35% Pfd., Series D, Pvt. ..................................................... $ 469,075* 900 4.96% Pfd., Series E, Pvt. ..................................................... 89,658* 16,679 Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd., Pvt. ........ 1,734,783* Connecticut Light & Power Company: 2,124 4.50% Pfd., Pvt. ............................................................... 89,442* 34,300 5.28% Pfd., Series 1967 ........................................................ 1,678,985* 1,905 6.56% Pfd., Series 1968 ........................................................ 98,527* 15,778 $3.24 Pfd. ..................................................................... 822,192* 2,100 Consolidated Edison Company of New York, 4.65% Pfd., Series C .................... 198,177* 2,886 Dayton Power and Light Company, 3.90% Pfd., Series C ............................. 216,594* Duke Energy Corporation: 3,000 4.50% Pfd., Series C, Pvt. ..................................................... 285,750* 519 7.04% Pfd., Series Y ........................................................... 53,205* 30,762 7.85% Pfd., Series S ........................................................... 3,164,333* Duquesne Light Company: 7,675 4.10% Pfd. ..................................................................... 294,413* 9,190 4.15% Pfd. ..................................................................... 356,802* 910 4.20% Pfd. ..................................................................... 35,754* 40,575 6.50% Pfd. ..................................................................... 2,161,836* 5,490 $2.10 Pfd., Series A ........................................................... 215,702* 5,000 Energy East Capital Trust I, 8.25% Pfd. .......................................... 129,750 Entergy Arkansas, Inc.: 5,574 7.32% Pfd. ..................................................................... 581,898* 11,350 7.40% Pfd. ..................................................................... 1,180,911* 5,332 7.80% Pfd. ..................................................................... 557,701* 3,822 7.88% Pfd. ..................................................................... 398,883* 30,266 $1.96 Pfd. ..................................................................... 757,407* 4,555 Entergy Gulf States, Inc., 7.56% Pfd. ............................................ 463,631* Entergy Louisiana, Inc.: 260 7.84% Pfd. ..................................................................... 27,184* 106,538 8.00% Pfd., Series 92 .......................................................... 2,686,888* 5,000 Entergy Mississippi, Inc., 4.92% Pfd. ............................................ 434,400* 10,800 Enterprise Capital Trust I, 7.44% Pfd., Series A ................................. 275,130 Florida Power Company: 17,769 4.58% Pfd. ..................................................................... 1,707,956* 5,157 4.60% Pfd. ..................................................................... 495,227* 18,535 4.75% Pfd. ..................................................................... 1,837,931*
6 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- (CONTINUED) UTILITIES -- (CONTINUED) - --------------------------------------------------------------------------------------------------------------------- 50,000 Georgia Power Capital Trust V, 7.125% Pfd. ...................................... $ 1,311,750 2,010 Great Plains Energy, Inc., 4.50% Pfd. ............................................ 177,503* $ 3,500,000 Houston Light & Power, Capital Trust II, 8.257%, 02/01/37 Capital Security ....... 3,777,007 32,650 Indianapolis Power & Light Company, 5.65% Pfd. ................................... 3,159,540* 384,000 Interstate Power & Light Company, 8.375% Pfd., Series B .......................... 13,000,320* 14,250 Narragansett Electric Company, 4.64% Pfd. ........................................ 721,335* Northern Indiana Public Service Company: 3,905 7.44% Pfd. ..................................................................... 399,130* 7,465 Adj. Rate Pfd., Series A ....................................................... 377,169* 6,170 Ohio Edison Company, 4.44% Pfd. .................................................. 536,697* Pacific Enterprises: 27,430 $4.50 Pfd. ..................................................................... 2,392,582* 10,000 $4.75 Pfd., Series 53 .......................................................... 920,700* Pacific Gas & Electric Co.: 41,500 5.00% Pfd., Series D ........................................................... 937,692* 45,500 5.00% Pfd., Series E ........................................................... 1,046,955* PacifiCorp: 936 5.40% Pfd. ..................................................................... 94,896* 1,225 $4.56 Pfd. ..................................................................... 109,938* 14,542 $4.72 Pfd. ..................................................................... 1,350,879* 12,333 $7.48 Sinking Fund Pfd. ........................................................ 1,299,097* 9,666 Portland General Electric, 7.75% Sinking Fund Pfd. ............................... 985,739* 5,000 PPL Electric Utilities Corporation, 6.75% Pfd. ................................... 522,700* 10,000 Public Service Company of New Mexico, 4.58% Pfd., Series 1965 .................... 854,250* San Diego Gas & Electric Company: 1,200 4.40% Pfd. ..................................................................... 21,390* 700 4.50% Pfd. ..................................................................... 12,757* 77,000 $1.70 Pfd. ..................................................................... 1,999,690* 13,100 Savannah Electric & Power Company, 6.00% Pfd. .................................... 359,136* South Carolina Electric & Gas Company: 25,373 5.125% Purchase Fund Pfd., Pvt. ................................................ 1,305,314* 6,703 6.00% Purchase Fund Pfd., Pvt. ................................................. 341,652* Southern California Edison: 54,100 4.08% Pfd. ..................................................................... 1,067,393* 10,050 Adj. Rate Pfd. ................................................................. 1,032,617* 75,000 Southern Union Company, 7.55% Pfd. ............................................... 2,082,000* $ 750,000 TXU Electric Capital V, 8.175% 01/30/37 Capital Security ......................... 807,686
7 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) - ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- (CONTINUED) UTILITIES -- (CONTINUED) - ----------------------------------------------------------------------------------------------------------------------- Union Electric Company: 14,150 4.56% Pfd. .................................................................... $ 1,334,982* 4,000 $7.64 Pfd. .................................................................... 414,780* 12,500 Virginia Electric & Power Company, $7.05 Pfd. ................................... 1,280,625* Wisconsin Power & Light Company: 1,220 4.50% Pfd. .................................................................... 114,137* 546 4.80% Pfd. .................................................................... 53,926* 13,000 6.20% Pfd. .................................................................... 1,333,995* Xcel Energy, Inc.: 16,030 $4.08 Pfd., Series B .......................................................... 1,323,277* 26,200 $4.10 Pfd., Series C .......................................................... 2,173,421* 22,000 $4.11 Pfd., Series D .......................................................... 1,829,300* 17,750 $4.16 Pfd., Series E .......................................................... 1,493,929* 10,000 $4.56 Pfd., Series G .......................................................... 922,550* - ------------------------------------------------------------------------------------------------------------------- 89,697,870 ---------------- OIL AND GAS -- 5.2% - ----------------------------------------------------------------------------------------------------------------------- 17,200 Anadarko Petroleum Corporation, 5.46% Pfd. ...................................... 1,767,300* 7,000 Apache Corporation, 5.68% Pfd., Series B ........................................ 721,490* 8,000 Devon Energy Corporation, 6.49% Pfd., Series A .................................. 823,600* 5,985 EOG Resources, Inc., 7.195% Pfd., Series B ...................................... 6,439,142* $ 1,675,000 KN Capital Trust III, 7.63% 04/15/28 Capital Security ........................... 1,937,690 10,000 Lasmo America Limited, 8.15% Pfd., 144A**** ..................................... 1,126,150*(1) - ------------------------------------------------------------------------------------------------------------------- 12,815,372 ---------------- REAL ESTATE INVESTMENT TRUST (REIT) -- 1.6% - ----------------------------------------------------------------------------------------------------------------------- PS Business Parks, Inc.: 16,000 7.00% Pfd., REIT, Series H .................................................... 400,560 20,000 7.20% Pfd., REIT, Series M .................................................... 503,700 Public Storage, Inc.: 13,300 6.18% Pfd., REIT, Series D .................................................... 322,990 22,500 6.75% Pfd., REIT, Series E .................................................... 571,613 40,000 Realty Income Corporation, 7.375%, Pfd., REIT, Series D ......................... 1,047,800 40,000 Regency Centers Corporation, 7.25% Pfd., REIT ................................... 1,029,400 - ------------------------------------------------------------------------------------------------------------------- 3,876,063 ----------------
8 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- PREFERRED SECURITIES -- (CONTINUED) MISCELLANEOUS INDUSTRIES -- 1.8% - ---------------------------------------------------------------------------------------------------------------------- 13,600 E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ...................... $ 1,261,672* 36,200 Farmland Industries, Inc., 8.00% Pfd., 144A**** ................................ 18,100*+ 33,250 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ............................ 3,131,152* 26,000 Touch America Holdings, $6.875 Pfd. ............................................ --*+ - ------------------------------------------------------------------------------------------------------------------- 4,410,924 ---------------- TOTAL PREFERRED SECURITIES (Cost $216,897,926) .......................................................... 236,839,754 ---------------- CORPORATE DEBT SECURITIES -- 0.9% UTILITIES -- 0.9% - ---------------------------------------------------------------------------------------------------------------------- $ 1,000,000 Duquesne Light Holdings, 6.25% 08/15/35 ........................................ 1,034,970 45,000 Northern States Power Company, 8.00% ........................................... 1,208,475 - ------------------------------------------------------------------------------------------------------------------- 2,243,445 ---------------- TOTAL CORPORATE DEBT SECURITIES (Cost $2,103,487) ............................................................ 2,243,445 ---------------- COMMON STOCK AND CONVERTIBLE SECURITY -- 1.1% BANKING -- 0.3% - ---------------------------------------------------------------------------------------------------------------------- 50,000 New York Community Bancorp, Inc. ............................................... 876,250* - ------------------------------------------------------------------------------------------------------------------- 876,250 ---------------- INSURANCE -- 0.8% - ---------------------------------------------------------------------------------------------------------------------- 50,000 UnumProvident Corporation, 8.25% Mandatory Convertible, 05/16/06 ............... 1,862,750 - ------------------------------------------------------------------------------------------------------------------- .............................................................................................. 1,862,750 ---------------- TOTAL COMMON STOCK AND CONVERTIBLE SECURITY (Cost $2,540,805) ............................................................ 2,739,000 ---------------- OPTION CONTRACTS -- 0.2% 1,525 December Put Options on December U.S. Treasury Bond Futures, Expiring 11/22/05 ............................................................ 512,891+ - ------------------------------------------------------------------------------------------------------------------- TOTAL OPTION CONTRACTS (Cost $1,591,621) ............................................................ 512,891 ----------------
9 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2005 (UNAUDITED) - ------------------------------------------------------
SHARES/$ PAR VALUE - ------------- --------- MONEY MARKET FUND -- 0.5% 1,118,377 BlackRock Provident Institutional, TempFund .................................... $ 1,118,377 - ------------------------------------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost $1,118,377) ............................................................ 1,118,377 ---------------- TOTAL INVESTMENTS (Cost $224,252,216***) .......................................... 99.4% 243,453,467 OTHER ASSETS AND LIABILITIES (Net) ................................................ 0.6% 1,418,304 --------- ---------------- TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK .......................... 100.0%++ $ 244,871,771 --------- ---------------- MONEY MARKET CUMULATIVE PREFERRED STOCK(TM) (MMP(R)) REDEMPTION VALUE ........................ (80,000,000) ---------------- TOTAL NET ASSETS AVAILABLE TO COMMON STOCK ................................................... $ 164,871,771 ================ - ----------------------------- * 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. (1) Foreign Issuer. + Non-income producing. ++ The percentage shown for each investment category is the total value of that category as a percentage of net assets available to Common and Preferred Stock.
ABBREVIATIONS: REIT -- Real Estate Investment Trust PFD. -- Preferred Securities PVT. -- Private Placement Securities 10 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated STATEMENT OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1) FOR THE PERIOD FROM DECEMBER 1, 2004 THROUGH AUGUST 31, 2005 (UNAUDITED) -------------------------------------------------------------------------
VALUE -------- OPERATIONS: Net investment income ...................................................................... $ 9,625,459 Net realized gain on investments sold during the period .................................... 6,460,138 Change in net unrealized depreciation of investments held during the period ................ (753,969) Distributions to Money Market Cumulative PreferredTM Stock Shareholders from net investment income, including changes in accumulated undeclared distributions ................................................... (1,625,576) ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................................... 13,706,052 DISTRIBUTIONS: Distributions paid from net investment income to Common Stock Shareholders (2) ............. (9,255,401) ---------------- TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ........................................... (9,255,401) FUND SHARE TRANSACTIONS: Increase from Common Stock Transactions .................................................... 1,320,118 ---------------- NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK RESULTING FROM FUND SHARE TRANSACTIONS ........................................................... 1,320,118 ---------------- NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK FOR THE PERIOD ............................. $ 5,770,769 ================ - --------------------------------------------------------------------------------------------------------------------- NET ASSETS AVAILABLE TO COMMON STOCK: Beginning of period ........................................................................ $ 159,101,002 Net increase during the period ............................................................. 5,770,769 ---------------- End of period .............................................................................. $ 164,871,771 ================ - -------------------------------------------------------- (1) These tables summarize the nine months ended August 31, 2005 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 2004. (2) Includes 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, 2004 THROUGH AUGUST 31, 2005 (UNAUDITED) FOR A COMMON SHARE OUTSTANDING THROUGHOUT THE PERIOD. - --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period .......................................................... $ 15.49 ------------ INVESTMENT OPERATIONS: Net investment income ......................................................................... 0.93 Net realized and unrealized gain on investments ............................................... 0.57 DISTRIBUTIONS TO MMP(R)* SHAREHOLDERS: From net investment income .................................................................... (0.16) From net realized capital gains ............................................................... -- ------------ Total from investment operations .............................................................. 1.34 ------------ DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS: From net investment income .................................................................... (0.90) From net realized capital gains ............................................................... -- ------------ Total distributions to Common Stock Shareholders .............................................. (0.90) ------------ Net asset value, end of period ................................................................ $ 15.93 ============ Market value, end of period ................................................................... $ 17.74 ============ Common shares outstanding, end of period ...................................................... 10,348,459 ============ RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS: Net investment income + ....................................................................... 6.49%** Operating expenses ............................................................................ 1.49%** - -------------------------------------------------------- SUPPLEMENTAL DATA:++ Portfolio turnover rate ....................................................................... 36%*** Total net assets available to Common and Preferred Stock, end of period (in 000's) ............ $ 244,872 Ratio of operating expenses to total average net assets available to Common and Preferred Stock ................................................................ 1.00%** (1) These tables summarize the nine months ended August 31, 2005 and should be read in conjunction with the Fund's audited financial statements, including footnotes, in its Annual Report dated November 30, 2004. * Money Market Cumulative PreferredTM Stock. ** Annualized. *** Not Annualized. + The net investment income ratio reflects income net of operating expenses and payments to MMP(R)* Shareholders. ++ Information presented under heading Supplemental Data includes MMP(R)*. - --------------------------------------------------------------------------------
12 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated FINANCIAL HIGHLIGHTS (CONTINUED) PER SHARE OF COMMON STOCK (UNAUDITED) ------------------------------------- TOTAL DIVIDEND DIVIDENDS NET ASSET NYSE REINVESTMENT PAID VALUE CLOSING PRICE PRICE(1) ---------- --------- -------------- ------------ December 31, 2004 - EXTRA ... $0.0650 $15.89 $18.25 $17.34 December 31, 2004 ........... 0.0950 15.89 18.25 17.34 January 31, 2005 ............ 0.0950 16.12 18.30 17.39 February 28, 2005 ........... 0.0950 16.03 18.77 17.83 March 31, 2005 .............. 0.0950 15.93 15.74 15.93 April 30, 2005 .............. 0.0905 16.03 16.75 16.03 May 31, 2005 ................ 0.0905 16.06 16.95 16.10 June 30, 2005 ............... 0.0905 15.98 17.00 16.15 July 31, 2005 ............... 0.0905 15.66 17.24 16.38 August 31, 2005 ............. 0.0905 15.93 17.74 16.85 - -------------------- (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. 13 - -------------------------------------------------------------------------------- Flaherty & Crumrine Preferred Income Fund Incorporated NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - ---------------------------------------- 1. AGGREGATE INFORMATION FOR FEDERAL INCOME TAX PURPOSES At August 31, 2005, the aggregate cost of securities for federal income tax purposes was $225,602,795, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $23,759,337 and the aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $5,908,665. 14 [This page intentionally left blank] DIRECTORS Donald F. Crumrine, CFA David Gale Morgan Gust Karen H. Hogan Robert F. Wulf, CFA OFFICERS Donald F. Crumrine, CFA Chairman of the Board and Chief Executive Officer Robert M. Ettinger, CFA President R. Eric Chadwick, CFA Chief Financial Officer, Vice President, Treasurer and Secretary Peter C. Stimes, CFA Chief Compliance Officer and Vice President Chad C. Conwell Vice President and Asst. Compliance Officer Bradford S. Stone Vice President and Asst. Treasurer Christopher D. Ryan, CFA Vice President Laurie Lodolo Asst. Compliance Officer, Asst. Treasurer and Asst. Secretary INVESTMENT ADVISER Flaherty & Crumrine Incorporated e-mail: flaherty@pfdincome.com QUESTIONS CONCERNING YOUR SHARES OF FLAHERTY & CRUMRINE PREFERRED INCOME FUND? o If your shares are held in a Brokerage Account, contact your Broker. o If you have physical possession of your shares in certificate form, contact the Fund's Transfer Agent & Shareholder Servicing Agent -- PFPC Inc. P.O. Box 43027 Providence, RI 02940-3027 1-800-331-1710 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. [GRAPHIC OMITTED] LIGHTHOUSE GRAPHIC FLAHERTY & CRUMRINE ===================== PREFERRED INCOME FUND QUARTERLY REPORT AUGUST 31, 2005 web site: www.preferredincome.com ITEM 2. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 3. EXHIBITS. Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED By (Signature and Title)* /S/ DONALD F. CRUMRINE ------------------------------------------------------- Donald F. Crumrine, Director, Chairman of the Board and Chief Executive Officer (principal executive officer) Date OCTOBER 17, 2005 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /S/ DONALD F. CRUMRINE ------------------------------------------------------- Donald F. Crumrine, Director, Chairman of the Board and Chief Executive Officer (principal executive officer) Date OCTOBER 17, 2005 ---------------------------------------------------------------------------- By (Signature and Title)* /S/ R. ERIC CHADWICK ------------------------------------------------------- R. Eric Chadwick, Chief Financial Officer, Treasurer, Vice President and Secretary (principal financial officer) Date OCTOBER 17, 2005 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 cert.txt 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, Donald F. Crumrine, certify that: 1. I have reviewed this report on Form N-Q of Flaherty & Crumrine Preferred Income Fund Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined under Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: OCTOBER 17, 2005 /S/ DONALD F. CRUMRINE ---------------- -------------------------------------------------------- Donald F. Crumrine, Director, Chairman of the Board and Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, R. Eric Chadwick, certify that: 1. I have reviewed this report on Form N-Q of Flaherty & Crumrine Preferred Income Fund Incorporated; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined under Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: OCTOBER 17, 2005 /S/ R. ERIC CHADWICK ---------------- ------------------------------------------------------- R. Eric Chadwick, Chief Financial Officer, Treasurer, Vice President and Secretary (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----