UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06179
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Flaherty & Crumrine Preferred Income Fund Incorporated
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(Exact name of registrant as specified in charter)
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
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(Address of principal executive offices) (Zip code)
Donald F. Crumrine
Flaherty & Crumrine Incorporated
301 E. Colorado Boulevard, Suite 720
Pasadena, CA 91101
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(Name and address of agent for service)
registrant's telephone number, including area code: 626-795-7300
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Date of fiscal year end: November 30
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Date of reporting period: November 30, 2007
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
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 Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FLAHERTY & CRUMRINE PREFERRED INCOME FUND
To the Shareholders of the Flaherty & Crumrine Preferred Income Fund ("PFD" or
the "Fund"):
During the second half of 2007, conditions in U.S. preferred securities
markets deteriorated dramatically, resulting in significant negative performance
for the Fund. While some companies in the Fund's portfolio have challenges to
manage, we believe those companies and the Fund's other holdings will continue
to deliver high current income to the Fund's shareholders. No one knows when the
preferred and overall credit markets will stabilize, but eventually they will.
The road to stabilization is likely to be bumpy for some time, so we will
continue to navigate diligently with our disciplined, credit-focused investment
strategy.
The following table summarizes the Fund's performance in its most recent
fiscal quarter and over longer time periods, compared with the average return of
a group of closed-end funds that invest in other types of securities than
preferred securities (as outlined in footnote (3) below):
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TOTAL RETURN ON NET ASSET VALUE(1)
FOR PERIODS ENDED NOVEMBER 30, 2007
ACTUAL RETURNS AVERAGE ANNUALIZED RETURNS
------------------------ --------------------------------
THREE SIX ONE THREE FIVE TEN LIFE OF
MONTHS MONTHS YEAR YEARS YEARS YEARS FUND(2)
------ ------ ------ ----- ----- ----- --------
Flaherty & Crumrine Preferred
Income Fund .................... -7.7% -12.2% -12.8% 0.8% 6.4% 5.7% 9.9%
Lipper Domestic Investment
Grade Funds(3) ................. 2.2% 2.0% 3.9% 5.0% 6.1% 6.2% 7.4%
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(1) Based on monthly data provided by Lipper Inc. in each calendar month
during the relevant period. Distributions are assumed to be reinvested at
NAV in accordance with Lipper's practice, which differs from the
methodology used elsewhere in this report.
(2) Since inception on January 31, 1991.
(3) Includes all closed-end funds in Lipper's U.S. Government, U.S. Mortgage
and Corporate Debt BBB Rated categories in each month during the period.
Although the investment strategies used by the Fund differ significantly
from the strategies used by these other fixed-income funds, the Fund seeks
to accomplish a similar objective.
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As the table reflects, the Fund's relative performance over all time
periods was dramatically impacted by the last six months of the fiscal year.
Since July 2007, U.S. markets have suffered from a severe credit crunch. Sparked
by the problems in the subprime mortgage market, the credit crunch expanded into
a complete re-evaluation by investors and lenders of prices associated with the
extension of credit and liquidity, in other words, the "risk premium."
Rationally or irrationally, lenders and investors became afraid of the greater
risk that their borrowers might default, and demanded significantly higher risk
premiums for making loans or owning preferred or debt securities. Many investors
fled to the safest credit instrument they knew - U.S. Treasury securities.
Widening risk premiums played out in a number of market sectors. For
consumers, mortgage rates jumped significantly in the first few months of the
crunch and banks tightened lending standards. For institutions, credit fears
became so widespread that banks even worried about lending to other banks; the
cost of interbank borrowing surged. For the Fund, leverage became more expensive
and yields on preferred securities increased dramatically, driving down the
value of the Fund's portfolio.
In some asset classes, lenders and investors simply retreated from
extending credit to borrowers at any risk premium. Left unchecked, this credit
contraction could have had severe negative repercussions on both asset values
and the economy. In response, the Federal Reserve cut the fed funds rate by one
percentage point and the discount rate by one and a half percentage points, with
the likelihood of further cuts to come. In addition, the Fed and other major
global central banks flooded markets with liquidity through repurchase
operations. Preferred securities and other credit-market instruments, which were
falling sharply in price prior to the Fed's actions, have since stabilized
somewhat. Although we cannot say that prices of credit-market instruments have
reached a bottom, the Fed's actions have clearly helped provide liquidity to the
market. In the discussion topics that follow this letter, we write further about
our thoughts on the future of the current credit crunch, the outlook for the
U.S. economy and the possible response by the Fed. It's likely that the behavior
of the preferred securities market these past months will one day be the subject
of business school dissertations. From our vantage point, we'd observe that the
market was impacted by, among other things, issues of liquidity, a flood of
supply from financial issuers desperate to replenish their capital and concerns
over the creditworthiness of the financial institutions that constitute a large
part of the preferred securities market.
Early on, losses by investors in mortgage securities prompted liquidation
of their holdings in preferred securities to meet their funding needs. Too many
willing sellers, and too few buyers, then had an adverse impact on valuations
throughout the secondary preferred securities market. Subsequently, companies
directly impacted by credit-related losses - especially banks, broker-dealers
and the government-sponsored housing lenders, Fannie Mae and Freddie Mac -
turned largely to the preferred market to raise much-needed capital to offset
their losses. The pricing of these new issues came at substantial discounts to
outstanding preferred securities, which further drove down prices in the
secondary preferred market (including for preferred securities of non-financial
companies).
Although many types of companies have experienced some strain from the
current credit crunch, those most affected include banks, financial services
companies and broker-dealers - the industries with direct and indirect exposures
to problems in the housing market. Preferred securities issued by these types of
companies have consequently suffered the greatest declines in value. In the more
detailed discussion that follows this letter, we talk about credit fundamentals
of the financial services companies we own. In short, we believe that current
market values of most securities we own are more reflective of the credit crunch
and associated fears and illiquidity than the overall creditworthiness of these
issuers. Consequently, we remain cautiously optimistic that a more normal market
will bring about positive returns for our preferred-securities investments this
year. On a longer-term horizon, we are all but certain of it.
2
Following this letter is discussion on a variety of subjects, including:
an attribution of total returns on net asset value; the Fund's market price
performance; the economy and our views on monetary policy; credit fundamentals
of financial services companies; and tax treatment of the Fund's dividends. The
Questions and Answers on the Fund's website at WWW.PREFERREDINCOME.COM have
additional comments on a number of topics that may interest you. We believe an
informed shareholder can be one of the strongest assets of any company, and we
encourage you to read the remainder of this report and explore the website for a
wide range of additional information about your Fund.
Sincerely,
/s/ Donald F. Crumrine /s/ Robert M. Ettinger
Donald F. Crumrine Robert M. Ettinger
Chairman of the Board President
January 18, 2008
3
DISCUSSION TOPICS
THE FUND'S PREFERRED SECURITIES PORTFOLIO AND COMPONENTS OF TOTAL RETURN ON NAV
The preferred securities market has suffered one of its worst years in
modern U.S. financial history. While no index comprehensively reflects the
investment universe for the Fund, Merrill Lynch publishes three different
indices which attempt to measure performance of some sectors of the
investment-grade preferred securities market: the Merrill Lynch 8% Capped DRD
Preferred Stock Index (which includes traditional tax-advantaged preferred
stocks); the Merrill Lynch Hybrid Preferred Securities Index (which includes
fully-taxable, exchange-traded preferred securities) and the Merrill Lynch
Adjustable Preferred Stock, 7% Constrained Index (which includes both
tax-advantaged and taxable preferred securities with adjustable dividends). Set
forth below are the six month and twelve month total returns of these indices:
TOTAL RETURNS OF MERRILL LYNCH PREFERRED SECURITIES INDICES*
FOR PERIODS ENDED NOVEMBER 30, 2007
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SIX MONTHS ONE YEAR
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Merrill Lynch 8% Capped DRD Preferred Stock Index(SM) .................... (8.7)% (6.9)%
Merrill Lynch Hybrid Preferred Securities Index(SM) ...................... (9.2)% (7.8)%
Merrill Lynch Adjustable Preferred Stock, 7% Constrained Index(SM) ....... (15.6)% (13.7)%
* The Merrill Lynch 8% Capped DRD Preferred Stock Index(SM) includes
investment grade preferred securities issued by both corporations and
government agencies that qualify for the corporate dividends received
deduction with issuer concentration capped at a maximum of 8%. The Merrill
Lynch Hybrid Preferred Securities Index(SM) includes taxable, fixed-rate,
U.S. dollar-denominated investment-grade, preferred securities listed on a
U.S. exchange. The Merrill Lynch Adjustable Preferred Stock, 7%
Constrained Index(SM) includes adjustable rate preferred securities issued
by US corporations and government agencies with issuer concentration
capped at a maximum of 7%. All index returns include interest and dividend
income and, unlike the Fund's returns on net asset value, are unmanaged
and do not reflect any expenses.
While we realize it's only small consolation, as set forth in the table
below, the Fund's total return on its securities portfolio was better than these
indices. Unfortunately, as one might expect, the Fund's strategy of using
leverage amplified its negative returns and, coupled with its expenses and
hedging strategy, caused the NAV of the Fund to perform worse than two of the
indices.
The table below reflects the performance of each investment tool used by
the Fund to achieve its objective, namely: (a) investing in a portfolio of
securities; (b) hedging that portfolio of securities against significant
increases in long-term interest rates; and (c) issuing an auction-rate preferred
stock to leverage and enhance returns to Common Stock shareholders. The table
then adjusts for the impact of the Fund's expenses to arrive at a total return
on NAV (which factors in all of these items).
COMPONENTS OF PFD'S TOTAL RETURN ON NAV
FOR PERIODS ENDED NOVEMBER 30, 2007
--------------------------------------------------------------------------------------------------
SIX MONTHS ONE YEAR
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Total Return on Unleveraged Securities Portfolio
(including principal and income) ......................................... (6.2)% (5.3)%
Return from Interest Rate Hedging Strategy ............................... (0.6)% (0.8)%
Impact of Leverage ....................................................... (4.6)% (5.2)%
Expenses ................................................................. (0.7)% (1.5)%
--------------------------------------------------------------------------------------------------
Total Return on NAV (12.2)% (12.8)%
4
MARKET TOTAL RETURN
While our focus is primarily on managing the Fund's portfolio, an
investor's actual return is comprised of monthly dividend payments plus changes
in the Fund's market price. For the year ended November 30, 2007, the total
return on MARKET VALUE for the Fund's common shares was -21.7%. During the
fourth quarter alone, total return on MARKET VALUE was -10.5%.
We've often said that in a perfect world, market prices would closely
track net asset values; however, as seen in the chart below, in the real world
deviations can be large. Over the past year, shareholders saw some significant
deterioration in the relationship between net asset value and market price.
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FLAHERTY & CRUMRINE PREFERRED INCOME FUND (PFD)
PREMIUM/DISCOUNT OF MARKET PRICE TO NAV THROUGH 12/31/07
Date Mkt Price NAV Prem/Disc
1/4/2008 12.56 12.64 -0.0063
12/28/2007 11.86 12.24 -0.0310
12/21/2007 11.96 12.19 -0.0189
12/14/2007 11.68 12.29 -0.0496
12/7/2007 12.15 12.67 -0.0410
11/30/2007 12.41 12.85 -0.0342
11/23/2007 12.15 12.72 -0.0448
11/16/2007 12.63 13.1 -0.0359
11/9/2007 12.21 13.33 -0.0840
11/2/2007 13.41 13.97 -0.0401
10/26/2007 14.03 14.2 -0.0120
10/19/2007 13.93 14.41 -0.0333
10/12/2007 14.09 14.3 -0.0147
10/5/2007 14.83 14.17 0.0466
9/28/2007 14.7 14.2 0.0352
9/21/2007 14.79 14.05 0.0527
9/14/2007 14.44 13.95 0.0351
9/7/2007 14.45 14.28 0.0119
8/31/2007 14.13 14.19 -0.0042
8/24/2007 14.41 14.09 0.0227
8/17/2007 13.72 13.98 -0.0186
8/10/2007 14.85 14.27 0.0406
8/3/2007 15.59 14.45 0.0789
7/27/2007 15.68 14.47 0.0836
7/20/2007 15.38 14.81 0.0385
7/13/2007 15.53 14.95 0.0388
7/6/2007 15.74 14.93 0.0543
6/29/2007 16.13 14.99 0.0761
6/22/2007 16.45 15 0.0967
6/15/2007 16.42 15.07 0.0896
6/8/2007 15.99 15.06 0.0618
6/1/2007 16.25 15.15 0.0726
5/25/2007 16.04 15.14 0.0594
5/18/2007 16.09 15.29 0.0523
5/11/2007 16.05 15.41 0.0415
5/4/2007 16.64 15.44 0.0777
4/27/2007 16.86 15.32 0.1005
4/20/2007 17.05 15.34 0.1115
4/13/2007 17.06 15.36 0.1107
4/5/2007 17.5 15.43 0.1342
3/30/2007 17.09 15.45 0.1061
3/23/2007 17.17 15.54 0.1049
3/16/2007 16.82 15.75 0.0679
3/9/2007 16.9 15.72 0.0751
3/2/2007 17.04 15.89 0.0724
2/23/2007 17.35 15.7 0.1051
2/16/2007 17.2 15.7 0.0955
2/9/2007 17.5 15.51 0.1283
2/2/2007 17.3 15.62 0.1076
1/26/2007 17.5 15.51 0.1283
1/19/2007 17.35 15.62 0.1108
1/12/2007 17.32 15.57 0.1124
1/5/2007 16.99 15.67 0.0842
12/29/2006 16.86 15.56 0.0835
12/22/2006 16.82 15.59 0.0789
12/15/2006 16.89 15.66 0.0785
12/8/2006 16.93 15.72 0.0770
12/1/2006 16.76 15.81 0.0601
11/24/2006 16.97 15.65 0.0843
11/17/2006 16.85 15.69 0.0739
11/10/2006 16.75 15.64 0.0710
11/3/2006 16.64 15.52 0.0722
10/27/2006 16.61 15.53 0.0695
10/20/2006 16.62 15.33 0.0841
10/13/2006 16.51 15.28 0.0805
10/6/2006 16.78 15.36 0.0924
9/29/2006 16.51 15.43 0.0700
9/22/2006 16.38 15.43 0.0616
9/15/2006 16.4799 15.29 0.0778
9/8/2006 16.45 15.27 0.0773
9/1/2006 16.64 15.31 0.0869
8/25/2006 16.19 15.17 0.0672
8/18/2006 16.07 15.23 0.0552
8/11/2006 16.1 14.99 0.0740
8/4/2006 15.9899 15.08 0.0603
7/28/2006 15.95 15.04 0.0605
7/21/2006 15.65 15.03 0.0413
7/14/2006 15.19 15.08 0.0073
7/7/2006 15.08 14.97 0.0073
6/30/2006 15.19 14.94 0.0167
6/23/2006 15.26 14.92 0.0228
6/16/2006 15.26 15.05 0.0140
6/9/2006 15.21 15.19 0.0013
6/2/2006 15.54 15.17 0.0244
5/26/2006 15.43 15.12 0.0205
5/19/2006 15.65 15.28 0.0242
5/12/2006 15.74 15.2 0.0355
5/5/2006 15.63 15.24 0.0256
4/28/2006 15.55 15.23 0.0210
4/21/2006 15.38 15.28 0.0065
4/14/2006 15.64 15.39 0.0162
4/7/2006 15.95 15.36 0.0384
3/31/2006 16.08 15.4 0.0442
3/24/2006 16.07 15.47 0.0388
3/17/2006 16.19 15.53 0.0425
3/10/2006 16.37 15.5 0.0561
3/3/2006 16.91 15.45 0.0945
2/24/2006 16.59 15.52 0.0689
2/17/2006 16.69 15.49 0.0775
2/10/2006 16.8 15.56 0.0797
2/3/2006 16.87 15.51 0.0877
1/27/2006 16.86 15.36 0.0977
1/20/2006 16.7 15.43 0.0823
1/13/2006 16.35 15.51 0.0542
1/6/2006 16.38 15.4 0.0636
12/30/2005 16.09 15.38 0.0462
12/23/2005 16.11 15.4 0.0461
12/16/2005 16.04 15.32 0.0470
12/9/2005 16.17 15.25 0.0603
12/2/2005 15.98 15.25 0.0479
11/25/2005 16.6 15.25 0.0885
11/18/2005 16.4 15.33 0.0698
11/11/2005 16.1 15.33 0.0502
11/4/2005 15.67 15.27 0.0262
10/28/2005 15.634 15.25 0.0252
10/21/2005 15.92 15.34 0.0378
10/14/2005 16.16 15.38 0.0507
10/7/2005 16.9 15.47 0.0924
9/30/2005 16.25 15.47 0.0504
9/23/2005 17.2 15.54 0.1068
9/16/2005 17.84 15.56 0.1465
9/9/2005 17.9 15.72 0.1387
9/2/2005 17.7 15.87 0.1153
8/26/2005 17.62 15.8 0.1152
8/19/2005 17.8 15.84 0.1237
8/12/2005 17.6 15.81 0.1132
8/5/2005 17.74 15.93 0.1136
7/29/2005 17.24 15.66 0.1009
7/22/2005 17.67 15.62 0.1312
7/15/2005 17.69 15.67 0.1289
7/8/2005 17.42 15.72 0.1081
7/1/2005 17.15 15.81 0.0848
6/24/2005 16.75 16.02 0.0456
6/17/2005 16.51 15.91 0.0377
6/10/2005 17.02 16.01 0.0631
6/3/2005 16.99 16.11 0.0546
5/27/2005 16.7 15.95 0.0470
5/20/2005 16.7 15.94 0.0477
5/13/2005 16.75 16.01 0.0462
5/6/2005 16.83 15.89 0.0592
4/29/2005 16.75 16.03 0.0449
4/22/2005 16.09 16 0.0056
4/15/2005 16.37 16.04 0.0206
4/8/2005 16.25 15.91 0.0214
4/1/2005 16.03 15.99 0.0025
3/25/2005 15.6 15.78 -0.0114
3/18/2005 16.08 15.97 0.0069
3/11/2005 17.7 15.98 0.1076
3/4/2005 18.25 16.15 0.1300
2/25/2005 18.64 16.1 0.1578
2/18/2005 18.77 16.06 0.1687
2/11/2005 18.67 16.27 0.1475
2/4/2005 18.39 16.27 0.1303
1/28/2005 18.43 16.08 0.1461
1/21/2005 18.33 16.1 0.1385
1/14/2005 18.13 16.05 0.1296
1/7/2005 18.27 15.83 0.1541
12/31/2004 18.25 15.89 0.1485
12/24/2004 18.1 15.74 0.1499
12/17/2004 17.77 15.91 0.1169
12/10/2004 17.35 15.89 0.0919
12/3/2004 17.26 15.72 0.0980
11/26/2004 18.27 15.67 0.1659
11/19/2004 18.32 15.65 0.1706
11/12/2004 18.18 15.65 0.1617
11/5/2004 18.08 15.65 0.1553
10/29/2004 18.3 15.74 0.1626
10/22/2004 18.48 15.77 0.1718
10/15/2004 18.47 15.83 0.1668
10/8/2004 18.39 15.73 0.1691
10/1/2004 17.85 15.67 0.1391
9/24/2004 18 15.86 0.1349
9/17/2004 18.33 15.73 0.1653
9/10/2004 18.24 15.56 0.1722
9/3/2004 18.03 15.4 0.1708
8/27/2004 17.93 15.44 0.1613
8/20/2004 17.93 15.41 0.1635
8/13/2004 17.35 15.49 0.1201
8/6/2004 17.07 15.43 0.1063
7/30/2004 16.78 15.28 0.0982
7/23/2004 17.03 15.24 0.1175
7/16/2004 17.19 15.42 0.1148
7/9/2004 17.23 15.29 0.1269
7/2/2004 17.45 15.32 0.1390
6/25/2004 17.54 15.28 0.1479
6/18/2004 17.65 15.42 0.1446
6/11/2004 17.5 15.36 0.1393
6/4/2004 17.25 15.43 0.1180
5/28/2004 17.620 15.450 0.1405
5/21/2004 16.450 15.400 0.0682
5/14/2004 15.830 15.510 0.0206
5/7/2004 15.520 15.690 -0.0108
4/30/2004 16.110 15.940 0.0107
4/23/2004 16.120 15.930 0.0119
4/16/2004 16.830 16.100 0.0453
4/9/2004 17.200 16.170 0.0637
4/2/2004 19.120 16.190 0.1810
3/26/2004 19.700 16.300 0.2086
3/19/2004 19.580 16.510 0.1859
3/12/2004 19.300 16.510 0.1690
3/5/2004 19.280 16.410 0.1749
2/27/2004 18.970 16.370 0.1588
2/20/2004 18.880 16.230 0.1633
2/13/2004 18.550 16.320 0.1366
2/6/2004 18.450 16.270 0.1340
1/30/2004 18.350 16.230 0.1306
1/23/2004 18.790 16.200 0.1599
1/16/2004 18.600 16.290 0.1418
1/9/2004 18.440 16.130 0.1432
1/2/2004 18.260 15.810 0.1550
12/26/2003 18.400 16.040 0.1471
12/19/2003 18.350 16.170 0.1348
12/12/2003 18.000 15.900 0.1321
12/5/2003 17.900 15.980 0.1202
11/28/2003 17.650 15.850 0.1136
11/21/2003 17.400 15.990 0.0882
11/14/2003 16.650 15.990 0.0413
11/7/2003 15.900 15.780 0.0076
10/31/2003 16.440 15.940 0.0314
10/24/2003 15.530 15.880 -0.0220
10/17/2003 15.360 15.850 -0.0309
10/10/2003 15.520 15.830 -0.0196
10/3/2003 15.530 15.900 -0.0233
9/26/2003 15.390 16.020 -0.0393
9/19/2003 15.630 15.870 -0.0151
9/12/2003 15.650 15.730 -0.0051
9/5/2003 15.680 15.640 0.0026
8/29/2003 15.610 15.640 -0.0019
8/22/2003 15.350 15.580 -0.0148
8/15/2003 15.270 15.630 -0.0230
8/8/2003 15.250 15.570 -0.0206
8/1/2003 15.190 15.630 -0.0282
7/25/2003 15.400 15.370 0.0020
7/18/2003 15.750 15.610 0.0090
7/11/2003 16.010 15.670 0.0217
7/4/2003 16.640 15.690 0.0605
6/27/2003 16.490 15.730 0.0483
6/20/2003 16.630 15.910 0.0453
6/13/2003 16.600 16.060 0.0336
6/6/2003 16.210 15.760 0.0286
5/30/2003 16.630 15.540 0.0701
5/23/2003 16.230 15.650 0.0371
5/16/2003 15.850 15.280 0.0373
5/9/2003 15.730 15.040 0.0459
5/2/2003 15.930 14.820 0.0749
4/25/2003 16.550 14.710 0.1251
4/18/2003 16.700 14.670 0.1384
4/11/2003 16.550 14.540 0.1382
4/4/2003 16.700 14.550 0.1478
3/28/2003 16.170 14.570 0.1098
3/21/2003 16.050 14.400 0.1146
3/14/2003 16.790 14.590 0.1508
3/7/2003 16.740 14.630 0.1442
2/28/2003 16.420 14.550 0.1285
2/21/2003 16.420 14.340 0.1450
2/14/2003 16.600 14.380 0.1544
2/7/2003 16.650 14.500 0.1483
1/31/2003 16.700 14.450 0.1557
1/24/2003 16.550 14.440 0.1461
1/17/2003 16.650 14.530 0.1459
1/10/2003 15.550 14.320 0.0859
1/3/2003 15.140 13.580 0.1149
12/27/2002 15.180 13.640 0.1129
12/20/2002 15.220 13.730 0.1085
12/13/2002 15.000 13.740 0.0917
12/6/2002 15.300 13.640 0.1217
11/29/2002 15.000 13.630 0.1005
11/22/2002 14.200 13.460 0.0550
11/15/2002 14.980 13.480 0.1113
11/8/2002 14.880 13.480 0.1039
11/1/2002 14.360 13.390 0.0724
10/25/2002 14.450 13.240 0.0914
10/18/2002 13.890 13.340 0.0412
10/11/2002 15.980 13.630 0.1724
10/4/2002 15.510 13.960 0.1110
9/27/2002 15.490 14.170 0.0932
9/20/2002 15.480 14.140 0.0948
9/13/2002 15.690 14.300 0.0972
9/6/2002 15.950 14.280 0.1169
8/30/2002 15.950 14.230 0.1209
8/23/2002 15.700 14.140 0.1103
8/16/2002 15.500 14.050 0.1032
8/9/2002 15.200 13.990 0.0865
8/2/2002 15.350 13.890 0.1051
7/26/2002 15.670 13.940 0.1241
7/19/2002 16.000 14.190 0.1276
7/12/2002 15.100 14.320 0.0545
7/5/2002 15.000 14.030 0.0691
6/28/2002 15.250 14.030 0.0870
6/21/2002 14.900 14.220 0.0478
6/14/2002 14.980 14.260 0.0505
6/7/2002 14.900 13.920 0.0704
5/31/2002 14.750 13.990 0.0543
5/24/2002 14.600 13.850 0.0542
5/17/2002 14.430 13.830 0.0434
5/10/2002 14.550 13.980 0.0408
5/3/2002 14.770 14.110 0.0468
4/26/2002 14.550 14.110 0.0312
4/19/2002 14.850 14.090 0.0539
4/12/2002 14.780 14.180 0.0423
4/5/2002 14.550 14.200 0.0246
3/29/2002 14.440 14.140 0.0212
3/22/2002 14.420 14.120 0.0212
3/15/2002 14.800 14.180 0.0437
3/8/2002 14.750 14.190 0.0395
3/1/2002 15.850 14.170 0.1186
2/22/2002 15.900 14.250 0.1158
2/15/2002 15.380 14.300 0.0755
2/8/2002 15.600 14.280 0.0924
2/1/2002 15.550 14.460 0.0754
1/25/2002 15.190 14.320 0.0608
1/18/2002 15.200 14.550 0.0447
1/11/2002 15.030 14.560 0.0323
1/4/2002 15.050 14.420 0.0437
12/28/2001 14.780 14.390 0.0271
12/21/2001 15.030 14.410 0.0430
12/14/2001 14.670 14.450 0.0152
12/7/2001 14.680 14.480 0.0138
11/30/2001 14.470 14.610 -0.0096
11/23/2001 14.870 14.550 0.0220
11/16/2001 14.850 14.590 0.0178
11/9/2001 14.900 14.850 0.0034
11/2/2001 14.780 14.650 0.0089
10/26/2001 14.950 14.550 0.0275
10/19/2001 14.370 14.500 -0.0090
10/12/2001 14.700 14.370 0.0230
10/5/2001 14.600 14.500 0.0069
9/28/2001 14.050 14.220 -0.0120
9/21/2001 13.650 13.890 -0.0173
9/14/2001 14.540 14.550 -0.0007
9/7/2001 14.540 14.550 -0.0007
8/31/2001 13.850 14.540 -0.0475
8/24/2001 14.130 14.450 -0.0221
8/17/2001 14.150 14.560 -0.0282
8/10/2001 13.700 14.380 -0.0473
8/3/2001 14.000 14.250 -0.0175
7/27/2001 14.720 14.280 0.0308
7/20/2001 14.260 14.230 0.0021
7/13/2001 13.550 14.130 -0.0410
7/6/2001 14.050 13.960 0.0064
6/29/2001 13.600 13.960 -0.0258
6/22/2001 13.410 14.120 -0.0503
6/15/2001 13.500 14.070 -0.0405
6/8/2001 13.650 13.950 -0.0215
6/1/2001 14.150 13.900 0.0180
5/25/2001 13.500 13.720 -0.0160
5/18/2001 13.900 13.860 0.0029
5/11/2001 13.470 13.670 -0.0146
5/4/2001 13.980 13.880 0.0072
4/27/2001 13.500 13.620 -0.0088
4/20/2001 13.200 13.510 -0.0229
4/13/2001 13.800 13.640 0.0117
4/6/2001 13.640 13.770 -0.0094
3/30/2001 13.500 13.780 -0.0203
3/23/2001 13.500 13.900 -0.0288
3/16/2001 13.170 13.990 -0.0586
3/9/2001 13.200 13.920 -0.0517
3/2/2001 13.820 13.810 0.0007
2/23/2001 13.250 13.690 -0.0321
2/16/2001 13.250 13.680 -0.0314
2/9/2001 13.370 13.770 -0.0290
2/2/2001 13.200 13.770 -0.0414
1/26/2001 12.938 13.420 -0.0360
1/19/2001 13.125 13.510 -0.0285
1/12/2001 13.438 13.400 0.0028
1/5/2001 13.125 13.570 -0.0328
12/29/2000 12.125 13.420 -0.0965
12/22/2000 12.188 13.450 -0.0939
12/15/2000 11.875 13.450 -0.1171
12/8/2000 12.125 13.290 -0.0877
12/1/2000 12.188 13.340 -0.0864
11/24/2000 11.500 13.340 -0.1379
11/17/2000 12.000 13.320 -0.0991
11/10/2000 12.250 13.220 -0.0734
11/3/2000 12.438 13.190 -0.0571
10/27/2000 12.375 13.300 -0.0695
10/20/2000 12.250 13.380 -0.0845
10/13/2000 12.250 13.420 -0.0872
10/6/2000 12.313 13.480 -0.0866
9/29/2000 12.063 13.510 -0.1071
9/22/2000 12.188 13.400 -0.0905
9/15/2000 12.250 13.400 -0.0858
9/8/2000 12.438 13.510 -0.0794
9/1/2000 12.563 13.480 -0.0681
8/25/2000 12.250 13.390 -0.0851
8/18/2000 12.500 13.400 -0.0672
8/11/2000 12.250 13.410 -0.0865
8/4/2000 12.250 13.390 -0.0851
7/28/2000 12.188 13.270 -0.0816
7/21/2000 12.125 13.240 -0.0842
7/14/2000 12.250 13.250 -0.0755
7/7/2000 12.125 13.190 -0.0807
6/30/2000 12.125 13.180 -0.0800
6/23/2000 12.063 12.940 -0.0678
6/16/2000 12.250 13.130 -0.0670
6/9/2000 12.188 13.020 -0.0639
6/2/2000 12.250 12.870 -0.0482
5/26/2000 12.125 12.640 -0.0407
5/19/2000 12.125 12.680 -0.0438
5/12/2000 11.938 12.710 -0.0608
5/5/2000 12.063 12.820 -0.0591
4/28/2000 12.063 13.050 -0.0757
4/21/2000 12.000 13.140 -0.0868
4/14/2000 12.125 13.330 -0.0904
4/7/2000 12.500 13.560 -0.0782
3/31/2000 12.188 13.620 -0.1052
3/24/2000 12.063 13.490 -0.1058
3/17/2000 12.500 13.450 -0.0706
3/10/2000 12.563 13.260 -0.0526
3/3/2000 12.625 13.410 -0.0585
2/25/2000 12.313 13.400 -0.0812
2/18/2000 12.250 13.420 -0.0872
2/11/2000 12.625 13.490 -0.0641
2/4/2000 13.000 13.700 -0.0511
1/28/2000 11.750 13.650 -0.1392
1/21/2000 11.938 13.570 -0.1203
1/14/2000 13.063 13.680 -0.0451
1/7/2000 12.625 13.680 -0.0771
12/31/1999 12.250 13.740 -0.1084
12/24/1999 11.500 13.730 -0.1624
12/17/1999 12.500 14.330 -0.1277
12/10/1999 12.750 14.430 -0.1164
12/3/1999 12.813 14.420 -0.1115
11/26/1999 12.750 14.500 -0.1207
11/19/1999 13.000 14.570 -0.1078
11/12/1999 12.750 14.780 -0.1373
11/5/1999 12.750 14.770 -0.1368
10/29/1999 12.563 14.660 -0.1431
10/22/1999 12.750 14.620 -0.1279
10/15/1999 12.563 14.680 -0.1442
10/8/1999 13.688 14.760 -0.0727
10/1/1999 13.750 14.790 -0.0703
9/24/1999 13.625 14.790 -0.0788
9/17/1999 13.313 14.900 -0.1065
9/10/1999 13.625 14.960 -0.0892
9/3/1999 13.375 14.980 -0.1071
8/27/1999 13.625 14.990 -0.0911
8/20/1999 13.563 14.980 -0.0946
8/13/1999 13.438 14.870 -0.0963
8/6/1999 13.813 15.000 -0.0792
7/30/1999 13.938 15.070 -0.0751
7/23/1999 14.000 15.130 -0.0747
7/16/1999 13.750 15.340 -0.1037
7/9/1999 13.938 15.380 -0.0938
7/2/1999 13.875 15.380 -0.0979
6/25/1999 13.750 15.330 -0.1031
6/18/1999 14.000 15.430 -0.0927
6/11/1999 13.938 15.470 -0.0991
6/4/1999 13.875 15.440 -0.1014
5/28/1999 13.875 15.500 -0.1048
5/21/1999 13.750 15.530 -0.1146
5/14/1999 14.125 15.570 -0.0928
5/7/1999 14.063 15.560 -0.0962
4/30/1999 14.125 15.600 -0.0946
4/23/1999 14.063 15.550 -0.0957
4/16/1999 14.000 15.560 -0.1003
4/9/1999 14.125 15.640 -0.0969
4/2/1999 14.313 15.560 -0.0802
3/26/1999 14.000 15.660 -0.1060
3/19/1999 14.250 15.720 -0.0935
3/12/1999 14.500 15.670 -0.0747
3/5/1999 14.375 15.670 -0.0826
2/26/1999 14.063 15.650 -0.1014
2/19/1999 14.563 15.570 -0.0647
2/12/1999 14.500 15.570 -0.0687
2/5/1999 14.688 15.520 -0.0536
1/29/1999 14.750 15.620 -0.0557
1/22/1999 14.750 15.620 -0.0557
1/15/1999 15.125 15.710 -0.0372
1/8/1999 15.375 15.660 -0.0182
1/1/1999 15.563 15.730 -0.0106
12/25/1998 15.313 15.510 -0.0127
12/18/1998 15.875 16.460 -0.0355
12/11/1998 16.063 16.410 -0.0212
12/4/1998 15.875 16.490 -0.0373
11/27/1998 15.875 16.310 -0.0267
11/20/1998 15.563 16.200 -0.0394
11/13/1998 15.688 16.380 -0.0423
11/6/1998 15.875 16.100 -0.0140
10/30/1998 16.063 16.210 -0.0091
10/23/1998 16.000 16.190 -0.0117
10/16/1998 15.938 16.310 -0.0228
10/9/1998 15.875 16.280 -0.0249
10/2/1998 16.000 16.630 -0.0379
9/25/1998 15.875 16.480 -0.0367
9/18/1998 16.000 16.540 -0.0326
9/11/1998 16.000 16.630 -0.0379
9/4/1998 15.875 16.620 -0.0448
8/28/1998 15.875 16.620 -0.0448
8/21/1998 15.438 16.690 -0.0750
8/14/1998 15.500 16.810 -0.0779
8/7/1998 15.750 16.780 -0.0614
7/31/1998 15.813 16.650 -0.0503
7/24/1998 15.688 16.770 -0.0645
7/17/1998 15.813 16.760 -0.0565
7/10/1998 15.938 16.880 -0.0558
7/3/1998 16.063 16.900 -0.0496
6/26/1998 16.063 16.870 -0.0479
6/19/1998 15.813 16.820 -0.0599
6/12/1998 15.938 16.930 -0.0586
6/5/1998 15.875 16.810 -0.0556
5/29/1998 15.938 16.770 -0.0496
5/22/1998 15.500 16.670 -0.0702
5/15/1998 15.563 16.700 -0.0681
5/8/1998 15.688 16.670 -0.0589
5/1/1998 15.938 16.640 -0.0422
4/24/1998 15.500 16.600 -0.0663
4/17/1998 15.750 16.720 -0.0580
4/10/1998 15.813 16.660 -0.0509
4/3/1998 15.688 16.770 -0.0645
3/27/1998 15.750 16.610 -0.0518
3/20/1998 15.875 16.600 -0.0437
3/13/1998 15.688 16.680 -0.0595
3/6/1998 15.813 16.610 -0.0480
2/27/1998 15.813 16.550 -0.0446
2/20/1998 15.750 16.520 -0.0466
2/13/1998 15.813 16.600 -0.0474
2/6/1998 15.938 16.540 -0.0364
1/30/1998 15.938 16.530 -0.0358
1/23/1998 15.750 16.460 -0.0431
1/16/1998 16.500 16.520 -0.0012
1/9/1998 16.250 16.600 -0.0211
1/2/1998 16.313 16.460 -0.0090
12/26/1997 15.438 16.460 -0.0621
12/19/1997 15.813 16.880 -0.0632
12/12/1997 15.938 16.810 -0.0519
12/5/1997 16.000 16.720 -0.0431
11/28/1997 16.188 16.710 -0.0313
11/21/1997 15.563 16.680 -0.0670
11/14/1997 15.813 16.740 -0.0554
11/7/1997 16.000 16.710 -0.0425
10/31/1997 15.875 16.740 -0.0517
10/24/1997 15.750 16.680 -0.0558
10/17/1997 15.875 16.670 -0.0477
10/10/1997 16.000 16.640 -0.0385
10/3/1997 16.250 16.750 -0.0299
9/26/1997 15.625 16.630 -0.0604
9/19/1997 15.500 16.580 -0.0651
9/12/1997 15.500 16.530 -0.0623
9/5/1997 15.500 16.480 -0.0595
8/29/1997 15.688 16.460 -0.0469
8/22/1997 15.188 16.400 -0.0739
8/15/1997 15.313 16.480 -0.0708
8/8/1997 15.500 16.460 -0.0583
8/1/1997 15.688 16.510 -0.0498
7/25/1997 15.625 16.480 -0.0519
7/18/1997 15.500 16.460 -0.0583
7/11/1997 15.500 16.380 -0.0537
7/4/1997 15.750 16.250 -0.0308
6/27/1997 15.438 16.130 -0.0429
6/20/1997 15.375 16.160 -0.0486
6/13/1997 15.375 16.160 -0.0486
6/6/1997 15.250 16.070 -0.0510
5/30/1997 15.125 15.990 -0.0541
5/23/1997 15.000 15.880 -0.0554
5/16/1997 15.125 15.970 -0.0529
5/9/1997 15.000 15.920 -0.0578
5/2/1997 15.125 15.840 -0.0451
4/25/1997 14.500 15.850 -0.0852
4/18/1997 14.375 15.930 -0.0976
4/11/1997 14.500 15.900 -0.0881
4/4/1997 14.875 15.870 -0.0627
3/28/1997 15.000 15.930 -0.0584
3/21/1997 14.750 15.950 -0.0752
3/14/1997 15.000 16.020 -0.0637
3/7/1997 15.000 15.930 -0.0584
2/28/1997 14.875 15.740 -0.0550
2/21/1997 14.750 15.590 -0.0539
2/14/1997 14.875 15.730 -0.0544
2/7/1997 14.500 15.550 -0.0675
1/31/1997 14.750 15.460 -0.0459
1/24/1997 14.750 15.380 -0.0410
1/17/1997 14.750 15.470 -0.0465
1/10/1997 15.000 15.450 -0.0291
1/3/1997 15.125 15.500 -0.0242
12/27/1996 14.375 15.540 -0.0750
12/20/1996 15.125 16.350 -0.0749
12/13/1996 15.000 16.360 -0.0831
12/6/1996 15.250 16.340 -0.0667
11/29/1996 15.500 16.500 -0.0606
11/22/1996 15.375 16.450 -0.0653
11/15/1996 15.125 16.500 -0.0833
11/8/1996 15.000 16.360 -0.0831
11/1/1996 14.875 16.130 -0.0778
10/25/1996 14.500 15.860 -0.0858
10/18/1996 14.125 15.830 -0.1077
10/11/1996 14.250 15.730 -0.0941
10/4/1996 14.375 15.730 -0.0861
9/27/1996 13.875 15.600 -0.1106
9/20/1996 13.750 15.600 -0.1186
9/13/1996 14.375 15.550 -0.0756
9/6/1996 14.250 15.530 -0.0824
8/30/1996 14.500 15.540 -0.0669
8/23/1996 14.500 15.600 -0.0705
8/16/1996 14.625 15.750 -0.0714
8/9/1996 14.875 15.780 -0.0574
8/2/1996 14.000 15.740 -0.1105
7/26/1996 13.875 15.550 -0.1077
7/19/1996 14.000 15.680 -0.1071
7/12/1996 14.125 15.660 -0.0980
7/5/1996 14.000 15.470 -0.0950
6/28/1996 14.000 15.640 -0.1049
6/21/1996 13.750 15.500 -0.1129
6/14/1996 14.000 15.560 -0.1003
6/7/1996 13.750 15.590 -0.1180
5/31/1996 13.875 15.610 -0.1111
5/24/1996 13.375 15.610 -0.1432
5/17/1996 13.500 15.630 -0.1363
5/10/1996 13.250 15.500 -0.1452
5/3/1996 13.125 15.400 -0.1477
4/26/1996 13.125 15.420 -0.1488
4/19/1996 13.250 15.410 -0.1402
4/12/1996 13.125 15.400 -0.1477
4/5/1996 13.375 15.450 -0.1343
3/29/1996 13.188 15.450 -0.1464
3/22/1996 13.000 15.410 -0.1564
3/15/1996 13.125 15.480 -0.1521
3/8/1996 13.375 15.430 -0.1332
3/1/1996 13.625 15.340 -0.1118
2/23/1996 13.375 15.340 -0.1281
2/16/1996 13.375 15.480 -0.1360
2/9/1996 13.625 15.550 -0.1238
2/2/1996 13.625 15.560 -0.1244
1/26/1996 13.500 15.430 -0.1251
1/19/1996 13.500 15.660 -0.1379
1/12/1996 13.375 15.470 -0.1354
1/5/1996 13.375 15.490 -0.1365
12/29/1995 13.500 15.540 -0.1313
12/22/1995 13.375 15.440 -0.1337
12/15/1995 13.625 15.560 -0.1244
12/8/1995 13.750 15.610 -0.1192
12/1/1995 14.125 15.820 -0.1071
11/24/1995 14.000 15.630 -0.1043
11/17/1995 14.000 15.760 -0.1117
11/10/1995 13.875 15.670 -0.1146
11/3/1995 13.875 15.680 -0.1151
10/27/1995 13.625 15.500 -0.1210
10/20/1995 13.875 15.500 -0.1048
10/13/1995 13.938 15.650 -0.1094
10/6/1995 14.000 15.510 -0.0974
9/29/1995 14.125 15.380 -0.0816
9/22/1995 13.750 15.240 -0.0978
9/15/1995 14.000 15.500 -0.0968
9/8/1995 14.125 15.380 -0.0816
9/1/1995 14.250 15.320 -0.0698
8/25/1995 14.000 15.270 -0.0832
8/18/1995 13.750 15.180 -0.0942
8/11/1995 13.625 15.030 -0.0935
8/4/1995 13.750 15.090 -0.0888
7/28/1995 13.625 15.000 -0.0917
7/21/1995 13.500 14.960 -0.0976
7/14/1995 13.750 15.270 -0.0995
7/7/1995 14.000 15.290 -0.0844
6/30/1995 14.000 15.140 -0.0753
6/23/1995 13.875 15.220 -0.0884
6/16/1995 14.000 15.150 -0.0759
6/9/1995 14.125 15.040 -0.0608
6/2/1995 14.875 15.270 -0.0259
5/26/1995 13.750 15.060 -0.0870
5/19/1995 14.250 14.860 -0.0410
5/12/1995 14.625 14.890 -0.0178
5/5/1995 14.250 14.840 -0.0398
4/28/1995 14.000 14.390 -0.0271
4/21/1995 13.625 14.250 -0.0439
4/14/1995 14.000 14.310 -0.0217
4/7/1995 13.875 14.240 -0.0256
3/31/1995 13.750 14.160 -0.0290
3/24/1995 13.375 14.180 -0.0568
3/17/1995 13.375 14.330 -0.0666
3/10/1995 13.625 14.260 -0.0445
3/3/1995 14.250 14.200 0.0035
2/24/1995 14.125 14.130 -0.0004
2/17/1995 13.500 14.090 -0.0419
2/10/1995 13.625 14.030 -0.0289
2/3/1995 14.125 14.040 0.0061
1/27/1995 12.875 13.840 -0.0697
1/20/1995 13.000 13.720 -0.0525
1/13/1995 13.625 13.810 -0.0134
1/6/1995 13.375 13.650 -0.0201
12/30/1994 12.500 13.640 -0.0836
12/23/1994 12.500 13.620 -0.0822
12/16/1994 12.875 13.630 -0.0554
12/9/1994 14.000 14.750 -0.0508
12/2/1994 13.875 14.750 -0.0593
11/25/1994 13.625 14.790 -0.0788
11/18/1994 13.375 14.780 -0.0951
11/11/1994 13.750 15.130 -0.0912
11/4/1994 14.000 15.190 -0.0783
10/28/1994 14.125 15.240 -0.0732
10/21/1994 13.125 15.290 -0.1416
10/14/1994 13.750 15.430 -0.1089
10/7/1994 13.625 15.380 -0.1141
9/30/1994 14.625 15.500 -0.0565
9/23/1994 15.125 15.550 -0.0273
9/16/1994 15.250 15.710 -0.0293
9/9/1994 15.375 15.740 -0.0232
9/2/1994 15.250 15.850 -0.0379
8/26/1994 15.125 15.820 -0.0439
8/19/1994 15.375 15.790 -0.0263
8/12/1994 15.500 15.840 -0.0215
8/5/1994 15.625 15.880 -0.0161
7/29/1994 15.750 15.880 -0.0082
7/22/1994 15.688 15.820 -0.0084
7/15/1994 16.250 15.950 0.0188
7/8/1994 16.375 15.900 0.0299
7/1/1994 16.000 15.990 0.0006
6/24/1994 16.250 15.970 0.0175
6/17/1994 16.000 16.060 -0.0037
6/10/1994 16.375 16.140 0.0146
6/3/1994 15.625 16.090 -0.0289
5/27/1994 15.375 16.010 -0.0397
5/20/1994 15.375 16.030 -0.0409
5/13/1994 15.125 16.150 -0.0635
5/6/1994 15.250 16.190 -0.0581
4/29/1994 14.875 16.280 -0.0863
4/22/1994 15.250 16.220 -0.0598
4/15/1994 15.375 16.350 -0.0596
4/8/1994 15.250 16.420 -0.0713
4/1/1994 15.750 16.520 -0.0466
3/25/1994 15.875 16.720 -0.0505
3/18/1994 16.125 16.760 -0.0379
3/11/1994 16.375 16.830 -0.0270
3/4/1994 16.625 16.780 -0.0092
2/25/1994 15.875 16.780 -0.0539
2/18/1994 15.500 16.740 -0.0741
2/11/1994 16.375 16.750 -0.0224
2/4/1994 16.500 16.830 -0.0196
1/28/1994 16.250 16.780 -0.0316
1/21/1994 16.500 16.710 -0.0126
1/14/1994 17.000 16.750 0.0149
1/7/1994 16.875 16.720 0.0093
12/31/1993 16.250 16.730 -0.0287
12/24/1993 16.625 16.710 -0.0051
12/17/1993 17.250 16.710 0.0323
12/10/1993 18.250 18.440 -0.0103
12/3/1993 18.000 18.320 -0.0175
11/26/1993 18.375 18.320 0.0030
11/19/1993 17.750 18.330 -0.0316
11/12/1993 18.375 18.340 0.0019
11/5/1993 18.625 18.450 0.0095
10/29/1993 18.500 18.640 -0.0075
10/22/1993 18.750 18.660 0.0048
10/15/1993 19.125 18.800 0.0173
10/8/1993 18.875 18.670 0.0110
10/1/1993 19.125 18.580 0.0293
9/24/1993 19.125 18.530 0.0321
9/17/1993 19.375 18.510 0.0467
9/10/1993 19.250 18.580 0.0361
9/3/1993 19.375 18.540 0.0450
8/27/1993 19.250 18.450 0.0434
8/20/1993 19.125 18.430 0.0377
8/13/1993 19.375 18.480 0.0484
8/6/1993 19.875 18.420 0.0790
7/30/1993 19.500 18.400 0.0598
7/23/1993 19.375 18.320 0.0576
7/16/1993 19.375 18.470 0.0490
7/9/1993 19.375 18.380 0.0541
7/2/1993 19.125 18.300 0.0451
6/25/1993 19.500 18.220 0.0703
6/18/1993 19.125 18.110 0.0560
6/11/1993 18.875 18.170 0.0388
6/4/1993 19.000 18.100 0.0497
5/28/1993 19.375 18.040 0.0740
5/21/1993 19.250 17.990 0.0700
5/14/1993 19.500 18.090 0.0779
5/7/1993 19.750 18.090 0.0918
4/30/1993 19.250 18.030 0.0677
4/23/1993 19.375 18.000 0.0764
4/16/1993 19.250 18.040 0.0671
4/9/1993 19.375 18.000 0.0764
4/2/1993 19.375 17.930 0.0806
3/26/1993 19.000 17.860 0.0638
3/19/1993 18.375 17.930 0.0248
3/12/1993 19.000 18.030 0.0538
3/5/1993 19.625 17.990 0.0909
2/26/1993 18.875 17.760 0.0628
2/19/1993 18.375 17.610 0.0434
2/12/1993 18.250 17.460 0.0452
2/5/1993 18.375 17.450 0.0530
1/29/1993 18.625 17.310 0.0760
1/22/1993 19.000 17.240 0.1021
1/15/1993 19.125 17.160 0.1145
1/8/1993 18.875 17.180 0.0987
1/1/1993 18.375 17.110 0.0739
12/25/1992 18.125 17.070 0.0618
12/18/1992 18.000 17.010 0.0582
12/11/1992 19.750 18.630 0.0601
12/4/1992 19.875 18.610 0.0680
11/27/1992 19.500 18.560 0.0506
11/20/1992 19.250 18.600 0.0349
11/13/1992 19.750 18.650 0.0590
11/6/1992 19.375 18.670 0.0378
10/30/1992 20.000 18.680 0.0707
10/23/1992 19.375 18.670 0.0378
10/16/1992 19.625 18.840 0.0417
10/9/1992 19.625 18.840 0.0417
10/2/1992 20.000 18.780 0.0650
9/25/1992 19.375 18.740 0.0339
9/18/1992 19.625 18.710 0.0489
9/11/1992 19.500 18.830 0.0356
9/4/1992 19.250 18.820 0.0228
8/28/1992 19.250 18.780 0.0250
8/21/1992 19.375 18.800 0.0306
8/14/1992 19.500 18.770 0.0389
8/7/1992 19.750 18.630 0.0601
7/31/1992 19.625 18.550 0.0580
7/24/1992 19.625 18.320 0.0712
7/17/1992 19.375 18.330 0.0570
7/10/1992 19.375 18.290 0.0593
7/3/1992 19.125 18.230 0.0491
6/26/1992 19.000 18.110 0.0491
6/19/1992 18.500 18.090 0.0227
6/12/1992 18.625 18.190 0.0239
6/5/1992 18.750 18.200 0.0302
5/29/1992 18.250 18.180 0.0039
5/22/1992 18.250 18.100 0.0083
5/15/1992 18.625 18.000 0.0347
5/8/1992 18.625 17.940 0.0382
5/1/1992 18.625 17.700 0.0523
4/24/1992 18.375 17.630 0.0423
4/17/1992 18.375 17.560 0.0464
4/10/1992 18.375 17.580 0.0452
4/3/1992 18.125 17.500 0.0357
3/27/1992 18.000 17.430 0.0327
3/20/1992 18.000 17.330 0.0387
3/13/1992 18.125 17.350 0.0447
3/6/1992 18.000 17.410 0.0339
2/28/1992 18.000 17.340 0.0381
2/21/1992 17.875 17.160 0.0417
2/14/1992 18.000 16.960 0.0613
2/7/1992 17.875 17.060 0.0478
1/31/1992 17.500 16.800 0.0417
1/24/1992 18.125 16.610 0.0912
1/17/1992 18.125 16.510 0.0978
1/10/1992 18.375 16.530 0.1116
1/3/1992 18.000 16.230 0.1091
12/27/1991 17.750 15.940 0.1136
12/20/1991 17.125 15.800 0.0839
12/13/1991 18.000 16.680 0.0791
12/6/1991 17.875 16.680 0.0716
11/29/1991 17.875 16.540 0.0807
11/22/1991 17.625 16.550 0.0650
11/15/1991 17.875 16.550 0.0801
11/8/1991 17.875 16.510 0.0827
11/1/1991 17.750 16.600 0.0693
10/25/1991 17.625 16.530 0.0662
10/18/1991 17.750 16.560 0.0719
10/11/1991 17.750 16.520 0.0745
10/4/1991 17.750 16.490 0.0764
9/27/1991 17.625 16.500 0.0682
9/20/1991 17.500 16.430 0.0651
9/13/1991 17.750 16.310 0.0883
9/6/1991 17.250 16.320 0.0570
8/30/1991 16.750 16.240 0.0314
8/23/1991 17.250 16.200 0.0648
8/16/1991 16.875 16.150 0.0449
8/9/1991 16.875 16.010 0.0540
8/2/1991 17.000 15.920 0.0678
7/26/1991 16.625 15.760 0.0549
7/19/1991 16.625 15.620 0.0643
7/12/1991 16.500 15.480 0.0659
7/5/1991 16.625 15.500 0.0726
6/28/1991 16.500 15.480 0.0659
6/21/1991 16.500 15.660 0.0536
6/14/1991 16.250 15.600 0.0417
6/7/1991 16.375 15.710 0.0423
5/31/1991 16.500 15.700 0.0510
5/24/1991 16.125 15.780 0.0219
5/17/1991 16.000 15.770 0.0146
5/10/1991 16.125 15.810 0.0199
5/3/1991 16.000 15.640 0.0230
4/26/1991 15.875 15.460 0.0268
4/19/1991 15.750 15.270 0.0314
4/12/1991 15.375 15.080 0.0196
4/5/1991 15.375 15.150 0.0149
3/29/1991 15.375 15.030 0.0230
3/22/1991 15.250 14.950 0.0201
3/15/1991 15.125 14.900 0.0151
3/8/1991 15.000 14.730 0.0183
3/1/1991 15.125 14.510 0.0424
2/22/1991 15.000 14.430 0.0395
2/15/1991 15.000 14.370 0.0438
2/8/1991 15.125 13.950 0.0842
2/1/1991
1/25/1991
1/18/1991
1/11/1991
1/4/1991
12/28/1990
Over the past six months, investors have been indiscriminately selling
many types of corporate securities, including closed-end funds. The discounts of
closed-end funds of all stripes, including the Fund's, widened materially.
Toward the end of the year, the Fund's decline in market price was further
compounded by tax-loss selling pressure. Throughout the period, the market price
of the Fund's shares has almost traded without apparent relation to their
underlying net asset value (NAV), and we have seen near-historic discounts in
the Fund's market prices to their NAVs.
As discussed in greater detail on the Fund's website, fundamentally, the
market prices of the Fund's shares are subject to the laws of supply and demand,
which became substantially imbalanced. We believe that the fundamentals of PFD
continue to be strong and that this supply/demand imbalance is unjustified when
one considers the Fund's current dividend levels and the quality of its
portfolio.
THE U.S. ECONOMY AND FEDERAL RESERVE MONETARY POLICY
The U.S. economy has performed remarkably well to date in the face of
significant deterioration in housing and credit markets. Real gross domestic
product grew by 4.9% at an annual rate in the third quarter,
5
the fastest quarterly growth pace in four years. However, prospects for future
growth have clearly dimmed. Today, the key question for the economy - and for
investors - is to what extent housing and credit headwinds affect economic
growth over coming quarters. On one hand, if the impact is only modest, then the
economy probably can regain its footing after a couple quarters of slow (sub-2%)
growth. On the other hand, if the housing downturn becomes even worse than
expected, generating further sizable losses in the financial sector, then credit
contraction in combination with already-slowing consumer spending could result
in recession.
Without repeating the detailed analysis we present in our Quarterly
Economic Update (which is available on the Fund's website), we continue to think
that the economy will narrowly avoid recession. However, we now believe that
additional monetary easing will be needed, and the downside risks have increased
as credit market strains have intensified.
The housing market remains the weakest part of the economy, and we expect
it to weaken through 2008 as a large inventory of unsold homes continues to
weigh on both prices and construction activity. Many mortgage borrowers with
little home equity will default, others will struggle with higher mortgage
payments as their rates reset, and fewer and fewer homeowners will be able to
extract home equity to finance current consumption. The result will be slower
growth in consumer spending, although we think that steady, if unspectacular,
gains in employment will prevent consumption from falling outright.
Falling home prices and poor loan underwriting have resulted in surging
delinquency and default rates and rising loss severity. Mortgage investors must
anticipate how many loans will default and how much of the loan value will be
recovered in foreclosure. Thus, mortgage prices need to reflect not only current
losses, but also expectations of all future losses. As a result, the price of
many mortgage-backed securities, particularly those backed by subprime loans,
have fallen dramatically - even in cases where securities have suffered no
defaults on principal or interest to date. In turn, prices of securities issued
by companies with exposure to mortgage securities also have fallen sharply.
The distinction between current and expected losses is an important one
for investors. First, because prices have fallen on many securities, financial
institutions who hold them have taken sizable mark-to-market losses that have
reduced earnings and capital. But these write downs already incorporate expected
future losses. In the case of subprime mortgages (and many other assets), market
prices incorporate quite dire loss estimates. Although it's possible that losses
ultimately will exceed market expectations, it's also possible that losses will
be less. If in fact losses are less than current market prices reflect, then
holders of those securities ultimately will report gains from current
(depressed) prices. Thus, investors in these securities may well avoid further
losses (or even have gains) even as defaults increase, as long as defaults and
losses arising from those defaults are less than what is baked into current
prices. Second, although market prices reflect severe loss expectations on
mortgages, the vast majority of those losses have not yet occurred. Normally,
changes in wealth (in this case, mark-to-market losses) have a significantly
smaller economic impact than realized losses (actual defaults). As a result, the
economic impact of defaults will probably take some time to play out. That
offers the possibility that the economy can avoid recession, despite the
magnitude of the losses that ultimately may be incurred in the mortgage market.
At the same time, it also means growth may be sluggish for more than just a
couple of quarters. Right now, we just can't say which way the economy is likely
to turn: toward recession, an extended period of sluggish growth, or a
two-quarter pause before resuming normal growth. However, even the best of those
three scenarios points to slow growth in early 2008, so our economic outlook
remains cautious.
6
In response to the gloomier economic outlook and the credit crunch, the
Federal Reserve cut the fed funds rate by a total of one percentage point from
September through December 2007. However, just as it increased the rate further
than normal due to declining risk premiums from 2004-06, the Fed may now have to
lower the fed funds rate by more than normal due to elevated risk premiums. The
credit crunch, which has raised risk premiums, has reduced the stimulative
effect of the Fed's rate cuts. Although recent coordinated actions by major
central banks to provide term financing are starting to improve the pass-through
of lower official rates to market rates, it is clear that whatever set of market
rates needed to keep the economy out of recession is likely to be associated
with a lower-than-normal fed funds rate.
In addition to the cost of credit, the Fed needs to be concerned about the
availability of credit. Securitization markets are essentially shut down for
mortgages other than U.S. government agency-eligible conforming loans; ditto for
many other forms of collateral. This is forcing borrowers to turn to banks and
finance companies for funds, expanding their balance sheets at a time when
capital is being squeezed due to mark-to-market losses and higher charge-offs on
existing loans. Thus, financial institutions are tightening lending standards
and raising loan rates, which likely will constrain economic growth in the
absence of easier monetary policy.
With the bulk of the economic impact of rising loan defaults yet to be
felt, we believe that the Fed will err on the side of additional rate cuts, at
least until market rates come down meaningfully.
FUNDAMENTAL CREDIT TRENDS FOR FINANCIAL SERVICES COMPANIES
Although the economic outlook is uncertain, we believe that the credit
outlook is positive overall. The corporate nonfinancial sector remains healthy,
with low leverage, strong interest coverage, and good liquidity. However, the
corporate financial sector, which constitutes the largest sector of the
preferred market and where consequently the Fund has significant holdings, is
both more strained and more variable. Funding costs for all financial
institutions have increased meaningfully, and many companies have taken large
write-downs on subprime mortgages and other assets whose market prices have
fallen substantially. Life insurance and property and casualty insurance
companies have generally avoided most of the problems facing other financial
companies, but banks, finance companies, financial guarantors and broker-dealers
have been significantly affected because of their direct and indirect exposure
to problems in housing markets. These companies all face a difficult operating
environment over the next several years, especially if the economy slips into
recession.
Recognizing these risks, we remain confident about the overall
creditworthiness of the Fund's holdings of financial issuers. Overall, we
believe that the issuers (a) are well capitalized, (b) have strong business
franchises, (c) are well managed, and (d) have access to additional capital, if
needed. We believe that they have the ability to absorb sizable losses and still
navigate a difficult credit landscape. Because most of these financial companies
operate in a mark-to-market environment, their write downs already reflect both
current and expected future losses. Although we admit that we worry about a few
holdings more than others, we believe that overall credit quality of the
portfolio remains sound. Put simply, we think that current preferred securities
prices more accurately reflect the fear and illiquidity of today's credit
markets than the fundamental creditworthiness of the issuers. It may take some
time, but we are confident that preferred securities prices will reflect more of
their creditworthiness eventually.
7
TAX ADVANTAGES OF 2007 CALENDAR YEAR DISTRIBUTIONS
In 2007, the Fund passed on a portion of its income to individuals in the
form of qualified dividend income or QDI. QDI is taxed at a maximum 15% rate
instead of an individual's ordinary income tax rate. In calendar year 2007,
approximately 69.1% of distributions made by the Fund was eligible for QDI
treatment. For an individual in the 28% tax bracket, this means that the Fund's
total distributions will only be taxed at a blended 19.0% rate versus the 28%
rate which would apply to distributions by a fund containing traditional
corporate bonds. This tax advantage means that, all other things being equal, an
individual in the 28% tax bracket who held 100 shares of Common Stock of the
Fund for the calendar year would have had to receive approximately $116 in
distributions from a traditional corporate bond fund to net the same after-tax
amount as the $103 in distributions paid by the Fund.
For detailed information about the tax treatment of the particular
distributions received from the Fund, please see the Form 1099 you receive from
either the Fund or your broker.
Corporate shareholders also receive a federal tax benefit from the 59.0%
of distributions that were eligible for the inter-corporate dividends received
deduction or DRD.
It is important to remember that the composition of the portfolio and the
income distributions can change from one year to the next, and the QDI or DRD
portions of next year's distributions may not be the same (or even similar) to
this year's.
8
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OVERVIEW
NOVEMBER 30, 2007 (UNAUDITED)
------------------------------------------------------
FUND STATISTICS ON 11/30/07
--------------------------------------------------------------------------------
Net Asset Value $ 12.85
Market Price $ 12.41
Discount 3.42%
Yield on Market Price 8.32%
Common Stock Shares Outstanding 10,545,750
MOODY'S RATINGS % OF PORTFOLIO
--------------------------------------------------------------------------------
AA 7.5%
A 16.0%
BBB 52.4%
BB 14.4%
Below "BB" 1.2%
Not Rated 7.9%
--------------------------------------------------------------------------------
Below Investment Grade* 14.4%
* BELOW INVESTMENT GRADE BY BOTH MOODY'S AND S&P.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
INDUSTRY CATEGORIES % OF PORTFOLIO
--------------------------------------------------------------------------------
Banking 28%
Utilities 31%
Insurance 15%
Financial Services 13%
Energy 8%
REITs 2%
Other 3%
TOP 10 HOLDINGS BY ISSUER % OF PORTFOLIO
--------------------------------------------------------------------------------
Interstate Power & Light 5.2%
Merrill Lynch 4.8%
Liberty Mutual Group 4.1%
FBOP Corp 4.0%
Banco Santander 3.8%
Xcel Energy 3.4%
CoBank ACB 3.0%
EOG Resources 3.0%
SLM Corp 2.9%
Midamerican Energy 2.3%
% OF PORTFOLIO**
--------------------------------------------------------------------------------
Holdings Generating Qualified Dividend Income (QDI) for
Individuals 60%
Holdings Generating Income Eligible for the Corporate
Dividends Received Deduction (DRD) 53%
--------------------------------------------------------------------------------
** 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. SEE ACCOMPANYING
NOTES TO THE FINANCIAL STATEMENTS FOR THE TAX CHARACTERIZATION OF 2007
DISTRIBUTIONS.
9
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------- -------
PREFERRED SECURITIES -- 93.8%
BANKING -- 27.9%
----------------------------------------------------------------------------------------------------------------------
$ 3,000,000 Astoria Capital Trust I, 9.75% 11/01/29, Series B ................................. $ 3,316,200
Banco Santander:
25,000 Adj. Rate Pfd. ................................................................. 518,750**(1)
301,200 6.50% Pfd., 144A**** ........................................................... 6,273,996**(1)
63,200 6.80% Pfd. ..................................................................... 1,356,828**(1)
104,565 Bank of America Corp., 6.625% Pfd. ................................................ 2,497,274*
$ 2,500,000 Capital One Capital III, 7.686% 08/15/36 .......................................... 2,079,500
$ 3,500,000 CBG Florida REIT Corporation, 7.114%, 144A**** .................................... 3,337,148
80,000 Citigroup Capital VIII, 6.95% Pfd. 09/15/31 ....................................... 1,810,000
19,648 Citizens Funding Trust I, 7.50% Pfd. 09/15/66 ..................................... 393,206
Cobank, ACB:
50,000 7.00% Pfd., 144A**** ........................................................... 2,548,500*
75,000 7.814% Pfd., 144A**** .......................................................... 4,002,000*
7,500 Colonial Capital Trust IV, 7.875% Pfd. ............................................ 177,375
$ 2,575,000 Comerica Capital Trust II, 6.576% 02/20/37 ........................................ 2,095,906
9,000 FBOP Corporation, Adj. Rate Pfd., 144A**** ........................................ 8,550,000*
$ 2,250,000 First Hawaiian Capital I, 8.343% 07/01/27, Series B ............................... 2,348,008(1)
$ 1,500,000 First Union Capital II, 7.95% 11/15/29 ............................................ 1,617,319
$ 550,000 HBOS PLC, 6.657%, 144A**** ........................................................ 461,725**(1)
5,000 HSBC Series II, Variable Inverse Pfd., Pvt. ....................................... 2,715,000*
2,500 HSBC USA, Inc., $2.8575 Pfd. ...................................................... 118,047*
120,000 Keycorp Capital IX, 6.75% Pfd. 12/15/66 ........................................... 2,587,500
31,500 PFGI Capital Corporation, 7.75% Pfd. .............................................. 732,060
$ 425,000 Regions Financing Trust II, 6.625% 05/15/47 ....................................... 357,042
10 Roslyn Real Estate, 8.95% Pfd., Series C, 144A**** ................................ 1,078,781
$ 900,000 Royal Bank of Scotland Group PLC, 7.64% ........................................... 915,329**(1)
77,600 Sovereign Bancorp, 7.30% Pfd., Series C ........................................... 1,930,300*
30,600 Sovereign Capital Trust V, 7.75% Pfd. 05/22/36 .................................... 705,712
$ 1,000,000 Sovereign Capital Trust VI, 7.908% 06/13/36 ....................................... 980,400
U.S. Bancorp, Auction Pass-Through Trust, Cl. B:
11 Series 2006-5, Variable Rate Pfd., 144A**** .................................... 151,250*
11 Series 2006-6, Variable Rate Pfd., 144A**** .................................... 151,250*
46,700 USB Capital VIII, 6.35% Pfd. 12/29/65 ............................................. 992,375
5,550 Wachovia Capital Trust IX, 6.375% Pfd. ............................................ 117,764
$ 1,000,000 Washington Mutual Preferred Funding IV, 9.75%, 144A**** ........................... 798,900
$ 1,600,000 Webster Capital Trust IV, 7.65% 06/15/37 .......................................... 1,372,160
40,000 Zions Capital Trust B, 8.00% Pfd. 09/01/32 ........................................ 993,752
-----------------------------------------------------------------------------------------------------------------
60,081,357
-------------
The accompanying notes are an integral part of the financial statements.
10
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
PREFERRED SECURITIES -- (CONTINUED)
FINANCIAL SERVICES -- 12.2%
----------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
$ 2,600,000 6.10%, 03/15/67 ................................................................ $ 1,944,020
110,000 6.35% Pfd., Series A ........................................................... 2,086,568*
25,000 Countrywide Capital IV, 6.75% Pfd. ................................................ 362,812(2)
50,300 Countrywide Capital V, 7.00% Pfd. 11/01/36 ........................................ 718,410(2)
28,300 Deutsche Bank Contingent Capital Trust II, 6.55% Pfd. ............................. 634,981**(1)
1,250 First Republic Preferred Capital Corporation, 10.50% Pfd., 144A**** ............... 1,393,950
22,500 First Republic Preferred Capital Corporation II, 8.75% Pfd., Series B, 144A**** ... 576,900
Goldman Sachs:
35,000 Cabco Trust Capital I, Adj. Rate Pfd. 02/15/34 ................................. 670,470
25 Pass-Through Certificates, Class B, 144A**** ................................... 1,435,000*+
2,500 STRIPES Custodial Receipts, Pvt. ............................................... 1,485,000*
10,000 Lehman Brothers Holdings, Inc., 5.94% Pfd., Series C .............................. 426,600*
Merrill Lynch:
87,000 Adj. Rate Pfd., Series 5 ....................................................... 1,625,812*
21,000 Adj. Rate Pfd., Series 2 ....................................................... 387,845*
3,000 Series II STRIPES Custodial Receipts, Pvt. ..................................... 771,000*
200,000 6.25% Pfd. ..................................................................... 4,412,000*
53,700 6.70% Pfd. ..................................................................... 1,254,432*
SLM Corporation:
9,000 Adj. Rate Pfd., Series B ....................................................... 540,000*
136,855 6.97% Pfd., Series A ........................................................... 5,713,696*
-----------------------------------------------------------------------------------------------------------------
26,439,496
-------------
INSURANCE -- 11.9%
----------------------------------------------------------------------------------------------------------------------
19,100 ACE Ltd., 7.80% Pfd., Series C .................................................... 472,129**(1)
$ 1,000,000 AMBAC Financial Group, Inc., 6.15% 02/15/37 ....................................... 678,980
$ 3,750,000 AON Capital Trust A, 8.205% 01/01/27 .............................................. 4,123,627
Arch Capital Group Ltd.:
10,000 7.875% Pfd., Series B .......................................................... 233,725**(1)
40,000 8.00% Pfd., Series A ........................................................... 936,500**(1)
$ 1,000,000 AXA SA, 6.463%, 144A**** .......................................................... 899,338**(1)
30,900 Axis Capital Holdings, 7.50% Pfd., Series B ....................................... 3,013,368(1)
90,000 Delphi Financial Group, 7.376% Pfd. 05/15/37 ...................................... 1,849,500
$ 2,275,000 Everest Re Holdings, 6.60% 05/15/37 ............................................... 2,074,493
$ 4,500,000 Liberty Mutual Group, 7.80% 03/15/37, 144A**** .................................... 4,101,498
40,000 MetLife, Inc., Adj. Rate Pfd., Series A ........................................... 876,252*
The accompanying notes are an integral part of the financial statements.
11
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
PREFERRED SECURITIES -- (CONTINUED)
INSURANCE -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
$ 500,000 PartnerRe Finance II, 6.44% 12/01/66 .............................................. $ 453,847(1)
$ 1,650,000 Progressive Corporation, 6.70% 06/15/37 ........................................... 1,589,049
Renaissancere Holdings Ltd.:
27,950 6.08% Pfd., Series C ........................................................... 496,392**(1)
79,100 6.60% Pfd., Series D ........................................................... 1,521,884**(1)
119,500 Scottish Re Group Ltd., 7.25% Pfd. ................................................ 1,376,939**(1)
$ 750,000 USF&G Capital, 8.312% 07/01/46, 144A**** .......................................... 930,725
-----------------------------------------------------------------------------------------------------------------
25,628,246
-------------
UTILITIES -- 30.1%
----------------------------------------------------------------------------------------------------------------------
Alabama Power Company:
300 4.52% Pfd. ..................................................................... 24,900*
5,734 4.72% Pfd. ..................................................................... 497,023*
10,000 Baltimore Gas & Electric Company, 6.70% Pfd., Series 1993 ......................... 1,037,500*
103,200 Calenergy Capital Trust III, 6.50% Pfd. 09/01/27 .................................. 4,945,344
Central Hudson Gas & Electric Corporation:
5,000 4.35% Pfd., Series D, Pvt. ..................................................... 409,000*
900 4.96% Pfd., Series E, Pvt. ..................................................... 80,973*
8,340 Central Vermont Public Service Corporation, 8.30% Sinking Fund Pfd., Pvt. ......... 861,689*
Connecticut Light & Power Company:
12,124 4.50% Pfd., Series 1963, Pvt. .................................................. 467,259*
34,300 5.28% Pfd., Series 1967 ........................................................ 1,635,424*
1,905 6.56% Pfd., Series 1968 ........................................................ 95,136*
2,100 Consolidated Edison Company of New York, 4.65% Pfd., Series C ..................... 168,147*
2,886 Dayton Power and Light Company, 3.90% Pfd., Series C .............................. 189,379*
Duquesne Light Company:
7,675 4.10% Pfd. ..................................................................... 286,661*
9,190 4.15% Pfd. ..................................................................... 347,382*
910 4.20% Pfd. ..................................................................... 34,817*
5,490 $2.10 Pfd., Series A ........................................................... 210,047*
100,000 Entergy Arkansas, Inc., 6.45% Pfd. ................................................ 2,550,000*
4,555 Entergy Gulf States, Inc., 7.56% Pfd. ............................................. 463,152*
36,000 Entergy Louisiana, Inc., 6.95% Pfd. ............................................... 3,642,480*
5,000 Entergy Mississippi, Inc., 4.92% Pfd. ............................................. 434,700*
18,535 Florida Power Company, 4.75% Pfd. ................................................. 1,619,959*
23,300 FPC Capital I, 7.10% Pfd., Series A ............................................... 563,569
The accompanying notes are an integral part of the financial statements.
12
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
Georgia Power Company:
13,100 6.125% Pfd. .................................................................... $ 342,303*
10,000 6.50% Pfd., Series 07-A ........................................................ 1,011,200*
2,010 Great Plains Energy, Inc., 4.50% Pfd. ............................................. 169,363*
50,000 Hawaiian Electric Company, Inc., 5.25% Pfd., Series H, Pvt. ....................... 998,440*
32,650 Indianapolis Power & Light Company, 5.65% Pfd. .................................... 2,937,194*
384,000 Interstate Power & Light Company, 8.375% Pfd., Series B ........................... 11,232,000*
Pacific Enterprises:
27,430 $4.50 Pfd. ..................................................................... 2,332,099*
10,000 $4.75 Pfd., Series 53 .......................................................... 897,400*
7,600 Pacific Gas & Electric Co., 4.50% Pfd., Series H .................................. 160,208*
PacifiCorp:
1,095 5.40% Pfd. ..................................................................... 110,978*
1,225 $4.56 Pfd. ..................................................................... 104,885*
14,542 $4.72 Pfd. ..................................................................... 1,288,712*
$ 500,000 PECO Energy Capital Trust III, 7.38% 04/06/28, Series D ........................... 529,750
5,000 PPL Electric Utilities Corporation, 6.75% Pfd. .................................... 515,300*
10,000 Public Service Company of New Mexico, 4.58% Pfd., Series 1965 ..................... 831,800*
San Diego Gas & Electric Company:
1,200 4.40% Pfd. ..................................................................... 19,680*
700 4.50% Pfd. ..................................................................... 11,739*
77,000 $1.70 Pfd. ..................................................................... 2,018,848*
South Carolina Electric & Gas Company:
24,924 5.125% Purchase Fund Pfd., Pvt. ................................................ 1,281,841*
6,703 6.00% Purchase Fund Pfd., Pvt. ................................................. 341,451*
Southern Union Company:
$ 200,000 7.20% 11/01/66 ................................................................. 201,216
64,800 7.55% Pfd. ..................................................................... 1,613,520*
$ 750,000 TXU Electric Capital V, 8.175% 01/30/37 ........................................... 659,175
Union Electric Company:
14,150 4.56% Pfd. ..................................................................... 1,189,449*
18,800 $7.64 Pfd. ..................................................................... 1,926,812*
12,500 Virginia Electric & Power Company, $7.05 Pfd. ..................................... 1,265,625*
47,400 Virginia Power Capital Trust, 7.375% Pfd. 07/30/42 ................................ 1,156,859
$ 1,900,000 Wisconsin Energy Corporation, 6.25% 05/15/67 ...................................... 1,778,600
Wisconsin Power & Light Company:
1,220 4.50% Pfd. ..................................................................... 102,456*
546 4.80% Pfd. ..................................................................... 48,911*
The accompanying notes are an integral part of the financial statements.
13
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
PREFERRED SECURITIES -- (CONTINUED)
UTILITIES -- (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
Xcel Energy, Inc.:
16,030 $4.08 Pfd., Series B ........................................................... $ 1,237,837*
26,200 $4.10 Pfd., Series C ........................................................... 2,033,382*
22,000 $4.11 Pfd., Series D ........................................................... 1,711,380*
17,750 $4.16 Pfd., Series E ........................................................... 1,397,635*
10,000 $4.56 Pfd., Series G ........................................................... 863,200*
-----------------------------------------------------------------------------------------------------------------
64,885,789
-------------
ENERGY -- 7.0%
----------------------------------------------------------------------------------------------------------------------
8,000 Devon Energy Corporation, 6.49% Pfd., Series A .................................... 796,800*
Enterprise Products Partners:
$ 2,600,000 7.034% 01/15/68 ................................................................ 2,423,866
$ 1,640,000 8.375% 08/01/66 ................................................................ 1,714,731
5,985 EOG Resources, Inc., 7.195% Pfd., Series B ........................................ 6,470,862*
1,500 Kinder Morgan GP, Inc., 8.33% Pfd., 144A**** ...................................... 1,597,395*
$ 1,225,000 KN Capital Trust III, 7.63% 04/15/28 .............................................. 1,106,014
10,000 Lasmo America Limited, 8.15% Pfd., 144A**** ....................................... 1,047,800*(1)
-----------------------------------------------------------------------------------------------------------------
15,157,468
-------------
REAL ESTATE INVESTMENT TRUST (REIT) -- 2.3%
----------------------------------------------------------------------------------------------------------------------
1,000 Equity Residential Properties, 8.29% Pfd., Series K ............................... 51,840
30,000 PS Business Parks, Inc., 7.375% Pfd., Series O .................................... 638,439
Public Storage, Inc.:
146,370 6.45% Pfd., Series F ........................................................... 2,982,289
63,200 6.625% Pfd., Series M .......................................................... 1,291,650
-----------------------------------------------------------------------------------------------------------------
4,964,218
-------------
MISCELLANEOUS INDUSTRIES -- 2.2%
----------------------------------------------------------------------------------------------------------------------
13,600 E.I. Du Pont de Nemours and Company, $4.50 Pfd., Series B ......................... 1,090,720*
40,000 Ocean Spray Cranberries, Inc., 6.25% Pfd., 144A**** ............................... 3,617,600*
-----------------------------------------------------------------------------------------------------------------
4,708,320
-------------
U.S. GOVERNMENT SECURITIES -- 0.2%
----------------------------------------------------------------------------------------------------------------------
20,000 Freddie Mac, 5.66% Series W ....................................................... 396,400*
-----------------------------------------------------------------------------------------------------------------
396,400
-------------
TOTAL PREFERRED SECURITIES
(Cost $214,710,313) ............................................................ 202,261,294
-------------
The accompanying notes are an integral part of the financial statements.
14
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
CORPORATE DEBT SECURITIES -- 5.3%
FINANCIAL SERVICES -- 0.8%
----------------------------------------------------------------------------------------------------------------------
$ 1,800,000 Lehman Brothers Holdings, 6.875% 07/17/37, Sub. Note .............................. $ 1,754,051
----------------------------------------------------------------------------------------------------------------------
1,754,051
-------------
INSURANCE -- 2.6%
----------------------------------------------------------------------------------------------------------------------
$ 900,000 Farmers Exchange Capital, 7.20% 07/15/48, 144A**** ................................ 872,910
$ 4,729,000 Liberty Mutual Insurance, 7.697% 10/15/97, 144A**** ............................... 4,674,905
-----------------------------------------------------------------------------------------------------------------
5,547,815
-------------
UTILITIES -- 0.8%
----------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Duke Capital Corporation, 8.00% 10/01/19, Senior Notes ............................ 1,178,191
5,000 Entergy Louisiana LLC, 7.60% 04/01/32 ............................................. 125,625
20,100 PPL Capital Funding, Inc., 6.85% 07/01/47 ......................................... 483,003
-----------------------------------------------------------------------------------------------------------------
1,786,819
-------------
ENERGY -- 1.1%
----------------------------------------------------------------------------------------------------------------------
$ 2,450,000 KN Energy, Inc., 7.45% 03/01/98 ................................................... 2,182,796
11,300 Nexen, Inc., 7.35% 11/01/43, Subordinated Notes ................................... 270,494(1)
-----------------------------------------------------------------------------------------------------------------
2,453,290
-------------
TOTAL CORPORATE DEBT SECURITIES
(Cost $11,442,400) ............................................................. 11,541,975
-------------
OPTION CONTRACTS -- 0.1%
----------------------------------------------------------------------------------------------------------------------
770 March Put Options on March U.S. Treasury Bond Futures, Expiring 02/22/08 .......... 120,313+
-----------------------------------------------------------------------------------------------------------------
TOTAL OPTION CONTRACTS
(Cost $148,033) ................................................................ 120,313
-------------
MONEY MARKET FUND -- 0.4%
----------------------------------------------------------------------------------------------------------------------
786,146 BlackRock Provident Institutional, TempFund ....................................... 786,146
-----------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost $786,146) ................................................................ 786,146
-------------
The accompanying notes are an integral part of the financial statements.
15
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
PORTFOLIO OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 2007
------------------------------------------------------
SHARES/$ PAR VALUE
------------ -------
SECURITIES LENDING COLLATERAL -- 0.4%
------------------------------------------------------------------------------------------------------------------
871,000 BlackRock Institutional Money Market Trust. ..................................... $ 871,000
-----------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES LENDING COLLATERAL
(Cost $871,000) ................................................................. 871,000
-------------
TOTAL INVESTMENTS (Cost $227,957,892***) ............................................ 100.0% 215,580,728
OTHER ASSETS AND LIABILITIES (Net) .................................................. 0.0% (26,213)
------- -------------
TOTAL NET ASSETS AVAILABLE TO COMMON AND PREFERRED STOCK ............................ 100.0%++ $ 215,554,515
------- -------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R)) REDEMPTION VALUE ......................... (80,000,000)
-------------
TOTAL NET ASSETS AVAILABLE TO COMMON STOCK .................................................... $ 135,554,515
=============
----------
* 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. These securities have been
determined to be liquid under the guidelines established by the Board of
Directors.
(1) Foreign Issuer.
(2) All or a portion of this security is on loan.
+ 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:
PFD. -- Preferred Securities
PVT. -- Private Placement Securities
The accompanying notes are an integral part of the financial statements.
16
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2007
------------------------------------------------------
ASSETS:
Investments, at value (Cost $227,957,892) including $910,350 of
securities on loan ............................................................ $ 215,580,728
Receivable for investments sold .................................................. 384,809
Dividends and interest receivable ................................................ 1,676,086
Prepaid expenses ................................................................. 48,969
-------------
Total Assets ............................................................... 217,690,592
LIABILITIES:
Payable for securities lending collateral ........................................ $ 871,000
Dividends payable to Common Stock Shareholders ................................... 102,689
Investment advisory fee payable .................................................. 100,641
Administration, Transfer Agent and Custodian fees payable ........................ 31,166
Professional fees payable ........................................................ 66,640
Directors' fees payable .......................................................... 1,871
Accrued expenses and other payables .............................................. 48,119
Accumulated undeclared distributions to Money Market
Cumulative Preferred(TM) Stock Shareholders ................................... 913,951
-------------
Total Liabilities .......................................................... 2,136,077
-------------
MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK
(800 SHARES OUTSTANDING) REDEMPTION VALUE ........................................ 80,000,000
-------------
NET ASSETS AVAILABLE TO COMMON STOCK ................................................ $ 135,554,515
=============
NET ASSETS AVAILABLE TO COMMON STOCK consist of:
Distributions in excess of net investment income ................................. $ (956,093)
Accumulated net realized loss on investments sold ................................ (3,367,951)
Unrealized depreciation of investments ........................................... (12,377,164)
Par value of Common Stock ........................................................ 105,457
Paid-in capital in excess of par value of Common Stock ........................... 152,150,266
-------------
Total Net Assets Available to Common Stock ................................. $ 135,554,515
=============
NET ASSET VALUE PER SHARE OF COMMON STOCK:
Common Stock (10,545,750 shares outstanding) ..................................... $ 12.85
=============
The accompanying notes are an integral part of the financial statements.
17
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2007
------------------------------------------------------
INVESTMENT INCOME:
Dividends+ .................................................................... $ 12,413,466
Interest ...................................................................... 4,131,100
-------------
Total Investment Income ................................................. 16,544,566
EXPENSES:
Investment advisory fee ....................................................... $ 1,312,364
Administrator's fee ........................................................... 219,139
Money Market Cumulative Preferred(TM) Stock broker commissions
and auction agent fees ..................................................... 206,790
Professional fees ............................................................. 114,469
Insurance expense ............................................................. 150,169
Transfer Agent fees ........................................................... 73,018
Directors' fees ............................................................... 69,775
Custodian fees ................................................................ 29,402
Compliance fees ............................................................... 38,585
Other ......................................................................... 124,767
-------------
Total Expensess ......................................................... 2,338,478
-------------
NET INVESTMENT INCOME ............................................................... 14,206,088
-------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on investments sold during the year .................. (2,329,009)
Net realized gain/(loss) from written options during the year ................. 153,119
Change in net unrealized appreciation/depreciation of investments ............. (28,285,941)
-------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ..................................... (30,461,831)
-------------
DISTRIBUTIONS TO MONEY MARKET CUMULATIVE PREFERRED(TM)
STOCK SHAREHOLDERS:
From net investment income (including changes in accumulated
undeclared distributions) .................................................. (3,924,462)
-------------
NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
RESULTING FROM OPERATIONS ........................................................ $ (20,180,205)
=============
----------
+ For Federal income tax purposes, a significant portion of this amount may
not qualify for the inter-corporate dividends received deduction ("DRD")
or as qualified dividend income ("QDI") for individuals.
The accompanying notes are an integral part of the financial statements.
18
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK
-------------------------------------------------------------
YEAR ENDED YEAR ENDED
NOVEMBER 30, 2007 NOVEMBER 30, 2006
----------------- -----------------
OPERATIONS:
Net investment income ....................................................... $ 14,206,088 $ 13,495,031
Net realized gain/(loss) on investments sold during the year ................ (2,175,890) 3,864,722
Change in net unrealized appreciation/depreciation of investments ........... (28,285,941) 2,445,387
Distributions to MMP(R)* Shareholders from net investment income,
including changes in accumulated undeclared distributions ................ (3,924,462) (3,280,255)
----------------- ----------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............. (20,180,205) 16,524,885
DISTRIBUTIONS:
Dividends paid from net investment income to Common Stock
Shareholders(1) .......................................................... (10,848,863) (10,898,373)
----------------- ----------------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ............................ (10,848,863) (10,898,373)
FUND SHARE TRANSACTIONS:
Increase from shares issued under the Dividend Reinvestment
and Cash Purchase Plan ................................................... 1,108,498 1,571,205
----------------- ----------------
NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK
RESULTING FROM FUND SHARE TRANSACTIONS ................................... 1,108,498 1,571,205
NET INCREASE/(DECREASE) IN NET ASSETS AVAILABLE TO ----------------- ----------------
COMMON STOCK FOR THE YEAR ................................................... $ (29,920,570) $ 7,197,717
================= ================
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON STOCK:
Beginning of year ........................................................... $ 1 65,475,085 $ 158,277,368
Net increase/(decrease) in net assets during the year ....................... (29,920,570) 7,197,717
----------------- ----------------
End of year (including distributions in excess of net investment
income of ($956,093) and ($534,804), respectively) ....................... $ 135,554,515 $ 165,475,085
================= ================
----------
* Money Market Cumulative Preferred(TM) Stock.
(1) May include income earned, but not paid out, in prior fiscal year.
The accompanying notes are an integral part of the financial statements.
19
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS
FOR A COMMON STOCK SHARE OUTSTANDING THROUGHOUT EACH YEAR.
----------------------------------------------------------
Contained below is per share operating performance data, total investment
returns, ratios to average net assets and other supplemental data. This
information has been derived from information provided in the financial
statements and market price data for the Fund's shares.
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year .................................... $ 15.80 $ 15.26 $ 15.49 $ 15.85 $ 13.63
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS:
Net investment income ................................................. 1.35 1.29 1.22 1.24 1.28
Net realized and unrealized gain/(loss) on investments ................ (2.90) 0.62 (0.07) (0.31) 2.27
DISTRIBUTIONS TO MMP(R)* SHAREHOLDERS:
From net investment income ............................................ (0.37) (0.32) (0.21) (0.11) (0.10)
-------- -------- -------- -------- --------
Total from investment operations ...................................... (1.92) 1.59 0.94 0.82 3.45
-------- -------- -------- -------- --------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
From net investment income ............................................ (1.03) (1.05) (1.17) (1.18) (1.23)
-------- -------- -------- -------- --------
Total distributions to Common Stock Shareholders ...................... (1.03) (1.05) (1.17) (1.18) (1.23)
-------- -------- -------- -------- --------
Net asset value, end of year .......................................... $ 12.85 $ 15.80 $ 15.26 $ 15.49 $ 15.85
======== ======== ======== ======== ========
Market value, end of year ............................................. $ 12.41 $ 16.98 $ 16.44 $ 17.42 $ 17.65
======== ======== ======== ======== ========
Total investment return based on net asset value** .................... (12.90%) 10.74% 5.78% 4.73% 25.87%
======== ======== ======== ======== ========
Total investment return based on market value ** ...................... (21.73%) 10.47% 1.33% 5.76% 27.35%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AVAILABLE
TO COMMON STOCK SHAREHOLDERS:
Total net assets, end of year (in 000's) ........................ $135,555 $165,475 $158,277 $159,101 $160,924
Operating expenses .............................................. 1.49% 1.49% 1.48% 1.48% 1.51%
Net investment income + ......................................... 6.57% 6.39% 6.38% 7.14% 7.84%
----------------------------------------------------------
SUPPLEMENTAL DATA:++
Portfolio turnover rate ......................................... 59% 71% 54% 27% 28%
Total net assets available to Common and Preferred Stock,
end of year (in 000's) ....................................... $215,555 $245,475 $238,277 $239,101 $240,992
Ratio of operating expenses to total average net assets
available to Common and Preferred Stock ...................... 0.99% 0.99% 0.99% 0.99% 0.99%
* Money Market Cumulative Preferred(TM) Stock.
** Assumes reinvestment of distributions at the price obtained by the
Fund's Dividend Reinvestment and Cash Purchase Plan.
+ The net investment income ratios reflect income net of operating
expenses and payments to MMP(R)* Shareholders.
++ Information presented under heading Supplemental Data includes
MMP(R)*.
The accompanying notes are an integral part of the financial statements.
20
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
PER SHARE OF COMMON STOCK
------------------------------------------------------
TOTAL DIVIDEND
DIVIDENDS NET ASSET NYSE REINVESTMENT
PAID VALUE CLOSING PRICE PRICE(1)
--------- --------- ------------- ------------
December 31, 2006 .......................................................... $0.0860 $15.56 $16.86 $16.02
January 31, 2007 ........................................................... 0.0860 15.61 17.20 16.34
February 28, 2007 .......................................................... 0.0860 15.80 17.25 16.39
March 31, 2007 ............................................................. 0.0860 15.45 17.09 16.24
April 30, 2007 ............................................................. 0.0860 15.44 16.64 15.81
May 31, 2007 ............................................................... 0.0860 15.18 16.00 15.20
June 30, 2007 .............................................................. 0.0860 14.99 16.13 15.32
July 31,2007 ............................................................... 0.0860 14.51 15.94 15.14
August 31, 2007 ............................................................ 0.0860 14.19 14.13 14.19
September 30, 2007 ......................................................... 0.0860 14.20 14.70 14.20
October 31, 2007 ........................................................... 0.0860 14.08 13.71 13.54
November 30, 2007 .......................................................... 0.0860 12.85 12.41 12.81
----------
(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.
The accompanying notes are an integral part of the financial statements.
21
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------
The table below sets out information with respect to Money Market
Cumulative Preferred(TM) Stock currently outstanding.
INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL SHARES COVERAGE PREFERENCE VALUE
DATE OUTSTANDING (1) PER SHARE (2) PER SHARE (3) PER SHARE (1)(3)
-------- -------------- ------------ ------------ ---------------
11/30/07 800 $ 270,586 $ 100,000 $ 100,000
11/30/06 800 307,433 100,000 100,000
11/30/05 800 298,367 100,000 100,000
11/30/04 800 299,078 100,000 100,000
11/30/03 800 301,240 100,000 100,000
----------
(1) See note 6.
(2) Calculated by subtracting the Fund's total liabilities (excluding the
MMP(R) and accumulated undeclared distributions to MMP(R)) from the Fund's
total assets and dividing that amount by the number of MMP(R) shares
outstanding.
(3) Excludes accumulated undeclared dividends.
The accompanying notes are an integral part of the financial statements.
22
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------
1. ORGANIZATION
Flaherty & Crumrine Preferred Income Fund Incorporated (the "Fund") was
incorporated as a Maryland corporation on September 28, 1990, and commenced
operations on January 31, 1991 as a diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's investment objective is to provide its common
shareholders with high current income consistent with the preservation of
capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements is in conformity with U.S. generally
accepted accounting principles ("US GAAP") and requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
PORTFOLIO VALUATION: The net asset value of the Fund's Common Stock is
determined by the Fund's Administrator no less frequently than on the last
business day of each week and month. It is determined by dividing the value of
the Fund's net assets attributable to Common Stock by the number of shares of
Common Stock outstanding. The value of the Fund's net assets available to Common
Stock is deemed to equal the value of the Fund's total assets less (i) the
Fund's liabilities and (ii) the aggregate liquidation value of the outstanding
Money Market Cumulative Preferred(TM) Stock ("MMP(R)").
The Fund's preferred and debt securities are valued on the basis of
current market quotations provided by independent pricing services or dealers
approved by the Board of Directors of the Fund. Each quotation is based on the
mean of the bid and asked prices of a security. In determining the value of a
particular preferred or debt security, a pricing service or dealer may use
information with respect to transactions in such investments, quotations, market
transactions in comparable investments, various relationships observed in the
market between investments, and/or calculated yield measures based on valuation
technology commonly employed in the market for such investments. Common stocks
that are traded on stock exchanges are valued at the last sale price or official
close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available mean
price. Futures contracts and option contracts on futures contracts are valued on
the basis of the settlement price for such contracts on the primary exchange on
which they trade. Investments in over-the-counter derivative instruments, such
as interest rate swaps and options thereon ("swaptions"), are valued using
prices supplied by a pricing service, or if such prices are unavailable, prices
provided by a single broker or dealer that is not the counterparty or, if no
such prices are available, at a price at which the counterparty to the contract
would repurchase the instrument or terminate the contract. Investments for which
market quotations are not readily available or for which management determines
that the prices are not reflective of current market conditions are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including reference to valuations of other securities
which are comparable in quality, maturity and type.
23
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
Investments in money market instruments and all debt and preferred
securities which mature in 60 days or less are valued at amortized cost.
Investments in money market funds are valued at the net asset value of such
funds.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on
ex-dividend dates. Interest income is recorded on the accrual basis. The Fund
also amortizes premiums and accretes discounts on fixed income securities using
the effective yield method.
OPTIONS: Purchases of options are recorded as an investment, the value of
which is marked-to-market at each valuation date. When the Fund enters into a
closing sale transaction, the Fund will record a gain or loss depending on the
difference between the purchase and sale price. The risks associated with
purchasing options and the maximum loss the Fund would incur are limited to the
purchase price originally paid.
When the Fund writes an option, an amount equal to the premium received by
the Fund is recorded as a liability, the value of which is marked-to-market at
each valuation date. When a written option expires, the Fund realizes a gain
equal to the amount of the premium originally received. When the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or loss if the
cost of the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a call option is exercised, the Fund realizes a gain or loss from the sale
of the underlying security and the proceeds from such sale are increased by the
amount of the premium originally received. When a put option is exercised, the
amount of the premium originally received will reduce the cost of the security
which the Fund purchased upon exercise.
The risk in writing a call option is that the Fund may forego the
opportunity for profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions. The Fund's investment adviser reviews and approves the eligibility
of the banks and dealers with which the Fund may enter into repurchase agreement
transactions. The value of the collateral underlying such transactions is at
least equal at all times to the total amount of the repurchase obligations,
including interest. The Fund maintains possession of the collateral through its
custodian and, in the event of counterparty default, the Fund has the right to
use the collateral to offset losses incurred. There is the possibility of loss
to the Fund in the event the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities.
24
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company by complying with the requirements under subchapter
M of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and intends to distribute substantially all of its taxable
net investment income to its shareholders. Therefore, no federal income tax
provision is required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund expects to declare
dividends on a monthly basis to shareholders of Common Stock ("Shareholders").
Distributions to Shareholders are recorded on the ex-dividend date. Any net
realized short-term capital gains will be distributed to Shareholders at least
annually. Any net realized long-term capital gains may be distributed to
Shareholders at least annually or may be retained by the Fund as determined by
the Fund's Board of Directors. Capital gains retained by the Fund are subject to
tax at the capital gains corporate tax rate. Subject to the Fund qualifying as a
regulated investment company, any taxes paid by the Fund on such net realized
long-term capital gains may be used by the Fund's Shareholders as a credit
against their own tax liabilities.
Income and capital gain distributions are determined and characterized in
accordance with income tax regulations which may differ from US GAAP. These
differences are primarily due to (1) differing treatments of income and gains on
various investment securities held by the Fund, including timing differences,
(2) the attribution of expenses against certain components of taxable investment
income, and (3) federal regulations requiring proportionate allocation of income
and gains to all classes of shareholders.
Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes, and may exclude amortization of premium on certain fixed income
securities, which are not reflected in ordinary income for tax purposes. The tax
character of distributions paid, including changes in accumulated undeclared
distributions to MMP(R) Shareholders, during 2007 and 2006 was as follows:
DISTRIBUTIONS PAID IN FISCAL YEAR 2007 DISTRIBUTIONS PAID IN FISCAL YEAR 2006
-------------------------------------- --------------------------------------
ORDINARY INCOME LONG-TERM CAPITAL GAINS ORDINARY INCOME LONG-TERM CAPITAL GAINS
--------------- ----------------------- --------------- -----------------------
Common $10,848,863 $0 $10,898,373 $0
Preferred $ 3,924,462 $0 $ 3,280,255 $0
As of November 30, 2007, the components of distributable earnings (i.e.,
ordinary income and capital gain/loss) available to Common and Preferred Stock
Shareholders, on a tax basis, were as follows:
UNDISTRIBUTED UNDISTRIBUTED NET UNREALIZED
CAPITAL (LOSS) CARRYFORWARD ORDINARY INCOME LONG-TERM GAIN APPRECIATION/(DEPRECIATION)
--------------------------- --------------- -------------- ---------------------------
($3,539,736) $427,559 $0 ($12,205,378)
At November 30, 2007, the composition of the Fund's $3,539,736 accumulated
realized capital losses was $778,250 and $2,761,486 incurred in 2004 and 2007,
respectively. These losses may be carried forward and offset against any future
capital gains through 2012 and 2015, respectively.
25
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
RECLASSIFICATION OF ACCOUNTS: During the year ended November 30, 2007,
reclassifications were made in the Fund's capital accounts to report these
balances on a tax basis, excluding temporary differences, as of November 30,
2007. Additional adjustments may be required in subsequent reporting periods.
These reclassifications have no impact on the net asset value of the Fund.
The calculation of net investment income per share in the financial
highlights excludes these adjustments. Below are the reclassifications:
UNDISTRIBUTED ACCUMULATED NET REALIZED
PAID-IN CAPITAL NET INVESTMENT INCOME GAIN ON INVESTMENTS
--------------- --------------------- ------------------------
$20,514 $145,948 ($166,462)
EXCISE TAX: The Internal Revenue Code of 1986, as amended, imposes a 4%
nondeductible excise tax on the Fund to the extent the Fund does not distribute
by the end of any calendar year at least (1) 98% of the sum of its net
investment income for that year and its capital gains (both long-term and short-
term) for its fiscal year and (2) certain undistributed amounts from previous
years. The Fund paid $3,286 of Federal excise taxes attributable to calendar
year 2006 in March 2007.
ADDITIONAL ACCOUNTING STANDARDS: In June 2006, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes." This standard defines the threshold for
recognizing the benefits of tax-return positions in the financial statements as
"more-likely-than-not" to be sustained upon challenge by the taxing authority
and requires measurement of a tax position meeting the more-likely-than-not
criterion, based on the largest benefit that is more than 50 percent likely to
be realized. FIN 48 is effective as of the beginning of the first fiscal year
beginning after December 15, 2006, with early application permitted if no
interim financial statements have been issued. At adoption, companies must
adjust their financial statements to reflect only those tax positions that are
more-likely-than-not to be sustained as of the adoption date.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair
value, sets out a framework for measuring fair value and requires additional
disclosures about fair value measurements. SFAS 157 applies to fair value
measurements already required or permitted by existing standards. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years.
Management is currently evaluating the impact the adoption of FIN 48 and
SFAS 157 will have on the Fund's financial statements.
3. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE, TRANSFER AGENT FEE, CUSTODIAN
FEE, DIRECTORS' FEES AND CHIEF COMPLIANCE OFFICER FEE
Flaherty & Crumrine Incorporated (the "Adviser") serves as the Fund's
investment adviser. The Fund pays the Adviser a monthly fee at an annual rate of
0.625% of the value of the Fund's average monthly total net assets available to
Common and Preferred Stock up to $100 million and 0.50% of the value of the
Fund's average monthly total net assets available to Common and Preferred Stock
in excess of $100 million.
26
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
For purposes of calculating the fees payable to the Adviser, Administrator
and Custodian, the Fund's average weekly total managed assets means the total
assets of the Fund minus the sum of accrued liabilities. For purposes of
determining total managed assets, the liquidation preference of any preferred
shares issued by the Fund is not treated as a liability.
PFPC Inc., a member of the PNC Financial Services Group, Inc. ("PNC
Financial Services"), serves as the Fund's Administrator. As Administrator, PFPC
Inc. calculates the net asset value of the Fund's shares attributable to Common
Stock and generally assists in all aspects of the Fund's administration and
operation. As compensation for PFPC Inc.'s services as Administrator, the Fund
pays PFPC Inc. a monthly fee at an annual rate of 0.10% of the first $200
million of the Fund's average weekly total managed assets, 0.04% of the next
$300 million of the Fund's average weekly total managed assets, 0.03% of the
next $500 million of the Fund's average weekly total managed assets and 0.02% of
the Fund's average weekly total managed assets above $1 billion.
PFPC Inc. also serves as the Fund's Common Stock dividend-paying agent and
registrar (Transfer Agent). As compensation for PFPC Inc.'s services, the Fund
pays PFPC Inc. a fee at an annual rate of 0.02% of the first $150 million of the
Fund's average weekly net assets attributable to Common Stock, 0.0075% of the
next $350 million of the Fund's average weekly net assets attributable to Common
Stock, and 0.0025% of the Fund's average weekly net assets attributable to
Common Stock above $500 million, plus certain out of pocket expenses. For the
purpose of calculating such fee, the Fund's average weekly net assets
attributable to Common Stock are deemed to be the average weekly value of the
Fund's total assets minus the sum of the Fund's liabilities. For this
calculation, the Fund's liabilities are deemed to include the aggregate
liquidation preference of any outstanding Fund preferred shares.
PFPC Trust Company ("PFPC Trust") serves as the Fund's custodian. PFPC
Trust is an indirect subsidiary of PNC Financial Services. As compensation for
PFPC Trust's services as custodian, the Fund pays PFPC Trust a monthly fee at
the annual rate of 0.010% of the first $200 million of the Fund's average weekly
total managed assets, 0.008% of the next $300 million of the Fund's average
weekly total managed assets, 0.006% of the next $500 million of the Fund's
average weekly total managed assets and 0.005% of the Fund's average weekly
total managed assets above $1 billion.
The Fund currently pays each Director who is not a director, officer or
employee of the Adviser a fee of $9,000 per annum, plus $500 for each in-person
meeting of the Board of Directors or any committee and $150 for each telephone
meeting. The Audit Committee Chairman receives an additional annual fee of
$2,500. The Fund also reimburses all Directors for travel and out-of-pocket
expenses incurred in connection with such meetings.
The Fund currently pays the Adviser a fee of $37,500 per annum for Chief
Compliance Officer services and reimburses out-of-pocket expenses incurred in
connection with providing services in this role.
27
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 2007, the cost of purchases and proceeds
from sales of securities excluding short-term investments, aggregated
$138,002,296 and $138,855,574, respectively.
At November 30, 2007, the aggregate cost of securities for federal income
tax purposes was $227,786,106, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost was $9,130,484
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $21,335,862.
Written option transactions during the year ended November 30, 2007, are
summarized as follows:
CONTRACT PREMIUMS
AMOUNTS RECEIVED
-------------------------------
Written options outstanding at beginning of year ......... 0 $ 0
-----------------------------------------------------------------------------------------
Options Opened ........................................... 220 179,424
Options Exercised ........................................ 0 0
Options Expired .......................................... 0 0
Options Closed ........................................... (220) (179,424)
-----------------------------------------------------------------------------------------
Written options outstanding at end of year ............... 0 $ 0
5. COMMON STOCK
At November 30, 2007, 240,000,000 shares of $0.01 par value Common Stock
were authorized. Common Stock Transactions were as follows:
YEAR ENDED YEAR ENDED
11/30/07 11/30/06
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ---------- ------- ----------
Shares issued under the Dividend Reinvestment and
Cash Purchase Plan ................................ 71,700 $1,108,498 101,308 $1,571,205
------ ---------- ------- ----------
6. MONEY MARKET CUMULATIVE PREFERRED(TM) STOCK (MMP(R))
The Fund's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $0.01 par value preferred stock. The MMP(R) is senior to
the Common Stock and results in the financial leveraging of the Common Stock.
Such leveraging tends to magnify both the risks and opportunities to Common
Stock Shareholders. Dividends on shares of MMP(R) are cumulative.
The Fund is required to meet certain asset coverage tests with respect to
the MMP(R). If the Fund fails to meet these requirements and does not correct
such failure, the Fund may be required to redeem, in part or in full, MMP(R) at
a redemption price of $100,000 per share plus an amount equal to the accumulated
and unpaid dividends on such shares in order to meet these requirements.
Additionally, failure to meet the foregoing asset requirements could restrict
the Fund's ability to pay dividends to Common Stock Shareholders and could lead
to sales of portfolio securities at inopportune times.
28
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
If the Fund allocates any net gains or income ineligible for the dividends
received deduction to shares of the MMP(R), the Fund is required to make
additional distributions to MMP(R) Shareholders or to pay a higher dividend rate
in amounts needed to provide a return, net of tax, equal to the return had such
originally paid distributions been eligible for the dividends received
deduction.
An auction of the MMP(R) is generally held every 49 days. Existing MMP(R)
Shareholders may submit an order to hold, bid or sell such shares at par value
on each auction date. MMP(R) Shareholders may also trade shares in the secondary
market, if any, between auction dates.
At November 30, 2007, 800 shares of MMP(R) were outstanding at the
annualized rate of 5.10%. The dividend rate, as set by the auction process, is
generally expected to vary with short-term interest rates. These rates may vary
in a manner unrelated to the income received on the Fund's assets, which could
have either a beneficial or detrimental impact on net investment income and
gains available to Common Stock Shareholders. While the Fund expects to
structure its portfolio holdings and hedging transactions to lessen such risks
to Common Stock Shareholders, there can be no assurance that such results will
be attained.
7. PORTFOLIO INVESTMENTS, CONCENTRATION AND INVESTMENT QUALITY
The Fund invests primarily in a diversified portfolio of preferred
securities. This includes traditional preferred stocks eligible for the
inter-corporate dividends received deduction ("DRD") and fully taxable preferred
securities. Under normal market conditions, at least 80% of the value of the
Fund's net assets will be invested in preferred securities. Also, under normal
market conditions, the Fund invests at least 25% of its assets in securities
issued by companies in the utility industry and at least 25% of its total assets
in securities issued by companies in the banking industry. The Fund's portfolio
may therefore be subject to greater risk and market fluctuation than a portfolio
of securities representing a broader range of investment alternatives.
The Fund may invest up to 25% of its assets at the time of purchase in
securities rated below investment grade. These securities must be rated at least
either "Ba3" by Moody's Investors Service, Inc. or "BB-" by Standard & Poor's
or, if unrated, judged to be comparable in quality by the Adviser, in any case,
at the time of purchase. However, these securities must be issued by an issuer
having a class of senior debt rated investment grade outstanding.
The Fund may invest up to 15% of its assets in common stocks and, under
normal market conditions, up to 20% of its assets in debt securities. Certain of
its investments in hybrid, i.e., fully taxable, preferred securities will be
subject to the foregoing 20% limitation to the extent that, in the opinion of
the Adviser, such investments are deemed to be debt-like in key characteristics.
Typically, a security will not be considered debt-like (a) if an issuer can
defer payment of income for eighteen months or more without triggering an event
of default and (b) if such issue is a junior and fully subordinated liability of
an issuer or its ultimate guarantor.
In addition to foreign money market securities, the Fund may invest up to
30% of its total assets in the securities of companies organized or having their
principal place of business outside the United States. All foreign securities
held by the Fund will be denominated in U.S. dollars.
29
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
8. SPECIAL INVESTMENT TECHNIQUES
The Fund may employ certain investment techniques in accordance with its
fundamental investment policies. These may include the use of when-issued and
delayed delivery transactions. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled within 45 days after the date of the
transaction. Such transactions may expose the Fund to credit and market
valuation risk greater than that associated with regular trade settlement
procedures. The Fund may also enter into transactions, in accordance with its
investment policies, involving any or all of the following: short sales of
securities, futures contracts, interest rate swaps, swap futures, options on
futures contracts, options on securities, swaptions and certain credit
derivative transactions, including, but not limited to, the purchase and sale of
credit protection. As in the case of when-issued securities, the use of
over-the-counter derivatives, such as interest rate swaps, swaptions, and credit
default swaps may expose the Fund to greater credit, operations, liquidity, and
valuation risk than is the case with regulated, exchange traded futures and
options. These transactions are used for hedging or other appropriate
risk-management purposes, or, under certain other circumstances, to increase
return. No assurance can be given that such transactions will achieve their
desired purposes or will result in an overall reduction of risk to the Fund.
9. SECURITIES LENDING
The Fund may lend up to 15% of its total assets (including the value of
the loan collateral) to certain qualified brokers in order to earn additional
income. The Fund receives compensation in the form of fees or interest earned on
the investment of any cash collateral received. The Fund also continues to
receive interest and dividends on the securities loaned. The Fund receives
collateral in the form of cash or securities with a market value at least equal
to the market value of the securities on loan, including accrued interest. In
the event of default or bankruptcy by the borrower, the Fund could experience
delays and costs in recovering the loaned securities or in gaining access to the
collateral. The Fund has the right under the lending agreement to recover the
securities from the borrower on demand. As of November 30, 2007, the market
value of securities loaned by the Fund was $910,350. The loans were secured with
collateral of $871,000. The amount of collateral required changes each day with
the change in value of the securities on loan. The under-collateralization as of
November 30, 2007 was caused by such changes in value, and the collateral amount
was properly adjusted according to the Fund's procedures the next business day.
Income from securities lending for the year ended November 30, 2007 was $8,798
and is included in interest income on the Statement of Operations.
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Flaherty & Crumrine Preferred Income Fund Incorporated
We have audited the accompanying statement of assets and liabilities of
Flaherty & Crumrine Preferred Income Fund Incorporated, including the portfolio
of investments, as of November 30, 2007, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 2007 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flaherty & Crumrine Preferred Income Fund Incorporated as of November 30, 2007,
and the results of its operations for the year then ended, the changes in its
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended,
in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
January 18, 2008
31
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
SUPPLEMENTARY TAX INFORMATION (UNAUDITED)
------------------------------------------------------
Distributions to Common Stock and MMP(R) Shareholders are characterized as
follows for purposes of Federal income taxes:
FISCAL YEAR 2007
INDIVIDUAL SHAREHOLDER CORPORATE SHAREHOLDER
---------------------- ---------------------
ORDINARY ORDINARY
QDI INCOME DRD INCOME
--- -------- --- --------
MMP(R) and Common Stock 69.70% 30.30% 59.95% 40.05%
CALENDAR YEAR 2007
INDIVIDUAL SHAREHOLDER CORPORATE SHAREHOLDER
---------------------- ---------------------
ORDINARY ORDINARY
QDI INCOME DRD INCOME
--- -------- --- --------
MMP(R) 68.94% 31.06% 58.70% 41.30%
Common Stock 69.12% 30.88% 59.01% 40.99%
Qualified Dividend Income ("QDI") distributions are taxable at a maximum
15% personal tax rate.
32
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED)
------------------------------------------------------
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Under the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), a shareholder whose Common Stock is registered in their own name will
have all distributions reinvested automatically by PFPC Inc. as agent under the
Plan, unless the shareholder elects to receive cash. Distributions with respect
to shares registered in the name of a broker-dealer or other nominee (that is,
in "street name") may be reinvested by the broker or nominee in additional
shares under the Plan, but only if the service is provided by the broker or
nominee, unless the shareholder elects to receive distributions in cash. A
shareholder who holds Common Stock registered in the name of a broker or other
nominee may not be able to transfer the Common Stock to another broker or
nominee and continue to participate in the Plan. Investors who own Common Stock
registered in street name should consult their broker or nominee for details
regarding reinvestment.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price per share of the Fund's Common Stock is equal to or exceeds the
net asset value per share on the valuation date, participants in the Plan will
be issued new shares valued at the higher of net asset value or 95% of the then
current market value. Otherwise, PFPC Inc. will buy shares of the Fund's Common
Stock in the open market, on the New York Stock Exchange ("NYSE") or elsewhere,
on or shortly after the payment date of the dividend or distribution and
continuing until the ex-dividend date of the Fund's next distribution to holders
of the Common Stock or until it has expended for such purchases all of the cash
that would otherwise be payable to the participants. The number of purchased
shares that will then be credited to the participants' accounts will be based on
the average per share purchase price of the shares so purchased, including
brokerage commissions. If PFPC Inc. commences purchases in the open market and
the then current market price of the shares (plus any estimated brokerage
commissions) subsequently exceeds their net asset value most recently determined
before the completion of the purchases, PFPC Inc. will attempt to terminate
purchases in the open market and cause the Fund to issue the remaining dividend
or distribution in shares. In this case, the number of shares received by the
participant will be based on the weighted average of prices paid for shares
purchased in the open market and the price at which the Fund issues the
remaining shares. These remaining shares will be issued by the Fund at the
higher of net asset value or 95% of the then current market value.
Plan participants are not subject to any charge for reinvesting dividends
or capital gains distributions. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to PFPC
Inc.'s open market purchases in connection with the reinvestment of dividends or
capital gains distributions. For the year ended November 30, 2007, $470 in
brokerage commissions were incurred.
The automatic reinvestment of dividends and capital gains distributions
will not relieve Plan participants of any income tax that may be payable on the
dividends or capital gains distributions. A participant in the Plan will be
treated for Federal income tax purposes as having received, on the dividend
payment date, a dividend or distribution in an amount equal to the cash that the
participant could have received instead of shares.
33
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------
In addition to acquiring shares of Common Stock through the reinvestment
of cash dividends and distributions, a shareholder may invest any further
amounts from $100 to $3,000 semi-annually at the then current market price in
shares purchased through the Plan. Such semi-annual investments are subject to
any brokerage commission charges incurred by PFPC Inc. under the Plan.
A shareholder whose Common Stock is registered in his or her own name may
terminate participation in the Plan at any time by notifying PFPC Inc. in
writing, by completing the form on the back of the Plan account statement and
forwarding it to PFPC Inc., or by calling PFPC Inc. directly. A termination will
be effective immediately if notice is received by PFPC Inc. not less than 10
days before any dividend or distribution record date. Otherwise, the termination
will be effective, and only with respect to any subsequent dividends or
distributions, on the first day after the dividend or distribution has been
credited to the participant's account in additional shares of the Fund. Upon
termination and according to a participant's instructions, PFPC Inc. will either
(a) issue certificates for the whole shares credited to the shareholder's Plan
account and a check representing any fractional shares or (b) sell the shares in
the market. Shareholders who hold Common Stock registered in the name of a
broker or other nominee should consult their broker or nominee to terminate
participation.
The Plan is described in more detail in the Fund's Plan brochure.
Information concerning the Plan may be obtained from PFPC Inc. at
1-800-331-1710.
PROXY VOTING POLICIES AND PROXY VOTING RECORD ON FORM N-PX
The Fund files Form N-PX with its complete proxy voting record for the 12
months ended June 30th no later than August 31st of each year. The Fund filed
its latest Form N-PX with the Securities and Exchange Commission ("SEC") on
August 27, 2007. This filing, as well as the Fund's proxy voting policies and
procedures, are available (i) without charge, upon request, by calling the
Fund's transfer agent at 1-800-331-1710 and (ii) on the SEC's website at
WWW.SEC.GOV. In addition, the Fund's proxy voting policies and procedures are
available on the Fund's website at WWW.PREFERREDINCOME.COM.
PORTFOLIO SCHEDULE ON FORM N-Q
The Fund files a complete schedule of portfolio holdings with the SEC for
the first and third fiscal quarters on Form N-Q, the latest of which was filed
for the quarter ended August 31, 2007. The Fund's Form N-Q is available on the
SEC's website at WWW.SEC.GOV or may be viewed and obtained from the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Section may be obtained by calling 1-800-SEC-0330.
PORTFOLIO MANAGEMENT TEAM
In managing the day-to-day operations of the Fund, the Adviser relies on
the expertise of its team of money management professionals, consisting of
Messrs. Crumrine, Ettinger, Stone and Chadwick. The professional backgrounds of
each member of the management team are included in the "Information about Fund
Directors and Officers" section of this report.
34
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------
CERTIFICATIONS
Included in the Annual Written Affirmation submitted to the NYSE, Donald
F. Crumrine, as the Fund's Chief Executive Officer, has certified that, as of
May 16, 2007, he was not aware of any violation by the Fund of applicable NYSE
corporate governance listing standards. The Fund's reports to the SEC on Forms
N-CSR and N-Q contain certifications by the Fund's principal executive officer
and principal financial officer that relate to the Fund's disclosure in such
reports and that are required by Rule 30a-2(a) under the 1940 Act.
MODIFICATION TO NON-FUNDAMENTAL INVESTMENT POLICY
In 2007, the Board of Directors approved a change regarding the Fund's
non-fundamental investment policy of investing in securities issued by other
investment companies (including money market mutual funds). The Fund may now
invest in shares of other investment companies subject to the limitations of the
Investment Company Act of 1940 and the rules and regulations thereunder. To the
extent that investment advisory or brokerage expenses or other fees or expenses
of any investment company are reflected in the price of its shares held in the
Fund's portfolio, there will be duplication of expenses.
35
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------
INFORMATION ABOUT FUND DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Directors. Information pertaining to the Directors and
officers of the Fund is set forth below.
PRINCIPAL NUMBER OF FUNDS
TERM OF OFFICE OCCUPATION(S) IN FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUND TIME SERVED* FIVE YEARS BY DIRECTOR HELD BY DIRECTOR**
-------------- -------------- -------------- ------------- --------------- -------------------
NON-INTERESTED
DIRECTORS:
DAVID GALE Director Class I Director President and CEO of 4 Metromedia
Delta Dividend Group, Inc. since Delta Dividend Group, International
220 Montgomery Street January 1997 Inc. (investments) Group, Inc.
Suite 426 (telecommunications)
San Francisco, CA 94104
Age: 58
MORGAN GUST Director Class III Director Owner and operator of 4 CoBiz Financial,
301 E. Colorado Boulevard since various entities Inc. (financial
Suite 720 January 1991 engaged in agriculture services)
Pasadena, CA 91101 and real estate;
Age: 60 Former President of
Giant Industries, Inc.
(petroleum refining
and marketing) since
March 2002
KAREN H. HOGAN+ Director Class I Director Retired; Community 4
301 E. Colorado Boulevard since Volunteer; from
Suite 720 April 2005 September 1985 to
Pasadena, CA 91101 January 1997, Senior
Age: 46 Vice President of
Preferred Stock
Origination at Lehman
Brothers and
previously, Vice
President of New
Product Development
----------
* The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term.The three year term for each class expires as follows:
CLASS I DIRECTORS - three year term expires at the Fund's 2008
Annual Meeting of Shareholders;
directors may continue in office until their successors are duly
elected and qualified.
CLASS II DIRECTORS - three year term expires at the Fund's 2009
Annual Meeting of Shareholders;
directors may continue in office until their successors are duly
elected and qualified.
CLASS III DIRECTOR - three year term expires at the Fund's 2010
Annual Meeting of Shareholders;
director may continue in office until his successor is duly elected
and qualified.
** Each Director also serves as a Director for Flaherty & Crumrine Preferred
Income Opportunity Fund, Flaherty & Crumrine/Claymore Preferred Securities
Income Fund, and Flaherty & Crumrine/Claymore Total Return Fund.
+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TM) Stock.
36
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------
PRINCIPAL NUMBER OF FUNDS
TERM OF OFFICE OCCUPATION(S) IN FUND COMPLEX
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN OTHER DIRECTORSHIPS
AND AGE HELD WITH FUND TIME SERVED* FIVE YEARS BY DIRECTOR HELD BY DIRECTOR**
-------------- -------------- -------------- ------------- --------------- -------------------
NON-INTERESTED
DIRECTORS:
ROBERT F. WULF Director and Class II Director Financial Consultant; 4
P.O. Box 753 Audit since Trustee, University
Neskowin, OR 97149 Committee January 1991 of Oregon Foundation;
Age: 70 Chairman Trustee, San
Francisco Theological
Seminary
INTERESTED
DIRECTOR:
DONALD F. CRUMRINE+, ++ Director, Class II Director Chairman of the Board 4
301 E. Colorado Boulevard Chairman of since and Director of
Suite 720 the Board and January 1991 Flaherty & Crumrine
Pasadena, CA 91101 Chief Incorporated
Age: 60 Executive
Officer
----------
* The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term.The three year term for each class expires as follows:
CLASS I DIRECTORS - three year term expires at the Fund's 2008
Annual Meeting of Shareholders;
directors may continue in office until their successors are duly
elected and qualified.
CLASS II DIRECTORS - three year term expires at the Fund's 2009
Annual Meeting of Shareholders;
directors may continue in office until their successors are duly
elected and qualified.
CLASS III DIRECTOR - three year term expires at the Fund's 2010
Annual Meeting of Shareholders;
director may continue in office until his successor is duly elected
and qualified.
** Each Director also serves as a Director for Flaherty & Crumrine Preferred
Income Opportunity Fund, Flaherty & Crumrine/Claymore Preferred Securities
Income Fund, and Flaherty & Crumrine/Claymore Total Return Fund.
+ As a Director, represents holders of shares of the Fund's Money Market
Cumulative Preferred(TM) Stock.
++ "Interested person" of the Fund as defined in the Investment Company Act
of 1940, as amended. Mr. Crumrine is considered an "interested person"
because of his affiliation with Flaherty & Crumrine Incorporated, which
acts as the Fund's investment adviser.
37
--------------------------------------------------------------------------------
Flaherty & Crumrine Preferred Income Fund Incorporated
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST
AND AGE HELD WITH FUND TIME SERVED FIVE YEARS
-------------- -------------- -------------- -------------
OFFICERS:
ROBERT M. ETTINGER President Since President and Director of Flaherty &
301 E. Colorado Boulevard October 2002 Crumrine Incorporated
Suite 720
Pasadena, CA 91101
Age: 49
R. ERIC CHADWICK Chief Financial Since Director of Flaherty & Crumrine
301 E. Colorado Boulevard Officer, Vice October 2002 Incorporated since June 2006; Vice
Suite 720 President and President of Flaherty & Crumrine
Pasadena, CA 91101 Treasurer Incorporated
Age: 32
CHAD C. CONWELL Chief Compliance Since Chief Compliance Officer of Flaherty &
301 E. Colorado Boulevard Officer, Vice July 2005 Crumrine Incorporated since September
Suite 720 President and 2005; Vice President of Flaherty &
Pasadena, CA 91101 Secretary Crumrine Incorporated since July 2005;
Age: 35 Attorney with Paul, Hastings, Janofsky &
Walker LLP from September 1998 to June 2005
BRADFORD S. STONE Vice President Since Director of Flaherty & Crumrine
392 Springfield Avenue and Assistant July 2003 Incorporated since June 2006; Vice
Mezzanine Suite Treasurer President of Flaherty & Crumrine
Summit, NJ 07901 Incorporated since May 2003; Director of
Age: 48 U.S. Market Strategy at Barclays Capital
from June 2001 to April 2003
LAURIE C. LODOLO Assistant Since Assistant Compliance Officer of Flaherty &
301 E. Colorado Boulevard Compliance July 2004 Crumrine Incorporated since August 2004;
Suite 720 Officer, Secretary of Flaherty & Crumrine
Pasadena, CA 91101 Assistant Incorporated since February 2004; Account
Age: 44 Treasurer and Administrator of Flaherty & Crumrine
Assistant Incorporated
Secretary
38
[This page intentionally left blank]
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
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.
Flaherty & Crumrine
[LOGO] =====================
PREFERRED INCOME FUND
Annual
Report
November 30, 2007
www.preferredincome.com
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, and that relates to any
element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are
employed by the registrant or a third party, that relates to one or
more of the items set forth in paragraph (b) of this item's
instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that David Gale, Karen H. Hogan and Robert F. Wulf are
each qualified to serve as an audit committee financial expert serving on its
audit committee and that they all are "independent," as defined by the
Securities and Exchange Commission.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$40,600 for 2007 and $38,700 for 2006.
AUDIT-RELATED FEES
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph
(a) of this Item are $0 for 2007 and $0 for 2006.
TAX FEES
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $7,300 for 2007 and
$6,800 for 2006.
ALL OTHER FEES
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are
$15,100 for 2007 and $13,300 for 2006. These services consist of the
principal accountant providing a "Quarterly Agreed-Upon-Procedures
Report on Articles Supplementary". These Agreed-Upon-Procedures
("AUP") are requirements arising from the Articles Supplementary
creating the Fund's preferred stock. Specifically, the credit rating
agencies require such AUP be undertaken in order to maintain the
preferred stock's rating.
(e)(1) The Fund's Audit Committee Charter states that the Audit Committee
shall have the duty and power to pre-approve all audit and non-audit
services to be provided by the auditors to the Fund, and all non-audit
services to be provided by the auditors to the Fund's investment
adviser and any service providers controlling, controlled by or under
common control with the Fund's investment adviser that provide ongoing
services to the Fund, if the engagement relates directly to the
operations and financial reporting of the Fund.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was 0%.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen
by another investment adviser), and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of
the registrant was $0 for 2007 and $0 for 2006.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated audit committee consisting of all the
independent directors of the registrant. The members of the audit committee are:
David Gale, Morgan Gust, Karen H. Hogan, and Robert F. Wulf.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments in securities of unaffiliated issuers as of the close of
the reporting period is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
ADVISER PROXY VOTING POLICIES AND PROCEDURES
Flaherty & Crumrine Incorporated ("F&C") acts as discretionary investment
adviser for various clients, including the following six pooled investment
vehicles (the "Funds"):
As adviser to the "U.S. Funds" Flaherty & Crumrine Preferred Income Fund
Flaherty & Crumrine Preferred Income Opportunity Fund
Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Flaherty & Crumrine/Claymore Total Return Fund
As sub-adviser
to the "Canadian Funds" Flaherty & Crumrine Investment Grade Fixed Income Fund
Flaherty & Crumrine Investment Grade Preferred Fund
F&C's authority to vote proxies for its clients is established through the
delegation of discretionary authority under its investment advisory contracts
and the U.S. Funds have adopted these policies and procedures for themselves
PURPOSE
These policies and procedures are designed to satisfy F&C's duties of care and
loyalty to its clients with respect to monitoring corporate events and
exercising proxy authority in the best interests of such clients.
In connection with this objective, these policies and procedures are designed to
deal with potential complexities which may arise in cases where F&C's interests
conflict or appear to conflict with the interests of its clients.
These policies and procedures are also designed to communicate with clients the
methods and rationale whereby F&C exercises proxy voting authority.
This document is available to any client or Fund shareholder upon request and
F&C will make available to such clients and Fund shareholders the record of
F&C's votes promptly upon request and to the extent required by Federal law and
regulations.
FUNDAMENTAL STANDARD
F&C will be guided by the principle that, in those cases where it has proxy
voting authority, it will vote proxies, and take such other corporate actions,
consistent with the interest of its clients in a manner free of conflicts of
interest with the objective of client wealth maximization.
GENERAL
F&C has divided its discussion in this document into two major categories:
voting with respect to common stock and voting with respect to senior equity,
e.g., preferred stock and similar securities. In those events where F&C may have
to take action with respect to debt, such as in the case of amendments of
covenants or in the case of default, bankruptcy, reorganization, etc., F&C will
apply the same principles as would apply to common or preferred stock, mutatis
mutandis.
These policies and procedures apply only where the client has granted
discretionary authority with respect to proxy voting. Where F&C does not have
authority, it will keep appropriate written records evidencing that such
discretionary authority has not been granted.
F&C may choose not to keep written copies of proxy materials that are subject to
SEC regulation and maintained in the SEC's EDGAR database. In other instances,
F&C will keep appropriate written records in its files or in reasonably
accessible storage.
Similarly, F&C will keep in its files, or reasonably accessible storage, work
papers and other materials that were significant to F&C in making a decision how
to vote.
For purposes of decision making, F&C will assume that each ballot for which it
casts votes is the only security of an issuer held by the client. Thus, when
casting votes where F&C may have discretionary authority with regard to several
different securities of the same issuer, it may vote securities "in favor" for
those securities or classes where F&C has determined the matter in question to
be beneficial while, at the same time, voting "against" for those securities or
classes where F&C has determined the matter to be adverse. Such cases
occasionally arise, for example, in those instances where a vote is required by
both common and preferred shareholders, voting as separate classes, for a change
in the terms regarding preferred stock issuance.
F&C will reach its voting decisions independently, after appropriate
investigation. It does not generally intend to delegate its decision making or
to rely on the recommendations of any third party, although it may take such
recommendations into consideration. F&C may consult with such other experts,
such as CPA's, investment bankers, attorneys, etc., as it regards necessary to
help it reach informed decisions.
Absent good reason to the contrary, F&C will generally give substantial weight
to management recommendations regarding voting. This is based on the view that
management is usually in the best position to know which corporate actions are
in the best interests of common shareholders as a whole.
With regard to those shareholder-originated proposals which are typically
described as "social, environmental, and corporate responsibility" matters, F&C
will typically give weight to management's recommendations and vote against such
shareholder proposals, particularly if the adoption of such proposals would
bring about burdens or costs not borne by those of the issuer's competitors.
In cases where the voting of proxies would not justify the time and costs
involved, F&C may refrain from voting. From the individual client's perspective,
this would most typically come about in the case of small holdings, such as
might arise in connection with spin-offs or other corporate reorganizations.
From the perspective of F&C's institutional clients, this envisions cases (1) as
more fully described below where preferred and common shareholders vote together
as a class or (2) other similar or analogous instances.
Ultimately, all voting decisions are made on a case-by-case basis, taking
relevant considerations into account.
VOTING OF COMMON STOCK PROXIES
F&C categorizes matters as either routine or non-routine, which definition may
or may not precisely conform to the definitions set forth by securities
exchanges or other bodies categorizing such matters. Routine matters would
include such things as the voting for directors and the ratification of auditors
and most shareholder proposals regarding social, environmental, and corporate
responsibility matters. Absent good reason to the contrary, F&C normally will
vote in favor of management's recommendations on these routine matters.
Non-routine matters might include, without limitation, such things as (1)
amendments to management incentive plans, (2) the authorization of additional
common or preferred stock, (3) initiation or termination of barriers to takeover
or acquisition, (4) mergers or acquisitions, (5) changes in the state of
incorporation, (6) corporate reorganizations, and (7) "contested" director
slates. In non-routine matters, F&C, as a matter of policy, will attempt to be
generally familiar with the questions at issue. This will include, without
limitation, studying news in the popular press, regulatory filings, and
competing proxy solicitation materials, if any. Non-routine matters will be
voted on a case-by-case basis, given the complexity of many of these issues.
VOTING OF PREFERRED STOCK PROXIES
Preferred stock, which is defined to include any form of equity senior to common
stock, generally has voting rights only in the event that the issuer has not
made timely payments of income and principal to shareholders or in the event
that a corporation desires to effectuate some change in its articles of
incorporation which might modify the rights of preferred stockholders. These are
non-routine in both form and substance.
In the case of non-routine matters having to do with the modification of the
rights or protections accorded preferred stock shareholders, F&C will attempt,
wherever possible, to assess the costs and benefits of such modifications and
will vote in favor of such modifications only if they are in the bests interests
of preferred shareholders or if the issuer has offered sufficient compensation
to preferred stock shareholders to offset the reasonably foreseeable adverse
consequences of such modifications. A similar type of analysis would be made in
the case where preferred shares, as a class, are entitled to vote on a merger or
other substantial transaction.
In the case of the election of directors when timely payments to preferred
shareholders have not been made ("contingent voting"), F&C will cast its votes
on a case-by-case basis after investigation of the qualifications and
independence of the persons standing for election.
Routine matters regarding preferred stock are the exception, rather than the
rule, and typically arise when the preferred and common shareholders vote
together as a class on such matters as election of directors. F&C will vote on a
case-by-case basis, reflecting the principles set forth elsewhere in this
document. However, in those instances (1) where the common shares of an issuer
are held by a parent company and (2) where, because of that, the election
outcome is not in doubt, F&C does not intend to vote such proxies since the time
and costs would outweigh the benefits.
ACTUAL AND APPARENT CONFLICTS OF INTEREST
Potential conflicts of interest between F&C and F&C's clients may arise when
F&C's relationships with an issuer or with a related third party conflict or
appear to conflict with the best interests of F&C's clients.
F&C will indicate in its voting records available to clients whether or not a
material conflict exists or appears to exist. In addition, F&C will communicate
with the client (which means the independent Directors or Director(s) they may
so designate in the case of the U.S. Funds and the investment adviser in the
case of the Canadian Funds) in instances when a material conflict of interest
may be apparent. F&C must describe the conflict to the client and state F&C's
voting recommendation and the basis therefor. If the client considers there to
be a reasonable basis for the proposed vote notwithstanding the conflict or, in
the case of the Funds, that the recommendation was not affected by the conflict
(without considering the merits of the proposal), F&C will vote in accordance
with the recommendation it had made to the client.
In all such instances, F&C will keep reasonable documentation supporting its
voting decisions and/or recommendations to clients.
AMENDMENT OF THE POLICIES AND PROCEDURES
These policies and procedures may be modified at any time by action of the Board
of Directors of F&C but will not become effective, in the case of the U.S.
Funds, unless they are approved by majority vote of the non-interested directors
of the U.S. Funds. Any such modifications will be sent to F&C's clients by mail
and/or other electronic means in a timely manner. These policies and procedures,
and any amendments hereto, will be posted on the U.S. Funds' websites and will
be disclosed in reports to shareholders as required by law.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The following paragraphs provide certain information with respect to the
portfolio managers of the Fund and the material conflicts of interest that may
arise in connection with their management of the investments of the Fund, on the
one hand, and the investments of other client accounts for which they have
responsibility, on the other hand. Certain other potential conflicts of interest
with respect to personal trading and proxy voting are discussed above under
"Item 2 - Codes of Ethics" and "Item 7 - Proxy Voting Policies."
(a)(1)
PORTFOLIO MANAGERS
R. Eric Chadwick, Donald F. Crumrine, Robert M. Ettinger and Bradford S. Stone
jointly serve as the Portfolio Managers of the Fund. Additional biographical
information about the portfolio managers is available in the Annual Report
included in Response to Item 1 above.
(a)(2)
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The tables below illustrate other accounts where each of the above-mentioned
four portfolio managers has significant day-to-day management responsibilities
as of November 30, 2007:
# of Accounts
Total Managed for which
Name of Portfolio Manager or # of Accounts Total Assets Advisory Fee is
Team Member Type of Accounts Managed (mm) Based on Performance
----------- ---------------- ------- ---- --------------------
1. Donald F. Crumrine Other Registered Investment 3 1,847 0
Companies:
Other Pooled Investment Vehicles: 2 341 0
Other Accounts: 21 1,391 0
2. Robert M. Ettinger Other Registered Investment 3 1,847 0
Companies:
Other Pooled Investment Vehicles: 2 341 0
Other Accounts: 21 1,391 0
3. R. Eric Chadwick Other Registered Investment 3 1,847 0
Companies:
Other Pooled Investment Vehicles: 2 341 0
Other Accounts: 21 1,391 0
4. Bradford S. Stone Other Registered Investment 3 1,847 0
Companies:
Other Pooled Investment Vehicles: 2 341 0
Other Accounts: 21 1,391 0
POTENTIAL CONFLICTS OF INTEREST
In addition to the Fund, the Portfolio Managers jointly manage accounts for
three other closed-end funds, two Canadian funds and other institutional
clients. As a result, potential conflicts of interest may arise as follows:
o ALLOCATION OF LIMITED TIME AND ATTENTION. The Portfolio Managers may
devote unequal time and attention to the management of all accounts.
As a result, the Portfolio Managers may not be able to formulate as
complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if they
were to devote substantially more attention to the management of one
account.
o ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. If the Portfolio
Managers identify an investment opportunity that may be suitable for
multiple accounts, the Fund may not be able to take full advantage of
that opportunity because the opportunity may need to be allocated
among other accounts.
o PURSUIT OF DIFFERING STRATEGIES. At times, the Portfolio Managers may
determine that an investment opportunity may be appropriate for only
some accounts or may decide that certain of these accounts should take
differing positions (i.e., may buy or sell the particular security at
different times or the same time or in differing amounts) with respect
to a particular security. In these cases, the Portfolio Manager may
place separate transactions for one or more accounts which may affect
the market price of the security or the execution of the transaction,
or both, to the detriment of one or more other accounts.
o VARIATION IN COMPENSATION. A conflict of interest may arise where the
financial or other benefits available to the Portfolio Manager differ
among accounts. While the Adviser only charges fees based on assets
under management and does not receive a performance fee from any of
its accounts, and while it strives to maintain uniform fee schedules,
it does have different fee schedules based on the differing advisory
services required by some accounts. Consequently, though the
differences in such fee rates are
slight, the Portfolio Managers may be motivated to favor certain
accounts over others. In addition, the desire to maintain assets under
management or to derive other rewards, financial or otherwise, could
influence the Portfolio Managers in affording preferential treatment
to those accounts that could most significantly benefit the Adviser.
The Adviser and the Fund have adopted compliance policies and procedures that
are designed to address the various conflicts of interest that may arise for the
Adviser and its staff members. However, there is no guarantee that such policies
and procedures will be able to detect and prevent every situation in which an
actual or potential conflict may arise.
(a)(3)
PORTFOLIO MANAGER COMPENSATION
Compensation is paid solely by the Adviser. Each Portfolio Manager receives the
same fixed salary. In addition, each Portfolio Manager receives a bonus based on
peer reviews of his performance and the total net investment advisory fees
received by Flaherty & Crumrine (which are in turn based on the value of its
assets under management). The Portfolio Managers do not receive deferred
compensation, but participate in a profit-sharing plan available to all
employees of the Adviser; amounts are determined as a percentage of the
employee's eligible compensation for a calendar year based on IRS limitations.
Each Portfolio Manager is also a shareholder of Flaherty & Crumrine and receives
quarterly dividends based on his equity interest in the company.
(a)(4)
Disclosure of Securities Ownership
The following indicates the dollar range of beneficial ownership of shares by
each Portfolio Manager as of November 30, 2007:
----------------------------------------------------------------
Dollar Range of Fund Shares
Name Beneficially Owned*
----------------------------------------------------------------
Donald F. Crumrine $100,001 to $500,000
----------------------------------------------------------------
Robert M. Ettinger $100,001 to $500,000
----------------------------------------------------------------
R. Eric Chadwick $100,001 to $500,000
----------------------------------------------------------------
Bradford S. Stone $100,001 to $500,000
----------------------------------------------------------------
*INCLUDES 7,169 SHARES HELD BY FLAHERTY & CRUMRINE INCORPORATED OF WHICH EACH
PORTFOLIO MANAGER HAS BENEFICIAL OWNERSHIP.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. 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 second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 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
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By (Signature and Title)* /s/ Donald F. Crumrine
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Donald F. Crumrine, Director, Chairman of the Board and
Chief Executive Officer
(principal executive officer)
Date 1/29/2008
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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
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Donald F. Crumrine, Director, Chairman of the Board and
Chief Executive Officer
(principal executive officer)
Date 1/29/2008
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By (Signature and Title)* /s/ R. Eric Chadwick
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R. Eric Chadwick, Chief Financial Officer, Treasurer,
and Vice President
(principal financial officer)
Date 1/29/2008
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* Print the name and title of each signing officer under his or her signature.