UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act file number 811-21286
Name of Fund: Preferred Income Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., President, Preferred
Income Strategies Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ
08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/05
Date of reporting period: 11/01/04 - 1/31/05
Item 1 - Schedule of Investments
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005
Preferred Securities
Face Value
Industry+ Amount Capital Trusts (in U.S. dollars)
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Auto Components - 1.2% $ 13,000,000 Delphi Trust II, 6.197% due 11/15/2033 (b) $ 12,141,610
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Commercial Banks - 20.1% 12,035,000 ABN Amro North American Holding Preferred Capital Repackage
Trust I, 6.523% (a)(b)(c) 13,387,229
11,000,000 Abbey National Capital Trust I, 8.963% (b)(c) 15,846,182
2,000,000 Bank One Capital III, 8.75% due 9/01/2030 2,785,160
1,000,000 Chase Capital I Series A, 7.67% due 12/01/2026 (a) 1,093,365
16,455,000 Chase Capital II Series B, 3.243% due 2/01/2027 (b) 15,485,784
7,225,000 Danske Bank A/S, 5.914% (a)(b)(c) 7,693,765
34,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (a) 43,053,010
1,600,000 Firstar Capital Trust I Series B, 8.32% due 12/15/2026 1,784,446
2,000,000 HSBC America Capital Trust I, 7.808% due 12/15/2026 (a) 2,208,290
15,835,000 HSBC Capital Funding LP, 10.176% (a)(b)(c) 25,018,445
12,275,000 Hubco Capital Trust II Series B, 7.65% due 6/15/2028 (a) 12,888,750
998,000 JPM Capital Trust I, 7.54% due 1/15/2027 1,098,631
2,000,000 Lloyds TSB Bank Plc, 6.90% (c) 2,099,200
8,500,000 Mizuho JGB Investment LLC, 9.87% (a)(b)(c) 9,897,876
18,470,000 Nationsbank Cap Trust III, 3.21% due 1/15/2027 (b) 17,709,664
970,000 RBS Capital Trust I, 4.709% (b)(c) 952,465
2,000,000 Republic New York Corp., 7.53% due 12/04/2026 2,193,854
5,000,000 SB Treasury Co. LLC, 9.40% (a)(b)(c) 5,715,040
4,500,000 St. George Funding Co. LLC, 8.485% (a)(c) 5,174,748
10,000,000 Westpac Capital Trust III, 5.819% (a)(b)(c) 10,561,900
--------------
196,647,804
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Consumer Finance - 0.1% 1,000,000 MBNA Capital A, 8.278% due 12/01/2026 1,103,575
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Diversified Financial Services - 5.1% 15,000,000 Agfirst Farm Credit Bank, 8.393% due 12/15/2016 (b) 17,328,135
10,000,000 CIT Capital Trust I, 7.70% due 2/15/2027 11,281,590
9,000,000 Farm Credit Bank of Texas, 7.561% (b)(c) 9,376,470
10,000,000 Sun Life Canada US Capital Trust, 8.526% (a)(c) 11,411,870
--------------
49,398,065
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Electric Utilities - 2.7% 14,950,000 HL&P Capital Trust II Series B, 8.257% due 2/01/2037 16,594,500
9,500,000 SWEPCO Capital I, 5.25% due 10/01/2043 (b) 9,535,036
--------------
26,129,536
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Gas Utilities - 0.6% 5,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 5,716,750
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Insurance - 18.0% 24,175,000 AON Corp., 8.205% due 1/01/2027 26,719,250
22,100,000 Ace Capital Trust II, 9.70% due 4/01/2030 29,638,774
23,725,000 Axa, 8.60% due 12/15/2030 32,052,214
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (continued)
Preferred Securities (continued)
Face Value
Industry+ Amount Capital Trusts (in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
Insurance (concluded) $ 15,000,000 Farmers Exchange Capital, 7.05% due 7/15/2028 (a) $ 15,890,745
10,000,000 GE Global Insurance Holding Corp., 7.75% due 6/15/2030 12,174,280
1,000,000 Genamerica Capital I, 8.525% due 6/30/2027 (a) 1,147,551
6,066,000 ING Capital Funding TR III, 8.439% (b)(c) 7,232,152
1,000,000 Markel Capital Trust I Series B, 8.71% due 1/01/2046 1,112,933
3,605,000 Oil Casualty Insurance Ltd., 8% due 9/15/2034 (a) 3,734,715
7,000,000 Oil Insurance Ltd., 5.15% due 8/15/2033 (a)(b) 7,045,640
6,325,000 Principal Life Insurance Company, 8% due 3/01/2044
(Surplus Notes) (a) 7,130,109
14,000,000 QBE Insurance Group Ltd., 5.647% due 7/01/2023 (a)(b) 13,827,086
6,225,000 Transamerica Capital III, 7.625% due 11/15/2037 7,372,822
10,000,000 Zurich Capital Trust I, 8.376% due 6/01/2037 (a) 11,206,100
--------------
176,284,371
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Multi-Utilities & Unregulated 10,000,000 Dominion Capital Trust I, 7.83% due 12/01/2027 11,298,980
Power - 3.1% 15,000,000 Dominion Resources Capital Trust III, 8.40% due 1/15/2031 19,302,750
--------------
30,601,730
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Oil & Gas - 1.9% 5,000,000 KN Capital Trust I Series B, 8.56% due 4/15/2027 5,723,315
1,750,000 KN Capital Trust III, 7.63% due 4/15/2028 2,022,370
9,850,000 Phillips 66 Capital Trust II, 8% due 1/15/2037 (a) 11,046,686
--------------
18,792,371
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Thrifts & Mortgage Finance - 3.6% Astoria Capital Trust I:
1,000,000 9.75% due 11/01/2029 (a) 1,220,000
5,000,000 Series B, 9.75% due 11/01/2029 6,150,000
5,760,000 Dime Capital Trust I Series A, 9.33% due 5/06/2027 6,649,690
12,765,000 Greenpoint Capital Trust I, 9.10% due 6/01/2027 14,595,386
5,775,000 Webster Capital Trust I, 9.36% due 1/29/2027 (a) 6,556,138
--------------
35,171,214
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Total Investments in Capital Trusts
(Cost - $514,733,277) - 56.4% 551,987,026
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Shares
Held Preferred Stocks
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Capital Markets - 2.2% Lehman Brothers Holdings, Inc.:
600,000 6.50% 16,284,000
100,000 Series C, 5.94% 5,125,000
--------------
21,409,000
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Commercial Banks - 7.3% 150 BBVA Privanza International Ltd., 7.764% (a) 15,843,750
435,200 Banco Santander Central Hispano SA, 6.41% 11,176,806
800,000 Royal Bank of Scotland Group Plc Series L, 5.75% 19,712,000
23,000 SG Preferred Capital II, 6.302% 25,162,000
--------------
71,894,556
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Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (continued)
Preferred Securities (continued)
Shares Value
Industry+ Held Preferred Stocks (in U.S. dollars)
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Diversified Financial Services - 1.8% 320,000 Cobank ACB , 7% $ 17,500,160
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Electric Utilities - 3.0% 14,000 Alabama Power Co., 5.83% 369,600
8,200 Delmarva Power & Light, 4.56% 753,375
80,000 Duquesne Light Co., 6.50% 4,248,000
80,000 Interstate Power & Light Co. Series B, 8.375% 2,660,000
17,372 South Carolina Electric & Gas Series B, 4.60% 875,115
200,000 TXU Corp. Series B, 7.24% (b) 20,550,000
--------------
29,456,090
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Gas Utilities - 1.8% 626,000 Southern Union Co., 7.55% 17,997,500
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Insurance - 5.3% 880,000 ACE Ltd. Series C, 7.80% 23,478,400
Zurich RegCaPS Funding Trust (a)(b):
17,340 6.01% 17,669,460
9,800 6.58% 10,250,800
--------------
51,398,660
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Thrifts & Mortgage Finance - 8.2% 1,210,000 Fannie Mae, 7% (b) 68,327,248
264,650 Fannie Mae Series L, 5.125% 11,948,947
--------------
80,276,195
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Wireless Telecommunication 30,423 Centaur Funding Corp., 9.08% 40,899,921
Services - 4.2%
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Total Investments in Preferred Stocks
(Cost - $306,497,559) - 33.8% 330,832,082
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Real Estate Investment Trusts
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Real Estate Investment Trusts AMB Property Corp:
117,800 Series L, 6.50% 2,985,500
124,000 Series M, 6.75% 3,132,240
251,400 Alexandria Real Estate Equities, Inc. Series C, 8.375% 6,727,464
290,000 BRE Properties Series C, 6.75% 7,308,000
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,500,000
600,000 CarrAmerica Realty Corp. Series E, 7.50% 15,900,000
2,000 Centerpoint Properties Trust, 5.377% (b) 2,040,000
200,000 Cousins Properties, Inc. Series A, 7.75% 5,150,000
Developers Diversified Realty Corp.:
280,000 7.375% 7,212,800
780,000 8% 20,849,400
Duke Realty Corp.:
100,000 Series J, 6.625% 2,590,630
270,000 Series K, 6.50% 6,795,900
637,000 Equity Residential Series N, 6.48% 16,014,180
2,390 First Industrial Realty Trust, Inc., 6.236% (b) 2,387,610
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (continued)
Preferred Securities (concluded)
Shares Value
Industry+ Held Real Estate Investment Trusts (in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 4,000 Firstar Realty LLC, 8.875% (a) $ 5,243,080
(concluded) 768,000 Health Care Property Investors, Inc. Series F, 7.10% 19,660,800
172,800 Health Care REIT, Inc. Series F, 7.625% 4,417,200
684,700 Kimco Realty Corp. Series F, 6.65% 17,726,883
1,600,000 New Plan Excel Realty Trust Series E, 7.625 42,240,000
PS Business Parks, Inc.:
161,400 Series H, 6.45% 4,026,930
72,000 Series K, 7.95% 1,908,000
320,000 Public Storage, Inc. Series X, 6.45% 8,054,400
Regency Centers Corp.:
58,000 7.25% 1,524,315
607,550 7.45% 16,057,547
11,857 Sovereign Real Estate Investment Corp., 12% 17,666,930
145,000 Vornado Realty Trust Series E, 7% 3,774,539
130,000 Wachovia Corp. Series A, 7.25% 3,701,100
200,000 Weingarten Realty Investors Series D, 6.75% 5,250,000
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Total Investments in Real Estate Investment Trusts
(Cost - $250,778,725) - 26.6% 260,845,448
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Face
Amount Trust Preferred
-----------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense - 2.9% $ 27,450,000 RC Trust I, 7% due 5/15/2006 28,530,871
-----------------------------------------------------------------------------------------------------------------------------------
Auto Components - 1.0% 10,000,000 Delphi Trust I, 8.25% due 10/15/2033 (b) 9,549,172
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 0.1% 875,000 Lehman Brothers Holdings Capital Trust III, 6.375%
due 3/15/2052 892,150
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Communications Equipment - 0.2% 2,000,000 Corporate-Backed Trust Certificates, 8.375% due 11/15/2028 2,136,033
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Diversified Financial Services - 0.4% 4,000,000 Principal Protected PreTSL IX, Ltd., 14.50% due 4/03/2033 3,684,000
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.7% 6,750,000 Georgia Power Company, 5.90% due 4/15/2033 6,767,878
3,000,000 HECO Capital Trust III, 6.50% due 3/18/2034 3,221,589
5,000,000 Natural Rural Utilities Cooperative Finance Corporation,
6.75% due 2/15/2043 5,163,713
397,425 PSEG Funding Trust II, 8.75% due 12/31/2032 441,518
950,000 Virginia Power Capital Trust II, 7.375% due 7/30/2042 1,019,150
--------------
16,613,848
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Gas Utilities - 0.7% 500,000 Dominion-CNG Capital Trust I, 7.80% due 10/31/2041 528,373
5,750,000 Southwest Gas Capital II, 7.70% due 9/15/2043 6,333,522
--------------
6,861,895
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Insurance - 2.2% 16,000,000 ABN AMRO North America Capital Funding Trust II, 2.545%
(a)(b)(c) 15,700,000
1,000,000 Everest Re Capital Trust, 7.85% due 11/15/2032 1,093,147
5,000,000 Lincoln National Capital VI Series F, 6.75% due 9/11/2052 5,302,166
--------------
22,095,313
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 3.5% 27,000,000 Countrywide Capital IV, 6.75% due 4/01/2033 28,031,958
6,000,000 Dime Community Capital I, 7% due 4/14/2034 6,000,000
--------------
34,031,958
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Trust Preferred
(Cost - $122,147,604) - 12.7% 124,395,240
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Securities
(Cost - $1,194,157,165) - 129.5% 1,268,059,796
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (continued)
Face Value
Industry+ Amount Corporate Bonds (in U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
Automobiles - 1.0% $ 10,000,000 Ford Motor Co., 7.45% due 7/16/2031 $ 9,976,490
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Diversified Financial Services - 4.5% 29,000,000 General Motors Acceptance Corp., 8% due 11/01/2031 29,347,652
15,000,000 Sigma Finance Corp., 5.348% due 8/15/2011 15,000,000
--------------
44,347,652
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication 28,000,000 France Telecom SA, 9.25% due 3/01/2031 38,927,140
Services - 7.5% Sprint Capital Corp.:
2,000,000 6.90% due 5/01/2019 2,256,014
24,000,000 8.75% due 3/15/2032 32,503,704
--------------
73,686,858
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.1% 10,000,000 FirstEnergy Corp. Series B, 6.45% due 11/15/2011 10,852,050
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.6% 4,800,000 Tyson Foods, Inc., 7% due 1/15/2028 5,329,632
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Media - 4.1% 10,000,000 Comcast Corp., 7.05% due 3/15/2033 11,739,580
Time Warner, Inc.:
5,000,000 7.625% due 4/15/2031 6,158,890
18,000,000 7.70% due 5/01/2032 22,422,924
--------------
40,321,394
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated 16,575,000 Duke Energy Field Services LLC, 8.125% due 8/16/2030 21,840,712
Power - 2.3%
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.8% 8,000,000 Roslyn Real Estate Asset Corp. Series D, 6.20% (b)(c) 8,000,000
-----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication 28,000,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 38,511,396
Services - 4.0%
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds
(Cost - $227,471,639) - 25.8% 252,866,184
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Short-Term Securities
-----------------------------------------------------------------------------------------------------------------------------------
16,100,000 Fannie Mae, 2.31% due 2/22/2005 (d)(e) 16,078,305
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost - $16,078,305) - 1.7% 16,078,305
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Total Investments (Cost - $1,437,707,109*) - 157.0% 1,537,004,285
Liabilities in Excess of Other Assets - (0.8%) (7,763,009)
Preferred Stock, at Redemption Value - (56.2%) (550,093,790)
--------------
Net Assets, Applicable to Common Stock - 100.0% $ 979,147,486
==============
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (continued)
* The cost and unrealized appreciation (depreciation) of investments as of
January 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 1,444,013,071
===============
Gross unrealized appreciation $ 103,608,590
Gross unrealized depreciation (10,617,376)
---------------
Net unrealized appreciation $ 92,991,214
===============
+ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate note.
(c) The security is a perpetual bond and has no definite maturity date.
(d) Certain U.S. Government Obligations are traded on a discount basis; the
interest rate shown reflects the discount rate paid at the time of
purchase.
(e) All or a portion of security held as collateral in connection with open
financial futures contracts.
Swaps outstanding as of January 31, 2005 were as follows:
---------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------------------------------------------------------------------------------------
Receive a variable rate equal to 1-month
USD LIBOR and pay a fixed rate of 1.3275%
Broker, JPMorgan Chase Bank
Expires June 2005 $ 125,000,000 $ 770,336
Receive a variable rate equal to 1-month
USD LIBOR and pay a fixed rate of 1.33%
Broker, Morgan Stanley Capital Services,
Inc.
Expires June 2005 $ 125,000,000 787,756
Receive a variable rate equal to 1-month
USD LIBOR and pay a fixed rate of 1.32%
Broker, UBS Warburg
Expires June 2005 $ 25,000,000 156,565
Receive a variable rate equal to 1-month
USD LIBOR and pay a fixed rate of 1.31%
Broker, UBS Warburg
Expires June 2005 $ 150,000,000 936,458
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2005 (concluded)
---------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------------------------------------------------------------------------------------
Receive a fixed rate of 4.1275% and pay
a variable rate equal to 3-month USD LIBOR
Broker, Deutsche Bank AG London
Expires February 2012 $ 200,000,000 $ (826,325)
Receive a fixed rate of 4.14% and pay a
variable rate equal to 3-month USD LIBOR
Broker, Lehman Brothers Special Finance
Expires February 2012 $ 200,000,000 (769,333)
Receive a variable rate equal to 3-month
USD LIBOR and pay a fixed rate of 5.4975%
Broker, Morgan Stanley Capital Services,
Inc.
Expires February 2015 $ 300,000,000 (23,415,900)
Receive a fixed rate of 4.683% and pay a
variable rate equal to 3-month USD LIBOR
Broker, Morgan Stanley Capital Services,
Inc.
Expires January 2015 $ 18,880,000 (317,910)
Receive a variable rate equal to 3-month
USD LIBOR and pay a fixed rate of 5.26405%
Broker, Morgan Stanley Capital Services, Inc.
Expires July 2025 $ 82,080,000 3,038,602
Receive a fixed rate of 5.256% and pay a
variable rate equal to 3-month USD LIBOR
Broker, Morgan Stanley Capital Services, Inc.
Expires January 2035 $ 56,400,000 (2,742,980)
---------------------------------------------------------------------------------------------
Total $ (22,382,731)
==============
Financial futures contracts sold as of January 31, 2005 were as follows:
-----------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
-----------------------------------------------------------------------------------------------
8,707 10-Year U.S. Treasury Notes March 2005 $ 969,997,822 $ (7,498,975)
800 30-Year U.S. Treasury Notes March 2005 $ 87,888,017 (3,986,983)
-----------------------------------------------------------------------------------------------
Total $(11,485,958)
============
Item 2 - Controls and Procedures
2(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to the
filing date of this report.
2(b) - There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last 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 3 - Exhibits
Certifications - Attached hereto
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.
Preferred Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
President
Preferred Income Strategies Fund, Inc.
Date: March 21, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
President
Preferred Income Strategies Fund, Inc.
Date: March 21, 2005
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer
Preferred Income Strategies Fund, Inc.
Date: March 21, 2005