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., Chief Executive
Officer, 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: 10/31/2006
Date of reporting period: 11/01/05 - 01/31/06
Item 1 - Schedule of Investments
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2006 (in U.S. dollars)
Preferred Securities
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Face
Industry Amount Capital Trusts Value
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Commercial Banks - 20.8% $ 12,035,000 ABN AMRO North America Holding Preferred Capital
Repackaging Trust I, 6.523% (a)(b)(c) $ 12,709,369
2,000,000 Bank One Capital III, 8.75% due 9/01/2030 2,627,860
1,000,000 Chase Capital I Series A, 7.67% due 12/01/2026 (a) 1,053,978
16,455,000 Chase Capital II Series B, 5.18% due 2/01/2027 (b) 15,624,352
34,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (a) 41,392,450
3,630,000 First Empire Capital Trust II, 8.277% due 6/01/2027 3,891,806
1,820,000 First Security Capital I, 8.41% due 12/15/2026 1,936,593
5,600,000 Firstar Capital Trust I Series B, 8.32% due 12/15/2026 5,970,143
2,000,000 HSBC America Capital Trust I, 7.808% due 12/15/2026 (a) 2,111,816
15,835,000 HSBC Capital Funding LP/Jersey Channel Islands,
10.176% (a)(b)(c) 23,819,640
7,300,000 HSBC Finance Capital Trust IX, 5.911% due 11/30/2035 (b) 7,316,534
12,275,000 Hubco Capital Trust II Series B, 7.65% due 6/15/2028 (a) 12,950,125
998,000 JPM Capital Trust I, 7.54% due 1/15/2027 (a) 1,051,174
2,000,000 Lloyds TSB Bank Plc, 6.90% (c) 2,027,600
13,500,000 Mizuho JGB Investment LLC, 9.87% (a)(b)(c) 14,848,677
18,470,000 Nationsbank Capital Trust III, 5.15% due 1/15/2027 (b) 17,759,681
2,000,000 Republic New York Corp., 7.53% due 12/04/2026 2,103,492
10,000,000 SB Treasury Co. LLC, 9.40% (a)(b)(c) 10,894,230
4,500,000 ST George Funding Co. LLC, 8.485% (a)(c) 4,848,997
3,480,000 Wachovia Capital Trust III, 5.80% (b)(c) 3,487,050
---------------
188,425,567
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Commercial Services 4,400,000 ILFC E-Capital Trust I, 5.90% due 12/21/2065 (a)(b) 4,408,158
& Supplies - 0.5%
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Consumer Finance - 0.5% 4,630,000 MBNA Capital A, 8.278% due 12/01/2026 4,914,245
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Diversified Financial 15,000,000 Agfirst Farm Credit Bank, 8.393% due 12/15/2016 (b) 16,728,750
Services - 5.3% 10,000,000 CIT Capital Trust I, 7.70% due 2/15/2027 (a) 10,549,700
9,000,000 Farm Credit Bank of Texas Series 1, 7.561% (b)(c) 9,869,850
10,000,000 Sun Life Canada US Capital Trust, 8.526% (a)(c) 10,744,860
---------------
47,893,160
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Electric Utilities - 2.3% 14,950,000 HL&P Capital Trust II Series B, 8.257% due 2/01/2037 15,622,750
5,000,000 SWEPCO Capital I, 5.25% due 10/01/2043 (b) 4,973,445
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20,596,195
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Gas Utilities - 0.6% 5,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 5,346,930
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Insurance - 19.2% 24,175,000 AON Corp., 8.205% due 1/01/2027 28,367,912
21,300,000 Ace Capital Trust II, 9.70% due 4/01/2030 29,262,962
23,725,000 Axa, 8.60% due 12/15/2030 31,390,263
15,000,000 Farmers Exchange Capital, 7.05% due 7/15/2028 (a) 15,613,155
10,000,000 GE Global Insurance Holding Corp., 7.75% due 6/15/2030 12,478,660
1,000,000 Genamerica Capital I, 8.525% due 6/30/2027 (a) 1,078,697
6,066,000 ING Capital Funding Trust III, 8.439% (b)(c) 6,855,575
1,000,000 Markel Capital Trust I Series B, 8.71% due 1/01/2046 1,066,148
3,605,000 Oil Casualty Insurance Ltd., 8% due 9/15/2034 (a) 3,630,433
6,325,000 Principal Life Insurance Co., 8% due 3/01/2044 (a) 6,992,161
14,000,000 QBE Insurance Group Ltd., 5.647% due 7/01/2023 (a)(b) 13,806,282
6,225,000 Transamerica Capital III, 7.625% due 11/15/2037 7,220,521
15,600,000 Zurich Capital Trust I, 8.376% due 6/01/2037 (a) 16,818,875
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174,581,644
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Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2006 (in U.S. dollars)
Preferred Securities
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Face
Industry Amount Capital Trusts Value
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Multi-Utilities - 3.1% $ 10,000,000 Dominion Resources Capital Trust I, 7.83% due 12/01/2027 $ 10,671,340
15,000,000 Dominion Resources Capital Trust III, 8.40% due 1/15/2031 17,728,440
---------------
28,399,780
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Oil, Gas & Consumable 5,000,000 KN Capital Trust I Series B, 8.56% due 4/15/2027 (a) 5,337,890
Fuels - 2.0% 1,750,000 KN Capital Trust III, 7.63% due 4/15/2028 1,939,439
9,850,000 Phillips 66 Capital Trust II, 8% due 1/15/2037 (a) 10,450,082
---------------
17,727,411
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Thrifts & Mortgage 1,000,000 Astoria Capital Trust I, 9.75% due 11/01/2029 (a) 1,147,400
Finance - 4.5% 5,000,000 Astoria Capital Trust I Series B, 9.75% due 11/01/2029 5,787,000
5,760,000 Dime Capital Trust I Series A, 9.33% due 5/06/2027 6,280,145
12,765,000 Greenpoint Capital Trust I, 9.10% due 6/01/2027 13,864,360
3,005,000 ML Capital Trust I, 9.875% due 3/01/2027 3,229,708
9,775,000 Webster Capital Trust I, 9.36% due 1/29/2027 (a) 10,502,260
---------------
40,810,873
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Total Capital Trusts (Cost - $509,422,385) - 58.8% 533,103,963
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Shares
Held Preferred Stocks
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Capital Markets - 2.0% 96,000 Goldman Sachs Group, Inc. Series A, 3.91% (b) 2,476,800
600,000 Lehman Brothers Holdings, Inc., 6.50% 15,882,000
---------------
18,358,800
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Commercial Banks - 8.9% 150 BBVA Privanza International Ltd., 7.764% (a)(d) 15,450,000
435,200 Banco Santander Central Hispano SA, 6.41% 11,027,968
137,579 First Republic Bank, 6.25% 3,289,005
4,650 First Tennessee Bank NA, 3.90% (a)(b) 4,696,500
166,800 Provident Financial Group, Inc., 7.75% 4,394,146
750,000 Royal Bank of Scotland Group Plc Series L, 5.75% 17,880,000
23,000 SG Preferred Capital II, 6.302% 24,255,869
---------------
80,993,488
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Diversified Financial 855,000 CIT Group, Inc. Series A, 6.35% 22,537,800
Services - 4.3% 320,000 Cobank ACB, 7% (a) 16,138,240
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38,676,040
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Electric Utilities - 1.8% 14,000 Alabama Power Co., 5.83% 340,340
80,000 Duquesne Light Co., 6.50% 4,112,000
89,850 Entergy Louisiana LLC, 6.95% (a) 9,018,694
80,000 Interstate Power & Light Co. Series B, 8.375% 2,640,000
---------------
16,111,034
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Gas Utilities - 1.6% 556,000 Southern Union Co., 7.55% 14,650,600
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Insurance - 10.3% 880,000 ACE Ltd. Series C, 7.80% 23,126,400
140,000 Axis Capital Holdings Ltd., 7.25% 3,463,600
139,200 Endurance Specialty Holdings Ltd., 7.75% 3,432,672
1,260,000 Metlife, Inc. Series B, 6.50% 33,075,000
140,000 Prudential Plc, 6.50% 3,530,800
16,340 Zurich RegCaPS Funding Trust, 6.01% (a)(b) 16,534,038
9,800 Zurich RegCaPS Funding Trust, 6.58% (a)(b) 10,112,375
---------------
93,274,885
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Multi-Utilities - 0.4% 140,000 Pacific Gas & Electric Co. Series A, 6% 3,561,600
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Thrifts & Mortgage 1,210,000 Fannie Mae, 7% (b) 66,020,625
Finance - 8.6% 264,650 Fannie Mae Series L, 5.125% 12,173,900
---------------
78,194,525
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Wireless Telecommunication 2,423 Centaur Funding Corp., 9.08% (a) 3,109,769
Services - 0.3%
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Total Preferred Stocks (Cost - $336,066,618) - 38.2% 346,930,741
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Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2006 (in U.S. dollars)
Preferred Securities
-----------------------------------------------------------------------------------------------------------------------------------
Shares
Industry Held Real Estate Investment Trusts Value
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Real Estate - 21.6% 251,400 Alexandria Real Estate Equities, Inc. Series C, 8.375% $ 6,445,896
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,024,000
600,000 CarrAmerica Realty Corp. Series E, 7.50% 15,210,000
680,000 Developers Diversified Realty Corp., 8% 17,550,800
80,000 Duke Realty Corp. Series K, 6.50% 1,940,800
2,390 First Industrial Realty Trust, Inc., 6.236% (b) 2,416,887
4,000 Firstar Realty LLC, 8.875% (a) 5,243,750
768,000 Health Care Property Investors, Inc. Series F, 7.10% 19,399,680
172,800 Health Care REIT, Inc. Series F, 7.625% 4,368,609
684,700 Kimco Realty Corp. Series F, 6.65% 17,302,369
1,600,000 New Plan Excel Realty Trust Series E, 7.625% 40,800,000
72,000 PS Business Parks, Inc. Series K, 7.95% 1,854,000
64,000 PS Business Parks, Inc. Series M, 7.20% 1,574,400
320,000 Public Storage, Inc. Series X, 6.45% 7,600,000
58,000 Regency Centers Corp., 7.25% 1,475,375
607,550 Regency Centers Corp., 7.45% 15,401,392
11,857 Sovereign Real Estate Investment Corp., 12% (a) 17,311,220
145,000 Vornado Realty Trust Series E, 7% 3,679,375
130,000 Wachovia Preferred Funding Corp. Series A, 7.25% 3,588,000
96,000 Weingarten Realty Investors Series D, 6.75% 2,473,920
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Total Real Estate Investment Trusts
(Cost - $192,765,535) - 21.6% 195,660,473
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Face
Amount Trust Preferreds
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Aerospace & Defense - 3.0% $ 27,450,000 RC Trust I, 7% due 5/15/2006 27,587,250
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Capital Markets - 0.1% 875,000 Lehman Brothers Holdings Capital Trust III Series K,
1.558% due 3/15/2052 869,553
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Communications 2,000,000 Corporate-Backed Trust Certificates,
Equipment - 0.2% 8.375% due 11/15/2028 2,083,682
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Electric Utilities - 1.5% 4,750,000 Georgia Power Co. Series O, 1.475% due 4/15/2033 4,580,558
3,000,000 HECO Capital Trust III, 6.50% due 3/18/2034 3,028,518
5,000,000 National Rural Utilities Cooperative Finance Corp.,
6.75% due 2/15/2043 5,020,962
950,000 Virginia Power Capital Trust II, 1.844% due 7/30/2042 963,479
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13,593,517
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Gas Utilities - 0.7% 500,000 Dominion CNG Capital Trust I, 1.95% due 10/31/2041 504,467
5,750,000 Southwest Gas Capital II, 7.70% due 9/15/2043 6,165,766
---------------
6,670,233
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Insurance - 3.2% 16,000,000 ABN AMRO North America Capital Funding Trust II,
4.546% (a)(b)(c) 15,798,056
7,375,000 Berkley W R Capital Trust, 6.75% due 7/26/2045 7,158,985
1,000,000 Everest Re Capital Trust, 1.963% due 11/15/2032 1,027,573
5,000,000 Lincoln National Capital VI Series F, 6.75% due 9/11/2052 5,052,393
---------------
29,037,007
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Multi-Utilities - 0.1% 397,425 PSEG Funding Trust II, 8.75% due 12/31/2032 418,596
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Thrifts & Mortgage 27,000,000 Countrywide Financial Corp., 1.50% due 4/01/2033 26,834,053
Finance - 3.6% 6,000,000 Dime Community Capital I, 7% due 4/14/2034 5,850,000
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32,684,053
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Total Trust Preferreds (Cost - $112,684,177) - 12.4% 112,943,891
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Total Preferred Securities
(Cost - $1,150,938,715) - 131.0% 1,188,639,068
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Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2006 (in U.S. dollars)
Face
Industry Amount Corporate Bonds Value
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Automobiles - 3.4% $ 22,500,000 DaimlerChrysler NA Holding Corp., 8.50% due 1/18/2031 $ 27,282,195
5,000,000 Ford Motor Co., 7.45% due 7/16/2031 3,687,500
---------------
30,969,695
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Commercial Banks - 2.9% 5,000,000 HBOS Plc, 5.92% (a)(b)(c) 4,997,180
20,000,000 Resona Preferred Global Securities Ltd., 7.191% (a)(b)(c) 21,046,180
---------------
26,043,360
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Diversified Financial 8,000,000 Ford Motor Credit Co., 7% due 10/01/2013 7,246,560
Services - 0.8%
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Diversified Telecommunication 25,500,000 France Telecom SA, 8.75% due 3/01/2031 33,323,349
Services - 3.7%
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Electric Utilities - 1.1% 10,000,000 FirstEnergy Corp. Series B, 6.45% due 11/15/2011 10,512,590
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Finance - 1.7% 15,000,000 Sigma Finance Corp., 7.249% due 8/15/2011 (e) 15,000,000
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Independent Power Producers & 16,575,000 Duke Energy Field Services LLC, 8.125% due 8/16/2030 20,727,634
Energy Traders - 2.3%
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Insurance - 0.9% 7,985,000 ZFS Finance (USA) Trust I, 6.15% due 12/15/2065 (a)(b) 8,019,519
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Media - 3.4% 5,000,000 Comcast Corp., 7.05% due 3/15/2033 5,304,130
5,000,000 Time Warner, Inc., 7.625% due 4/15/2031 5,554,455
18,000,000 Time Warner, Inc., 7.70% due 5/01/2032 20,192,706
---------------
31,051,291
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Road & Rail - 0.4% 3,750,000 BNSF Funding Trust I, 6.613% due 12/15/2055 (b) 3,868,669
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Thrifts & Mortgage 8,000,000 Roslyn Real Estate Asset Corp. Series D,
Finance - 0.9% 8.177% (b)(c) 8,000,000
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Wireless Telecommunication 18,000,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 23,587,506
Services - 6.3% 2,000,000 Sprint Capital Corp., 6.90% due 5/01/2019 2,193,596
24,000,000 Sprint Capital Corp., 8.75% due 3/15/2032 31,385,328
---------------
57,166,430
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Total Corporate Bonds (Cost - $239,399,392) - 27.8% 251,929,097
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Beneficial
Interest Short-Term Securities
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,595,373 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (f) 4,595,373
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Total Short-Term Securities (Cost - $4,595,373) - 0.5% 4,595,373
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Total Investments (Cost - $1,394,933,480*) - 159.3% 1,445,163,538
Other Assets Less Liabilities - 1.3% 12,313,375
Preferred Stock, at Redemption Value - (60.6%) (550,169,194)
---------------
Net Assets Applicable to Common Stock - 100.0% $ 907,307,719
===============
* The cost and unrealized appreciation (depreciation) of investments as of
January 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost $ 1,401,163,265
===============
Gross unrealized appreciation $ 58,452,057
Gross unrealized depreciation (14,451,784)
---------------
Net unrealized appreciation $ 44,000,273
===============
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of January 31, 2006 (in U.S. dollars)
(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) Depositary receipts.
(e) Restricted securities as to resale, representing 1.7% of net assets, were
as follows:
--------------------------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------------------------
Sigma Finance Corp., 7.249% due 8/15/2011 2/13/2004 $ 15,000,000 $ 15,000,000
--------------------------------------------------------------------------------------------
(f) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------------------------
Interest
Affiliate Net Activity Income
--------------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ 4,595,373 $ 79,921
--------------------------------------------------------------------------------------------
o For Fund compliance purposes, the Fund's industry classifications refer to
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 classifications for reporting
ease. Industries are shown as a percent of net assets.
o Financial futures contracts sold as of January 31, 2006 were as follows:
--------------------------------------------------------------------------------------------------------
Expiration Unrealized
Number of Contracts Issue Date Face Value Appreciation
--------------------------------------------------------------------------------------------------------
2,885 10-Year U.S. Treasury Note March 2006 $ 314,186,722 $ 1,344,534
--------------------------------------------------------------------------------------------------------
o Swaps outstanding as of January 31, 2006 were as follows:
--------------------------------------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------------------------------------
Sold credit default protection on a basket of preferred
securities and receive 2.03%
Broker, Lehman Brothers Special Finance
Expires September 2007 $ 36,000,000 $ 328,716
Pay a fixed rate of 5.117% and receive a floating rate based on
3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires March 2036 $ 72,000,000 435,240
--------------------------------------------------------------------------------------------------------
Total $ 763,956
===========
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.
Chief Executive Officer
Preferred Income Strategies Fund, Inc.
Date: March 20, 2006
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.
Chief Executive Officer
Preferred Income Strategies Fund, Inc.
Date: March 20, 2006
By: /s/ Donald C. Burke
---------------------------------
Donald C. Burke
Chief Financial Officer
Preferred Income Strategies Fund, Inc.
Date: March 20, 2006