UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
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: 10/31/05
Date of reporting period: 11/01/04 - 04/30/05
Item 1 - Report to Stockholders
Preferred and Corporate Income Strategies Fund, Inc.
Preferred Income Strategies Fund, Inc.
Semi-Annual Reports
April 30, 2005
Preferred and Corporate Income Strategies Fund, Inc.
Preferred Income Strategies Fund, Inc.
The Benefits and Risks of Leveraging
The Funds utilize leveraging through borrowings or issuance of short-term debt
securities or shares of Preferred Stock. The concept of leveraging is based on
the premise that the cost of assets to be obtained from leverage will be based
on short-term interest or dividend rates, which normally will be lower than the
income earned by each Fund on its longer-term portfolio investments. To the
extent that the total assets of each Fund (including the assets obtained from
leverage) are invested in higher-yielding portfolio investments, each Fund's
Common Stock shareholders are the beneficiaries of the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if each Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its net asset value and market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, each Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, each
Fund's net income will be less than if leverage had not been used, and therefore
the amount available for distribution to Common Stock shareholders will be
reduced.
Portfolio Information as of April 30, 2005
Percent of
Preferred and Corporate Income Total
Strategies Fund, Inc.'s Asset Mix Investments
--------------------------------------------------------------------------------
Capital Trusts ..................................................... 38.5%
Corporate Bonds .................................................... 21.3
Preferred Stocks ................................................... 16.7
Real Estate Investment Trusts ...................................... 15.1
Trust Preferreds ................................................... 7.5
Other* ............................................................. 0.9
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
Percent of
Preferred Income Strategies Fund, Inc.'s Total
Asset Mix Investments
--------------------------------------------------------------------------------
Capital Trusts ..................................................... 35.4%
Preferred Stocks ................................................... 23.1
Real Estate Investment Trusts ...................................... 16.8
Corporate Bonds .................................................... 16.2
Trust Preferreds ................................................... 7.2
Other* ............................................................. 1.3
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
Availability of Quarterly Schedules of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
2 SEMI-ANNUAL REPORTS APRIL 30, 2005
A Letter From the President
Dear Shareholder
Financial markets faced a number of crosscurrents over the past several months,
but most major benchmarks managed to post positive returns for the annual and
semi-annual reporting periods ended April 30, 2005:
Total Returns as of April 30, 2005 6-month 12-month
================================================================================================
U.S. equities (Standard & Poor's 500 Index) +3.28% + 6.34%
------------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) -0.15% + 4.71%
------------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +8.71% +14.95%
------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +0.98% + 5.26%
------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.93% + 6.81%
------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +0.65% + 6.92%
------------------------------------------------------------------------------------------------
After expanding at an annualized rate of 4.4% in 2004, U.S. gross domestic
product growth for the first quarter of 2005 came in at an estimated 3.1%
(although that figure was later revised upward to 3.5%). Nevertheless, the
Federal Reserve Board continued increasing interest rates at a measured pace to
combat emergent inflation. The most recent hike came on May 3, and brought the
federal funds rate to 3%. Recently, signs of inflation have taken the form of
rising business costs and increasing consumer prices, particularly in the areas
of gasoline, healthcare, housing and education.
U.S. equities ended 2004 in a strong rally, but stumbled into negative territory
in 2005. The market weakness was largely fueled by the potential for slowing
economic and corporate earnings growth, renewed energy price concerns and a lack
of investor conviction. On the positive side, certain sectors of the market have
been performing well (particularly energy) and corporate transactions, such as
mergers and acquisitions, stock buy-backs and dividend payouts, have all
increased. International equities, especially in Asia, have benefited from
higher economic growth rates.
In the bond market, we witnessed a yield curve flattening trend over the past
several months as short-term yields increased and longer-term interest rates
remained more stable or fell. At the end of April 2005, the two-year Treasury
note yielded 3.66% and the 10-year Treasury note yielded 4.21%, a difference of
55 basis points (.55%). This compared to a spread of 149 basis points six months
earlier and 222 basis points 12 months ago.
Looking ahead, the environment is likely to be a challenging one for investors.
With this in mind, we encourage you to meet with your financial advisor to
review your goals and asset allocation and to rebalance your portfolio, as
necessary, to ensure it remains aligned with your objectives and risk tolerance.
As always, we thank you for trusting Merrill Lynch Investment Managers with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
SEMI-ANNUAL REPORTS APRIL 30, 2005 3
A Discussion With Your Funds' Portfolio Managers
The Funds considerably outperformed their benchmark during the period,
benefiting from a substantial underweight in U.S. agency securities and a
relatively short duration in an environment of modestly rising interest rates.
Describe the market and economic environment during the period.
The Federal Reserve Board (the Fed) raised short-term interest rates in four
increments of .25% during the six-month period. The target federal funds rate
stood at 2.75% at April 30, 2005, and was raised once more to 3% shortly after
period-end. As short-term interest rates rose more than long-term rates, the
yield curve continued to flatten. The spread between two-year and 10-year
Treasury notes was 55 basis points (.55%) at period-end, compared to 149 basis
points six months earlier. The yield on the 10-year Treasury note increased from
4.05% on October 31, 2004, to 4.21% at period-end.
Record-high oil prices and strong gross domestic product (GDP) growth led to
increased fears of inflation. GDP grew at an annualized rate of 3.8% in the
fourth quarter of 2004 and 4.4% for 2004 as a whole, but slowed to a revised
3.5% in the first quarter of 2005. Led by the 21.1% rise in energy costs, the
Consumer Price Index (CPI) climbed at a seasonally adjusted annualized rate of
4.3% during the first quarter of 2005, up a percentage point from the 3.3%
increase for all of 2004. However, the annualized rise in food prices was just
1.3% during the quarter. Therefore, excluding food and energy costs, the CPI
advanced at a seasonally adjusted annualized rate of 3.3% for the quarter.
Preferred and Corporate Income Strategies Fund, Inc.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended April 30, 2005, the Common Stock of Preferred and
Corporate Income Strategies Fund, Inc. had net annualized yields of 8.63% and
9.50%, based on a period-end per share net asset value of $23.38 and a per share
market price of $21.22, respectively, and $1.00 per share income dividends. For
the same period, the total investment return on the Fund's Common Stock was
+3.21%, based on a change in per share net asset value from $23.69 to $23.38,
and assuming reinvestment of all distributions. For the same period, the Fund's
benchmark, the Merrill Lynch Preferred Stock Fixed Rate Index, returned -.50%,
while the broader-market Merrill Lynch U.S. Corporate Master Index and the
Merrill Lynch U.S. Treasury/Agency Master Index returned +.83% and +.90%,
respectively.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
The Fund's relative performance over the past six months benefited primarily
from its significant underweight position in U.S. agency securities (Federal
National Mortgage Association or "Fannie Mae" and Federal Home Loan Mortgage
Corporation or "Freddie Mac"), as the prices of these issues declined amid
investors' concerns about accounting irregularities and the uncertainty
regarding the possibility of increased oversight of the agencies by the federal
government. Additionally, the portfolio's relatively short duration versus the
benchmark enhanced performance as interest rates moved slightly higher during
the period. (The market values of fixed income securities with shorter durations
are less sensitive to changes in interest rates.)
What changes were made to the portfolio during the period?
We reduced the portfolio's duration -- which already was shorter than that of
its benchmark -- by approximately six months, in keeping with our view that the
Fed will continue to raise short-term interest rates gradually, forcing
longer-term rates to rise further. Additionally, we took advantage of the
weakness in U.S. agency securities by increasing our exposure and effectively
reducing the Fund's underweight in that sector. We also significantly decreased
our exposure to the banking sector and slightly trimmed our holdings in $25 par
retail preferred securities. We reduced our position in corporate bonds and
reinvested the proceeds into preferred securities in an effort to increase the
Fund's yield. These changes resulted in a slight improvement in the portfolio's
average credit quality. We also reinvested our cash into floating rate preferred
securities. The yields on these assets will move in concert with borrowing
costs. We hedged approximately 20% of the Fund's Auction Market Preferred Stock
4 SEMI-ANNUAL REPORTS APRIL 30, 2005
("AMPS") in this manner. AMPS are adjustable rate preferred stocks for which the
dividends are determined in an auction.
We used net asset value (NAV) hedges to shorten the portfolio's duration in an
effort to reduce the risk of loss in value associated with rising interest
rates. Among the hedges we implemented were pay-fixed interest rate swaps, in
which we entered into agreements to pay a fixed rate of interest and receive
variable interest payments in return. During the period, a majority of the
Fund's competitors decreased their dividends because of rising short-term
interest rates. The gains associated with the current hedges were invested back
into the Fund, allowing the Fund to meet its monthly dividend distribution
during the past six months.
Finally, in another hedging strategy, we purchased default protection on our
holdings in General Motors Corporation (GM) and Ford Motor Company. The price of
GM's securities declined in April after rating agencies Moody's and Standard &
Poor's downgraded the company's credit rating to the lowest quality on the
investment grade scale. Ford's bonds also fell sharply in April after Standard &
Poor's issued a negative credit outlook for the company. Standard & Poor's
subsequently cut its rating for each company's fixed income securities to below
investment grade on May 5.
How would you characterize the Fund's position at the close of the period?
We have positioned the Fund in an effort to limit the impact on its net asset
value from the downside risks associated with rising interest rates. We maintain
our focus on the financial sector. Our largest absolute weightings at the end of
the period were in banking (despite a reduction of our position in that sector)
and insurance issues, which collectively comprised approximately 34% of the
Fund's net assets. The portfolio is well diversified among issuers, and we
intend to maintain the diversification of our holdings across issuers and
sectors.
At April 30, 2005, the Fund was approximately 36% leveraged. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of this
report to shareholders.) Also at period-end, the portfolio carried an average
credit rating of Baa1 from Moody's, up marginally from the Baa2 rating at the
beginning of the period.
Preferred Income Strategies Fund, Inc.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended April 30, 2005, the Common Stock of Preferred
Income Strategies Fund, Inc. had net annualized yields of 8.67% and 9.53%, based
on a period-end per share net asset value of $23.27 and a per share market price
of $21.15, respectively, and $1.00 per share income dividends. For the same
period, the total investment return on the Fund's Common Stock was +3.66%, based
on a change in per share net asset value from $23.48 to $23.27, and assuming
reinvestment of all distributions. For the same period, the Fund's benchmark,
the Merrill Lynch Preferred Stock Fixed Rate Index, returned -.50%, while the
broader-market Merrill Lynch U.S. Corporate Master Index and the Merrill Lynch
U.S. Treasury/Agency Master Index returned +.83% and +.90%, respectively.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
The Fund's relative performance over the past six months benefited primarily
from its significant underweight position in U.S. agency securities (Federal
National Mortgage Association or "Fannie Mae" and Federal Home Loan Mortgage
Corporation or "Freddie Mac"), as the prices of these issues declined amid
investors' concerns about accounting irregularities and the uncertainty
regarding the possibility of increased oversight of the agencies by the federal
government. Additionally, the portfolio's relatively short duration versus the
benchmark enhanced performance as interest rates moved slightly higher during
the period. (The market values of fixed income securities with shorter durations
are less sensitive to changes in interest rates.)
SEMI-ANNUAL REPORTS APRIL 30, 2005 5
A Discussion With Your Funds' Portfolio Managers (concluded)
What changes were made to the portfolio during the period?
We reduced the portfolio's duration -- which already was shorter than that of
its benchmark -- by approximately six months, in keeping with our view that the
Fed will continue to raise short-term interest rates gradually, forcing
longer-term rates to rise further. Additionally, we took advantage of the
weakness in U.S. agency securities by increasing our exposure and effectively
reducing the Fund's underweight in this sector. We also reinvested our cash into
floating rate preferred securities. The yields on these assets will move in
concert with borrowing costs. We hedged approximately 20% of the Fund's Auction
Market Preferred Stock ("AMPS") in this manner. AMPS are adjustable rate
preferred stocks for which the dividends are determined in an auction.
Consequently, the Fund was fully invested at the end of the period.
We used net asset value (NAV) hedges to shorten the portfolio's duration in an
effort to reduce the risk of loss in value associated with rising interest
rates. Among the hedges we implemented were pay-fixed interest rate swaps, in
which we entered into agreements to pay a fixed rate of interest and receive
variable interest payments in return. In addition to hedging the Fund's NAV, the
borrowing costs of the Fund continued to be hedged. During the period, a
majority of the Fund's competitors decreased their dividends because of rising
short-term interest rates. Our hedging strategy benefited Fund performance in
the prevailing environment, allowing the Fund to meet its monthly dividend
distribution during the past six months. In fact, the Fund earned more income
than it was required to distribute, which was placed in reserve to benefit
shareholders at a future time. We believe this should enable the Fund to
maintain its current dividend distribution rate in the near term.
Finally, in another hedging strategy, we purchased default protection on our
holdings in General Motors Corporation and Ford Motor Company. The price of GM's
securities declined in April after rating agencies Moody's and Standard & Poor's
downgraded the company's credit rating to the lowest quality on the investment
grade scale. Ford's bonds also fell sharply in April after Standard & Poor's
issued a negative credit outlook for the company. Standard & Poor's subsequently
cut its rating for each company's fixed income securities to below investment
grade on May 5.
How would you characterize the Fund's position at the close of the period?
We have positioned the Fund in an effort to protect its net asset value from the
downside risks associated with rising interest rates. We maintain our focus on
the financial sector, as our largest absolute weightings at the end of the
period were in banking and insurance issues, which comprised approximately 38%
of the Fund's net assets. The portfolio is well diversified among issuers, and
we intend to maintain the diversification of our holdings across issuers and
sectors.
At April 30, 2005, the Fund was approximately 36% leveraged. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of this
report to shareholders.) Also at period-end, the portfolio carried an average
credit rating of Baa1 from Moody's, unchanged from the rating at the beginning
of the period.
John Burger
Vice President and Portfolio Manager
Thomas Musmanno
Vice President and Portfolio Manager
May 26, 2005
6 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments
Preferred and Corporate Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities
Face
Industry+ Amount Capital Trusts Value
==========================================================================================================================
Commercial $ 2,000,000 Cullen Frost Cap Trust I, 4.46% due 3/01/2034 (a) $ 2,063,130
Banks--12.6% 1,835,000 Danske Bank A/S, 5.914% (a)(b)(c) 1,958,763
8,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (c) 9,922,680
5,000,000 First Chicago NBD Institutional Capital I, 3.76% due 2/01/2027 (a) 4,805,095
400,000 Firstar Capital Trust I Series B, 8.32% due 12/15/2026 452,552
3,000,000 Hubco Capital Trust I Series B, 8.98% due 2/01/2027 3,327,015
1,500,000 Hubco Capital Trust II Series B, 7.65% due 6/15/2028 (c) 1,545,000
3,500,000 Mizuho JGB Investment LLC, 9.87% (a)(b)(c) 4,001,354
2,000,000 SB Treasury Co. LLC, 9.40% (a)(b)(c) 2,259,336
--------------
30,334,925
==========================================================================================================================
Diversified 3,000,000 Farm Credit Bank of Texas Series 1, 7.561% (a)(b) 3,395,250
Financial
Services--1.4%
==========================================================================================================================
Electric 2,000,000 Avista Capital Trust III, 6.50% due 4/01/2034 (a) 2,041,484
Utilities--2.8% 2,500,000 SWEPCO Capital I, 5.25% due 10/01/2043 (a) 2,500,183
2,000,000 Southern Co. CAP Trust I, 8.19% due 2/01/2037 2,176,456
--------------
6,718,123
==========================================================================================================================
Gas Utilities--4.1% 9,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 9,941,310
==========================================================================================================================
Insurance--27.6% 6,990,000 AON Corp., 8.205% due 1/01/2027 8,077,197
8,510,000 Ace Capital Trust II, 9.70% due 4/01/2030 11,491,896
9,000,000 Axa, 8.60% due 12/15/2030 12,013,317
9,110,000 Farmers Exchange Capital, 7.05% due 7/15/2028 (c) 9,624,806
6,000,000 Mangrove Bay Pass-Through Trust, 6.102% due 7/15/2033 (a)(c) 6,077,220
10,000,000 Markel Capital Trust I Series B, 8.71% due 1/01/2046 10,994,080
915,000 Oil Casualty Insurance Ltd., 8% due 9/15/2034 (c) 966,699
2,000,000 Oil Insurance Ltd., 5.15% due 8/15/2033 (a)(c) 2,020,260
5,000,000 QBE Insurance Group Ltd., 5.647% due 7/01/2023 (a)(c) 5,030,080
--------------
66,295,555
==========================================================================================================================
Multi-Utilities & 1,200,000 Dominion Capital Trust I, 7.83% due 12/01/2027 1,334,196
Unregulated Power--
0.6%
==========================================================================================================================
Oil & Gas--4.6% 2,000,000 KN Capital Trust III, 7.63% due 4/15/2028 2,249,616
8,000,000 Pemex Project Funding Master Trust, 7.375% due 12/15/2014 8,692,000
--------------
10,941,616
==========================================================================================================================
Thrifts & Mortgage 1,465,000 Dime Capital Trust I Series A, 9.33% due 5/06/2027 1,670,367
Finance--7.9% 6,735,000 Greenpoint Capital Trust I, 9.10% due 6/01/2027 7,689,248
760,000 ML Capital Trust I, 9.875% due 3/01/2027 854,641
5,900,000 Sovereign Capital Trust, 9% due 4/01/2027 6,597,575
2,000,000 Webster Capital Trust I, 9.36% due 1/29/2027 (c) 2,262,196
--------------
19,074,027
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Capital Trusts (Cost--$138,625,767)--61.6% 148,035,002
==========================================================================================================================
Shares
Held Preferred Stocks
==========================================================================================================================
Capital 24,000 Goldman Sachs Group, Inc. Series A, 3.91% 600,480
Markets--3.3% 280,000 Lehman Brothers Holdings, Inc., 6.50% 7,448,000
--------------
8,048,480
==========================================================================================================================
Commercial Banks-- 104,800 Banco Santander Central Hispano SA, 6.41% 2,660,243
2.4% 34,687 First Republic Bank, 6.25% 875,847
1,176 First Tennessee Bank NA, 3.90% (c) 1,173,060
42,000 Provident Financial Group, Inc., 7.75% 1,161,300
--------------
5,870,450
==========================================================================================================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 7
Schedule of Investments (continued)
Preferred and Corporate Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities (continued)
Shares
Industry+ Held Preferred Stocks Value
==========================================================================================================================
Diversified 80,000 Cobank ACB, 7% $ 4,425,440
Financial
Services--1.8%
==========================================================================================================================
Electric 20,000 Duquesne Light Co., 6.50% 1,057,600
Utilities--1.5% 36,000 Pacific Gas & Electric Co. Series A, 6% 916,200
16,100 Southern California Edison Co., 5.349% 1,624,591
--------------
3,598,391
==========================================================================================================================
Gas Utilities--3.6% 320,000 Southern Union Co., 7.55% 8,560,000
==========================================================================================================================
Insurance--1.3% 120,000 ACE Ltd. Series C, 7.80% 3,165,600
==========================================================================================================================
Thrifts & Mortgage 305,000 Fannie Mae, 7% 16,937,047
Finance--7.2% 6,000 Fannie Mae Series L, 5.125% 270,000
--------------
17,207,047
==========================================================================================================================
Wireless 9,720 Centaur Funding Corp., 9.08% 13,115,925
Telecommunication
Services--5.5%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks (Cost--$58,822,712)--26.6% 63,991,333
==========================================================================================================================
Real Estate Investment Trusts
==========================================================================================================================
Real Estate 76,000 AMB Property Corp. Series M, 6.75% 1,928,120
Investment 63,800 Alexandria Real Estate Equities, Inc. Series C, 8.375% 1,697,080
Trusts--24.2% 72,800 BRE Properties Series C, 6.75% 1,820,000
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,500,000
400,000 CarrAmerica Realty Corp. Series E, 7.50% 10,376,000
180,000 Developers Diversified Realty Corp., 7.375% 4,552,200
90,000 Duke Realty Corp. Series K, 6.50% 2,232,000
610 First Industrial Realty Trust, Inc., 6.236% 614,194
425,000 HRPT Properties Trust Series B, 8.75% 11,288,000
192,000 Health Care Property Investors, Inc. Series F, 7.10% 4,894,080
44,000 Health Care REIT, Inc. Series F, 7.625% 1,104,127
120,000 iStar Financial, Inc. Series I, 7.50% 3,000,000
PS Business Parks, Inc.:
18,400 Series K, 7.95% 483,920
16,000 Series M, 7.20% 400,000
80,000 Public Storage, Inc. Series X, 6.45% 1,964,000
14,800 Regency Centers Corp., 7.25% 380,175
36,800 Vornado Realty Trust Series E, 7% 938,400
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Real Estate Investment Trusts
(Cost--$57,028,750)--24.2% 58,172,296
==========================================================================================================================
Face
Amount Trust Preferreds
==========================================================================================================================
Aerospace & $ 2,050,000 RC Trust I, 7% due 5/15/2006 2,107,658
Defense--0.9%
==========================================================================================================================
Electric 4,060,000 Comed Financing III, 6.35% due 3/15/2033 4,343,473
Utilities--1.8%
==========================================================================================================================
Gas Utilities--4.4% 10,000,000 Southwest Gas Capital II, 7.70% due 9/15/2043 10,680,835
==========================================================================================================================
Insurance--2.6% 4,000,000 ABN AMRO North America Capital Funding Trust II, 3.065% (a)(b)(c) 3,917,812
2,250,000 Lincoln National Capital VI Series F, 6.75% due 9/11/2052 2,303,314
--------------
6,221,126
==========================================================================================================================
8 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments (continued)
Preferred and Corporate Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities (concluded)
Face
Industry+ Amount Trust Preferreds Value
==========================================================================================================================
Thrifts & Mortgage $ 5,500,000 Countrywide Financial Corp., 1.50% due 4/01/2033 $ 5,534,543
Finance--2.3%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Trust Preferreds (Cost--$27,652,215)--12.0% 28,887,635
==========================================================================================================================
Total Investments in Preferred Securities (Cost--$282,129,444)--124.4% 299,086,266
==========================================================================================================================
Corporate Bonds
==========================================================================================================================
Automobiles--6.4% 10,000,000 DaimlerChrysler NA Holding Corp., 8.50% due 1/18/2031 11,420,170
5,000,000 General Motors Corp., 7.70% due 4/15/2016 3,950,660
--------------
15,370,830
==========================================================================================================================
Containers & 5,000,000 Sealed Air Corp., 6.875% due 7/15/2033 (c) 5,539,650
Packaging--2.3%
==========================================================================================================================
Diversified 3,000,000 General Motors Acceptance Corp., 8% due 11/01/2031 2,524,311
Financial 5,000,000 Sigma Finance Corp., 5.768% due 8/15/2011 (e) 5,000,000
Services--3.1% --------------
7,524,311
==========================================================================================================================
Diversified 5,000,000 France Telecom SA, 8.75% due 3/01/2031 6,769,165
Telecommunication 5,000,000 Sprint Capital Corp., 8.75% due 3/15/2032 6,723,395
Services--5.6% --------------
13,492,560
==========================================================================================================================
Electric 5,000,000 Energy East Corp., 6.75% due 9/15/2033 5,680,345
Utilities--2.4%
==========================================================================================================================
Foreign Government 7,032,000 Mexico Government International Bond, 5.875% due 1/15/2014 7,102,320
Obligations--3.0%
==========================================================================================================================
Media--8.5% 3,000,000 Comcast Corp., 7.05% due 3/15/2033 3,505,989
8,000,000 Liberty Media Corp., 8.25% due 2/01/2030 8,169,800
2,000,000 TCI Communications, Inc., 8.75% due 8/01/2015 2,550,666
5,000,000 Time Warner, Inc., 7.625% due 4/15/2031 6,092,990
--------------
20,319,445
==========================================================================================================================
Wireless 5,000,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 6,818,770
Telecommunication
Services--2.8%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds (Cost--$78,976,091)--34.1% 81,848,231
==========================================================================================================================
Short-Term Securities
==========================================================================================================================
U.S. Government 3,600,000 Fannie Mae, 2.70% due 5/09/2005 (d) 3,598,110
Obligations*--1.5%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities (Cost--$3,598,110)--1.5% 3,598,110
==========================================================================================================================
Number of
Contracts Put Options Purchased
==========================================================================================================================
200 U.S. Treasury Bond Future, expiring May 2005 at $107, Broker
Greenwich Capital Markets, Inc. 3,125
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Put Options Purchased
(Premiums Paid--$56,998)--0.0% 3,125
==========================================================================================================================
Total Investments (Cost--$364,760,643**)--160.0% 384,535,732
Liabilities in Excess of Other Assets--(3.2%) (7,689,754)
Preferred Stock, at Redemption Value--(56.8%) (136,540,868)
--------------
Net Assets Applicable to Common Stock--100.0% $ 240,305,110
==============
SEMI-ANNUAL REPORTS APRIL 30, 2005 9
Schedule of Investments (continued)
Preferred and Corporate Income Strategies Fund, Inc. (in U.S. dollars)
+ 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.
* 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 by the Fund.
** The cost and unrealized appreciation (depreciation) of investments as of
April 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost, including options ........................ $366,306,164
============
Gross unrealized appreciation ............................ $ 20,909,245
Gross unrealized depreciation ............................ (2,679,677)
------------
Net unrealized appreciation .............................. $ 18,229,568
============
(a) Floating rate note.
(b) The security is a perpetual bond and has no definite maturity date.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Restricted securities as to resale, representing 2.1% of net assets, were
as follows:
Acquisition
Issue Date Cost Value
----------------------------------------------------------------------------------
Sigma Finance Corp., 5.768% due 8/15/2011 2/13/2004 $ 5,000,000 $ 5,000,000
----------------------------------------------------------------------------------
Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) were as follows:
---------------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
---------------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I $ (1,944,332) $ 22,487
---------------------------------------------------------------------------------------
Swaps outstanding as of April 30, 2005 were as follows:
---------------------------------------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------------------------------------------------------------------------------------------------------------------
Bought credit default protection on General Motors Corp. and pay 4.70%
Broker, Morgan Stanley Capital Services, Inc.
Expires March 2010 $ 5,000,000 $ 688,570
Bought credit default protection on Ford Motor Credit Company and pay 2.73%
Broker, Morgan Stanley Capital Services, Inc.
Expires March 2010 $ 2,500,000 192,693
Bought credit default protection on Ford Motor Credit Company and pay 5.70%
Broker, Lehman Brothers Special Finance
Expires June 2010 $ 1,250,000 22,426
Bought credit default protection on General Motors Acceptance Corporation and pay 6.90%
Broker, Lehman Brothers Special Finance
Expires June 2010 $ 1,250,000 (30,581)
Sold credit default protection on Ford Motor Credit Company and receive 5.25%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 1,250,000 (44,655)
Sold credit default protection on General Motors Acceptance Corporation and
receive 6.375%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 1,250,000 6,063
Bought credit default protection on General Motors Corp. and pay 4.60%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 3,000,000 184,488
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.846% Broker, UBS Warburg
Expires July 2010 $ 40,000,000 (894,520)
10 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments (concluded)
Preferred and Corporate Income Strategies Fund, Inc. (in U.S. dollars)
Swaps outstanding as of April 30, 2005 (concluded):
---------------------------------------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------------------------------------------------------------------------------------------------------------------
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.1275% Broker, Deutsche Bank AG London
Expires February 2012 $ 50,000,000 $ (605,665)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of 4.14%
Broker, Lehman Brothers Special Finance
Expires February 2012 $ 50,000,000 (568,348)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.683% Broker, Morgan Stanley Capital Services, Inc.
Expires January 2015 $ 4,720,000 32,696
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.604% Broker, Morgan Stanley Capital Services, Inc.
Expires June 2015 $110,000,000 (8,479,900)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.051% Broker, JPMorgan Chase Bank
Expires June 2015 $ 40,000,000 (1,315,360)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.085% Broker, Morgan Stanley Capital Services, Inc.
Expires March 2020 $ 33,500,000 983,825
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 $ 20,520,000 (838,057)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.258% Broker, Morgan Stanley Capital Services, Inc.
Expires September 2025 $102,500,000 (3,779,073)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.256% Broker, Morgan Stanley Capital Services, Inc.
Expires January 2035 $ 14,100,000 607,046
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.225% Broker, Morgan Stanley Capital Services, Inc.
Expires March 2035 $ 60,500,000 2,315,585
---------------------------------------------------------------------------------------------------------------------------
Total $(11,522,767)
============
Financial futures contracts sold as of April 30, 2005 were as follows:
----------------------------------------------------------------------------------
Number of Unrealized
Contracts Issue Expiration Date Face Value Depreciation
----------------------------------------------------------------------------------
198 10-Year U.S. Treasury Notes June 2005 $21,798,010 $ (263,521)
200 30-Year U.S. Treasury Bonds June 2005 $22,416,042 (552,708)
----------------------------------------------------------------------------------
Total $ (816,229)
===========
See Notes to Financial Statements.
SEMI-ANNUAL REPORTS APRIL 30, 2005 11
Schedule of Investments
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities
Face
Industry+ Amount Capital Trusts Value
==========================================================================================================================
Commercial $12,035,000 ABN AMRO North America Holding Preferred Capital Repackaging Trust I,
Banks--20.5% 6.523% (a)(b)(c) $ 13,113,384
11,000,000 Abbey National Capital Trust I, 8.963% (b)(c) 15,537,764
2,000,000 Bank One Capital III, 8.75% due 9/01/2030 2,688,836
1,000,000 Chase Capital I Series A, 7.67% due 12/01/2026 (a) 1,089,368
16,455,000 Chase Capital II Series B, 3.71% due 2/01/2027 (b) 15,466,482
7,225,000 Danske Bank A/S, 5.914% (a)(b)(c) 7,712,297
34,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (a) 42,171,390
1,600,000 Firstar Capital Trust I Series B, 8.32% due 12/15/2026 1,810,206
2,000,000 HSBC America Capital Trust I, 7.808% due 12/15/2026 (a) 2,181,036
15,835,000 HSBC Capital Funding LP/Jersey Channel Islands, 10.176% (a)(b)(c) 24,741,253
12,275,000 Hubco Capital Trust II Series B, 7.65% due 6/15/2028 (a) 12,643,250
998,000 JPM Capital Trust I, 7.54% due 1/15/2027 (a) 1,072,820
2,000,000 Lloyds TSB Bank Plc, 6.90% (c) 2,069,200
8,500,000 Mizuho JGB Investment LLC, 9.87% (a)(b)(c) 9,717,574
18,470,000 Nationsbank Cap Trust III, 3.691% due 1/15/2027 (b) 17,748,673
970,000 RBS Capital Trust I, 4.709% (b)(c) 935,290
2,000,000 Republic New York Corp., 7.53% due 12/04/2026 2,152,200
5,000,000 SB Treasury Co. LLC, 9.40% (a)(b)(c) 5,648,340
4,500,000 St. George Funding Co. LLC, 8.485% (a)(c) 4,987,323
10,000,000 Westpac Capital Trust III, 5.819% (a)(b)(c) 10,423,500
--------------
193,910,186
==========================================================================================================================
Consumer 1,000,000 MBNA Capital A, 8.278% due 12/01/2026 1,084,822
Finance--0.1%
==========================================================================================================================
Diversified 15,000,000 Agfirst Farm Credit Bank, 8.393% due 12/15/2016 (b) 17,195,895
Financial 10,000,000 CIT Capital Trust I, 7.70% due 2/15/2027 (a) 10,659,670
Services--5.2% 9,000,000 Farm Credit Bank of Texas Series 1, 7.561% (b)(c) 10,185,750
10,000,000 Sun Life Canada US Capital Trust, 8.526% (a)(c) 11,190,450
--------------
49,231,765
==========================================================================================================================
Electric 14,950,000 HL&P Capital Trust II Series B, 8.257% due 2/01/2037 15,899,325
Utilities--2.7% 9,500,000 SWEPCO Capital I, 5.25% due 10/01/2043 (b) 9,500,693
--------------
25,400,018
==========================================================================================================================
Gas Utilities--0.6% 5,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 5,522,950
==========================================================================================================================
Insurance--18.6% 24,175,000 AON Corp., 8.205% due 1/01/2027 27,935,083
21,300,000 Ace Capital Trust II, 9.70% due 4/01/2030 28,763,499
23,725,000 Axa, 8.60% due 12/15/2030 31,668,438
15,000,000 Farmers Exchange Capital, 7.05% due 7/15/2028 (a) 15,847,650
10,000,000 GE Global Insurance Holding Corp., 7.75% due 6/15/2030 11,688,730
1,000,000 Genamerica Capital I, 8.525% due 6/30/2027 (a) 1,119,229
6,066,000 ING Capital Funding TR III, 8.439% (b)(c) 7,152,008
1,000,000 Markel Capital Trust I Series B, 8.71% due 1/01/2046 1,099,408
3,605,000 Oil Casualty Insurance Ltd., 8% due 9/15/2034 (a) 3,808,690
7,000,000 Oil Insurance Ltd., 5.15% due 8/15/2033 (a)(b) 7,070,910
6,325,000 Principal Life Insurance Company, 8% due 3/01/2044 (a) 7,147,307
14,000,000 QBE Insurance Group Ltd., 5.647% due 7/01/2023 (a)(b) 14,084,224
6,225,000 Transamerica Capital III, 7.625% due 11/15/2037 7,196,965
10,000,000 Zurich Capital Trust I, 8.376% due 6/01/2037 (a) 10,838,400
--------------
175,420,541
==========================================================================================================================
Multi-Utilities & 10,000,000 Dominion Capital Trust I, 7.83% due 12/01/2027 11,118,300
Unregulated Power-- 15,000,000 Dominion Resources Capital Trust III, 8.40% due 1/15/2031 19,401,150
3.2% --------------
30,519,450
==========================================================================================================================
Oil & Gas--1.9% 5,000,000 KN Capital Trust I Series B, 8.56% due 4/15/2027 (a) 5,491,815
1,750,000 KN Capital Trust III, 7.63% due 4/15/2028 1,968,414
9,850,000 Phillips 66 Capital Trust II, 8% due 1/15/2037 (a) 10,801,412
--------------
18,261,641
==========================================================================================================================
12 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments (continued)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities (continued)
Face
Industry+ Amount Capital Trusts Value
==========================================================================================================================
Thrifts & Mortgage Astoria Capital Trust I:
Finance--4.1% $ 1,000,000 9.75% due 11/01/2029 (a) $ 1,200,000
5,000,000 Series B, 9.75% due 11/01/2029 6,050,000
5,760,000 Dime Capital Trust I Series A, 9.33% due 5/06/2027 6,567,448
12,765,000 Greenpoint Capital Trust I, 9.10% due 6/01/2027 14,573,609
3,005,000 ML Capital Trust I, 9.875% due 3/01/2027 3,379,207
5,775,000 Webster Capital Trust I, 9.36% due 1/29/2027 (a) 6,532,091
--------------
38,302,355
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Capital Trusts (Cost--$503,604,816)--56.9% 537,653,728
==========================================================================================================================
Shares
Held Preferred Stocks
==========================================================================================================================
Capital 96,000 Goldman Sachs Group, Inc. Series A, 3.91% 2,401,920
Markets--2.5% 600,000 Lehman Brothers Holdings, Inc., 6.50% 15,960,000
100,000 Lehman Brothers Holdings, Inc. Series C, 5.94% 5,165,000
--------------
23,526,920
==========================================================================================================================
Commercial 150 BBVA Privanza International Ltd., 7.764% (a) 15,937,500
Banks--8.9% 435,200 Banco Santander Central Hispano SA, 6.41% 11,047,117
137,579 First Republic Bank, 6.25% 3,473,870
4,650 First Tennessee Bank NA, 3.90% (a) 4,638,375
166,800 Provident Financial Group, Inc., 7.75% 4,612,020
800,000 Royal Bank of Scotland Group Plc Series L, 5.75% 19,432,000
23,000 SG Preferred Capital II, 6.302% 24,817,000
--------------
83,957,882
==========================================================================================================================
Diversified 320,000 Cobank ACB, 7% 17,701,760
Financial
Services--1.9%
==========================================================================================================================
Electric 14,000 Alabama Power Co., 5.83% 351,400
Utilities--4.1% 8,200 Delmarva Power & Light, 4.56% 764,137
80,000 Duquesne Light Co., 6.50% 4,230,400
80,000 Interstate Power & Light Co. Series B, 8.375% 2,720,000
140,000 Pacific Gas & Electric Co. Series A, 6% 3,563,000
15,562 South Carolina Electric & Gas Series B, 4.60% 785,395
63,900 Southern California Edison Co., 5.349% 6,447,913
200,000 TXU Corp. Series B, 7.24% 20,280,000
--------------
39,142,245
==========================================================================================================================
Gas Utilities--1.8% 626,000 Southern Union Co., 7.55% 16,745,500
==========================================================================================================================
Insurance--5.3% 880,000 ACE Ltd. Series C, 7.80% 23,214,400
16,340 Zurich RegCaPS Funding Trust, 6.01% (a)(b) 16,549,356
9,800 Zurich RegCaPS Funding Trust, 6.58% (a)(b) 10,384,937
--------------
50,148,693
==========================================================================================================================
Thrifts & Mortgage 1,210,000 Fannie Mae, 7% 67,192,873
Finance--8.4% 264,650 Fannie Mae Series L, 5.125% 11,909,250
--------------
79,102,123
==========================================================================================================================
Wireless 30,423 Centaur Funding Corp., 9.08% 41,052,036
Telecommunication
Services--4.3%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks (Cost--$330,539,583)--37.2% 351,377,159
==========================================================================================================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 13
Schedule of Investments (continued)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities (continued)
Shares
Industry+ Held Real Estate Investment Trusts Value
==========================================================================================================================
Real Estate AMB Property Corp.:
Investment 117,800 Series L, 6.50% $ 2,970,775
Trusts--27.0% 124,000 Series M, 6.75% 3,145,880
251,400 Alexandria Real Estate Equities, Inc. Series C, 8.375% 6,687,240
290,000 BRE Properties Series C, 6.75% 7,250,000
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,500,000
600,000 CarrAmerica Realty Corp. Series E, 7.50% 15,564,000
2,000 Centerpoint Properties Trust, 5.377% 1,987,500
200,000 Cousins Properties, Inc. Series A, 7.75% 5,006,260
780,000 Developers Diversified Realty Corp., 8% 20,365,800
280,000 Developers Diversified Realty Corp., 7.375% 7,081,200
Duke Realty Corp.:
100,000 Series J, 6.625% 2,496,880
270,000 Series K, 6.50% 6,696,000
637,000 Equity Residential Series N, 6.48% 15,765,750
2,390 First Industrial Realty Trust, Inc., 6.263% 2,406,431
4,000 Firstar Realty LLC, 8.875% (a) 5,357,500
768,000 Health Care Property Investors, Inc. Series F, 7.10% 19,576,320
172,800 Health Care REIT, Inc. Series F, 7.625% 4,336,209
684,700 Kimco Realty Corp. Series F, 6.65% 17,459,850
1,600,000 New Plan Excel Realty Trust Series E, 7.625% 41,984,000
PS Business Parks, Inc.:
72,000 Series K, 7.95% 1,893,600
64,000 Series M, 7.20% 1,600,000
320,000 Public Storage, Inc. Series X, 6.45% 7,856,000
607,550 Regency Centers Corp., 7.45% 15,857,055
58,000 Regency Centers Corp., 7.25% 1,489,875
11,857 Sovereign Real Estate Investment Corp., 12% 16,836,940
145,000 Vornado Realty Trust Series E, 7% 3,697,500
130,000 Wachovia Corp. Series A, 7.25% 3,679,000
200,000 Weingarten Realty Investors Series D, 6.75% 5,268,000
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Real Estate Investment Trusts
(Cost--$248,343,725)--27.0% 254,815,565
==========================================================================================================================
Face
Amount Trust Preferreds
==========================================================================================================================
Aerospace & $27,450,000 RC Trust I, 7% due 5/15/2006 28,222,059
Defense--3.0%
==========================================================================================================================
Capital Markets--0.1% 875,000 Lehman Brothers Holdings Capital Trust III, 6.375% due 3/15/2052 871,274
==========================================================================================================================
Communications 2,000,000 Corporate-Backed Trust Certificates, 8.375% due 11/15/2028 2,109,989
Equipment--0.2%
==========================================================================================================================
Electric 6,750,000 Georgia Power Company, 5.90% due 4/15/2033 6,646,200
Utilities--1.7% 3,000,000 HECO Capital Trust III, 6.50% due 3/18/2034 3,145,160
5,000,000 Natural Rural Utilities Cooperative Finance Corporation, 6.75%
due 2/15/2043 5,046,281
397,425 PSEG Funding Trust II, 8.75% due 12/31/2032 427,559
950,000 Virginia Power Capital Trust II, 7.375% due 7/30/2042 988,366
--------------
16,253,566
==========================================================================================================================
Gas Utilities--0.7% 500,000 Dominion-CNG Capital Trust I, 7.80% due 10/31/2041 516,169
5,750,000 Southwest Gas Capital II, 7.70% due 9/15/2043 6,141,440
--------------
6,657,609
==========================================================================================================================
14 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments (continued)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Preferred Securities (concluded)
Face
Industry+ Amount Trust Preferreds Value
==========================================================================================================================
Insurance--2.3% $16,000,000 ABN AMRO North America Capital Funding Trust II, 3.065% (a)(b)(c) $ 15,660,405
1,000,000 Everest Re Capital Trust, 7.85% due 11/15/2032 1,043,918
5,000,000 Lincoln National Capital VI Series F, 6.75% due 9/11/2052 5,118,455
--------------
21,822,778
==========================================================================================================================
Thrifts & Mortgage 27,000,000 Countrywide Capital IV, 6.75% due 4/01/2033 27,169,462
Finance--3.5% 6,000,000 Dime Community Capital I, 7% due 4/14/2034 5,850,000
--------------
33,019,462
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Trust Preferreds (Cost--$107,933,215)--11.5% 108,956,737
==========================================================================================================================
Total Investments in Preferred Securities
(Cost--$1,190,421,339)--132.6% 1,252,803,189
==========================================================================================================================
Corporate Bonds
==========================================================================================================================
Automobiles--1.0% 5,000,000 DaimlerChrysler NA Holding Corp., 8.50% due 1/18/2031 5,710,085
5,000,000 Ford Motor Co., 7.45% due 7/16/2031 (g) 4,108,710
--------------
9,818,795
==========================================================================================================================
Diversified 29,000,000 General Motors Acceptance Corp., 8% due 11/01/2031 24,401,673
Financial 15,000,000 Sigma Finance Corp., 5.768% due 8/15/2011 (j) 15,000,000
Services--4.2% --------------
39,401,673
==========================================================================================================================
Diversified 28,000,000 France Telecom SA, 8.75% due 3/01/2031 37,907,324
Telecommunication Sprint Capital Corp.:
Services--7.7% 2,000,000 6.90% due 5/01/2019 2,234,798
24,000,000 8.75% due 3/15/2032 32,272,296
--------------
72,414,418
==========================================================================================================================
Electric Utilities-- 10,000,000 FirstEnergy Corp. Series B, 6.45% due 11/15/2011 10,739,940
1.1%
==========================================================================================================================
Food Products--0.6% 4,800,000 Tyson Foods, Inc., 7% due 1/15/2028 5,377,464
==========================================================================================================================
Media--4.2% 10,000,000 Comcast Corp., 7.05% due 3/15/2033 11,686,630
Time Warner, Inc.:
5,000,000 7.625% due 4/15/2031 6,092,990
18,000,000 7.70% due 5/01/2032 22,180,896
--------------
39,960,516
==========================================================================================================================
Multi-Utilities & 16,575,000 Duke Energy Field Services LLC, 8.125% due 8/16/2030 21,654,127
Unregulated Power--
2.3%
==========================================================================================================================
Thrifts & Mortgage 8,000,000 Roslyn Real Estate Asset Corp. Series D, 6.50% (b)(c) 8,040,000
Finance--0.9%
==========================================================================================================================
Wireless 28,000,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 38,185,112
Telecommunication
Services--4.0%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds (Cost--$228,655,304)--26.0% 245,592,045
==========================================================================================================================
Face Amount/
Beneficial Interest Short-Term Securities
==========================================================================================================================
$16,100,000 Fannie Mae, 2.70% due 5/09/2005 (e)(f) 16,091,548
$ 4,400,000 Merrill Lynch Liquidity Series, LLC Money Market Series (h)(i) 4,400,000
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities (Cost--$20,491,548)--2.2% 20,491,548
==========================================================================================================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 15
Schedule of Investments (continued)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Number of
Contracts Put Options Purchased Value
==========================================================================================================================
800 U.S. Treasury Bond Future, expiring May 2005 at $107, Broker
Greenwich Capital Markets, Inc. $ 12,500
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Put Options Purchased
(Premiums Paid--$227,992)--0.0% 12,500
==========================================================================================================================
Total Investments (Cost--$1,439,796,183*)--160.8% 1,518,899,282
Liabilities in Excess of Other Assets--(2.6%) (24,133,250)
Preferred Stock, at Redemption Value--(58.2%) (550,084,410)
--------------
Net Assets Applicable to Common Stock--100.0% $ 944,681,622
==============
+ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more ely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this ort which may combine
such industry sub-classifications for reporting ease.
* The cost and unrealized appreciation (depreciation) of investments as of
April 30, 2005, as computed for federal income purposes, were as follows:
Aggregate cost, including options ...................... $1,446,102,145
==============
Gross unrealized appreciation .......................... $ 89,607,519
Gross unrealized depreciation .......................... (16,810,382)
--------------
Net unrealized appreciation ............................ $ 72,797,137
==============
(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) Certain U.S. Government Obligations are traded on a discount basis; the
interest rates shown reflect the discount rates paid at the time of
purchase by the Fund.
(f) All or a portion of security held as collateral in connection with open
financial futures contracts.
(g) Security, or a portion of security, is on loan.
(h) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) were as follows:
--------------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC Cash Sweep Series I -- $ 91,441
Merrill Lynch Liquidity Series, LLC Money Market Series $ 4,400,000 $ 1,763
--------------------------------------------------------------------------------
(i) Security was purchased with the cash proceeds from securities loans.
(j) Restricted securities as to resale, representing 1.6% of net assets, were
as follows:
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------------
Sigma Finance Corp., 5.768% due 8/15/2011 2/13/2004 $15,000,000 $15,000,000
--------------------------------------------------------------------------------
16 SEMI-ANNUAL REPORTS APRIL 30, 2005
Schedule of Investments (continued)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Swaps outstanding as of April 30, 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 $ 398,010
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 $125,000,000 367,069
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 73,817
Receive a variable rate equal to 1-month USD LIBOR and pay a fixed rate of 1.31%
Broker, UBS Warburg
Expires June 2005 $150,000,000 445,967
Bought credit default protection on Ford Motor Co. and pay 3.25%
Broker, JPMorgan Chase Bank
Expires March 2010 $ 5,000,000 564,945
Bought credit default protection on General Motors Acceptance Corporation and
pay 3.80% Broker, Morgan Stanley Capital Services, Inc.
Expires March 2010 $ 5,000,000 435,760
Bought credit default protection on Ford Motor Credit Company and pay 5.70%
Broker, Lehman Brothers Special Finance
Expires June 2010 $ 4,950,000 (176,834)
Bought credit default protection on General Motors Acceptance Corporation and pay 6.90%
Broker, Lehman Brothers Special Finance
Expires June 2010 $ 4,950,000 (121,102)
Sold credit default protection on Ford Motor Credit Company and receive 5.25%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 4,950,000 88,808
Sold credit default protection on General Motors Acceptance Corporation and
receive 6.375%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 4,950,000 24,008
Bought credit default protection on General Motors Corp. and pay 4.60%
Broker, JPMorgan Chase Bank
Expires June 2010 $ 24,000,000 1,475,904
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.846% Broker, UBS Warburg
Expires July 2010 $160,000,000 (3,578,080)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.1275% Broker, Deutsche Bank AG London
Expires February 2012 $200,000,000 (2,422,660)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of 4.14%
Broker, Lehman Brothers Special Finance
Expires February 2012 $200,000,000 (2,273,391)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
4.683% Broker, Morgan Stanley Capital Services, Inc.
Expires January 2015 $ 18,880,000 130,783
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.604% Broker, Morgan Stanley Capital Services, Inc.
Expires June 2015 $300,000,000 (23,127,000)
SEMI-ANNUAL REPORTS APRIL 30, 2005 17
Schedule of Investments (concluded)
Preferred Income Strategies Fund, Inc. (in U.S. dollars)
Swaps outstanding as of April 30, 2005 (concluded):
---------------------------------------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
---------------------------------------------------------------------------------------------------------------------------
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.051% Broker, JPMorgan Chase Bank
Expires June 2015 $160,000,000 $ (5,261,440)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.085% Broker, Morgan Stanley Capital Services, Inc.
Expires March 2020 $ 33,500,000 983,825
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 (3,352,229)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.258% Broker, Morgan Stanley Capital Services, Inc.
Expires September 2025 $102,500,000 (3,779,072)
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.256% Broker, Morgan Stanley Capital Services, Inc.
Expires January 2035 $ 56,400,000 2,428,185
Receive a variable rate equal to 3-month USD LIBOR and pay a fixed rate of
5.225% Broker, Morgan Stanley Capital Services, Inc.
Expires March 2035 $ 60,500,000 2,315,585
---------------------------------------------------------------------------------------------------------------------------
Total $(34,359,142)
============
Financial futures contracts sold as of April 30, 2005 were as follows:
------------------------------------------------------------------------------------
Number of Face Unrealized
Contracts Issue Expiration Date Value Depreciation
------------------------------------------------------------------------------------
2,027 10-Year U.S. Treasury Notes June 2005 $223,154,157 $ (2,697,984)
800 30-Year U.S. Treasury Bonds June 2005 $ 89,664,168 (2,210,832)
------------------------------------------------------------------------------------
Total $ (4,908,816)
============
See Notes to Financial Statements.
18 SEMI-ANNUAL REPORTS APRIL 30, 2005
Statements of Net Assets
Preferred and Preferred
Corporate Income Income
Strategies Strategies
As of April 30, 2005 Fund, Inc. Fund, Inc.
=======================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value*+++ ....... $ 384,532,607 $1,514,486,782
Investments in affiliated securities, at value** ........... -- 4,400,000
Options purchased, at value*** ............................. 3,125 12,500
Interest receivable**** .................................... 4,545,139 16,837,018
Receivable for securities sold ............................. 946,818 3,958,977
Receivable for swaps ....................................... 751,227 477,506
Dividends receivable ....................................... 266,277 941,743
Receivable for variation margin ............................ 87,000 656,750
Receivable for securities lending .......................... -- 1,763
Prepaid expenses and other assets .......................... 12,847 78,637
--------------------------------
Total assets ............................................... 391,145,040 1,541,851,676
--------------------------------
=======================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value .................. -- 4,400,000
Unrealized depreciation on swaps ........................... 11,522,767 34,359,142
Payable to custodian bank .................................. 1,407,992 2,969,695
Payable for securities purchased ........................... 887,838 3,528,662
Dividends payable to Common Stock shareholders ............. 262,876 950,127
Payable to investment adviser .............................. 173,064 687,990
Payable to other affiliates ................................ 4,235 16,730
Accrued expenses and other liabilities ..................... 40,290 173,298
--------------------------------
Total liabilities .......................................... 14,299,062 47,085,644
--------------------------------
=======================================================================================================================
Preferred Stock
-----------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value $.10 per
share+ of AMPS@ at $25,000 per share liquidation preference 136,540,868 550,084,410
--------------------------------
=======================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ...................... $ 240,305,110 $ 944,681,622
================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 19
Statements of Net Assets (concluded)
Preferred and Preferred
Corporate Income Income
Strategies Strategies
As of April 30, 2005 Fund, Inc. Fund, Inc.
=======================================================================================================================
Analysis of Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------
Accumulated distributions in excess of investment income--net $ (552,420) $ (4,238,174)
Accumulated realized capital losses--net ................... (10,056,711) (53,487,879)
Unrealized appreciation--net ............................... 7,436,093 39,835,141
--------------------------------
Total accumulated losses--net .............................. (3,173,038) (17,890,912)
--------------------------------
Common Stock, par value $.10 per share++ ................... 1,027,919 4,059,307
Paid-in capital in excess of par ........................... 242,450,229 958,513,227
--------------------------------
Net Assets ................................................. $ 240,305,110 $ 944,681,622
================================
Net asset value per share of Common Stock .................. $ 23.38 $ 23.27
--------------------------------
Market price ............................................... $ 21.22 $ 21.15
--------------------------------
* Identified cost for unaffiliated securities ........... $ 364,703,645 $1,435,168,191
================================
** Identified cost for affiliated securities ............. -- $ 4,400,000
================================
*** Premiums paid ......................................... $ 56,998 $ 227,992
================================
**** Interest from affiliates .............................. $ 9,146 $ 40,152
================================
+ Preferred Stock authorized, issued and outstanding:
Series M7 Shares .................................... 2,730 2,800
--------------------------------
Series T7 Shares .................................... 2,730 2,800
--------------------------------
Series W7 Shares .................................... -- 2,800
--------------------------------
Series TH7 Shares ................................... -- 2,800
--------------------------------
Series F7 Shares .................................... -- 2,800
--------------------------------
Series W28 Shares ................................... -- 4,000
--------------------------------
Series TH28 Shares .................................. -- 4,000
--------------------------------
++ Common Stock issued and outstanding ................... 10,279,189 40,593,071
================================
+++ Securities on loan .................................... -- $ 4,108,700
================================
@ Auction Market Preferred Stock.
See Notes to Financial Statements.
20 SEMI-ANNUAL REPORTS APRIL 30, 2005
Statements of Operations
Preferred and Preferred
Corporate Income Income
Strategies Strategies
For the Six Months Ended April 30, 2005 Fund, Inc. Fund, Inc.
=======================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------
Interest* .................................................. $ 8,971,279 $ 30,296,273
Dividends .................................................. 3,486,210 16,795,460
Securities lending--net .................................... -- 1,763
--------------------------------
Total income ............................................... 12,457,489 47,093,496
--------------------------------
=======================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------
Investment advisory fees ................................... 1,144,412 4,527,956
Commission fees ............................................ 175,680 709,176
Accounting services ........................................ 68,888 212,803
Transfer agent fees ........................................ 32,346 82,564
Professional fees .......................................... 30,880 43,240
Printing and shareholder reports ........................... 17,012 41,890
Trustees' fees and expenses ................................ 15,180 48,372
Custodian fees ............................................. 11,546 33,205
Listing fees ............................................... 10,476 23,778
Pricing fees ............................................... 3,648 4,845
Other ...................................................... 18,675 23,357
--------------------------------
Total expenses ............................................. 1,528,743 5,751,186
--------------------------------
Investment income--net ..................................... 10,928,746 41,342,310
--------------------------------
=======================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-----------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ........................................ (2,202,193) (7,380,009)
Futures contracts and swaps--net ........................ 734,607 4,762,179
--------------------------------
Total realized loss--net ................................... (1,467,586) (2,617,830)
--------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net ........................................ 207,110 5,138,178
Futures contracts and swaps--net ........................ (834,093) (4,635,311)
--------------------------------
Total change in unrealized appreciation/depreciation--net .. (626,983) 502,867
--------------------------------
Total realized and unrealized loss--net .................... (2,094,569) (2,114,963)
--------------------------------
=======================================================================================================================
Dividends to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (1,741,904) (6,925,142)
--------------------------------
Net Increase in Net Assets Resulting from Operations ....... $ 7,092,273 $ 32,302,205
================================
* Interest from affiliates ................................ $ 22,487 $ 91,441
================================
See Notes to Financial Statements.
SEMI-ANNUAL REPORTS APRIL 30, 2005 21
Statements of Changes in Net Assets
Preferred and Corporate Income Strategies Fund, Inc.
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2005 2004
=======================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 10,928,746 $ 22,521,477
Realized loss--net ......................................... (1,467,586) (8,097,410)
Change in unrealized appreciation/depreciation--net ........ (626,983) 887,799
Dividends to Preferred Stock shareholders .................. (1,741,904) (1,892,108)
--------------------------------
Net increase in net assets resulting from operations ....... 7,092,273 13,419,758
--------------------------------
=======================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (10,279,209) (20,558,419)
--------------------------------
Net decrease in net assets resulting from dividends to
Common Stock shareholders ................................. (10,279,209) (20,558,419)
--------------------------------
=======================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to Common Stock .... (3,186,936) (7,138,661)
Beginning of period ........................................ 243,492,046 250,630,707
--------------------------------
End of period* ............................................. $ 240,305,110 $ 243,492,046
================================
* Undistributed (accumulated distributions in excess
of) investment income--net ........................... $ (552,420) $ 539,947
================================
See Notes to Financial Statements.
Statements of Changes in Net Assets Preferred Income Strategies Fund, Inc.
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2005 2004
=======================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... $ 41,342,310 $ 86,983,438
Realized loss--net ......................................... (2,617,830) (64,731,102)
Change in unrealized appreciation/depreciation--net ........ 502,867 32,642,935
Dividends and distributions to Preferred Stock shareholders (6,925,142) (7,473,764)
--------------------------------
Net increase in net assets resulting from operations ....... 32,302,205 47,421,507
--------------------------------
=======================================================================================================================
Dividends and Distributions to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------
Investment income--net ..................................... (40,593,155) (86,340,486)
Realized gain--net ......................................... -- (3,830,687)
--------------------------------
Net decrease in net assets resulting from dividends and
distributions to Common Stock shareholders ................ (40,593,155) (90,171,173)
--------------------------------
=======================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to Common Stock .... (8,290,950) (42,749,666)
Beginning of period ........................................ 952,972,572 995,722,238
--------------------------------
End of period* ............................................. $ 944,681,622 $ 952,972,572
================================
* Undistributed (accumulated distributions in excess of)
investment income--net ............................... $ (4,238,174) $ 1,937,813
================================
See Notes to Financial Statements.
22 SEMI-ANNUAL REPORTS APRIL 30, 2005
Financial Highlights Preferred and Corporate Income Strategies Fund, Inc.
For the Period
For the Six For the August 1,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
============================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $ 23.69 $ 24.38 $ 23.88
----------------------------------------------
Investment income--net ...................... 1.06 2.19 .39
Realized and unrealized gain (loss)--net .... (.20) (.70) .67
Less dividends to Preferred Stock shareholders
from investment income--net ................ (.17) (.18) (.03)
----------------------------------------------
Total from investment operations ............ .69 1.31 1.03
----------------------------------------------
Less dividends to Common Stock shareholders from
investment income--net ..................... (1.00) (2.00) (.33)
----------------------------------------------
Offering costs resulting from the issuance of
Common Stock ............................... -- -- (.04)
----------------------------------------------
Offering and underwriting costs resulting from
the issuance of Preferred Stock ............ -- -- (.16)
----------------------------------------------
Net asset value, end of period .............. $ 23.38 $ 23.69 $ 24.38
==============================================
Market price per share, end of period ....... $ 21.22 $ 22.84 $ 23.60
==============================================
============================================================================================================================
Total Investment Return**
----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 3.21%@ 5.86% 3.53%@
==============================================
Based on market price per share ............. (2.84%)@ 5.44% (4.33%)@
==============================================
============================================================================================================================
Ratios Based on Average Net Assets of Common Stock
----------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver*** ............ 1.25%* 1.26% .49%*
==============================================
Total expenses*** ........................... 1.25%* 1.27% 1.11%*
==============================================
Total investment income--net*** ............. 8.91%* 9.04% 6.79%*
==============================================
Amount of dividends to Preferred Stock
shareholders ............................... 1.42%* .76% .50%*
==============================================
Investment income--net, to Common Stock
shareholders ............................... 7.49%* 8.28% 6.29%*
==============================================
============================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
----------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ... 2.56%* 1.39% 1.11%*
==============================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 23
Financial Highlights (concluded)
Preferred and Corporate Income Strategies Fund, Inc.
For the Period
For the Six For the August 1,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
============================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of
period (in thousands) ...................... $240,305 $243,492 $250,631
==============================================
Preferred Stock outstanding, end of period
(in thousands) ............................. $136,500 $136,500 $136,500
==============================================
Portfolio turnover .......................... 13.21% 27.11% 11.51%
==============================================
============================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................... $ 2,760 $ 2,784 $ 2,836
==============================================
============================================================================================================================
Dividends Per Share on Preferred Stock Outstanding++
----------------------------------------------------------------------------------------------------------------------------
Series M7--Investment income--net ........... $ 321 $ 347 $ 55
==============================================
Series T7--Investment income--net ........... $ 317 $ 346 $ 50
==============================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially dif
ferent returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on August 26, 2003.
@ Aggregate total investment return.
See Notes to Financial Statements.
24 SEMI-ANNUAL REPORTS APRIL 30, 2005
Financial Highlights Preferred Income Strategies Fund, Inc.
For the Period
For the Six For the March 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
============================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $ 23.48 $ 24.53 $ 23.88
----------------------------------------------
Investment income--net ...................... 1.02@@ 2.14@@ 1.14
Realized and unrealized gain (loss)--net .... (.06) (.78) .61
Less dividends and distributions to Preferred
Stock shareholders:
Investment income--net ................... (.17) (.18) (.07)
Realized gain--net ....................... -- (.01) --
----------------------------------------------
Total from investment operations ............ .79 1.17 1.68
----------------------------------------------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ................... (1.00) (2.13) (.87)
Realized gain--net ....................... -- (.09) --
----------------------------------------------
Total dividends and distributions to Common
Stock shareholders ......................... (1.00) (2.22) (.87)
----------------------------------------------
Offering costs resulting from the issuance of
Common Stock ............................... -- -- (.01)
----------------------------------------------
Offering and underwriting costs resulting
from the issuance of Preferred Stock ....... -- -- (.15)
----------------------------------------------
Net asset value, end of period .............. $ 23.27 $ 23.48 $ 24.53
==============================================
Market price per share, end of period ....... $ 21.15 $ 22.87 $ 23.69
==============================================
============================================================================================================================
Total Investment Return**
----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... 3.66%@ 5.22% 6.47%@
==============================================
Based on market price per share ............. (3.27%)@ 6.12% (1.80%)@
==============================================
============================================================================================================================
Ratios Based on Average Net Assets of Common Stock
----------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver*** ............ 1.20%* 1.19% .79%*
==============================================
Total expenses*** ........................... 1.20%* 1.19% 1.05%*
==============================================
Total investment income--net*** ............. 8.61%* 8.93% 8.31%*
==============================================
Amount of dividends to Preferred Stock
shareholders ............................... 1.44%* .74% .49%*
==============================================
Investment income--net, to Common Stock
shareholders ............................... 7.17%* 8.19% 7.82%*
==============================================
============================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
----------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ... 2.53%* 1.32% 1.05%*
==============================================
SEMI-ANNUAL REPORTS APRIL 30, 2005 25
Financial Highlights (concluded) Preferred Income Strategies Fund, Inc.
For the Period
For the Six For the March 28,
Months Ended Year Ended 2003+ to
The following per share data and ratios have been derived April 30, October 31, October 31,
from information provided in the financial statements. 2005 2004 2003
============================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of
period (in thousands) ...................... $944,682 $952,973 $995,722
==============================================
Preferred Stock outstanding, end of period
(in thousands) ............................. $550,000 $550,000 $550,000
==============================================
Portfolio turnover .......................... 13.03% 22.56% 27.31%
==============================================
============================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................... $ 2,718 $ 2,733 $ 2,810
==============================================
============================================================================================================================
Dividends Per Share on Preferred Stock Outstanding++
----------------------------------------------------------------------------------------------------------------------------
Series M7--Investment income--net ........... $ 321 $ 330 $ 127
==============================================
Series T7--Investment income--net ........... $ 318 $ 329 $ 122
==============================================
Series W7--Investment income--net ........... $ 313 $ 327 $ 122
==============================================
Series TH7--Investment income--net .......... $ 325 $ 320 $ 184
==============================================
Series F7--Investment income--net ........... $ 307 $ 326 $ 125
==============================================
Series W28--Investment income--net .......... $ 286 $ 338 $ 105
==============================================
Series TH28--Investment income--net ......... $ 337 $ 324 $ 95
==============================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially dif
ferent returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on May 16, 2003.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
26 SEMI-ANNUAL REPORTS APRIL 30, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
Preferred and Corporate Income Strategies Fund, Inc. and Preferred Income
Strategies Fund, Inc. (the "Funds" or individually as the "Fund") are registered
under the Investment Company Act of 1940, as amended, as diversified, closed-end
management investment companies. The Funds' financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. All such adjustments are of a normal,
recurring nature. The Funds' Common Stock shares are listed on the New York
Stock Exchange ("NYSE") under the symbol PSW for Preferred and Corporate Income
Strategies Fund, Inc. and PSY for Preferred Income Strategies Fund, Inc. The
following is a summary of significant accounting policies followed by the Funds.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Funds under the general direction
of the Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Funds. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sales price in the case of exchange-traded options. In the
case of options traded in the OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued by quoted fair valuations received daily by each Fund from the
counterparty. Short-term investments with a remaining maturity of 60 days or
less are valued at amortized cost, which approximates market value, under which
method the investment is valued at cost and any premium or discount is amortized
on a straight line basis to maturity. Repurchase agreements are valued at cost
plus accrued interest. Investments in open-end investment companies are valued
at their net asset value each business day. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors of
the Funds.
Equity securities that are held by the Funds, which are traded on stock
exchanges or the Nasdaq National Market, 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 bid
price for long positions, and at the last available asked price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Directors of the Funds. Long
positions traded in the OTC market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price obtained from one or more dealers or
pricing services approved by the Board of Directors of the Funds. Short
positions traded in the OTC market are valued at the last available asked price.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Funds' shares are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation in each of the Fund's net
asset value. If events (for example, a company announcement, market volatility
or a natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities may be valued at their
fair value as determined in good faith by the Funds' Board of Directors or by
the Investment Adviser using a pricing service and/or procedures approved by the
Funds' Board of Directors.
(b) Derivative financial instruments -- Each Fund may engage in various
portfolio investment strategies both to increase the return of each Fund and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Options -- Each Fund may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability
SEMI-ANNUAL REPORTS APRIL 30, 2005 27
Notes to Financial Statements (continued)
is subsequently marked-to-market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to
(or deducted from) the basis of the security acquired or deducted from (or
added to) the proceeds of the security sold. When an option expires (or
the Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid (or gain
or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts -- Each Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
o Swaps -- Each Fund may enter into swap agreements, which are
over-the-counter contracts in which the Fund and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
pre-determined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security. Agreements are valued daily based upon quotations from market
makers and changes in value are recorded as unrealized appreciation
(depreciation). These periodic payments received or made by the Fund are
recorded in the accompanying Statement of Operations as realized gains or
losses, respectively. Gains or losses are also realized upon termination
of the swap agreements. Swaps are marked-to-market daily based on
dealer-supplied valuations and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(c) Income taxes -- It is each Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Securities lending -- Each Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Fund receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience delays
and costs in gaining access to the collateral. The Fund also could suffer a loss
where the value of the collateral falls below the market value of the borrowed
securities, in the event of borrower
28 SEMI-ANNUAL REPORTS APRIL 30, 2005
Notes to Financial Statements (continued)
default or in the event of losses on investments made with cash collateral.
(g) Custodian bank -- Each Fund recorded an amount payable to the custodian bank
resulting from a timing difference of security transaction settlements.
2. Investment Advisory Agreement and Transactions with Affiliates:
Each Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of each Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, each Fund pays a monthly fee
at an annual rate of .60% of the Fund's average daily (for Preferred and
Corporate Income Strategies Fund, Inc.) and weekly (for Preferred Income
Strategies Fund, Inc.) net assets, (including proceeds from the issuance of
Preferred Stocks) plus the proceeds of any outstanding borrowings used for
leverage.
Each Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, or its affiliates.
Pursuant to that order, the Fund also has retained Merrill Lynch Investment
Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities lending
agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by MLIM
or its affiliates. For the six months ended April 30, 2005, MLIM, LLC received
$815 in securities lending agent fees for the Preferred Income Strategies Fund,
Inc.
For the six months ended April 30, 2005, each Fund reimbursed FAM $4,078 in
Preferred and Corporate Income Strategies Fund, Inc. and $16,360 in Preferred
Income Strategies Fund, Inc., for certain accounting services.
Certain officers and/or directors of the Funds are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 2005 were as follows:
--------------------------------------------------------------------------------
Preferred and Preferred
Corporate Income Income
Strategies Strategies
Fund, Inc. Fund, Inc.
--------------------------------------------------------------------------------
Total Purchases .......................... $55,385,453 $203,920,573
Total Sales .............................. $50,530,212 $195,923,109
--------------------------------------------------------------------------------
4. Stock Transactions:
Each Fund is authorized to issue 200,000,000 shares of stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of stock without approval of holders of Common
Stock.
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred Stock of the
Funds, with a par value of $.10 per share and liquidation preference of $25,000
per share, plus accrued and unpaid dividends, that entitle their holders to
receive cash dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 2005 were as follows:
--------------------------------------------------------------------------------
Preferred and Preferred
Corporate Income Income
Strategies Strategies
Fund, Inc. Fund, Inc.
--------------------------------------------------------------------------------
Series M7 ................................ 3.08% 3.10%
Series T7 ................................ 3.10% 3.10%
Series W7 ................................ -- 3.08%
Series TH7 ............................... -- 3.15%
Series F7 ................................ -- 3.10%
Series W28 ............................... -- 3.19%
Series TH28 .............................. -- 3.30%
--------------------------------------------------------------------------------
Each Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the six months ended April 30, 2005, MLPF&S earned commissions as
follows:
--------------------------------------------------------------------------------
Fund Commissions
--------------------------------------------------------------------------------
Preferred and Corporate Income Strategies Fund, Inc. .............. $135,383
Preferred Income Strategies Fund, Inc. ............................ $259,617
--------------------------------------------------------------------------------
SEMI-ANNUAL REPORTS APRIL 30, 2005 29
Notes to Financial Statements (concluded)
5. Capital Loss Carryforward:
Preferred and Corporate Income Strategies Fund, Inc.
On October 31, 2004, the Fund had a net capital loss carryforward of
$11,519,762, of which $1,276,621 expires in 2011 and $10,243,141 expires in
2012. This amount will be available to offset like amounts of any future taxable
gains.
Preferred Income Strategies Fund, Inc.
On October 31, 2004, the Fund had a net capital loss carryforward of
$62,733,648, all of which expires in 2012. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
Each Fund paid an ordinary income dividend to holders of Common Stock on May 31,
2005 to shareholders of record on May 13, 2005. The amount of the ordinary
income dividend was as follows:
--------------------------------------------------------------------------------
Per Share
Fund Amount
--------------------------------------------------------------------------------
Preferred and Corporate Income Strategies Fund, Inc. ................ $.166667
Preferred Income Strategies Fund, Inc. .............................. $.166667
--------------------------------------------------------------------------------
30 SEMI-ANNUAL REPORTS APRIL 30, 2005
Officers and Directors
Robert C. Doll, Jr., President and Director
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Donald C. Burke, Vice President and Treasurer
John Burger, Vice President
Thomas Musmanno, Vice President
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Common Stock:
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
--------------------------------------------------------------------------------
Effective January 1, 2005, Terry K. Glenn retired as President and Director of
Preferred and Corporate Income Strategies Fund, Inc. and Preferred Income
Strategies Fund, Inc. The Funds' Board of Directors wishes Mr. Glenn well in his
retirement.
Effective January 1, 2005, Robert C. Doll, Jr. became President and Director of
the Funds.
--------------------------------------------------------------------------------
================================================================================
Investment Objectives
--------------------------------------------------------------------------------
NYSE Symbol Preferred and Corporate Income Strategies Fund, Inc. seeks to
PSY provide shareholders with high current income. The secondary
objective of the Fund is to seek to provide shareholders with
capital appreciation. The Fund seeks to achieve its objectives
by investing primarily in a portfolio of preferred securities
and debt securities, including convertible securities that may
be converted into common stock or other securities of the same
or a different issuer.
NYSE Symbol Preferred Income Strategies Fund, Inc. seeks to provide
PSY shareholders with high current income. The secondary objective
of the Fund is to seek to provide shareholders with capital
appreciation. The Fund seeks to achieve its objectives by
investing primarily in a portfolio of preferred securities,
including convertible preferred securities that may be
converted into common stock or other securities of the same or
a different issuer.
================================================================================
Electronic Delivery
--------------------------------------------------------------------------------
The Funds offer electronic delivery of communications to their shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
SEMI-ANNUAL REPORTS APRIL 30, 2005 31
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
--------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
These reports, including the financial information herein, are transmitted to
shareholders of Preferred and Corporate Income Strategies Fund, Inc. and
Preferred Income Strategies Fund, Inc. for their information. This is not a
prospectus. The Funds leverage their Common Stock to provide Common Stock
shareholders with potentially higher rates of return. Leverage creates risk for
Common Stock shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk that
fluctuations in short-term interest rates may reduce the Common Stock's yield.
Past performance results shown in these reports should not be considered a
representation of future performance. Statements and other information herein
are as dated and are subject to change.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Funds voted proxies
relating to securities held in the Funds' portfolios during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Preferred and Corporate Income Strategies Fund, Inc.
Preferred Income Strategies Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#PCPIS -- 4/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable to this semi-annual report
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 - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(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 half-year 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 attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - 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 of
Preferred Income Strategies Fund, Inc.
Date: June 20, 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.,
Chief Executive Officer of
Preferred Income Strategies Fund, Inc.
Date: June 20, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Preferred Income Strategies Fund, Inc.
Date: June 20, 2005