UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-21286
Name of Fund: Preferred Income Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Preferred
Income Strategies Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ
08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/04
Date of reporting period: 05/01/04 - 07/31/04
Item 1 - Schedule of Investments
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (in U.S. dollars)
Preferred Securities
S&P Moody's Face
Industry+ Ratings Ratings Amount Capital Trusts Value
====================================================================================================================================
Auto - 1.4% BB Baa3 $ 13,000,000 Delphi Trust II, 6.197% due 11/15/2033(b) $ 13,098,800
------------------------------------------------------------------------------------------------------------------------------------
Banks - 18.2% A- A3 12,035,000 ABN AMRO North America Holding Preferred Capital
Repackaging Trust I, 6.523% (a)(b)(c) 12,846,785
A- A2 11,000,000 Abbey National Capital Trust I, 8.963% (b)(c) 14,064,743
A- A1 2,000,000 Bank One Capital III, 8.75% due 9/01/2030 2,590,580
A- A1 1,000,000 Chase Capital I, 7.67% due 12/01/2026(a) 1,070,831
A- A1 16,455,000 Chase Capital II, 2.194% due 2/01/2027(b) 15,607,074
A Aa3 7,225,000 Danske Bank A/S, 5.914% (a)(b)(c) 7,400,611
BBB+ A2 7,210,000 Den Norske Bank ASA, 7.729% (a)(b)(c) 8,266,510
BBB+ A3 34,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031(a) 38,601,390
A NR* 4,310,000 HBOS Capital Funding LP, 6.85% (c) 4,310,000
A- A2 2,000,000 HSBC Americas Capital Trust I, 7.808% due
12/15/2026(a) 2,149,046
A- A1 15,835,000 HSBC Capital Funding LP, 10.176% (a)(b)(c) 22,417,847
NR* NR* 12,275,000 Hubco Capital Trust II, 7.65% due 6/15/2028(a) 12,351,719
A+ Aa2 2,000,000 Lloyds TSB Bank PLC, 6.90% (c) 2,038,260
A- Aa3 18,470,000 NB Capital Trust III, 2.15% due 1/15/2027(b) 17,767,881
A A1 970,000 RBS Capital Trust I, 4.709% (b)(c) 902,499
A- A2 2,000,000 Republic New York Capital II, 7.53% due
12/04/2026 2,124,436
A- A2 10,000,000 Westpac Capital Trust III, 5.819% (a)(b)(c) 10,076,000
--------------
174,586,212
------------------------------------------------------------------------------------------------------------------------------------
Diversified BB Baa3 8,500,000 Fuji JGB Investment LLC, 9.87% (a)(b)(c) 9,823,977
Financial Services - BB Baa3 5,000,000 SB Treasury Company LLC, 9.40% (a)(b)(c) 5,777,720
1.6% --------------
15,601,697
------------------------------------------------------------------------------------------------------------------------------------
Electric - 5.5% BBB- Baa2 10,000,000 Dominion Resources Capital Trust I, 7.83% due
12/01/2027 10,699,450
BBB- Baa2 15,000,000 Dominion Resources Capital Trust III, 8.40% due
1/15/2031 17,604,480
1
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (continued)
S&P Moody's Face
Industry+ Ratings Ratings Amount Capital Trusts Value
====================================================================================================================================
Electric (concluded) BB+ Ba3 $ 14,950,000 REI Capital Trust II, 8.257% due 2/01/2037 $ 14,542,971
BB+ Baa2 9,500,000 SWEPCO Capital Trust I, 5.25% due 10/01/2043(b) 9,537,620
--------------
52,384,521
------------------------------------------------------------------------------------------------------------------------------------
Finance - 3.5% BBB+ A3 10,000,000 CIT Capital Trust I, 7.70% due 2/15/2027(a) 10,639,970
A- A1 11,300,000 Goldman Sachs Capital I, 6.345% due 2/15/2034 10,826,643
BB+ Baa3 1,000,000 MBNA Capital A, 8.278% due 12/01/2026 1,085,232
A+ A1 10,000,000 Sun Life of Canada (U.S.) Capital Trust I, 11,139,690
8.526% (a)(c) --------------
33,691,535
------------------------------------------------------------------------------------------------------------------------------------
Financial - 0.5% NR* Baa1 4,500,000 St. George Bank Funding Company, LLC,
8.485% (a)(c) 5,154,201
------------------------------------------------------------------------------------------------------------------------------------
Financial Services - A- A1 998,000 JPM Capital Trust I, 7.54% due 1/15/2027(a) 1,063,791
Other - 0.1%
------------------------------------------------------------------------------------------------------------------------------------
Gas - 0.6% BBB Baa2 5,000,000 AGL Capital Trust, 8.17% due 6/01/2037 5,555,370
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 7.2% BBB Baa3 28,165,000 AON Capital Trust, 8.205% due 1/01/2027 31,203,525
AA Aa1 2,000,000 American General Institutional Capital, 8.125%
due 3/15/2046(a) 2,476,944
A- A2 6,066,000 ING Capital Funding Trust III, 8.439% (b)(c) 7,077,269
BB Ba1 1,000,000 Markel Capital Trust I, 8.71% due 1/01/2046 1,046,956
A+ A2 6,325,000 Principal Life Insurance Company, 8% due
3/01/2044 (Surplus Notes)(a) 6,594,869
BBB Baa1 14,000,000 QBE Insurance Group Limited, 5.647% due
7/01/2023(a)(b) 13,451,172
A- Baa1 6,225,000 Transamerica Capital III, 7.625% due 11/15/2037 6,593,476
--------------
68,444,211
------------------------------------------------------------------------------------------------------------------------------------
Insurance - BBB+ A3 23,725,000 Axa, 8.60% due 12/15/2030 (Surplus Notes) 29,421,349
Multiline - 4.5% BBB+ A3 1,000,000 GenAmerica Capital I, 8.525% due 6/30/2027(a) 1,128,544
2
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (continued)
S&P Moody's Face
Industry+ Ratings Ratings Amount Capital Trusts Value
====================================================================================================================================
Insurance - BBB- Baa2 $ 11,566,000 Safeco Capital Trust I, 8.072% due 7/15/2037(a) $ 12,774,578
Mulitline (concluded) --------------
43,324,471
------------------------------------------------------------------------------------------------------------------------------------
Oil - 2.2% BBB Baa2 9,850,000 ConocoPhillips Capital Trust II, 8% due
1/15/2037(a) 10,760,652
A- A2 10,000,000 Oil Insurance Limited, 5.15% due 8/15/2033(a)(b) 10,021,070
--------------
20,781,722
------------------------------------------------------------------------------------------------------------------------------------
PipeLines - 0.8% BB+ Baa3 5,000,000 K N Capital Trust I, 8.56% due 4/15/2027(a) 5,629,225
BB+ Baa3 1,750,000 K N Capital Trust III, 7.63% due 4/15/2028 1,854,309
--------------
7,483,534
------------------------------------------------------------------------------------------------------------------------------------
Reinsurance - 4.3% BBB- Baa1 22,100,000 ACE Capital Trust II, 9.70% due 4/01/2030 29,474,372
A- Baa2 10,000,000 Zurich Capital Trust I, 8.376% due 6/01/2037(a) 11,121,890
--------------
40,596,262
------------------------------------------------------------------------------------------------------------------------------------
Savings & Loan Astoria Capital Trust I:
Associations - 3.6% BB Ba1 5,000,000 9.75% due 11/01/2029 5,883,100
BB Ba2 1,000,000 9.75% due 11/01/2029 (a) 1,158,500
BBB Baa1 5,760,000 Dime Capital Trust I, 9.33% due 5/06/2027 6,742,621
BB Baa2 12,765,000 GreenPoint Capital Trust I, 9.10% due 6/01/2027 14,437,113
BB NR* 5,775,000 Webster Capital Trust I, 9.36% due 1/29/2027(a) 6,631,923
--------------
34,853,257
------------------------------------------------------------------------------------------------------------------------------------
Special Situations - NR* NR* 15,000,000 AgFirst Farm Credit Bank, 8.393% due
4.1% 12/15/2016(b) 17,065,710
BBB+ Baa3 15,000,000 Farmers Exchange Capital, 7.05% due 7/15/2028(a) 14,692,770
AA- Aa3 8,000,000 Swedish Export Credit Corporation, 6.375% (a)(c) 7,825,264
--------------
39,583,744
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Capital Trusts 556,203,328
(Cost - $545,245,535) - 58.1%
------------------------------------------------------------------------------------------------------------------------------------
3
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (continued)
Shares
Industry+ Held Preferred Stocks Value
====================================================================================================================================
Banks - 6.9% 150 BBVA Privanza International (Gibraltar) Ltd.,
7.764% (a) $ 15,487,500
435,200 Banco Santander Central Hispano SA, 6.41% (a) 10,483,098
320,000 CoBank, ACB, 7% (a) 16,944,000
1,000,000 Royal Bank of Scotland Group PLC, 5.75% 23,390,000
--------------
66,304,598
------------------------------------------------------------------------------------------------------------------------------------
Electric - 2.6% 14,000 Alabama Power Company, 5.83% 345,800
8,200 Delmarva Power & Light Company, 4.56% 660,357
80,000 Interstate Power and Light Company, 8.375% 2,556,000
17,372 South Carolina Electric & Gas Company, 4.60% 882,173
200,000 TXU Corporation, 7.24% (b) 20,440,000
--------------
24,884,330
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.4% 80,000 Duquesne Light Company, 6.50% 3,992,000
------------------------------------------------------------------------------------------------------------------------------------
Finance - 4.1% 264,650 Federal National Mortgage Association, 5.125% 11,763,693
72,250 J.P. Morgan Chase & Co., 4.50% (b) 7,225,000
100,000 Lehman Brothers Holdings, Inc., 5.94% 4,790,000
600,000 Lehman Brothers Holdings, Inc., 6.50% 15,696,000
--------------
39,474,693
------------------------------------------------------------------------------------------------------------------------------------
Gas - 1.8% 626,000 Southern Union Company, 7.55% 16,839,400
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 2.5% 880,000 ACE Limited, 7.80% 23,416,800
------------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Materials & 23,000 SG Preferred Capital II, 6.302% 24,518,000
Commodities - 2.6%
------------------------------------------------------------------------------------------------------------------------------------
Reinsurance - 3.1% 22,000 Zurich RegCaPS Funding Trust I, 6.01% (a)(b) 22,418,000
7,000 Zurich RegCaPS Funding Trust II, 6.58% (a)(b) 7,189,000
--------------
29,607,000
------------------------------------------------------------------------------------------------------------------------------------
Sovereign Government 9,000,000 Farm Credit Bank of Texas, 7.561% (b)(c) 9,107,550
Obligations - 1.0%
------------------------------------------------------------------------------------------------------------------------------------
Specialty Markets - 0.2% 80,000 Corporate-Backed Trust Certificates, 8.375% 2,196,000
------------------------------------------------------------------------------------------------------------------------------------
4
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (continued)
Shares
Industry+ Held Preferred Stocks Value
====================================================================================================================================
Wireless Communication - 4.0% 30,423 Centaur Funding Corporation, 9.08% (a) $ 38,332,980
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks
(Cost - $270,980,115) - 29.2% 278,673,351
------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts
------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts 196,000 AMB Property Corporation, 6.50% 4,728,500
124,000 AMB Property Corporation, 6.75% 3,015,680
251,400 Alexandria Real Estate Equities, Inc., 8.375% 6,473,550
290,000 BRE Properties, Inc.,6.75% 6,902,000
400,000 CBL & Associates Properties, Inc., 7.75% 10,244,000
600,000 CarrAmerica Realty Corporation , 7.50% 15,372,000
200,000 Cousins Properties, Inc., 7.75% 5,175,000
780,000 Developers Diversified Realty Corporation, 7.375% 20,319,000
280,000 Developers Diversified Realty Corporation , 8% 6,910,400
100,000 Duke Realty Corporation,6.50% 2,406,250
270,000 Duke Realty Corporation,6.625% 6,507,000
787,000 Equity Residential Properties Trust, 6.48% 18,730,600
2,390 First Industrial Realty Trust, Inc., 6.236% 2,385,220
4,000 Firstar Realty LLC,8.875%(a) 4,804,000
768,000 Health Care Property Investors, Inc., 7.10% 19,161,600
686,000 Kimco Realty Corporation, 6.65% 17,390,100
1,600,000 New Plan Excel Realty Trust, 7.625% 41,264,000
72,000 PS Business Parks, Inc., 7% 1,836,000
161,400 PS Business Parks, Inc., 7.95% 3,776,760
320,000 Public Storage, Inc., 6.45% 7,584,000
607,550 Regency Centers Corporation, 7.45% 15,492,525
11,857 Sovereign Real Estate Investment Trust, 12% 17,311,220
130,000 Wachovia Preferred Funding Corporation, 7.25% 3,472,300
600,000 Weingarten Realty Investors, Inc., 6.75% 15,120,000
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Real Estate Investment 256,381,705
Trusts (Cost - $255,147,085) - 26.8%
------------------------------------------------------------------------------------------------------------------------------------
5
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (continued)
S&P Moody's Face
Industry+ Ratings Ratings Amount Trust Preferred Value
====================================================================================================================================
Aerospace & NR* NR* $ 27,450,000 RC Trust I, 7% due 5/15/2006 $ 30,057,750
Defense - 3.2%
------------------------------------------------------------------------------------------------------------------------------------
Auto - 1.1% BB Baa3 10,000,000 Delphi Trust I, 8.25% due 10/15/2033 10,223,383
------------------------------------------------------------------------------------------------------------------------------------
Banks - 0.5% A- A2 4,875,000 J.P. Morgan Chase Capital XI, 5.875% due
6/15/2033 4,476,129
------------------------------------------------------------------------------------------------------------------------------------
Electric - 1.6% A A2 11,750,000 Georgia Power Company, 5.90% due 4/15/2033 11,248,518
BBB- Baa2 3,000,000 HECO Capital Trust III, 6.50% due 3/18/2034 3,003,051
BB+ Baa3 397,425 PSEG Funding Trust II, 8.75% due 12/31/2032 435,447
BBB Baa1 950,000 Virginia Power Capital Trust II, 7.375% due
7/30/2042 992,744
--------------
15,679,760
------------------------------------------------------------------------------------------------------------------------------------
Finance - 3.5% BBB+ Baa1 27,000,000 Countrywide Capital IV, 6.75% due 4/01/2033 26,777,508
NR* A1 1,000,000 Household Finance Corporation, 6.875% due
1/30/2033 1,030,018
BBB+ A3 875,000 Lehman Brothers Holdings Capital Trust III,
6.375% due 3/15/2052 861,868
A- A1 817,000 Morgan Stanley Capital Trust III, 6.25% due
3/01/2033 793,495
NR* NR* 4,000,000 Principal Protected PreTSL IX, Ltd., 14.50% due
4/03/2033 3,930,000
--------------
33,392,889
------------------------------------------------------------------------------------------------------------------------------------
Gas - 0.6% BB Baa3 5,750,000 Southwest Gas Capital II, 7.70% due 9/15/2043 5,988,215
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 2.1% A A3 16,000,000 ABN AMRO North America Capital Funding Trust II,
1.575% (b)(c) 15,480,000
BBB Baa1 5,000,000 Lincoln National Capital VI, 6.75% due 9/11/2052 4,977,881
--------------
20,457,881
------------------------------------------------------------------------------------------------------------------------------------
PipeLines - 0.1% BBB- Baa1 500,000 Dominion-CNG Capital Trust I, 7.80% due
10/31/2041 522,176
------------------------------------------------------------------------------------------------------------------------------------
Reinsurance - 0.1% BBB Baa1 1,000,000 Everest Re Capital Trust, 7.85% due 11/15/2032 1,064,747
------------------------------------------------------------------------------------------------------------------------------------
Savings & Loan NR* NR* 6,000,000 Dime Community Capital I, 7% due 4/14/2034(a) 5,640,000
Associations - 1.4% NR* NR* 8,000,000 Roslyn Real Estate Asset Corporation,
5.236%(b)(c) 8,287,504
--------------
13,927,504
------------------------------------------------------------------------------------------------------------------------------------
6
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Preferred Securities (concluded)
S&P Moody's Face
Industry+ Ratings Ratings Amount Trust Preferred Value
====================================================================================================================================
Special Situations - BBB+ A3 $ 5,000,000 Natural Rural Utilities Cooperative Finance $ 4,963,672
0.5% Corporation, 6.75% due 2/15/2043
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Trust Preferred
(Cost - $140,219,922) - 14.7% 140,754,106
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Securities
(Cost - $1,211,592,657) - 128.8% 1,232,012,490
------------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds
------------------------------------------------------------------------------------------------------------------------------------
Auto - 1.0% BBB- Baa1 10,000,000 Ford Motor Company, 7.45% due 7/16/2031 9,510,980
------------------------------------------------------------------------------------------------------------------------------------
Broadcasting/Media - BBB- Baa3 10,000,000 Liberty Media Corporation, 5.70% due 5/15/2013 9,839,280
1.0%
------------------------------------------------------------------------------------------------------------------------------------
Cable Television BBB Baa3 10,000,000 Comcast Corporation, 7.05% due 3/15/2033 10,541,120
Services - 1.1%
------------------------------------------------------------------------------------------------------------------------------------
Cellular Telephones - BBB Baa2 28,000,000 AT&T Wireless Services, Inc., 8.75% due 3/01/2031 34,851,908
3.7%
------------------------------------------------------------------------------------------------------------------------------------
Diversified BBB A3 29,000,000 General Motors Acceptance Corporation, 8% due 29,447,702
Financial Services - 11/01/2031
3.1%
------------------------------------------------------------------------------------------------------------------------------------
Electronics - 1.1% BB+ Baa3 10,000,000 FirstEnergy Corp., 6.45% due 11/15/2011 10,577,330
------------------------------------------------------------------------------------------------------------------------------------
Finance - 1.6% AAA Aaa 15,000,000 Sigma Finance Corporation, 1.12% due 8/15/2011 15,000,000
------------------------------------------------------------------------------------------------------------------------------------
Foods - 0.5% BBB Baa3 4,800,000 Tyson Foods, Inc., 7% due 1/15/2028 4,791,720
------------------------------------------------------------------------------------------------------------------------------------
Multimedia - 2.7% Time Warner Inc.:
BBB+ Baa1 5,000,000 7.625% due 4/15/2031 5,500,790
BBB+ Baa1 18,000,000 7.70% due 5/01/2032 19,994,616
--------------
25,495,406
------------------------------------------------------------------------------------------------------------------------------------
7
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings Ratings Amount Corporate Bonds Value
====================================================================================================================================
Oil Field Services - BBB Baa2 $ 16,575,000 Duke Energy Field Services, LLC, 8.125% due $ 20,042,175
2.1% 8/16/2030
------------------------------------------------------------------------------------------------------------------------------------
Reinsurance - 1.2% A- A1 10,000,000 GE Global Insurance Holding Corporation, 7.75% 11,471,110
due 6/15/2030
------------------------------------------------------------------------------------------------------------------------------------
Telephone - 7.0% BBB+ Baa2 28,000,000 France Telecom, 9.50% due 3/01/2031 35,650,748
Sprint Capital Corporation:
BBB- Baa3 2,000,000 6.90% due 5/01/2019 2,073,904
BBB- Baa3 24,000,000 8.75% due 3/15/2032 29,082,312
--------------
66,806,964
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds
(Cost - $240,698,026) - 26.1% 248,375,695
------------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities
------------------------------------------------------------------------------------------------------------------------------------
5,875,000 Federal Home Loan Banks, 1.22% due
8/13/2004 (e)(f) 5,873,688
9,500,000 Federal Home Loan Mortgage Corporation, 1.31% due 9,492,395
8/24/2004 (e)(f)
720,000 Federal National Mortgage Association, 1.25% due 719,950
8/04/2004 (e)(f)
------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost - $16,086,033) - 1.7% 16,086,033
------------------------------------------------------------------------------------------------------------------------------------
8
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
Number of
Contracts Options Purchased Value
====================================================================================================================================
97 Swaption, expiring September 2038 at $6.49,
Broker Lehman Brothers Special Finance (d) $ 4,563,674
800 U.S. Treasury Notes, expiring August 2004 at $97,
Broker Greenwich Capital Markets 12,500
800 U.S. Treasury Notes, expiring August 2004 at
$108, Broker Fimat USA 112,500
1,010 U.S. Treasury Notes, expiring August 2004 at
$109, Broker HSBC Securities Inc. 284,062
1,675 U.S. Treasury Notes, expiring September 2004 at
$105, Broker Credit Suisse First Boston 261,719
------------------------------------------------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid - $11,830,695) - 0.6% 5,234,455
------------------------------------------------------------------------------------------------------------------------------------
Total Investments -
(Cost - $1,480,207,411) - 157.2% 1,501,708,673
------------------------------------------------------------------------------------------------------------------------------------
Options Written
------------------------------------------------------------------------------------------------------------------------------------
Call Options 800 U.S. Treasury Notes, expiring August 2004 at (1,012,500)
Written $108, Broker Greenwich Capital Markets
1,225 U.S. Treasury Notes, expiring September 2004 at (746,485)
$111, Broker Credit Suisse First Boston
800 U.S. Treasury Notes, expiring August 2004 at (562,500)
$111, Broker Fimat USA.
------------------------------------------------------------------------------------------------------------------------------------
Put Options 175 Swaption, expiring September 2018 at $6.65, (5,967,500)
Written Broker Lehman Brothers Special Finance (d)
------------------------------------------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received - $ 11,974,296) - (0.9%) (8,288,985)
------------------------------------------------------------------------------------------------------------------------------------
Total Investments, Net of Options Written (Cost - $1,468,233,115**) - 156.3% 1,493,419,688
Other Assets Less Liabilities - 1.3% 12,237,039
Preferred Stock, at Redemption Value - (57.6)% (550,065,466)
--------------
Net Assets Applicable to Common Stock - 100.0% $ 955,591,261
==============
9
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (continued) (in U.S. dollars)
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate note.
(c) The security is a perpetual bond and has no definite maturity date.
(d) This European style swaption, which can be exercised only to the
expiration date, represents a standby commitment whereby the Fund is
obligated to enter into a predetermined interest rate swap contract upon
exercise of the swaption. One swaption contract represents a notional
amount of $1,000,000.
(e) All or a portion of security held as collateral in connection with open
financial futures contracts.
(f) Certain U.S. Government Obligations are traded on a discount basis; the
interest rates shown reflects the discount rate paid at the time of
purchase by the Fund.
* Not Rated.
** The cost and unrealized appreciation/depreciation of investments as of
July 31, 2004, as computed for federal income tax purposes, were as
follows:
Aggregate cost, net of options written $ 1,471,163,659
===============
Gross unrealized appreciation $ 48,597,910
Gross unrealized depreciation (26,341,880)
---------------
Net unrealized appreciation $ 22,256,030
===============
+ 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.
10
Preferred Income Strategies Fund, Inc.
Schedule of Investments as of July 31, 2004 (concluded) (in U.S. dollars)
Unrealized
Notional Appreciation/
Swap contracts outstanding as of July 31, 2004 were as follows: Amount Depreciation
------------------------------------------------------------------------------------------------------------------
Receive a variable rate equal to 1-month LIBOR and pay a fixed rate of 1.31%
Broker, UBS Warburg
Expires June 2005 $ 150,000,000 $ 993,375
Receive a variable rate equal to 1-month LIBOR and pay a fixed rate of 1.32%
Broker, UBS Warburg
Expires June 2005 $ 25,000,000 167,683
Receive a variable rate equal to 1-month LIBOR and pay a fixed rate of 1.3275%
Broker, J.P. Morgan Chase Bank
Expires June 2005 $ 125,000,000 812,313
Receive a variable rate equal to 1-month LIBOR and pay a fixed rate of 1.33%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2005 $ 125,000,000 833,349
Receive a variable rate equal to 3-month LIBOR and pay a fixed rate of 5.3575%
Broker, Morgan Stanley Capital Services, Inc.
Expires October 2014 $ 300,000,000 (6,670,800)
------------------------------------------------------------------------------------------------------------------
Total $ (3,864,080)
=============
Financial futures contracts sold as of July 31, 2004 were as follows:
Number of Face Unrealized
Contracts Issue Expiration Date Value Depreciation
----------------------------------------------------------------------------------------------
5,282 10-year U.S. Treasury Notes September 2004 $576,696,225 $(8,120,212)
----------------------------------------------------------------------------------------------
11
Item 2 - Controls and Procedures
2(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to the
filing date of this report.
2(b) - There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 3 - Exhibits
Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Preferred Income Strategies Fund, Inc.
By: /s/ Terry K. Glenn
-----------------------------
Terry K. Glenn,
President of
Preferred Income Strategies Fund, Inc.
Date: September 17, 2004
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/ Terry K. Glenn
-----------------------------
Terry K. Glenn,
President of
Preferred Income Strategies Fund, Inc.
Date: September 17, 2004
By: /s/ Donald C. Burke
-----------------------------
Donald C. Burke,
Chief Financial Officer of
Preferred Income Strategies Fund, Inc.
Date: September 17, 2004