Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

 

 

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 811-22762

 

 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

(Exact name of registrant as specified in charter)

 

 

301 E. Colorado Boulevard, Suite 720

Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

 

 

R. Eric Chadwick

Flaherty & Crumrine Incorporated

301 E. Colorado Boulevard, Suite 720

Pasadena, CA 91101

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 626-795-7300

Date of fiscal year end: November 30

Date of reporting period: August 31, 2015

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 


Item 1. Schedule of Investments.

The Schedule(s) of Investments is attached herewith.


FLAHERTY & CRUMRINE DYNAMIC PREFERRED AND INCOME FUND

To the Shareholders of Flaherty & Crumrine Dynamic Preferred and Income Fund (“DFP”):

In many markets, investors experienced a bumpy, downhill ride during the third fiscal quarter1. However, the preferred securities market was better behaved, with only modest negative performance for the quarter. Total return2 on net asset value (“NAV”) for your Fund was -0.7% for the quarter and 4.0% for the first nine months of fiscal 2015. Total return on market price of Fund shares over the same periods were -1.3% and 0.3%, respectively.

The world is always an uncertain place, and a handful of those uncertainties attracted investor focus late in the quarter. Forecasts for slower economic growth in China and a policy decision in mid-August to devalue the Chinese currency were unwelcome surprises. The action sharpened market focus on what slower growth in China could mean for economies around the world. Simultaneously, European economic growth slipped, after improving in late 2014 and early 2015. Equity markets sold off sharply: better-performing markets “merely” gave up 2015 year-to-date gains and many markets, especially in Asia, traded materially lower. Credit markets (including preferred securities) outperformed equities, but they were still generally in negative territory.

Lower prices for oil and other commodities, a strong U.S. dollar, and an unpredictable (if entertaining) 2016 presidential campaign also contributed to higher volatility in equity markets and, to a lesser extent, credit markets.

U.S. monetary policy added to market uncertainty when the Federal Reserve indicated it was nearing “lift-off” for monetary policy—and then demurred. Having just passed its September meeting, we now know the Federal Open Market Committee (“FOMC”) delayed an initial rate hike for at least another month or three—possibly even until 2016. Monetary policy in the U.S. moved into uncharted territory many years ago with multiple rounds of Quantitative Easing (“QE”). As we move into the next phase of removing monetary accommodation, markets are understandably worried about policy mistakes—moving too fast, or not moving fast enough. Meanwhile, monetary policy in many other areas of the world continues to be very accommodative, and all signs point to continued global easing over the near-term (mostly in the form of QE). Whenever it decides to raise U.S. rates, we expect the FOMC to move slowly in light of global headwinds to growth.

Despite this sea of uncertainty, the preferred securities market experienced comparatively smooth sailing. Prices drifted a bit lower in general, but high income offset much of that price weakness to keep total returns on preferred securities only slightly negative overall. A steady stream of high income, over time, can offset price weakness, which is why long-term creditworthiness is a focus of the Fund.

 

 

1  June 1, 2015—August 31, 2015
2  Following the methodology required by the Securities and Exchange Commission, total return assumes dividend reinvestment.


Credit quality remains healthy, with only modest impacts from many of the broader issues discussed above. The preferred securities market (absent some energy issuers) has limited direct exposure to oil or other commodity markets. Even banks that lend to the energy sector have limited exposure, which makes it unlikely that this would be an issue for creditworthiness of the broader banking system. The preferred securities market has no direct credit exposure to China, although the impact of an economic slowdown in China may be felt in the U.S. over time. Supply in the domestic preferred securities market trended lower during the quarter, which is supportive of spreads, and yields continue to be attractive when compared to fixed-income alternatives.

Many of the uncertainties we discussed will persist for the foreseeable future, but we believe their impact on the preferred securities market will remain muted. The market is always subject to weakening in sympathy with other markets, but we believe preferreds continue to be an attractive asset class that will hold their own as events unfold over coming months and years.

As always, we encourage you to visit the Fund’s website, www.preferredincome.com for timely and important information.

Sincerely,

The Flaherty & Crumrine Portfolio Management Team:

R. Eric Chadwick

Donald F. Crumrine

Bradford S. Stone

September 22, 2015

 

2


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2015 (Unaudited)

 

 

Fund Statistics       
Net Asset Value   $ 24.24   
Market Price   $ 22.29   
Discount     8.04
Yield on Market Price     8.61
Common Stock Shares Outstanding     19,156,782   

 

Moody’s Ratings*   % of Net Assets†  
A     2.4%   
BBB     59.7%   
BB     26.2%   
Below “BB”     4.2%   
Not Rated**     6.2%   
Below Investment Grade***     32.1%   

 

* Ratings are from Moody’s Investors Service, Inc. “Not Rated” securities are those with no ratings available from Moody’s.
** Does not include net other assets and liabilities of 1.3%.
*** Below investment grade by all of Moody’s, S&P, and Fitch.
Industry Categories   % of Net Assets†

 

LOGO

 

Top 10 Holdings by Issuer   % of Net Assets†  
Citigroup     4.9%   
Liberty Mutual Group     4.7%   
Bank of America Corporation     4.4%   
JPMorgan Chase     4.2%   
MetLife     4.2%   
PNC Financial Services Group     3.6%   
Morgan Stanley     3.5%   
Fifth Third Bancorp     3.5%   
Wells Fargo & Company     3.4%   

M&T Bank Corporation

    3.3%   
 
     % of Net Assets****†  
Holdings Generating Qualified Dividend Income (QDI) for Individuals     63%   
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)     49%   

 

**** This does not reflect year-end results or actual tax categorization of Fund distributions. These percentages can, and do, change, perhaps significantly, depending on market conditions. Investors should consult their tax advisor regarding their personal situation.
Net Assets includes assets attributable to the use of leverage.

 

3


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — 96.7%

   
       

Banking — 53.7%

           
  7,000     

AgStar Financial Services ACA, 6.75%, 144A****

  $ 7,353,938 *(1)   
  103,166     

Astoria Financial Corp., 6.50%, Series C

    2,623,769 *(1)   
 

Bank of America Corporation:

   
$ 9,107,000     

6.50%, Series Z

    9,391,594  
$ 7,350,000     

8.00%, Series K

    7,745,062 *(1)   
$ 13,105,000     

8.125%, Series M

    13,858,537 *(1)   
 

Barclays Bank PLC:

   
  60,000     

7.10%, Series 3

    1,540,200 **(2)   
  27,807     

8.125%, Series 5

    720,479 **(1)(2)   
  33,933     

BB&T Corporation, 5.625%, Series E

    845,695  
$ 7,100,000     

BNP Paribas, 7.375%, 144A****

    7,279,275 **(2)   
  41,704     

Capital One Financial Corporation, 6.70%, Series D

    1,109,806  
 

Citigroup, Inc.:

   
  1,180,807     

6.875%, Series K

    31,589,539 *(1)   
  103,022     

7.125%, Series J

    2,845,622  
$ 5,000,000     

Citizens Financial Group, Inc., 5.50%, 144A****

    4,887,500  
 

CoBank ACB:

   
  38,100     

6.20%, Series H, 144A****

    3,829,050  
  3,450     

6.25%, Series F, 144A****

    360,741  
  899,035     

Fifth Third Bancorp, 6.625%, Series I

    24,779,652 *(1)   
  5,000     

First Horizon National Corporation, 6.20%, Series A

    125,558  
  34,219     

First Niagara Financial Group, Inc., 8.625%, Series B

    902,749 *(1)   
  25,000     

First Republic Bank, 6.20%, Series B

    652,563  
 

Goldman Sachs Group:

   
$ 1,170,000     

5.70%, Series L

    1,178,775  
  85,979     

5.95%, Series I

    2,153,043 *(1)   
  531,522     

6.375%, Series K

    13,856,779 *(1)   
 

HSBC PLC:

   
$ 4,458,000     

HSBC Capital Funding LP, 10.176%, 144A****

    6,698,145 (1)(2)   
  70,800     

HSBC Holdings PLC, 8.00%, Series 2

    1,810,533 **(2)   
  340,800     

HSBC USA, Inc., 6.50%, Series H

    8,687,844 *(1)   
 

ING Groep NV:

   
  160,000     

6.375%

    4,038,400 **(1)(2)   
  38,082     

7.05%

    978,384 **(2)   
  3,201     

7.20%

    82,402 **(1)(2)   

 

4


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Banking — (Continued)

           
 

JPMorgan Chase & Company:

   
$ 10,700,000     

6.00%, Series R

  $ 10,619,750 *(1)   
$ 8,000,000     

6.75%, Series S

    8,450,000 *(1)   
$ 10,340,000     

7.90%, Series I

    10,869,925  
$ 14,022,000     

Lloyds Banking Group PLC, 6.657%, 144A****

    15,757,223 **(1)(2)   
 

M&T Bank Corporation:

   
$ 15,425,000     

6.450%, Series E

    16,504,750 *(1)   
$ 6,789,000     

6.875%, Series D, 144A****

    6,873,862 *(1)   
 

Morgan Stanley:

   
  674,994     

6.875%, Series F

    18,285,587 *(1)   
  241,200     

7.125%, Series E

    6,708,375  
 

PNC Financial Services Group, Inc.:

   
  451,824     

6.125%, Series P

    12,475,538 *(1)   
$ 11,748,000     

6.75%, Series O

    12,893,430 *(1)   
$ 8,625,000     

RaboBank Nederland, 11.00%, 144A****

    10,767,019 (1)(2)   
  627,170     

Regions Financial Corporation, 6.375%, Series B

    16,257,814 *(1)   
 

Royal Bank of Scotland Group PLC:

   
$ 4,825,000     

RBS Capital Trust II, 6.425%

    5,355,750 **(1)(2)   
  25,000     

6.40%, Series M

    631,500 **(2)   
  13,000     

6.60%, Series S

    328,380 **(2)   
  622,500     

7.25%, Series T

    15,879,975 **(1)(2)   
  110,317     

State Street Corporation, 5.90%, Series D

    2,891,574 *(1)   
  288,008     

SunTrust Banks, Inc., 5.875%, Series E

    7,198,040  
  97,150     

US Bancorp, 6.50%, Series F

    2,793,305 *(1)   
  50,000     

Valley National Bancorp, 6.25%, Series A

    1,277,500  
 

Wells Fargo & Company:

   
  180,300     

5.85%, Series Q

    4,639,570 *(1)   
$ 18,000,000     

7.98%, Series K

    19,237,500 *(1)   
 

Zions Bancorporation:

   
  10,000     

6.30%, Series G

    268,125  
$ 10,000,000     

7.20%, Series J

    10,475,000  

 

 

   
      379,365,126     
   

 

 

   

 

5


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Financial Services — 2.2%

           
 

Charles Schwab Corporation:

   
  60,000     

6.00%, Series C

  $ 1,510,350  
$ 5,600,000     

7.00%, Series A

    6,498,296 *(1)   
 

Deutsche Bank:

   
  89,000     

Deutsche Bank Contingent Capital Trust III, 7.60%

    2,416,573 **(1)(2)   
  8,103     

Deutsche Bank Contingent Capital Trust V, 8.05%

    229,165 **(1)(2)   
$ 2,500,000     

General Electric Capital Corp., 7.125%, Series A

    2,887,375 *(1)   
 

HSBC PLC:

   
  76,348     

HSBC Finance Corporation, 6.36%, Series B

    1,914,235  

 

 

   
      15,455,994     
   

 

 

   
       

Insurance — 26.4%

           
  471,995     

Allstate Corp., 6.625% Pfd., Series E

    12,513,767 *(1)   
 

American International Group:

   
$ 280,000     

AIG Life Holdings, Inc., 7.57%, 144A****

    366,100     
$ 497,000     

AIG Life Holdings, Inc., 8.125%, 144A****

    688,345     
$ 350,000     

American International Group, Inc., 8.175% 05/15/58

    462,875     
$ 1,010,000     

Aon Corporation, 8.205% 01/01/27

    1,292,800     
  317,980     

Arch Capital Group Ltd., 6.75%, Series C

    8,509,940 **(1)(2)   
  4,500     

Aspen Insurance Holdings Ltd., 7.401%

    118,631 **(2)   
 

AXA SA:

   
$ 6,550,000     

6.379%, 144A****

    6,983,937 **(1)(2)   
$ 8,500,000     

8.60% 12/15/30

    11,432,500 (1)(2)   
 

Axis Capital Holdings Ltd.:

   
  4,300     

5.50%, Series D

    106,436 **(2)   
  646,952     

6.875%, Series C

    17,442,796 **(1)(2)   
  6,000     

Delphi Financial Group, 7.376%, 05/15/37

    150,375     
  181,000     

Endurance Specialty Holdings, 7.50%, Series B

    4,666,452 **(2)   
$ 988,000     

Everest Re Holdings, 6.60%, 05/15/37

    958,360 (1)   
  137,500     

Hartford Financial Services Group, Inc., 7.875%

    4,292,956     
 

Liberty Mutual Group:

   
$ 17,950,000     

7.80% 03/15/37, 144A****

    20,956,625 (1)   
$ 8,195,000     

10.75% 06/15/58, 144A****

    12,333,475 (1)   
 

MetLife:

   
$ 3,759,000     

MetLife, Inc., 10.75% 08/01/39

    5,959,895 (1)   
$ 17,200,000     

MetLife Capital Trust X, 9.25% 04/08/38, 144A****

    23,865,000 (1)   

 

6


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Insurance — (Continued)

           
 

PartnerRe Ltd.:

   
  20,486     

5.875%, Series F

  $ 519,371 **(2)   
  37,556     

6.50%, Series D

    986,314 **(2)   
  71,237     

7.25%, Series E

    1,951,288 **(2)   
 

Prudential Financial, Inc.:

   
$ 5,574,000     

5.625% 06/15/43

    5,735,646 (1)   
$ 6,375,000     

5.875% 09/15/42

    6,757,500 (1)   
$ 9,070,000     

8.875% 06/15/38

    10,483,106 (1)   
 

QBE Insurance:

   
$ 8,000,000     

QBE Capital Funding III Ltd., 7.25% 05/24/41, 144A****

    8,838,000 (1)(2)   
  25,950     

RenaissanceRe Holdings Ltd., 6.08%, Series C

    647,712 **(2)   
  240,577     

W.R. Berkley Corporation, 5.625%

    5,892,332 (1)   
 

XL Group PLC:

   
$ 14,850,000     

XL Capital Ltd., 6.50%, Series E

    11,731,500 (1)(2)   

 

 

   
      186,644,034     
   

 

 

   
       

Utilities — 3.2%

           
 

Commonwealth Edison:

   
$ 2,000,000     

COMED Financing III, 6.35% 03/15/33

    2,093,418     
  25,000     

Entergy Louisiana, Inc., 6.95%

    2,503,125  
  74,236     

Integrys Energy Group, Inc., 6.00%

    1,990,453 (1)   
 

PPL Corp:

   
$ 10,500,000     

PPL Capital Funding, Inc., 6.70% 03/30/67, Series A

    8,954,369 (1)   
$ 5,500,000     

Puget Sound Energy, Inc., 6.974% 06/01/67, Series A

    4,826,250     
$ 2,000,000     

Southern California Edison Co., 6.25%, Series E

    2,214,000  

 

 

   
      22,581,615     
   

 

 

   
       

Energy — 3.6%

           
$ 9,780,000     

DCP Midstream LLC, 5.85% 05/21/43, 144A****

    7,530,600 (1)   
$ 10,000,000     

Enbridge Energy Partners LP, 8.05% 10/01/37

    10,025,000 (1)   
 

Enterprise Products Operating L.P.:

   
$ 3,675,000     

7.034% 01/15/68, Series B

    3,932,250 (1)   
$ 3,750,000     

8.375%, 08/01/66, Series A

    3,684,375     

 

 

   
      25,172,225     
   

 

 

   

 

7


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Real Estate Investment Trust (REIT) — 6.0%

           
  425,148     

Alexandria Real Estate, 6.45%, Series E

  $ 11,096,363 (1)   
  118,280     

Equity CommonWealth, 7.25%, Series E

    3,029,328     
 

Kimco Realty Corporation:

   
  5,000     

5.625%, Series K

    123,558     
  116,006     

6.90%, Series H

    2,943,072 (1)   
 

National Retail Properties, Inc.:

   
  45,300     

5.70%, Series E

    1,117,211     
  127,879     

6.625%, Series D

    3,348,192     
 

PS Business Parks, Inc.:

   
  22,908     

5.70%, Series V

    554,408     
  20,867     

5.75%, Series U

    506,233     
  487,476     

6.00%, Series T

    12,264,896 (1)   
  93,290     

6.45%, Series S

    2,435,102 (1)   
  19,447     

6.875%, Series R

    493,954 (1)   
  104,335     

Public Storage, 6.35%, Series R

    2,710,884     
  63,489     

Regency Centers Corporation, 6.625%, Series 6

    1,650,873     

 

 

   
      42,274,074     
   

 

 

   
       

Miscellaneous Industries — 1.6%

           
$ 10,800,000     

Land O’ Lakes, Inc., 8.00%, 144A****

    11,067,300  

 

 

   
      11,067,300     
   

 

 

   
 

Total Preferred Securities
(Cost $670,624,126)

    682,560,368     
   

 

 

   

 

Corporate Debt Securities — 2.0%

   
       

Banking — 1.6%

           
$ 700,000     

Regions Financial Corporation, 7.375% 12/10/37, Sub Notes

    877,500     
  309,376     

Texas Capital Bancshares Inc., 6.50% 09/21/42, Sub Notes

    7,763,419 (1)   
  100,000     

Zions Bancorporation, 6.95% 09/15/28, Sub Notes

    2,805,150     

 

 

   
      11,446,069     
   

 

 

   
       

Financial Services — 0.2%

           
  39,267     

Affiliated Managers Group, Inc., 6.375% 08/15/42

    1,042,598 (1)   

 

 

   
      1,042,598     
   

 

 

   

 

8


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Corporate Debt Securities — (Continued)

   
       

Communication — 0.2%

           
  63,200     

Qwest Corporation, 7.375% 06/01/51

  $ 1,638,302     

 

 

   
      1,638,302     
   

 

 

   
 

Total Corporate Debt Securities
(Cost $13,473,270)

    14,126,969     
   

 

 

   
       

Money Market Fund — 0.3%

           
 

BlackRock Liquidity Funds:

   
  1,745,699     

T-Fund, Institutional Class

    1,745,699     

 

 

   
 

Total Money Market Fund
(Cost $1,745,699)

    1,745,699     
   

 

 

   

Total Investments (Cost $685,843,095***)

     99.0%        698,433,036   

Other Assets And Liabilities (Net)

     1.0%        7,278,936   
  

 

 

   

 

 

 

Total Managed Assets

     100.0% ‡    $ 705,711,972   
  

 

 

   

 

 

 

Loan Principal Balance

  

    (241,300,000
 

 

 

 

Total Net Assets Available To Common Stock

  

  $ 464,411,972   
 

 

 

 

 

* Securities eligible for the Dividends Received Deduction and distributing Qualified Dividend Income.
** Securities distributing Qualified Dividend Income only.
*** Aggregate cost of securities held.
**** Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional buyers. At August 31, 2015, these securities amounted to $156,436,135 or 22.2% of total managed assets.
(1) 

All or a portion of this security is pledged as collateral for the Fund’s loan. The total value of such securities was $413,287,618 at August 31, 2015.

(2) 

Foreign Issuer.

The percentage shown for each investment category is the total value of that category as a percentage of total managed assets.

 

9


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE TO COMMON STOCK(1)

For the period from December 1, 2014 through August 31, 2015 (Unaudited)

 

 

     Value  

OPERATIONS:

  

Net investment income

   $ 25,686,251   

Net realized gain/(loss) on investments sold during the period

     1,010,949   

Change in net unrealized appreciation/(depreciation) of investments

     (9,862,501
  

 

 

 

Net increase in net assets resulting from operations

     16,834,699   

DISTRIBUTIONS:

  

Dividends paid from net investment income to Common Stock Shareholders(2)

     (27,585,766
  

 

 

 

Total Distributions to Common Stock Shareholders

     (27,585,766

NET DECREASE IN NET ASSETS AVAILABLE TO COMMON STOCK

  

 

 

 

FOR THE PERIOD

   $ (10,751,067
  

 

 

 
       

NET ASSETS AVAILABLE TO COMMON STOCK:

  

Beginning of period

   $ 475,163,039   

Net decrease in net assets during the period

     (10,751,067
  

 

 

 

End of period

   $ 464,411,972   
  

 

 

 

 

(1) 

These tables summarize the nine months ended August 31, 2015 and should be read in conjunction with the Fund’s audited financial statements, including notes to financial statements, in its Annual Report dated November 30, 2014.

(2) 

May include income earned, but not paid out, in prior fiscal year.

 

10


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

FINANCIAL HIGHLIGHTS(1)

For the period from December 1, 2014 through August 31, 2015 (Unaudited)

For a Common Stock share outstanding throughout the period

 

 

PER SHARE OPERATING PERFORMANCE:

  

Net asset value, beginning of period

   $ 24.80    
  

 

 

 

INVESTMENT OPERATIONS:

  

Net investment income

     1.34   

Net realized and unrealized gain/(loss) on investments

     (0.46
  

 

 

 

Total from investment operations

     0.88   
  

 

 

 

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

  

From net investment income

     (1.44
  

 

 

 

Total distributions to Common Stock Shareholders

     (1.44
  

 

 

 

Net asset value, end of period

   $ 24.24   
  

 

 

 

Market value, end of period

   $ 22.29   
  

 

 

 

Common Stock shares outstanding, end of period

     19,156,782   
  

 

 

 

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

  

Net investment income†

     7.20 %* 

Operating expenses including interest expense

     1.68 %* 

        Operating expenses excluding interest expense

     1.09 %* 

SUPPLEMENTAL DATA:††

  

Portfolio turnover rate

     9 %** 

Total managed assets, end of period (in 000’s)

   $ 705,712   

Ratio of operating expenses including interest expense to total managed assets

     1.12 %* 

Ratio of operating expenses excluding interest expense to total managed assets

     0.73 %* 

 

 

(1) 

These tables summarize the nine months ended August 31, 2015 and should be read in conjunction with the Fund’s audited financial statements, including notes to financial statements, in its Annual Report dated November 30, 2014.

* Annualized.
** Not Annualized.
The net investment income ratios reflect income net of operating expenses, including interest expense.
†† Information presented under heading Supplemental Data includes loan principal balance.

 

11


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

FINANCIAL HIGHLIGHTS (Continued)

Per Share of Common Stock (Unaudited)

 

 

     Total
Dividends
Paid
     Net Asset
Value
     NYSE
Closing Price
     Dividend
Reinvestment
Price(1)
 

December 31, 2014

   $ 0.1600       $ 24.72       $ 22.25       $ 22.57   

January 30, 2015

     0.1600         24.90         23.72         23.89   

February 27, 2015

     0.1600         25.01         23.53         23.65   

March 31, 2015

     0.1600         25.21         23.41         23.48   

April 30, 2015

     0.1600         25.10         23.94         23.95   

May 29, 2015

     0.1600         24.94         23.08         23.16   

June 30, 2015

     0.1600         24.38         22.31         22.17   

July 31, 2015

     0.1600         24.58         22.00         22.10   

August 31, 2015

     0.1600         24.24         22.29         22.32   

 

(1) 

Whenever the net asset value per share of the Fund’s Common Stock is less than or equal to the market price per share on the reinvestment date, new shares issued will be valued at the higher of net asset value or 95% of the then current market price. Otherwise, the reinvestment shares of Common Stock will be purchased in the open market.

 

12


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited)

 

 

1. Aggregate Information for Federal Income Tax Purposes

At August 31, 2015, the aggregate cost of securities for federal income tax purposes was $689,746,732, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $22,835,219 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $14,148,915.

 

2. Additional Accounting Standards

Fair Value Measurements: The Fund has analyzed all existing investments to determine the significance and character of all inputs to their fair value determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:

 

•       Level 1

    quoted prices in active markets for identical securities

•       Level 2

    other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

•       Level 3

    significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers in and out of levels are recognized at market value at the end of the period.

A summary of the inputs used to value the Fund’s investments as of August 31, 2015 is as follows:

 

     Total
Value at
August 31, 2015
     Level 1
Quoted
Price
     Level 2
Significant
Observable
Inputs
     Level 3
Significant
Unobservable
Inputs
 

Preferred Securities

           

Banking

   $ 379,365,126       $ 322,764,121       $ 56,601,005       $   

Financial Services

     15,455,994         15,455,994                   

Insurance

     186,644,034         112,160,411         74,483,623           

Utilities

     22,581,615         10,944,822         11,636,793           

Energy

     25,172,225         17,641,625         7,530,600           

Real Estate Investment Trust (REIT)

     42,274,074         42,274,074                   

Miscellaneous Industries

     11,067,300                 11,067,300           

Corporate Debt Securities

           

Banking

     11,446,069         10,568,569         877,500           

Financial Services

     1,042,598         1,042,598                   

Communication

     1,638,302         1,638,302                   

Money Market Fund

     1,745,699         1,745,699                   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 698,433,036       $ 536,236,215       $ 162,196,821       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

 

 

During the reporting period, securities with an aggregate market value of $16,162,525 were transferred into Level 2 from Level 1. The securities were transferred due to a decrease in the quantity and quality of the information related to trading activity or broker quotes for these securities. During the reporting period, there were no transfers into Level 1 from Level 2. During the reporting period, there were no transfers into or out of Level 3.

The fair values of the Fund’s investments are generally based on market information and quotes received from brokers or independent pricing services that are approved by the Board of Directors and are unaffiliated with the Adviser. To assess the continuing appropriateness of security valuations, management, in consultation with the Adviser, regularly compares current prices to prior prices, prices across comparable securities, actual sale prices for securities in the Fund’s portfolio, and market information obtained by the Adviser as a function of being an active market participant.

Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or near the measurement date are classified as Level 1. Securities that are priced using quotes derived from implied values, indicative bids and offers, or a limited number of actual trades—or the same information for securities that are similar in many respects to those being valued—are classified as Level 2. If market information is not available for securities being valued, or materially-comparable securities, then those securities are classified as Level 3. In considering market information, management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of prices from pricing services, and the existence of observable trades in the market.

 

14


 

Directors

Donald F. Crumrine, CFA

Chairman of the Board

David Gale

Morgan Gust

Karen H. Hogan

Robert F. Wulf, CFA

Officers

R. Eric Chadwick, CFA

Chief Executive Officer and

President

Chad C. Conwell

Chief Compliance Officer,

Vice President and Secretary

Bradford S. Stone

Chief Financial Officer,

Vice President and Treasurer

Roger Ko

Assistant Treasurer

Laurie C. Lodolo

Assistant Compliance Officer,

Assistant Treasurer and

Assistant Secretary

Linda M. Puchalski

Assistant Treasurer

Investment Adviser

Flaherty & Crumrine Incorporated

e-mail: flaherty@pfdincome.com

Servicing Agent

Destra Capital Investments LLC

1-877-855-3434

Questions concerning your shares of Flaherty & Crumrine Dynamic Preferred and Income Fund?

   

If your shares are held in a Brokerage Account, contact your Broker.

   

If you have physical possession of your shares in certificate form, contact the Fund’s Transfer Agent ––

BNY Mellon c/o Computershare

P.O. Box 30170

College Station, TX 77842-3170

1-866-351-7446

This report is sent to shareholders of Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated for their information. It is not a Prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.

 

LOGO

 

Quarterly

Report

August 31, 2015

www.preferredincome.com

 


Item 2. Controls and Procedures.

 

  (a) The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

 

  (b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 3. Exhibits.

Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)   

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

  

 

By (Signature and Title)*   

/s/ R. Eric Chadwick

  
   R. Eric Chadwick, Chief Executive Officer and President   
   (principal executive officer)   

Date October 26, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*   

/s/ R. Eric Chadwick

  
   R. Eric Chadwick, Chief Executive Officer and President   
   (principal executive officer)   

Date October 26, 2015

 

By (Signature and Title)*   

/s/ Bradford S. Stone

  
   Bradford S. Stone, Chief Financial Officer, Treasurer and Vice President   
   (principal financial officer)   

Date October 26, 2015

 

* Print the name and title of each signing officer under his or her signature.