N-Q 1 d875302dnq.htm FLAHERTY & CRUMRINE DYNAMIC PREFERRED AND INCOME FUND INCORPORATED 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:   February 28, 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”):

Your Fund is off to a fine start in fiscal 2015—during the first fiscal quarter1, total return on net asset value2 was +2.9%, while total return on market price came in at +1.6%. The value of the investment portfolio increased modestly during the quarter, so much of the NAV return was comprised of interest and dividends earned on portfolio holdings.

Economic conditions in the U.S. remain the envy of most developed economies (faint praise indeed!). We expect gross domestic product (adjusted for inflation) to grow between 2.5% and 3.0% in 2015, up a bit from last year’s 2.4%. Inflationary expectations are low, reflecting falling energy and commodity prices, along with recent appreciation in the U.S. dollar. The outlook for interest rates in the U.S. has not changed—we expect the Federal Reserve to boost short-term interest rates by 0.25% sometime between June and September; subsequent increases, however, should be gradual. Intermediate and long-term interest rates, while likely to edge up over time, should remain substantially lower than what we would normally associate with 2.5-3.0% real GDP growth.

In contrast, many Euro-zone economies are struggling, and growth has slowed in Japan, as well as in China and many other developing countries. Around the globe, elevated geopolitical tensions are hampering economic activity. As evidence, interest rates are actually negative in a number of “safe” economies. In increasing numbers, foreign investors seeking better returns are making investments in U.S. markets. These moves help explain strength in the U.S. dollar and domestic fixed-income and equity markets.

By most measures, conditions in the preferred securities market remain healthy. Fundamental credit conditions are stable or improving, with loan delinquencies and defaults trending down across almost all loan categories. Income-oriented investors have increasingly turned to the preferred-securities space seeking alternatives to lower-yielding securities. New issue volumes, though less robust than last year, are well above historical norms. We expect preferred securities issuance to remain elevated throughout 2015, as issuers work toward future regulatory capital requirements and take advantage of low interest rates to reduce overall capital expense. We continue to be constructive on the preferred market, as demand shows little sign of abating.

The Fund’s investment portfolio did not change materially over the quarter. During 2014, we had reduced the portfolio’s exposure to foreign issuers as we saw better opportunities in the U.S. We also had increased holdings in fixed-to-floating preferred securities (coupons are fixed for an initial period, typically five or ten years, and then float with interest rates). We believe this increase provides some principal protection should intermediate- and long-term interest rates rise, while offering some price upside should credit spreads narrow. Putting it all together, the portfolio’s current construction is in-line with our views on the market.

 

 

1 

December 1, 2014—February 28, 2015

2 

Following the methodology required by the SEC, total return assumes dividend reinvestment and includes income and principal change, plus the impact of the Fund’s leverage and expenses.


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

Robert M. Ettinger

Bradford S. Stone

March 31, 2015

 

2


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OVERVIEW

February 28, 2015 (Unaudited)

 

 

Fund Statistics       
Net Asset Value   $ 25.01   
Market Price   $ 23.53   
Discount     5.92
Yield on Market Price     8.16
Common Stock Shares Outstanding     19,156,782   

 

Moody’s Ratings*   % of Net Assets†  
A     2.1%   
BBB     48.8%   
BB     37.7%   
Below “BB”     5.5%   
Not Rated**     4.3%   
Below Investment Grade***     37.2%   

 

* 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 1.6%.
*** 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†  
Liberty Mutual Group     4.8%   
Citigroup     4.8%   
Bank of America Corporation     4.4%   
MetLife     4.4%   
JPMorgan Chase     4.3%   
PNC Financial Services Group     3.6%   
Morgan Stanley     3.5%   
Fifth Third Bancorp     3.5%   
Wells Fargo & Company     3.4%   
HSBC PLC     3.4%   
 
     % of Net Assets****†  
Holdings Generating Qualified Dividend Income (QDI) for Individuals     64%   
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)     50%   

 

**** 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

February 28, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — 97.2%

   
       

Banking — 53.9%

           
  11,750     

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

  $ 11,965,906 *(1)   
  103,166     

Astoria Financial Corp., 6.50%, Series C

    2,628,928 *(1)   
 

Bank of America Corporation:

   
$ 9,107,000     

6.50% ,Series Z

    9,673,337  
$ 13,000,000     

8.00%, Series K

    13,939,900 *(1)   
$ 7,455,000     

8.125%, Series M

    8,060,719 *(1)   
 

Barclays Bank PLC:

   
  60,000     

7.10%, Series 3

    1,572,000 **(2)   
  27,807     

8.125%, Series 5

    740,500 **(1)(2)   
  33,933     

BB&T Corporation, 5.625%, Series E

    856,554  
  41,704     

Capital One Financial Corporation, 6.70%, Series D

    1,101,924  
 

Citigroup, Inc.:

   
  1,180,807     

6.875%, Series K

    31,754,852 *(1)   
  88,022     

7.125%, Series J

    2,419,945  
 

CoBank ACB:

   
  38,100     

6.20%, Series H, 144A****

    3,844,530  
  3,450     

6.25%, Series F, 144A****

    355,674  
  899,035     

Fifth Third Bancorp, 6.625%, Series I

    24,986,430 *(1)   
  33,550     

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

    914,321 *(1)   
  25,000     

First Republic Bank, 6.20%, Series B

    638,813  
 

Goldman Sachs Group:

   
$ 1,170,000     

5.70%, Series L

    1,212,412  
  85,979     

5.95%, Series I

    2,178,923 *(1)   
  531,522     

6.375%, Series K

    13,963,083 *(1)   
 

HSBC PLC:

   
$ 4,458,000     

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

    6,742,725 (1)(2)   
  70,800     

HSBC Holdings PLC, 8.00%, Series 2

    1,868,589 **(2)   
$ 3,910,000     

HSBC USA Capital Trust I, 7.808% 12/15/26, 144A****

    3,943,165     
$ 1,100,000     

HSBC USA Capital Trust II, 8.38% 05/15/27, 144A****

    1,114,738     
  340,800     

HSBC USA, Inc., 6.50%, Series H

    8,762,820 *(1)   
 

ING Groep NV:

   
  160,000     

6.375%

    4,067,200 **(1)(2)   
  38,082     

7.05%

    977,660 **(2)   
  3,201     

7.20%

    82,498 **(1)(2)   
  235,000     

7.375%

    6,105,300 **(1)(2)   

 

4


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 28, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Banking — (Continued)

           
 

JPMorgan Chase & Company:

   
$ 10,700,000     

6.00%, Series R

  $ 10,960,812 *(1)   
$ 8,000,000     

6.75%, Series S

    8,677,440  
$ 10,340,000     

7.90%, Series I

    11,180,125  
$ 14,022,000     

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

    15,809,805 **(1)(2)   
 

M&T Bank Corporation:

   
$ 15,000,000     

6.450%, Series E

    16,275,000 *(1)   
$ 6,789,000     

6.875%, Series D, 144A****

    6,992,670 *(1)   
 

Morgan Stanley:

   
  674,994     

6.875%, Series F

    18,305,837 *(1)   
  241,200     

7.125%, Series E

    6,809,679  
 

PNC Financial Services Group:

   
  451,824     

6.125%, Series P

    12,837,449 *(1)   
$ 11,748,000     

6.75%, Series O

    13,034,406 *(1)   
$ 8,625,000     

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

    11,182,847 (1)(2)   
  627,170     

Regions Financial Corporation, 6.375%, Series B

    15,963,044 *(1)   
 

Royal Bank of Scotland Group PLC:

   
$ 4,825,000     

RBS Capital Trust II, 6.425%

    5,452,250 **(1)(2)   
  25,000     

6.40%, Series M

    626,250 **(2)   
  13,000     

6.60%, Series S

    329,550 **(2)   
  622,500     

7.25%, Series T

    15,954,675 **(1)(2)   
  110,317     

State Street Corporation, 5.90%, Series D

    2,952,359 *(1)   
  288,008     

SunTrust Banks, Inc., 5.875%, Series E

    7,149,079  
  110,000     

US Bancorp, 6.50%, Series F

    3,296,975 *(1)   
 

Wells Fargo & Company:

   
  180,300     

5.85%, Series Q

    4,673,827 *(1)   
$ 18,000,000     

7.98%, Series K

    19,755,000 *(1)   
 

Zions Bancorporation:

   
  10,000     

6.30%, Series G

    259,225  
$ 10,000,000     

7.20%, Series J

    10,650,000  

 

 

   

 

      385,601,750     
   

 

 

   

 

5


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 28, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Financial Services — 2.0%

           
$ 5,600,000     

Charles Schwab Corporation, 7.00%, Series A

  $ 6,608,000 *(1)   
 

Deutsche Bank:

   
  89,000     

Deutsche Bank Contingent Capital Trust III, 7.60%

    2,497,563 **(1)(2)   
  8,103     

Deutsche Bank Contingent Capital Trust V, 8.05%

    234,744 **(1)(2)   
$ 2,500,000     

General Electric Capital Corp., 7.125%, Series A

    2,953,125 *(1)   
 

HSBC PLC:

   
  76,348     

HSBC Finance Corporation, 6.36%, Series B

    1,932,559  

 

 

   

 

      14,225,991     
   

 

 

   
       

Insurance — 29.5%

           
  471,995     

Allstate Corp., 6.625%, Series E

    12,858,324 *(1)   
 

American International Group:

   
$ 280,000     

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

    373,603     
$ 497,000     

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

    689,587     
$ 350,000     

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

    486,500     
$ 1,010,000     

Aon Corporation, 8.205% 01/01/27

    1,322,663     
  322,480     

Arch Capital Group, Ltd., 6.75%, Series C

    8,956,076 **(1)(2)   
 

AXA SA:

   
$ 6,550,000     

6.379%, 144A****

    7,326,175 **(1)(2)   
$ 8,950,000     

8.60% 12/15/30

    12,444,053 (1)(2)   
 

Axis Capital Holdings Ltd.:

   
  4,300     

5.50%, Series D

    104,028 **(2)   
  646,952     

6.875%, Series C

    17,734,572 **(1)(2)   
  6,000     

Delphi Financial Group, 7.376% 05/15/37

    150,188     
  181,000     

Endurance Specialty Holdings, 7.50%, Series B

    4,800,572 **(2)   
$ 988,000     

Everest Re Holdings, 6.60% 05/15/37

    1,022,580 (1)   
  137,500     

Hartford Financial Services Group, Inc., 7.875%

    4,173,469     
 

Liberty Mutual Group:

   
$ 17,950,000     

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

    21,629,750 (1)   
$ 8,195,000     

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

    12,661,275 (1)   
 

MetLife:

   
$ 3,759,000     

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

    6,292,566 (1)   
$ 17,200,000     

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

    25,284,000 (1)   
 

PartnerRe Ltd.:

   
  20,486     

5.875%, Series F

    519,193 **(2)   
  37,556     

6.50%, Series D

    966,410 **(2)   
  71,237     

7.25%, Series E

    1,913,604 **(2)   
  631,500     

Principal Financial Group, 6.518%, Series B

    16,287,964 *(1)   

 

6


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 28, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Insurance — (Continued)

           
 

Prudential Financial, Inc.:

   
$ 5,574,000     

5.625% 06/15/43

  $ 5,922,375 (1)   
$ 6,375,000     

5.875% 09/15/42

    6,901,575 (1)   
$ 9,070,000     

8.875% 06/15/38

    10,793,300 (1)   
 

QBE Insurance:

   
$ 8,000,000     

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

    8,851,168 (1)(2)   
 

RenaissanceRe Holdings:

   
  42,700     

Renaissancere Holdings Ltd, 6.08%, Series C

    1,071,770 **(2)   
  240,577     

W.R. Berkley Corporation, 5.625%

    5,983,751 (1)   
 

XL Group PLC:

   
$ 14,850,000     

XL Capital Ltd., 6.50%, Series E

    13,105,125 (1)(2)   

 

 

   

 

      210,626,216     
   

 

 

   
       

Utilities — 3.5%

           
 

Commonwealth Edison:

   
$ 2,000,000     

COMED Financing III, 6.35% 03/15/33

    2,065,714     
  25,000     

Entergy Louisiana, Inc., 6.95%

    2,501,562  
  116,000     

Integrys Energy Group, Inc., 6.00%

    3,172,890 (1)   
 

PPL Corp:

   
$ 9,500,000     

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

    9,385,705 (1)   
$ 5,500,000     

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

    5,603,125     
$ 2,000,000     

Southern California Edison Co., 6.25%, Series E

    2,250,000  

 

 

   

 

      24,978,996     
   

 

 

   
       

Energy — 2.3%

           
$ 9,780,000     

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

    7,897,350 (1)   
$ 4,000,000     

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

    4,320,000 (1)   
$ 3,675,000     

Enterprise Products Partners, 7.034% 01/15/68, Series B

    3,985,376 (1)   

 

 

   

 

      16,202,726     
   

 

 

   
       

Real Estate Investment Trust (REIT) — 6.0%

           
  425,148     

Alexandria Real Estate, 6.45%, Series E

    11,211,153     
  118,280     

Equity CommonWealth, 7.25%, Series E

    3,067,296     
 

Kimco Realty Corporation:

   
  3,817     

5.50%, Series J

    93,898     
  5,000     

5.625%, Series K

    124,413     
  116,006     

6.90%, Series H

    3,020,796 (1)   

 

7


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 28, 2015 (Unaudited)

 

 

Shares/$ Par        

    Value    

 

Preferred Securities — (Continued)

   
       

Real Estate Investment Trust (REIT) — (Continued)

           
 

National Retail Properties, Inc.:

   
  45,300     

5.70%, Series E

  $ 1,151,639     
  127,879     

6.625%, Series D

    3,376,325     
 

PS Business Parks, Inc.:

   
  23,808     

5.70%, Series V

    593,593     
  20,867     

5.75%, Series U

    519,380     
  487,476     

6.00%, Series T

    12,547,632 (1)   
  93,290     

6.45%, Series S

    2,478,949 (1)   
  19,447     

6.875%, Series R

    504,066 (1)   
  104,335     

Public Storage, 6.35%, Series R

    2,781,832     
  57,808     

Regency Centers Corporation, 6.625%, Series 6

    1,532,635     

 

 

   

 

      43,003,607     
   

 

 

   
 

Total Preferred Securities
(Cost $668,336,880)

    694,639,286     
   

 

 

   

 

Corporate Debt Securities — 1.3%

   
       

Banking — 0.9%

           
$ 700,000     

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

    936,273     
  112,876     

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

    2,793,963 (1)   
  100,000     

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

    2,712,250     

 

 

   

 

      6,442,486     
   

 

 

   
       

Financial Services — 0.2%

           
  39,267     

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

    1,026,930 (1)   

 

 

   

 

      1,026,930     
   

 

 

   
       

Communication — 0.2%

           
  63,200     

Qwest Corporation, 7.375% 06/01/51

    1,676,854     

 

 

   

 

      1,676,854     
   

 

 

   
 

Total Corporate Debt Securities
(Cost $8,625,907)

    9,146,270     
   

 

 

   

 

8


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

February 28, 2015 (Unaudited)

 

 

Shares/$ Par               

    Value    

 

Money Market Fund — 0.6%

                    
 

BlackRock Liquidity Funds:

      
  4,486,126     

T-Fund, Institutional Class

  

  $ 4,486,126     

 

 

   
 

Total Money Market Fund
(Cost $4,486,126)

   

    4,486,126     
      

 

 

   

 

Total Investments (Cost $681,448,913***)

     99.1     708,271,682     

 

Other Assets And Liabilities (Net)

     0.9     6,245,223     
    

 

 

   

 

 

   

 

Total Managed Assets

     100.0 %‡    $ 714,516,905     
    

 

 

   

 

 

   

 

Loan Principal Balance

  

    (235,500,000  
      

 

 

   

 

Total Net Assets Available To Common Stock

  

  $ 479,016,905     
      

 

 

   

 

* 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 February 28, 2015, these securities amounted to $146,664,968 or 20.5% 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 $414,425,126 at February 28, 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 February 28, 2015 (Unaudited)

 

 

     Value  

OPERATIONS:

  

Net investment income

   $ 8,561,486   

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

     117,309   

Change in net unrealized appreciation/(depreciation) of investments

     4,370,327   
  

 

 

 

Net increase in net assets resulting from operations

     13,049,122   

DISTRIBUTIONS:

  

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

     (9,195,256
  

 

 

 

Total Distributions to Common Stock Shareholders

     (9,195,256

NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK

  

 

 

 

FOR THE PERIOD

   $ 3,853,866   
  

 

 

 
          

NET ASSETS AVAILABLE TO COMMON STOCK:

  

Beginning of period

   $ 475,163,039   

Net increase in net assets during the period

     3,853,866   
  

 

 

 

End of period

   $ 479,016,905   
  

 

 

 

 

(1) 

These tables summarize the three months ended February 28, 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 February 28, 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

     0.45   

Net realized and unrealized gain/(loss) on investments

     0.24   
  

 

 

 

Total from investment operations

     0.69   
  

 

 

 

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

  

From net investment income

     (0.48
  

 

 

 

Total distributions to Common Stock Shareholders

     (0.48
  

 

 

 

Net asset value, end of period

   $ 25.01   
  

 

 

 

Market value, end of period

   $ 23.53   
  

 

 

 

Common Stock shares outstanding, end of period

     19,156,782   
  

 

 

 

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

  

Net investment income†

     7.32 %* 

Operating expenses including interest expense

     1.69 %* 

        Operating expenses excluding interest expense

     1.10 %* 

SUPPLEMENTAL DATA:††

  

Portfolio turnover rate

     3 %** 

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

   $ 714,517   

Ratio of operating expenses including interest expense to total managed assets

     1.13 %* 

Ratio of operating expenses excluding interest expense to total managed assets

     0.74 %* 

 

 

(1) 

These tables summarize the three months ended February 28, 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   

 

(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 February 28, 2015, the aggregate cost of securities for federal income tax purposes was $685,348,458, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $32,126,505 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,203,281.

 

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 February 28, 2015 is as follows:

 

     Total
Value at
February 28, 2015
     Level 1
Quoted
Price
     Level 2
Significant
Observable
Inputs
     Level 3
Significant
Unobservable
Inputs
 

Preferred Securities

           

Banking

   $ 385,601,750       $ 323,357,245       $ 62,244,505       $   

Financial Services

     14,225,991         14,225,991                   

Insurance

     210,626,216         167,652,899         42,973,317           

Utilities

     24,978,996         12,558,595         12,420,401           

Energy

     16,202,726         8,305,376         7,897,350           

Real Estate Investment Trust (REIT)

     43,003,607         43,003,607                   

Corporate Debt Securities

           

Banking

     6,442,486         5,506,213         936,273           

Financial Services

     1,026,930         1,026,930                   

Communication

     1,676,854         1,676,854                   

Money Market Fund

     4,486,126         4,486,126                   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 708,271,682       $ 581,799,836       $ 126,471,846       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 $3,844,530 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

Donald F. Crumrine, CFA

Chief Executive Officer

Robert M. Ettinger, CFA

President

R. Eric Chadwick, CFA

Chief Financial Officer,

Vice President and Treasurer

Chad C. Conwell

Chief Compliance Officer,

Vice President and Secretary

Bradford S. Stone

Vice President and

Assistant 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 Computer share

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

February 28, 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     April 22, 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     April 22, 2015

 

 

By (Signature and Title)*

/s/ Bradford S. Stone

Bradford S. Stone, Chief Financial Officer, Treasurer and Vice President

(principal financial officer)

 

Date     April 22, 2015

 

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