<![CDATA[Flaherty & Crumrine Dynamic Preferred & Income Fund]]>

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)

Donald F. Crumrine

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, 2014

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 performed well during its third fiscal quarter1, delivering +3.4% total return on net asset value2. For the first nine months of fiscal 2014, the Fund’s return on NAV was an impressive +17.4%. While third quarter market performance was +2.4%, year-to-date market performance was +23.5% at August 31st.

U.S. economic growth appears to be running around 3% currently, after averaging just 1.3% in 2014’s first half. Job growth is up, unemployment is down and inflation remains low. The Fed is not filling its monetary punch bowl as quickly as before, but, while it’s always hard to predict what the Fed will do, it probably won’t start to raise short-term interest rates until mid-2015 or later. In contrast, economic growth abroad has slowed, with most developed countries trailing the U.S. recovery and monetary policy in many of those countries is easing further.

Although long-term interest rates in the U.S. will probably rise modestly over coming quarters, we think any upward movement will be limited by moderate GDP growth and strong investor demand for yield. Credit conditions continue to improve for most issuers of preferred securities, as earnings remain healthy and companies continue to build capital. With this backdrop, we believe prospective returns remain attractive for long-term investors.

The Fund’s portfolio benefited from small declines in intermediate and long-term interest rates during the quarter, as well as on-going demand for higher yields of preferred securities. Supply of new issues remains steady—a key measure of market health. From December 2013 through September 2014, U.S. and foreign companies issued 103 new securities in the United States, raising just under $64 billion. Over the same period, issuers redeemed 67 preferred securities totaling $25 billion.

New issue supply was dominated by banks tailoring their capital to meet new regulatory requirements. Large U.S. banks (those deemed to be a systemically important financial institution, or “SIFI”) have issued traditional non-cumulative perpetual preferred stock. Non-U.S. SIFI banks are utilizing a preferred stock variation termed Contingent Convertible Securities, or CoCos. As you know from prior letters, the Fund has not yet purchased any CoCos, but we continue to evaluate them as potential investments.

With foreign economies lagging recovery in the U.S. and foreign banks issuing securities we have not yet been inclined to buy, the portion of the portfolio invested in foreign securities has drifted lower this fiscal year. Through September 30th, this portion declined from 30.1% of the portfolio to 21.7%. We anticipate this rate could fall further through more issuer redemptions.

As we discussed last quarter, another portfolio trend is a continued shift to “fixed-to-float” securities. These have coupons that are fixed for an initial period, typically five or ten years. Afterwards, coupons float based on a formula set at issuance. Prices on floating rate issues typically are less sensitive to changes in benchmark interest rates; this effect has spilled over to fixed-to-float preferred securities as well. If long-term interest rates begin to rise, as we expect they will eventually, these securities should tend to outperform

 

 

1

June 1, 2014—August 31, 2014

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.


issues with fixed-for-life coupons, all other things being equal. As of September 30th, the portion of the portfolio in this structure was 71.3%. We continue to look for opportunities to add fixed-to-float holdings.

Although these issues yield a bit less than many fixed-for-life securities, and thus may reduce portfolio income at the margin, we believe owning fixed-to-float securities is prudent and consistent with our interest-rate outlook.

As always, we encourage you to visit the Fund’s website, www.preferredincome.com, for current information on preferred-securities markets, the Fund and the broader economy.

Sincerely,

The Flaherty & Crumrine Portfolio Management Team:

R. Eric Chadwick

Donald F. Crumrine

Robert M. Ettinger

Bradford S. Stone

October 1, 2014

 

2


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OVERVIEW

August 31, 2014 (Unaudited)

 

Fund Statistics       
Net Asset Value   $ 24.97   
Market Price   $ 22.96   
Discount     8.05
Yield on Market Price     8.36
Common Stock Shares Outstanding     19,156,782   

 

Moody’s Ratings*   % of Net Assets†  
A     2.1%   
BBB     48.1%   
BB     38.7%   
Below “BB”     5.5%   
Not Rated**     3.8%   
Below Investment Grade***     32.2%   

 

* 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 1.8%.
*** 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     4.7%   
JPMorgan Chase     4.5%   
MetLife     4.4%   
Liberty Mutual Group     4.2%   
Morgan Stanley     3.7%   
PNC Financial Services Group     3.6%   
Wells Fargo & Company     3.5%   

Fifth Third Bancorp

    3.5%   
Prudential Financial     3.4%   
HSBC PLC     3.3%   
 
     % of Net Assets***†  
Holdings Generating Qualified Dividend Income (QDI) for Individuals     61%   
Holdings Generating Income Eligible for the Corporate Dividends Received Deduction (DRD)     46%   

 

*** 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, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

     

 

Preferred Securities — 96.8%

       

Banking — 52.4%

  11,750     

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

  $ 12,057,703 *(1)   
  103,166     

Astoria Financial Corp., 6.50% Pfd., Series C

    2,530,796 *(1)   
  296,121     

Banco Santander, 10.50% Pfd., Series 10

    7,610,754 **(2)   
 

Bank of America:

   
$ 13,000,000     

Bank of America Corporation, 8.00%

    14,435,122 *(1)   
$ 7,455,000     

Bank of America Corporation, 8.125%

    8,314,621 *(1)   
 

Barclays Bank PLC:

   
  60,000     

Barclays Bank PLC, 7.10% Pfd.

    1,540,200 **(2)   
  27,807     

Barclays Bank PLC, 8.125% Pfd., Series 5

    720,757 **(1)(2)   
  44,933     

BB&T Corporation, 5.625% Pfd., Series E

    1,079,358  
 

Citigroup:

   
  1,032,107     

Citigroup, Inc., 6.875% Pfd., Series K

    27,941,717 *(1)   
  198,522     

Citigroup, Inc., 7.125% Pfd., Series J

    5,526,852  
  3,450     

CoBank ACB, 6.25% Pfd., 144A****

    359,124  
  899,035     

Fifth Third Bancorp, 6.625% Pfd., Series I

    24,679,859 *(1)   
  33,550     

First Niagara Financial Group, Inc., 8.625% Pfd.

    954,883 *(1)   
  25,000     

First Republic Bank, 6.20% Pfd.

    637,313  
 

Goldman Sachs Group:

   
$ 1,170,000     

Goldman Sachs, 5.70%, Series L

    1,213,754  
  85,979     

Goldman Sachs, 5.95% Pfd., Series I

    2,098,429 *(1)   
  741,522     

Goldman Sachs, 6.375% Pfd., Series K

    19,272,157 *(1)   
 

HSBC PLC:

   
$ 4,458,000     

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

    6,709,290 (1)(2)   
  70,800     

HSBC Holdings PLC, 8.00% Pfd., Series 2

    1,904,697 **(2)   
$ 3,910,000     

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

    3,958,288     
$ 1,100,000     

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

    1,114,646     
  340,800     

HSBC USA, Inc., 6.50% Pfd., Series H

    8,711,700 *(1)   
 

ING Groep NV:

   
  160,000     

ING Groep NV, 6.375% Pfd.

    4,057,600 **(1)(2)   
  38,082     

ING Groep NV, 7.05% Pfd.

    978,765 **(2)   
  3,201     

ING Groep NV, 7.20% Pfd.

    82,591 **(1)(2)   
  235,000     

ING Groep NV, 7.375% Pfd.

    6,098,250 **(1)(2)   
 

JPMorgan Chase:

   
$ 10,700,000     

JPMorgan Chase & Company, 6.00%, Series R

    11,026,350 *(1)   
$ 500,000     

JPMorgan Chase & Company, 6.75%, Series S

    539,375  
$ 18,500,000     

JPMorgan Chase & Company, 7.90%, Series I

    20,558,125 *(1)   
$ 14,022,000     

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

    15,389,145 **(1)(2)   

 

4


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

     
Preferred Securities — (Continued)
       Banking — (Continued)
 

M&T Bank Corporation:

   
$ 3,500,000     

M&T Bank Corporation, 6.450%, Series E

  $ 3,780,000 *(1)   
$ 6,789,000     

M&T Bank Corporation, 6.875%, Series D, 144A****

    6,965,154 *(1)   
 

Morgan Stanley:

   
  39,002     

Morgan Stanley Capital Trust IV, 6.25% Pfd.

    994,649 (1)   
$ 1,500,000     

Morgan Stanley, 5.45%, Series H

    1,528,125  
  802,694     

Morgan Stanley, 6.875% Pfd., Series F

    21,680,765 *(1)   
  91,200     

Morgan Stanley, 7.125% Pfd., Series E

    2,550,089  
 

PNC Financial Services:

   
  451,824     

PNC Financial Services Group, Inc., 6.125% Pfd., Series P

    12,524,019 *(1)   
$ 11,748,000     

PNC Financial Services Group, Inc., 6.75%

    13,248,830 *(1)   
$ 8,625,000     

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

    11,449,687 (1)(2)   
  627,170     

Regions Financial Corporation, 6.375% Pfd., Series B

    15,898,760 *(1)   
 

Royal Bank of Scotland:

   
$ 4,825,000     

RBS Capital Trust II, 6.425%

    5,162,750 **(1)(2)   
  13,000     

Royal Bank of Scotland Group PLC, 6.60% Pfd., Series S

    325,390 **(2)   
  647,500     

Royal Bank of Scotland Group PLC, 7.25% Pfd., Series T

    16,627,800 **(1)(2)   
  110,317     

State Street Corporation, 5.90% Pfd., Series D

    2,877,343 *(1)   
  288,008     

SunTrust Banks, Inc., 5.875% Pfd.

    6,876,191  
  110,000     

US Bancorp, 6.50% Pfd., Series F

    3,214,365 *(1)   
 

Wells Fargo:

   
  180,300     

Wells Fargo & Company, 5.85% Pfd.

    4,710,338 *(1)   
$ 18,000,000     

Wells Fargo & Company, 7.98%, Series K

    20,430,000 *(1)   
 

Zions Bancorporation:

   
  10,000     

Zions Bancorporation, 6.30% Pfd., Series G

    259,375  
$ 10,000,000     

Zions Bancorporation, 7.20%, Series J

    10,597,000  

 

 

   
      373,802,851     
   

 

 

   
       

Financial Services — 2.2%

$ 5,600,000     

Charles Schwab Corporation, 7.00%

    6,615,000 *(1)   
 

Deutsche Bank:

   
  89,000     

Deutsche Bank Contingent Capital Trust III, 7.60% Pfd.

    2,458,314 **(1)(2)   
  8,103     

Deutsche Bank Contingent Capital Trust V, 8.05% Pfd.

    230,773 **(1)(2)   
$ 5,000,000     

General Electric Capital Corp., 7.125%, Series A

    5,902,785 *(1)   
 

HSBC PLC:

   
 
36,348
  
 

HSBC Finance Corporation, 6.36% Pfd., Series B

    913,843  

 

 

   
      16,120,715     
   

 

 

   

 

5


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

     
Preferred Securities — (Continued)
       

Insurance — 27.9%

  281,995     

Allstate Corp., 6.625% Pfd., Series E

  $ 7,388,692  
 

American International Group:

   
$ 280,000     

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

    377,132     
$ 497,000     

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

    711,286     
$ 350,000     

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

    483,875     
$ 1,010,000     

Aon Corporation, 8.205% 01/01/27

    1,300,147     
  322,480     

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

    8,678,743 **(1)(2)   
 

AXA SA:

   
$ 6,550,000     

AXA SA, 6.379%, 144A****

    7,139,500 **(1)(2)   
$ 8,950,000     

AXA SA, 8.60% 12/15/30

    12,121,701 (1)(2)   
 

Axis Capital Holdings:

   
  4,300     

Axis Capital Holdings Ltd., 5.50% Pfd., Series D

    98,094 **(2)   
  646,952     

Axis Capital Holdings Ltd., 6.875% Pfd., Series C

    17,508,139 **(1)(2)   
  6,000     

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

    150,375     
  181,000     

Endurance Specialty Holdings, 7.50% Pfd., Series B

    4,762,563 **(2)   
$ 988,000     

Everest Re Holdings, 6.60% 05/15/37

    1,043,575 (1)   
  25,000     

Hartford Financial Services Group, Inc., 7.875% Pfd.

    754,788     
 

Liberty Mutual Group:

   
$ 17,950,000     

Liberty Mutual Group, 7.80% 03/15/37, 144A****

    21,270,750 (1)   
$ 5,520,000     

Liberty Mutual Group, 10.75% 06/15/58, 144A****

    8,611,200 (1)   
 

MetLife:

   
$ 3,759,000     

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

    6,108,375 (1)   
$ 17,200,000     

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

    25,069,000 (1)   
 

PartnerRe:

   
  20,486     

PartnerRe Ltd., 5.875% Pfd.,Series F

    499,039 **(2)   
  37,556     

PartnerRe Ltd., 6.50% Pfd., Series D

    953,603 **(2)   
  71,237     

PartnerRe Ltd., 7.25% Pfd., Series E

    1,912,713 **(2)   
  631,500     

Principal Financial Group, 6.518% Pfd., Series B

    16,458,469  
 

Prudential Financial:

   
$ 5,574,000     

Prudential Financial, Inc., 5.625% 06/15/43

    6,005,985 (1)   
$ 6,375,000     

Prudential Financial, Inc., 5.875% 09/15/42

    6,865,237 (1)   
$ 9,070,000     

Prudential Financial, Inc., 8.875% 06/15/38

    11,054,062 (1)   
 

QBE Insurance:

   
$ 8,000,000     

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

    8,711,648 (1)(2)   
  288,323     

W.R. Berkley Corporation, 5.625% Pfd.

    6,848,392 (1)   

 

6


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

     
Preferred Securities — (Continued)
       

Insurance — (Continued)

           
 

XL Group PLC:

   
$ 17,080,000     

XL Capital Ltd., 6.50%, Series E

  $ 16,546,250 (1)(2)   

 

 

   
      199,433,333     
   

 

 

   
       

Utilities — 5.0%

 

Commonwealth Edison:

   
$ 2,000,000     

COMED Financing III, 6.35% 03/15/33

    2,065,000     
  25,000     

Entergy Louisiana, Inc., 6.95% Pfd.

    2,503,908  
  116,000     

Integrys Energy Group, Inc., 6.00% Pfd.

    3,055,730 (1)   
 

PPL Corp:

   
$ 19,500,000     

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

    19,899,497 (1)   
$ 5,500,000     

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

    5,788,497     
$ 2,000,000     

Southern California Edison Co., 6.25%, Series E

    2,184,870  

 

 

   
      35,497,502     
   

 

 

   
       

Energy — 2.5%

  

   
$ 9,780,000     

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

    9,535,500 (1)   
$ 4,000,000     

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

    4,520,000 (1)   
$ 3,675,000     

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

    4,165,094 (1)   

 

 

   
      18,220,594     
   

 

 

   
       

Real Estate Investment Trust (REIT) — 6.8%

           
  425,148     

Alexandria Real Estate, 6.45% Pfd.,Series E

    10,883,789     
 

Duke Realty Corp.:

   
  100,000     

Duke Realty Corp, 6.50% Pfd., Series K

    2,516,250     
  234,877     

Duke Realty Corp, 6.60% Pfd., Series L

    5,908,636     
  118,280     

Equity CommonWealth, 7.25% Pfd., Series E

    3,004,312     
 

Kimco Realty Corporation:

   
  18,500     

Kimco Realty Corporation, 5.50% Pfd., Series J

    432,900     
  5,000     

Kimco Realty Corporation, 5.625% Pfd., Series K

    119,708     
  47,308     

Kimco Realty Corporation, 6.00% Pfd., Series I

    1,204,878     
  116,006     

Kimco Realty Corporation, 6.90% Pfd., Series H

    3,057,918 (1)   
 

National Retail Properties:

   
  45,300     

National Retail Properties, Inc., 5.70% Pfd., Series E

    1,068,799     
  27,879     

National Retail Properties, Inc., 6.625% Pfd., Series D

    738,306     

 

7


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

     
Preferred Securities — (Continued)
       

Real Estate Investment Trust (REIT) — (Continued)

 

PS Business Parks:

   
  23,808     

PS Business Parks, Inc., 5.70% Pfd., Series V

  $ 569,785     
  20,867     

PS Business Parks, Inc., 5.75% Pfd., Series U

    499,556     
  487,476     

PS Business Parks, Inc., 6.00% Pfd., Series T

    12,104,029 (1)   
  97,606     

PS Business Parks, Inc., 6.45% Pfd., Series S

    2,506,766 (1)   
  12,180     

PS Business Parks, Inc., 6.875% Pfd., Series R

    319,116 (1)   
  112,614     

Public Storage, 6.35% Pfd., Series R

    2,935,002     
  7,035     

Regency Centers Corporation, 6.625% Pfd., Series 6

    188,696     
  8,313     

Weingarten Realty Investors, 6.50% Pfd., Series F

    212,750 (1)   

 

 

   
      48,271,196     
   

 

 

   
 

Total Preferred Securities
(Cost $668,684,157)

    691,346,191     
   

 

 

   

 

Corporate Debt Securities — 1.3%

       

Banking — 0.9%

$ 700,000     

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

    901,424     
  112,876     

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

    2,772,517 (1)   
  100,000     

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

    2,675,000     

 

 

   
      6,348,941     
   

 

 

   
       

Financial Services — 0.2%

  39,267     

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

    1,003,331 (1)   

 

 

   
      1,003,331     
   

 

 

   
       

Communication — 0.2%

  63,200     

Qwest Corporation, 7.375% 06/01/51

    1,652,838     

 

 

   
      1,652,838     
   

 

 

   
 

Total Corporate Debt Securities
(Cost $8,626,423)

    9,005,110     
   

 

 

   

 

8


 

Flaherty & Crumrine Dynamic Preferred and Income Fund Incorporated

PORTFOLIO OF INVESTMENTS (Continued)

August 31, 2014 (Unaudited)

 

Shares/$ Par        

    Value    

   

 

 

Money Market Fund — 0.9%

 

 

 

BlackRock Liquidity Funds:

   
  6,578,512     

T-Fund, Institutional Class

  $ 6,578,512     

 

 

   

 

 

Total Money Market Fund
(Cost $6,578,512)

    6,578,512     
   

 

 

   

Total Investments (Cost $683,889,092***)

     99.0%        706,929,813   

Other Assets And Liabilities (Net)

     1.0%        6,825,282   
  

 

 

   

 

 

 

Total Managed Assets

     100.0% ‡    $ 713,755,095   
  

 

 

   

 

 

 

Loan Principal Balance

  

    (235,500,000
    

 

 

 

Total Net Assets Available To Common Stock

  

  $ 478,255,095   
    

 

 

 

 

* 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, 2014, these securities amounted to $139,429,053 or 19.5% 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 $420,822,706 at August 31, 2014.

(2)

Foreign Issuer.

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

 

    ABBREVIATIONS:

Pfd.

    Preferred Securities

REIT

    Real Estate Investment Trust

 

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, 2013 through August 31, 2014 (Unaudited)

 

     Value  

OPERATIONS:

  

Net investment income

   $ 24,944,831   

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

     4,379,345   

Change in net unrealized appreciation/(depreciation) of investments

     41,763,821   
  

 

 

 

Net increase in net assets resulting from operations

     71,087,997   

DISTRIBUTIONS:

  

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

     (28,581,919
  

 

 

 

Total Distributions to Common Stock Shareholders

     (28,581,919

NET INCREASE IN NET ASSETS AVAILABLE TO COMMON STOCK

  

 

 

 

FOR THE PERIOD

   $ 42,506,078   
  

 

 

 
          

NET ASSETS AVAILABLE TO COMMON STOCK:

  

Beginning of period

   $ 435,749,017   

Net increase in net assets during the period

     42,506,078   
  

 

 

 

End of period

   $ 478,255,095   
  

 

 

 

 

(1) 

These tables summarize the nine months ended August 31, 2014 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2013.

(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, 2013 through August 31, 2014 (Unaudited)

For a Common Stock share outstanding throughout the period

 

PER SHARE OPERATING PERFORMANCE:

  

Net asset value, beginning of period

   $ 22.75    
  

 

 

 

INVESTMENT OPERATIONS:

  

Net investment income

     1.30   

Net realized and unrealized gain/(loss) on investments

     2.41   
  

 

 

 

Total from investment operations

     3.71   
  

 

 

 

DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:

  

From net investment income

     (1.49
  

 

 

 

Total distributions to Common Stock Shareholders

     (1.49
  

 

 

 

Net asset value, end of period

   $ 24.97   
  

 

 

 

Market value, end of period

   $ 22.96   
  

 

 

 

Common Stock shares outstanding, end of period

     19,156,782   
  

 

 

 

RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK SHAREHOLDERS:

  

Net investment income†

     7.26 %* 

Operating expenses including interest expense

     1.66 %* 

Operating expenses excluding interest expense

     1.09 %* 
        

SUPPLEMENTAL DATA:††

  

Portfolio turnover rate

     22 %** 

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

   $ 713,755   

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, 2014 and should be read in conjunction with the Fund’s audited financial statements, including footnotes, in its Annual Report dated November 30, 2013.

* 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, 2013

   $ 0.2120       $ 22.46       $ 20.53       $ 20.49   

January 31, 2014

     0.1600         22.95         20.90         20.86   

February 28, 2014

     0.1600         23.47         21.91         21.92   

March 31, 2014

     0.1600         23.72         21.72         21.75   

April 30, 2014

     0.1600         24.23         22.76         22.84   

May 30, 2014

     0.1600         24.66         22.90         22.93   

June 30, 2014

     0.1600         24.90         23.56         23.54   

July 31, 2014

     0.1600         24.72         22.16         22.15   

August 29, 2014

     0.1600         24.97         22.96         23.06   

 

(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, 2014, the aggregate cost of securities for federal income tax purposes was $685,621,488, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $25,218,096 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,909,771.

 

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, 2014 is as follows:

 

     Total
Value at
August 31, 2014
     Level 1
Quoted
Price
     Level 2
Significant
Observable
Inputs
     Level 3
Significant
Unobservable
Inputs
 

Preferred Securities

           

Banking

   $ 373,802,851       $ 315,429,209       $ 58,373,642       $   

Financial Services

     16,120,715         16,120,715                   

Insurance

     199,433,333         156,823,907         42,609,426           

Utilities

     35,497,502         22,955,227         12,542,275           

Energy

     18,220,594         4,520,000         13,700,594           

Real Estate Investment Trust (REIT)

     48,271,196         48,271,196                   

Corporate Debt Securities

           

Banking

     6,348,941         5,447,517         901,424           

Financial Services

     1,003,331         1,003,331                   

Communication

     1,652,838         1,652,838                   

Money Market Fund

     6,578,512         6,578,512                   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 706,929,813       $ 578,802,452       $ 128,127,361       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 $21,754,625 were transferred into Level 1 from Level 2. During the reporting period, there were no transfers into Level 2 from Level 1.

The fair values of the Fund’s investments are generally based on market information and quotes received from brokers or independent pricing services—approved by the Board of Directors and 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


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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

August 31, 2014

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/ Donald F. Crumrine

 
 

       Donald F. Crumrine, Director, Chairman of the Board and Chief Executive

       Officer

 

       (principal executive officer)

 

 

Date       October 27, 2014  

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/ Donald F. Crumrine  
  

       Donald F. Crumrine, Director, Chairman of the Board and Chief Executive

       Officer

          (principal executive officer)  

 

Date       October 27, 2014  

 

By (Signature and Title)*           /s/ R. Eric Chadwick  
          R. Eric Chadwick, Chief Financial Officer, Treasurer and Vice President
          (principal financial officer)  

 

Date       October 27, 2014  

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