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2016-10-10 PIP Quarterly Update

October 10, 2016

Dear Mr. and Mrs. Smith:

The Preferred Income Portfolio (PIP) had a very active third quarter in 2016.  Standard and Poor (S&P) added a new sector to their S&P 500 index by removing real estate stocks from the financial sector and giving them a sector of their own.  This rebalancing caused an increased demand in Real Estate Investment Trust (REIT) shares as mutual funds had to increase ownership to balance their sector allocations.  REIT preferred shares rose accordingly.  We used the increase in price to sell REIT shares which were close to their call dates and selectively buy shares with longer time to call.  Over the quarter we sold three issues and purchased four others.  This flurry of activity resulted in a higher average coupon income stream of over 7% annually and broader portfolio diversification.  We also increased our guaranteed income period (call protection) by two months while the current yield rose to 6.54% which is over 4% higher than the 30-year U.S. Treasury bond.  Because TIA believes interest rates will remain lower longer than in previous credit cycles we are always looking for ways to achieve higher returns with longer guaranteed income periods.

PIP remains a unique fixed income strategy combining high yield, short duration and diversification in a portfolio of NYSE listed $25 securities. It provides the logical solution for this low yield environment.  PIP’s six sectors enhance credit default protection.  Our allocations between financial issues and real estate investment trusts (REITS) provide a balanced approach to the credit markets.  While credit risk remains our chief concern, PIP securities did not miss a dividend payment during the worst financial crisis in three generations.

TIA has developed preferred portfolios for many of the objectives of fixed income investing.  PIP is an income focused diversified portfolio suitable for most investors.  Non-Cumulative Preferred stocks have a tax advantaged yield making them a higher yield alternative to municipal bonds.  Our Shorter Call Preferred stocks attract investors looking for a higher yield alternative to a short-term bond portfolio.  Preferred stocks allow us the flexibility to build a portfolio to meet your individual needs.  We feel these investment tools continue to be well suited for this uncertain environment which we see continuing for the foreseeable future.

We welcome your inquiries regarding your Preferred Income Portfolio.

Sincerely,

J. Ronald DeLay
Senior Vice President
Manager Preferred Securities

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