SCHEDULE 14A
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11c or Rule 14a-12
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
--------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
___________________________
(2) Aggregate number of securities to which transaction applies:
____________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11. (Set forth the amount on which the filing fee is
calculated and state how it was determined):
_______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________
(5) Total fee paid:____________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:________________________________________________
(2) Form, Schedule or Registration Statement No.:__________________________
(3) Filing Party: _________________________________________________________
(4) Date Filed: ___________________________________________________________
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED (NYSE: PFD)
FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
To Be Held on April 23, 2004
To the Shareholders:
Notice is hereby given that the Annual Meetings of Shareholders of
Flaherty & Crumrine Preferred Income Fund Incorporated and Flaherty & Crumrine
Preferred Income Opportunity Fund Incorporated (each a "Fund" and, collectively,
the "Funds"), each a Maryland corporation, will be held at the offices of
Willkie Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New York, New York
10019 at 8:30 a.m., on April 23, 2004, for the following purposes:
1. To elect Directors of each Fund (PROPOSAL 1).
2. To transact such other business as may properly come before the
Meetings or any adjournments thereof.
The proposal set forth in this proxy statement is a routine item. A
routine item is one which occurs annually and makes no fundamental or material
changes to a fund's investment objectives, policies or restrictions, or to the
investment management contracts.
Your vote is important!
The Board of Directors of each Fund has fixed the close of business on
January 26, 2004 as the record date for the determination of shareholders of
each Fund entitled to notice of and to vote at the Annual Meetings.
By Order of the Boards of Directors,
R. ERIC CHADWICK
SECRETARY
February 12, 2004
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SEPARATE PROXY CARDS ARE ENCLOSED FOR EACH FUND IN WHICH YOU OWN SHARES.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETINGS ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD(S). THE PROXY CARD(S) SHOULD BE
RETURNED IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE
SET FORTH ON THE INSIDE COVER.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may avoid the time and expense to the Fund(s) involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card(s).
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
------------ ---------------
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAN OR ESTATE ACCOUNTS
(1) John B. Smith, Cust., John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Executor, John B. Smith, Jr., Executor
estate of Jane Smith
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED (NYSE: PFD)
FLAHERTY & CRUMRINE PREFERRED INCOME OPPORTUNITY FUND INCORPORATED (NYSE: PFO)
301 E. Colorado Boulevard, Suite 720
Pasadena, California 91101
ANNUAL MEETINGS OF SHAREHOLDERS
April 23, 2004
JOINT PROXY STATEMENT
This document is a joint proxy statement ("Joint Proxy Statement") for
Flaherty & Crumrine Preferred Income Fund Incorporated ("PREFERRED INCOME FUND"
OR "PFD") and Flaherty & Crumrine Preferred Income Opportunity Fund Incorporated
("PREFERRED INCOME OPPORTUNITY FUND" OR "PFO") (EACH A "FUND" AND, COLLECTIVELY,
THE "FUNDS"). This Joint Proxy Statement is furnished in connection with the
solicitation of proxies by each Fund's Board of Directors (each a "Board" and
collectively, the "Boards") for use at the Annual Meeting of Shareholders of
each Fund to be held on April 23, 2004, at 8:30 a.m., at the offices of Willkie
Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New York, New York 10019
and at any adjournments thereof (each a "Meeting" and, collectively, the
"Meetings"). A Notice of Annual Meetings of Shareholders and proxy card for each
Fund of which you are a shareholder accompany this Joint Proxy Statement. Proxy
solicitations will be made, beginning on or about February 12, 2004, primarily
by mail, but proxy solicitations may also be made by telephone, telegraph or
personal interviews conducted by officers of each Fund, Flaherty & Crumrine
Incorporated ("Flaherty & Crumrine" or the "Adviser"), the investment adviser of
each Fund, and PFPC Inc., the transfer agent and administrator of each Fund and
a member of The PNC Financial Services Group, Inc. The costs of proxy
solicitation and expenses incurred in connection with the preparation of this
Joint Proxy Statement and its enclosures will be shared equally by the Funds.
Each Fund also will reimburse brokerage firms and others for their expenses in
forwarding solicitation material to the beneficial owners of its shares.
The proposal set forth in this proxy statement is a routine item. A
routine item is one which occurs annually and makes no fundamental or material
changes to a fund's investment objectives, policies or restrictions, or to the
investment management contracts.
Your vote is important!
THE ANNUAL REPORT OF EACH FUND, INCLUDING AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2003, IS AVAILABLE UPON REQUEST, WITHOUT
CHARGE, BY WRITING TO PFPC INC., P.O. BOX 43027, PROVIDENCE, RI 02940-3027, OR
CALLING 1-800-331-1710.
If the enclosed proxy card is properly executed and returned in time to
be voted at the relevant Meeting, the Shares (as defined below) represented
thereby will be voted in accordance with the instructions marked thereon. Unless
instructions to the contrary are marked thereon, a proxy will be voted "FOR" the
election of the nominees for Director. Any shareholder who has given a proxy has
the right to revoke it at any time prior to its exercise either by attending the
relevant Meeting and voting his or her Shares in person or by submitting a
letter of revocation or a later-dated proxy to the appropriate Fund at the above
address prior to the date of the Meeting.
In the event that a quorum is not present at a Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote "FOR" the proposal in favor
of such an adjournment and will vote those proxies required to be voted
"AGAINST" the proposal against any such adjournment. A shareholder vote may be
taken on the proposal in the Joint Proxy Statement prior to any such adjournment
if sufficient votes have been received for approval. Under the By-Laws of each
Fund, a quorum is constituted by the presence in person or by proxy of the
holders of a majority of the outstanding shares of the Fund entitled to vote at
the Meeting. If a proposal is to be voted upon by only one class of a Fund's
shares, a quorum of that class of shares must be present at the Meeting in order
for the proposal to be considered.
Each Fund has two classes of capital stock: common stock, par value
$0.01 per share (the "Common Stock"); and Money Market Cumulative Preferred(TM)
Stock, par value $0.01 per share ("MMP(R)"; together with the Common Stock, the
"Shares"). Each Share is entitled to one vote at the Meeting, with pro rata
voting rights for any fractional Shares. On the record date, January 26, 2004,
the following number of Shares of each Fund were issued and outstanding:
1
COMMON STOCK MMP(R)
NAME OF FUND OUTSTANDING OUTSTANDING
------------ ----------- -----------
Preferred Income Fund (PFD) 10,176,419 800
Preferred Income Opportunity Fund (PFO) 11,484,707 700
To the knowledge of each Fund and its Board, the following
shareholder(s) or "group", as that term is defined in Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act"), is the beneficial owner or
owner of record of more than 5% of the relevant Fund's outstanding shares as of
January 26, 2004*:
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL/RECORD OWNER TITLE OF CLASS OF OWNERSHIP PERCENT OF CLASS
----------------------- -------------- ------------ ----------------
Cede & Co.** Common PFD - 9,632,376 94.65%
Depository Trust Company Stock (record)
55 Water Street, 25th Floor PFO - 10,942,057 95.27%
New York, NY (record)
10041
MMP(R) PFD - 800 (record) 100%
PFO - 700 (record) 100%
-------------------------------
* As of January 26, 2004, the Directors and officers, as a group, owned
less than 1% of each class of Shares.
** A nominee partnership of The Depository Trust Company.
This Joint Proxy Statement is being used in order to reduce the
preparation, printing, handling and postage expenses that would result from the
use of a separate proxy statement for each Fund. Shareholders of each Fund will
vote as a single class except as described below under Proposal 1 and will vote
separately on each proposal on which shareholders of that Fund are entitled to
vote. Separate proxy cards are enclosed for each Fund in which a shareholder is
a record owner of Shares. Thus, if a proposal is approved by shareholders of one
Fund and disapproved by shareholders of the other Fund, the proposal will be
implemented for the Fund that approved the proposal and will not be implemented
for the Fund that did not approve the proposal. It is therefore essential that
shareholders complete, date and sign EACH enclosed proxy card. SHAREHOLDERS OF
EACH FUND ARE ENTITLED TO VOTE ON THE PROPOSAL PERTAINING TO THAT FUND.
In order that your Shares may be represented at the Meetings, you are
requested to vote on the following matter:
PROPOSAL 1: ELECTION OF DIRECTORS
At the Meetings, shareholders are being asked to consider the election
of Directors of each Fund. Each nominee named below has consented to serve as a
Director if elected at the relevant Meeting. If a designated nominee declines or
otherwise becomes unavailable for election, however, the proxy confers
discretionary power on the persons named therein to vote in favor of a
substitute nominee or nominees.
NOMINEES FOR THE BOARD OF DIRECTORS
The Board of each Fund is divided into three classes, each class having
a term of three years. Each year the term of office of one class expires and the
successor or successors elected to such class serve for a three-year term. The
classes of Directors are the same for each Fund and are indicated below:
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
----------------- ------------------ -------------------
Martin Brody Donald F. Crumrine Robert M. Ettinger
David Gale Robert F. Wulf Morgan Gust
2
The Class III Directors of Preferred Income Fund and Class II Directors
of Preferred Income Opportunity Fund all have been nominated for a three-year
term to expire at each Fund's 2007 Annual Meeting of Shareholders and until
their successors are duly elected and qualified. Class I Directors of Preferred
Income Fund and Class III Directors of Preferred Income Opportunity Fund serve
until each Fund's Annual Meeting of Shareholders in 2005, and Class II Directors
of Preferred Income Fund and Class I Directors of Preferred Income Opportunity
Fund serve until each Fund's Annual Meeting of Shareholders in 2006. Except for
Mr. Gale (who has served as a Director of each Fund since January 24, 1997) and
Mr. Ettinger (who has served as a Director of each Fund since October 18, 2002),
each Director has served in such capacity since each Fund's commencement of
operations.
Under each Fund's Articles of Incorporation, Articles Supplementary and
the Investment Company Act of 1940, as amended (the "1940 Act"), holders of
MMP(R), voting as a single class, will be entitled to elect two Directors, and
holders of the Common Stock will be entitled to elect the remaining Directors.
However, subject to the provisions of the 1940 Act and the Fund's Articles of
Incorporation, the holders of MMP(R), when dividends are in arrears for two full
years, are able to elect the minimum number of additional Directors, that when
combined with the two Directors elected by the holders of MMP(R), would give the
holders of MMP(R) a majority of tHE Directors. Donald F. Crumrine and Morgan
Gust, as Directors, currently represent holders of MMP(R) of each Fund. A quorum
of the MMP(R) shareholders must be present at the Meeting of Preferred Income
Fund and Preferred Income Opportunity Fund in order for the proposal to elect
Mr. Gust and Mr. Crumrine, respectively, to be considered.
FUND (CLASS) NOMINEE FOR DIRECTOR
----------- --------------------
PFD (Common Stock) Ettinger
PFD(MMP(R)) Gust
PFO (Common Stock) Wulf
PFO(MMP(R)) Crumrine
INFORMATION ABOUT DIRECTORS AND OFFICERS
Set forth in the table below are the existing Directors and nominees
for election to the Boards of Directors of the Funds, including information
relating to their respective positions held with each Fund, a brief statement of
their principal occupations during the past five years and other directorships,
if any. Each Director serves in the same capacity for each Fund.
NUMBER OF
PRINCIPAL FUNDS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** DIRECTOR
------- --------------- ---------- ---------- ------------ ---------
NON-INTERESTED
DIRECTORS:
---------
MARTIN BRODY Director Class I Director Retired 4 Director, Jaclyn, Inc.
c/o HMK Associates PFD - since 1991 (luggage and accessories);
30 Columbia Turnpike PFO - since 1992 Director Emeritus,
Florham Park, NJ 07932 Smith Barney Mutual
Age: 82 Funds (18 funds);
Director, Flaherty &
Crumrine/
Claymore Preferred
Securities
Income Fund
Incorporated
and Flaherty &
Crumrine/Claymore
Total Return Fund
Incorporated
3
NUMBER OF
PRINCIPAL FUNDS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** DIRECTOR
------- --------------- ---------- ---------- ------------ ---------
NON-INTERESTED
DIRECTORS:
---------
DAVID GALE Director Class I Director President and CEO 4 Director, Golden State
Delta Dividend Group, Inc. PFD - since 1997 of Delta Dividend Vintners, Inc. (wine
220 Montgomery Street, PFO - since 1997 Group, Inc. pressing); Director, Flaherty
Suite 426 (investments) & Crumrine/Claymore
San Francisco, CA 94104 Preferred Securities
Age: 54 Income Fund
Incorporated and
Flaherty & Crumrine/
Claymore Total
Return Fund
Incorporated
MORGAN GUST (1) Director Class III Director Since March 2002, 4 Director, Flaherty &
Giant Industries, Inc. PFD - since 1991 President of Giant Crumrine/Claymore
23733 N. Scottsdale Road PFO - since 1992 Industries, Inc. Preferred Securities
Scottsdale, AZ 85255 (petroleum refining Income Fund
Age: 56 and marketing) and, for more Incorporated
than five years prior thereto, and Flaherty &
Executive Vice President, and Crumrine/Claymore
various other Vice President Total Return Fund
positions at Giant Incorporated
Industries, Inc.
ROBERT F. WULF Director Class II Director Financial Consultant; 4 Director, Flaherty &
3560 Deerfield Drive South PFD - since 1991 Trustee, University of Crumrine/Claymore
Salem, OR 97302 PFO - since 1992 Oregon Foundation; Preferred Securities
Age: 66 Trustee, San Francisco Income Fund
Theological Seminary Incorporated
and Flaherty &
Crumrine/Claymore
Total Return Fund
Incorporated
INTERESTED
DIRECTORS:
---------
DONALD F. CRUMRINE (1)(2)(3) Director, Class II Director Chairman of the Board 4 Director, Flaherty &
301 E. Colorado Boulevard Chairman of PFD - since 1991 and Director of Crumrine/Claymore
Suite 720 the Board and PFO - since 1992 Flaherty & Crumrine Preferred Securities
Pasadena, CA 91101 Chief Executive Income Fund
Age: 56 Officer Incorporated
and Flaherty &
Crumrine/Claymore
Total Return Fund
Incorporated
ROBERT M. ETTINGER (2)(3) Director and Class III Director President and 2 --
301 E. Colorado Boulevard President PFD - since 2002 Director of Flaherty &
Suite 720 PFO - since 2002 Crumrine
Pasadena, CA 91101
Age: 45
4
NUMBER OF
PRINCIPAL FUNDS IN OTHER
TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS, POSITION(S) AND LENGTH OF DURING PAST OVERSEEN HELD BY
AND AGE HELD WITH FUNDS TIME SERVED* FIVE YEARS BY DIRECTOR** DIRECTOR
------- --------------- ---------- ---------- ------------ ---------
OFFICERS:
---------
PETER C. STIMES Chief Financial Officer Vice President of N/A N/A
301 E. Colorado Boulevard Officer, Chief PFD - since 1991 Flaherty & Crumrine
Suite 720 Accounting PFO - since 1992
Pasadena, CA 91101 Officer, Vice
Age: 48 President,
Treasurer and
Assistant Secretary
BRADFORD S. STONE Vice President Officer Since May 2003, Vice N/A N/A
392 Springfield Avenue and Assistant PFD - since 2003 President of Flaherty &
Mezzanine Suite Treasurer PFO - since 2003 Crumrine; from June
Summit, NJ 07901 2001 to April 2003,
Age: 44 Director of US Market
Strategy at Barclays
Capital; from February
1987 to June 2001, Vice
President of Goldman,
Sachs & Company as
Director of USInterest
Rate Strategy and,
previously, Vice President
of Interest Rate Product Sales
R. ERIC CHADWICK Vice President, Officer Vice President of N/A N/A
301 E. Colorado Boulevard Secretary and PFD - since 2002 Flaherty & Crumrine
Suite 720 Assistant PFO - since 2002 since August 2001,
Pasadena, CA 91101 Treasurer and previously (since
Age: 28 January 1999) portfolio
manager of Flaherty &
Crumrine. Prior to that,
portfolio manager of
Koch Industries, Inc.
-------------
* The Class III Directors of Preferred Income Fund and Class II Directors of Preferred Income Opportunity
Fund all have been nominated for a three-year term to expire at each Fund's 2007 Annual Meeting of
Shareholders and until their successors are duly elected and qualified. Class I Directors of Preferred
Income Fund and Class III Directors of Preferred Income Opportunity Fund serve until each Fund's Annual
Meeting of Shareholders in 2005 and until their successors are duly elected and qualified. Class II
Directors of Preferred Income Fund and Class I Directors of Preferred Income Opportunity Fund serve until
each Fund's Annual Meeting of Shareholders in 2006 and until their successors are duly elected and
qualified.
** The funds in the fund complex are: Flaherty & Crumrine Preferred Income Fund Incorporated, Flaherty &
Crumrine Preferred Income Opportunity Fund Incorporated, Flaherty & Crumrine/Claymore Preferred
Securities Income Fund Incorporated, and Flaherty & Crumrine/Claymore Total Return Fund Incorporated
(together, the "Flaherty & Crumrine Fund Family").
(1) As a Director, represents holders of shares of the Funds' MMP(R).
(2) "Interested person" of the Funds as defined in the 1940 Act. Messrs. Crumrine and Ettinger are each
considered an "interested person" because of their affiliation with Flaherty & Crumrine, which acts as
each Fund's investment adviser.
(3) During the year ended November 30, 2003, Donald F. Crumrine and Robert M. Ettinger each purchased 100
Shares of common stock of Flaherty &Crumrine for $81,212.20, paid in cash, from Robert T. Flaherty.
5
BENEFICIAL OWNERSHIP OF SHARES IN FUNDS AND FUND COMPLEX FOR EACH DIRECTOR AND
NOMINEE FOR ELECTION AS DIRECTOR
Set forth in the table below is the dollar range of equity securities
in each Fund and the aggregate dollar range of equity securities in the Flaherty
& Crumrine Fund Family beneficially owned by each Director.
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY DIRECTOR IN
NAME OF DIRECTOR SECURITIES HELD IN FUND* (1)(2) FAMILY OF INVESTMENT COMPANIES* (3)
---------------- ------------------------------- ------------------------------------
PFD PFO TOTAL
--- --- -----
NON-INTERESTED DIRECTORS:
Martin Brody C C E
David Gale C C E
Morgan Gust C C E
Robert F. Wulf C C D
INTERESTED DIRECTORS:
Donald F. Crumrine E(4) E(4) E(4)
Robert M. Ettinger E(4) E(4) E(4)
------------
* Key to Dollar Ranges
A. None
B. $1 - $10,000
C. $10,001 -$50,000
D. $50,001 - $100,000
E. over $100,000
All shares were valued as of December 31, 2003.
(1) No Director or officer of the Funds owned any shares of MMP(R)on January 26, 2004.
(2) This information has been furnished by each Director as of January 29, 2004. "Beneficial Ownership" is
determined in accordance with Rule 16a-1(a)(2) of the 1934 Act.
(3) As a group, less than 1%.
(4) Includes shares of PFD and PFO held by Flaherty & Crumrine of which the reporting person is a shareholder
and director.
Each Director of each Fund who is not a director, officer or employee
of Flaherty & Crumrine or any of their affiliates receives a fee of $9,000 per
annum plus $500 for each in-person meeting, and $150 for each telephone meeting.
In addition, effective October 17, 2003, the Audit Committee Chairman receives
an annual fee per Fund of $2,500. Each Director of each Fund is reimbursed for
travel and out-of-pocket expenses associated with attending Board and committee
meetings. The Board of Directors of PFD held seven meetings (3 of which were
held by telephone conference call) and the Board of Directors of PFO held seven
meetings (3 of which were held by telephone conference call) during the fiscal
year ended November 30, 2003, and all of the Directors of each Fund then serving
in such capacity attended at least 75% of the meetings of Directors and any
Committee of which he is a member. In addition, one meeting of a special "ad
hoc" committee of the Board of Directors was held for each Fund. The aggregate
remuneration paid to the Directors and officers of each Fund for the fiscal year
ended November 30, 2003 is set forth below:
--------------------------------------------------------------------------------
BOARD MEETING TRAVEL AND
ANNUAL AND OUT-OF-POCKET
DIRECTORS FEES COMMITTEE MEETING FEES EXPENSES*
--------------------------------------------------------------------------------
PFD $36,301 $19,400 $18,985
PFO $36,301 $19,400 $18,985
--------------------------------------------------------------------------------
--------------
* Includes reimbursement for travel and out-of-pocket expenses for both
"interested" and "non-interested" Directors ("Independent Directors").
6
AUDIT COMMITTEE REPORT
The role of each Fund's Audit Committee is to assist the Board of
Directors in its oversight of (i) the integrity of each Fund's financial
statements and the independent audit therof; (ii) each Fund's accounting and
financial reporting policies and practices, its internal controls and, as
appropriate, the internal controls of certain service providers; (iii) each
Fund's compliance with legal and regulatory requirements; and (iv) the
independent auditor's qualifications, independence and performance. Each Fund's
Audit Committee is also required to prepare an audit committee report pursuant
to the rules of the Securities and Exchange Commission (the "SEC") for inclusion
in each Fund's annual proxy statement. Each Audit Committee operates pursuant to
a Charter that was most recently reviewed and approved by the Board of Directors
of each Fund on January 21, 2004. The Audit Committee Charter applicable to each
Fund is attached as Annex A to this Joint Proxy Statement. As set forth in the
Charter, management is responsible for (i) preparation, presentation and
integrity of each Fund's financial statements, (ii) the maintenance of
appropriate accounting and financial reporting principles and policies and (iii)
the maintenance of internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
independent accountants are responsible for planning and carrying out proper
audits and reviews of each Fund's financial statements and expressing an opinion
as to their conformity with accounting principles generally accepted in the
United States of America.
In performing its oversight function, at a meeting held on January 21,
2004, the Audit Committee reviewed and discussed with management of each Fund
and the independent accountants, KPMG LLP ("KPMG"), the audited financial
statements of each Fund as of and for the fiscal year ended November 30, 2003,
and discussed the audit of such financial statements with the independent
accountants.
In addition, the Audit Committee discussed with the independent
accountants the accounting principles applied by each Fund and such other
matters brought to the attention of the Audit Committee by the independent
accountants required by Statement of Auditing Standards No. 61, COMMUNICATIONS
WITH AUDIT COMMITTEES, as currently modified or supplemented. The Audit
Committee also received from the independent accountants the written disclosures
and statements required by the SEC's independence rules, delineating
relationships between the independent accountants and each Fund and discussed
the impact that any such relationships might have on the objectivity and
independence of the independent accountants.
As set forth above, and as more fully set forth in each Fund's Audit
Committee Charter, the Audit Committee has significant duties and powers in its
oversight role with respect to the Fund's financial reporting procedures,
internal control systems, and the independent audit process.
The members of the Audit Committee are not, and do not represent
themselves to be, professionally engaged in the practice of auditing or
accounting and are not employed by each Fund for accounting, financial
management or internal control. Moreover, the Audit Committee relies on and
makes no independent verification of the facts presented to it or
representations made by management or independent verification of the facts
presented to it or representations made by management or the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles and policies, or internal controls
and procedures, designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not provide assurance that
the audit of each Fund's financial statements has been carried out in accordance
with generally accepted accounting standards or that the financial statements
are presented in accordance with generally accepted accounting principles.
Based on its consideration of the audited financial statements and the
discussions referred to above with management and the independent accountants,
and subject to the limitations on the responsibilities and role of the Audit
Committee set forth in the Charter and those discussed above, the Audit
Committee of each Fund recommended to the Board of Directors of each Fund that
the audited financial statements be included in each Fund's Annual Report for
the fiscal year ended November 30, 2003.
THIS REPORT WAS SUBMITTED BY THE AUDIT COMMITTEE OF EACH FUND'S BOARD OF
DIRECTORS
Martin Brody
David Gale
Morgan Gust
Robert Wulf (Chairman)
January 21, 2004
7
Each Audit Committee met five times during the fiscal year ended
November 30, 2003. Each Audit Committee is composed entirely of the relevant
Fund's independent (as such term is defined by the New York Stock Exchange,
Inc.'s listing standards (the "NYSE Listing Standards")) Directors, namely
Messrs. Brody, Gale, Gust and Wulf.
NOMINATING COMMITTEE
Each Board of Directors has a Nominating Committee composed entirely of
each Fund's independent (as such term is defined by the NYSE Listing Standards)
Directors, namely Messrs. Brody, Gale, Gust and Wulf. The Nominating Committee
of each Fund did not meet during the fiscal year ended November 30, 2003. The
Nominating Committee is responsible for identifying individuals believed to be
qualified to become Board members and for recommending to the Board of Directors
such nominees to stand for election as directors at each Fund's annual meeting
of shareholders, and to fill any vacancies on the Board. Each Fund's Nominating
Committee has a charter which is available on the Funds' website
(www.preferredincome.com).
Each Fund's Nominating Committee believes that it is in the best
interest of the Fund and its shareholders to obtain highly qualified candidates
to serve as members of the Board of Directors. The Nominating Committees have
not established a formal process for identifying candidates where a vacancy
exists on the Board. In nominating candidates, the Nominating Committee shall
take into consideration such factors as it deems appropriate. These factors may
include judgment, skill, diversity, experience with investment companies and
other organizations of comparable purpose, complexity, size and subject to
similar legal restrictions and oversight, the interplay of the candidate's
experience with the experience of other Board members, and the extent to which
the candidate would be a desirable addition to the Board and any committees
thereof.
Each Fund's Nominating Committee will consider director candidates
recommended by shareholders and submitted in accordance with applicable law and
procedures as described in this Joint Proxy Statement. (See "Submission of
Shareholder Proposals" below.)
OTHER BOARD-RELATED MATTERS
Shareholders who wish to send communications to the Board should send
them to the address of the Fund and to the attention of the Board. All such
communications will be directed to the Board's attention.
The Funds do not have a formal policy regarding Board member attendance
at the Annual Meeting of Shareholders. However, five of the six Directors of
each Fund attended the April 25, 2003 Annual Meeting of Shareholders.
COMPENSATION
The following table sets forth certain information regarding the
compensation of each Fund's Directors for the fiscal year ended November 30,
2003. No executive officer or person affiliated with the Fund received
compensation from the Fund during the fiscal year ended November 30, 2003 in
excess of $60,000. Directors and executive officers of the Funds do not receive
pension or retirement benefits from the Funds.
COMPENSATION TABLE
NAME OF AGGREGATE TOTAL COMPENSATION FROM
PERSON AND COMPENSATION THE FUNDS AND FUND
POSITION FROM EACH FUND COMPLEX PAID TO DIRECTORS*
-------- -------------- --------------------------
DONALD F. CRUMRINE $0 $0 (4)
Director, Chairman of the Board
and Chief Executive Officer
ROBERT M. ETTINGER $0 $0 (2)
Director and President
MARTIN BRODY $13,800 - PFD $46,725 (4)
Director $13,800 - PFO
DAVID GALE $13,800 - PFD $47,725 (4)
Director $13,800 - PFO
8
NAME OF AGGREGATE TOTAL COMPENSATION FROM
PERSON AND COMPENSATION THE FUNDS AND FUND
POSITION FROM EACH FUND COMPLEX PAID TO DIRECTORS*
-------- -------------- --------------------------
MORGAN GUST $13,900 - PFD $48,125 (4)
Director $13,900 - PFO
ROBERT F. WULF $14,201 - PFD $48,628 (4)
Director $14,201 - PFO
----------------
* Represents the total compensation paid to such persons by the Funds and
the other funds in the Flaherty & Crumrine Fund Family for, in the case
of PFD and PFO, the fiscal year ended November 30, 2003, and, in the
case of Flaherty & Crumrine/Claymore Preferred Securities Income Fund
Incorporated and Flaherty & Crumrine/Claymore Total Return Fund
Incorporated, for the fiscal period from each fund's commencement of
operations through November 30, 2003, which are considered part of the
same "fund complex" because they have a common adviser. The
parenthetical number represents the total number of investment company
directorships held by the director or nominee in such fund complex as
of November 30, 2003.
REQUIRED VOTE
The election of Mr. Ettinger as a Director of Preferred Income Fund
will require the affirmative vote of a plurality of the votes cast by holders of
the shares of Common Stock of such Fund at the Meeting in person or by proxy.
The election of Mr. Gust as a Director of Preferred Income Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
MMP(R) of such Fund at the Meeting in person or by proxy. The election of Mr.
Wulf as a Director of Preferred Income Opportunity Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
Common Stock of such Fund at the Meeting in person or by proxy. The election of
Mr. Crumrine as a Director of Preferred Income Opportunity Fund will require the
affirmative vote of a plurality of the votes cast by holders of the shares of
MMP(R) of such Fund at the Meeting iN person or by proxy.
EACH BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" EACH NOMINEE AS DIRECTOR.
SUBMISSION OF SHAREHOLDER PROPOSALS
All proposals by shareholders of each Fund that are intended to be
presented at each Fund's next Annual Meeting of Shareholders to be held in 2005
must be received by the relevant Fund for consideration for inclusion in the
relevant Fund's proxy statement relating to the meeting no later than October
15, 2004 and must satisfy the requirements of federal securities laws.
Each Fund's By-laws require shareholders wishing to nominate Directors
or make proposals to be voted on at the Fund's annual meeting to provide timely
notice of the proposal in writing. To be considered timely, any such notice must
be delivered to or mailed and received at the principal executive offices of the
Fund not later than 60 days prior to the date of the meeting; provided however,
that if less than 70 days notice or prior public disclosure of the date of the
meeting is given or made to shareholders, any such notice by a shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which notice of the date of the annual meeting was given or
such public disclosure was made.
Any such notice by a shareholder shall set forth the information
required by the Fund's By-laws with respect to each matter the shareholder
proposes to bring before the annual meeting.
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
KPMG, 99 High Street, Boston, Massachusetts 02110-2371, has been
selected to serve as each Fund's independent accountants for each Fund's fiscal
year ending November 30, 2004. KPMG acted as the independent accountants for
each Fund for the fiscal year ended November 30, 2003. The Funds know of no
direct financial or material indirect financial interest of KPMG in the Funds. A
representative of KPMG will not be present at the Meeting, but will be available
by telephone and will have an opportunity to make a statement, if asked, and
will be available to respond to appropriate questions.
Set forth in the table below are audit fees and non-audit related fees
billed to each Fund by KPMG for professional services received during and for
each Fund's fiscal years ended November 30, 2002 and 2003, respectively.
9
FISCAL YEAR ENDED AUDIT-RELATED
FUND NOVEMBER 30 AUDIT FEES FEES* TAX FEES** ALL OTHER FEES
---- ----------- ---------- ---- ---------- --------------
PFD 2002 $32,500 $8,800 $5,500 --
2003 $34,500 $11,200 $6,000 --
PFO 2002 $32,500 $8,800 $5,500 --
2003 $34,500 $11,200 $6,000 --
---------------
* "Audit-Related Fees" are those fees billed to each Fund by KPMG in
connection with their agreed-upon procedures reports on each Fund's
Articles Supplementary. Such reports are required quarterly by Moody's
Investor Service, Inc. in connection with maintaining public ratings for
each Fund's MMP(R).
** "Tax Fees" are those fees billed to each Fund by KPMG in connection with
tax consulting services, including primarily the review of each Fund's
income tax returns.
Each Fund's Audit Committee Charter requires that the Audit Committee
pre-approve all audit and non-audit services to be provided by the auditors to
the Fund, and all non-audit services to be provided by the auditors to the
Fund's investment adviser and any service providers controlling, controlled by
or under common control with the Funds' investment adviser ("affiliates") that
provide on-going services to each Fund, if the engagement relates directly to
the operations and financial reporting of each Fund, or to establish detailed
pre-approval policies and procedures for such services in accordance with
applicable laws. All of the audit, audit-related and tax services described
above for which KPMGbilled each Fund fees for the fiscal years ended November
30, 2002 and November 30, 2003 were pre-approved by the Audit Committee.
For each Fund's fiscal year ended November 30, 2003, KPMGdid not
provide any non-audit services (or bill any fees for such services) to the
Funds' investment adviser or any affiliates thereof that provide services to the
Funds.
INVESTMENT ADVISER AND ADMINISTRATOR
Flaherty & Crumrine serves as the investment adviser to each Fund and
its business address is 301 E. Colorado Boulevard, Suite 720, Pasadena,
California 91101. PFPC Inc. acts as the administrator to each Fund and is
located at 4400 Computer Drive, Westborough, Massachusetts 01581.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act require
each Fund's directors and officers, certain persons affiliated with Flaherty &
Crumrine and persons who beneficially own more than 10% of a registered class of
each Fund's securities, to file reports of ownership and changes of ownership
with the SEC, the New York Stock Exchange, Inc. and each Fund. Directors,
officers and greater-than-10% shareholders are required by SEC regulations to
furnish each Fund with copies of such forms they file. Based solely upon its
review of the copies of such forms received by it and written representations
from certain of such persons, each Fund believes that during 2003, all such
filing requirements applicable to such persons were met.
BROKER NON-VOTES AND ABSTENTIONS
A proxy which is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter). Proxies that reflect abstentions or broker non-votes (collectively
"abstentions") will be counted as shares that are present and entitled to vote
on the matter for purposes of determining the presence of a quorum. Under
Maryland law, abstentions do not constitute a vote "for" or "against" a matter
and will be disregarded in determining the "votes cast" on an issue.
OTHER MATTERS TO COME BEFORE THE MEETING
Each Fund does not intend to present any other business at the relevant
Meeting, nor is either Fund aware that any shareholder intends to do so. If,
however, any other matters are properly brought before the Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with
their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETINGS ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN ALL PROXY CARDS AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
10
ANNEX A
AUDIT COMMITTEE CHARTER
1. The Audit Committee (the "Committee") shall consist of at least
three members and shall be composed entirely of independent directors (within
the meaning of the applicable regulatory requirements), all of whom shall be
financially literate and at least one of whom shall have accounting or related
financial management expertise as determined by the Fund's Board in its business
judgment. At least one member of the Committee may qualify and be designated an
"audit committee financial expert" ("ACFE"), within the meaning of the rules
adopted and implemented under Section 407 of the Sarbanes-Oxley Act of 2002.
2. The purposes of the Committee are:
(a) to assist Board oversight of (i) the integrity of the
Fund's financial statements and the independent audit thereof; (ii) the Fund's
accounting and financial reporting policies and practices, its internal controls
and, as appropriate, the internal controls of certain service providers; (iii)
the Fund's compliance with legal and regulatory requirements; and (iv) the
independent auditor's (the "auditors") qualifications, independence and
performance; and
(b) to prepare the report required to be prepared by the
Committee pursuant to the rules of the Securities and Exchange Commission (the
"SEC") for inclusion in the Fund's annual proxy statement.
The auditors shall report directly to the Committee.
The function of the Committee is oversight. The Fund's management is
responsible for (i) the preparation, presentation and integrity of the Fund's
financial statements, (ii) the maintenance of appropriate accounting and
financial reporting principles and policies and (iii) the maintenance of
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The auditors are responsible for
planning and carrying out proper audits and reviews. In fulfilling their
responsibilities hereunder, it is recognized that members of the Committee are
not employees of the Fund and are not, and do not represent themselves to be,
accountants or auditors by profession or experts in the fields of accounting or
auditing, notwithstanding the possibility that one or more members may be
designated an ACFE. As such, it is not the duty or responsibility of the
Committee or its members to conduct "field work" or other types of auditing or
accounting reviews or procedures. Each member of the Committee shall be entitled
to rely on (i) the integrity of those persons and organizations within and
outside the Fund from which it receives information and (ii) the accuracy of the
financial and other information, including, for example, the information
contemplated by paragraph 3(d), provided to the Committee by such persons and
organizations absent actual knowledge to the contrary (which shall be promptly
reported to the Fund's Board). In addition, the evaluation of the Fund's
financial statements by the Committee is not of the same scope as, and does not
involve the extent of detail as, audits performed by the auditors, nor does the
Committee's evaluation substitute for the responsibilities of the Fund's
management for preparing, or the auditors for auditing, the financial
statements. The designation of a person as an ACFE is not intended to impose any
greater responsibility or liability on that person than the responsibility and
liability imposed on such person as a member of the Committee, nor does it
decrease the duties and obligations of other Committee members or the Board.
3. To carry out its purposes, the Committee shall have the following
duties and powers:
(a) be directly responsible for the appointment, compensation,
retention and oversight of the work of the Fund's auditors or any other public
accounting firm engaged for the purposes of preparing or issuing an audit report
or performing other audit, review or attest services for the Fund (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) and, in connection therewith, evaluate the
independence of the auditors;
(b) to pre-approve all audit and non-audit services to be
provided by the auditors to the Fund, and all non-audit services to be provided
by the auditors to the Fund's investment adviser and any service providers
controlling, controlled by or under common control with the Fund's investment
adviser that provide ongoing services to the Fund, if the engagement relates
directly to the operations and financial reporting of the Fund, or to establish
detailed pre-approval policies and procedures for such services in accordance
with applicable laws;
(c) to consider whether the provision by the Fund's auditor of
non-audit services to its investment adviser or adviser affiliate that provides
ongoing services to the Fund, which services were not pre-approved by the Audit
Committee, is compatible with maintaining the auditor's independence;
A-1
(d) to meet with the Fund's auditors, including private
meetings as necessary: (i) to review the arrangements for and scope of the
annual audit and any special audits; (ii) to review the scope of non-audit
services being provided; (iii) to discuss any matters of concern relating to the
Fund's financial statements, including any adjustments to such statements
recommended by the auditors, or other results of said audits; (iv) to consider
the auditor's comments with respect to the Fund's financial policies, procedures
and internal accounting controls and management's responses thereto; (v) to
obtain annually in writing from the auditors their letter as to the adequacy of
such controls; (vi) to review any difficulties the auditors encountered in the
course of the audit, including any restrictions on their activities or access to
requested information and any significant disagreements with management, and
management's response thereto; (vii) to review the form of report the auditors
propose to render to the Board and shareholders; and (viii) to ensure receipt of
a formal written statement from the auditors at least annually specifically
delineating all relationships between the auditors and the Fund, including any
relationships or services that may impact the auditors' objectivity and
independence;
(e) at least annually, obtain and review a report by the
Fund's independent auditor describing the auditor's internal quality control
procedures; any material issues raised by the most recent internal quality
control review, or peer review, of the independent auditor, or by any inquiry or
investigation by governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out by the
independent auditor, and any steps taken to deal with any such issues; and for
the purpose of assessing the auditor's independence, all relationships between
the independent auditor and the Fund;
(f) to meet with the Fund's management and, in the case of
audited financial statements, the auditors: (i) to discuss the annual audited
financial statements and semi-annual financial statements and any quarterly
financial statements; (ii) to discuss generally earnings press releases and any
financial information and earnings guidance provided to analysts and rating
agencies, if any (but the Committee need not discuss in advance each earnings
release or each instance in which the Fund may provide earnings guidance); (iii)
to review all critical accounting policies and practices applied by the Fund in
preparing its financial statements; (iv) to review all alternative treatments
within generally accepted accounting principles for policies and practices
related to material items that have been discussed with management; and (v) to
review other material written communications between the auditor and the Fund,
including any management letter, report or recommendation on internal controls,
schedule of unadjusted differences, engagement letter and independence letter;
(g) to review with the Fund's principal executive officer
and/or principal financial officer in connection with their certification of
Form N-CSR any significant deficiencies in the design or operation of internal
controls which could adversely affect the Fund's ability to record, process,
summarize and report financial data or material weaknesses therein and any
reported evidence of fraud involving management of other employees who have a
significant role in the Fund's internal controls;
(h) to consider and evaluate the effect upon the Fund of
significant changes in accounting principles, practices, controls or procedures
proposed or contemplated by management or the auditors;
(i) to discuss guidelines and policies governing the process
by which management of the Fund manages the Fund's exposure to risk, and to
discuss the Fund's major financial risk exposures and the steps management has
taken to monitor and control such exposures;
(j) to establish procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting controls or
auditing matters, including procedures for the confidential anonymous submission
by employees of the investment adviser or any other provider of accounting
related services, as well as any employees of the Fund, of concerns regarding
questionable accounting or auditing matters pertaining to the Fund;
(k) to establish hiring policies for employees or former
employees of the auditor consistent with government regulations;
(l) to review and evaluate the qualifications, performance and
independence of the lead partner of the auditors;
(m) to discuss with management the timing and process for
implementing the rotation of the lead audit partner and the reviewing partner,
and to consider whether there should be a regular rotation of the audit firm
itself;
A-2
(n) to cause the preparation of any report or other
disclosures required by the New York Stock Exchange or the Securities and
Exchange Commission; and
(o) to report its activities to the full Board on a periodic
basis and make such recommendations with respect to the matters within the scope
of its authority and other matters, as the Committee may deem necessary or
appropriate; and
(p) to prepare and review with the Board an annual performance
evaluation of the Committee, which evaluation shall compare the performance of
the Committee with the requirements of this Charter. The performance evaluation
by the Committee shall be conducted in such manner as the Committee deems
appropriate. The report to the Board may take the form of an oral report by the
chairperson of the Committee or any other member of the Committee designated by
the Committee to make this report.
4. The Committee shall meet as frequently as necessary to carry out its
obligations and is empowered to hold special meetings as circumstances require
and shall periodically meet separately with management and with the auditors. A
majority of the total number of members of the Committee shall constitute a
quorum of the Committee. A majority of the members of the Committee present
shall be empowered to act on behalf of the Committee. The Committee shall
regularly meet (typically, on the same day as regular Committee meetings) with
the Fund's management and with the personnel of the Fund's administrator.
Members of the Committee may participate in a meeting of the Committee in person
or by means of a conference call or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
5. The Committee may, in its discretion, delegate all or a portion of
its duties and responsibilities to a subcommittee of the Committee, which shall
be comprised of at least one person. Any actions of the subcommittee shall be
presented to the full Committee at the next meeting of the Committee.
6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain, as it deems
necessary to carry out its duties, special counsel and other experts or
consultants at the expense of the Fund. The Fund shall provide appropriate
funding for the Committee to discharge its responsibilities, including for the
payment of compensation to (a) any registered public accounting firm engaged to
prepare or issue an audit report or perform other audit, review or attest
services for the Fund, (b) any advisers employed by the Committee and (c)
ordinary administrative expenses.
7. The Committee shall review the adequacy of this Charter at least
annually and recommend any changes to the full Board. The Board also shall
review and approve this Charter at least annually.
8. This Charter may be altered, amended or repealed, or a new Charter
may be adopted, by the Board by the affirmative vote of a majority of all of the
members of the Board, including a majority of the "non-interested" Board members
(within the meaning of the Investment Company Act of 1940, as amended).
9. With respect to any subsequent changes to the composition of the
Committee, and otherwise approximately once each year, the Fund shall provide
the New York Stock Exchange written confirmation regarding:
(a) any determination that the Fund's Board has made regarding
the independence of directors pursuant to the New York Stock Exchange's
governance standards or applicable law;
(b) the financial literacy of the Committee members;
(c) the determination that at least one of the Committee
members has accounting or related financial management expertise; and
(d) the annual review and reassessment of the adequacy of the
Charter.
Amended and Re-Adopted: January 21, 2004
A-3
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of Flaherty & Crumrine
Preferred Income Fund Incorporated, a Maryland corporation (the "Fund"), hereby
appoints Donald F. Crumrine, Robert M. Ettinger and Teresa M. R. Hamlin,
attorneys and proxies for the undersigned, with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of Common Stock, which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of the Fund to be held at the offices
of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, 38th Floor, New York, New
York 10019 at 8:30 a.m., on April 23, 2004, and any adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement and hereby instructs said attorneys and proxies to vote said
shares as indicated hereon. In their discretion, the proxies are authorized to
vote upon such other business as may properly come before the Meeting. A
majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
FLAHERTY & CRUMRINE
PREFERRED INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586
--- Please mark
|X| votes as in
--- this example.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEE AS DIRECTOR.
Please refer to the Proxy Statement for a discussion of the Proposal.
1. ELECTION OF DIRECTOR
NOMINEE: (01) Robert M. Ettinger
FOR WITHHELD
--- ---
| | | |
--- ---
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEE AS DIRECTOR.
---
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
---
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
your full title.
Signature: Date: Signature: Date:
------------- ---------- ------------- -----------
FLAHERTY & CRUMRINE PREFERRED INCOME FUND INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Money Market Cumulative Preferred(TM) Stock
Stock ("MMP(R)") of Flaherty & Crumrine Preferred Income Fund Incorporated, a
Maryland corporation (the "Fund"), hereby appoints Donald F. Crumrine, Robert M.
Ettinger and Teresa M. R. Hamlin, attorneys and proxies for the undersigned,
with full powers of substitution and revocation, to represent the undersigned
and to vote on behalf of the undersigned all shares of MMP(R), which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Fund to be held at the offices of Willkie Farr & Gallagher LLP, 787 Seventh
Avenue, 38th Floor, New York, New York 10019 at 8:30 a.m., on April 23, 2004,
and any adjournments thereof. The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting and Proxy Statement and hereby instructs said attorneys
and proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Meeting
in person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
FLAHERTY & CRUMRINE
PREFERRED INCOME FUND
C/O PFPC, INC.
P.O. BOX 8586
EDISON, NJ 08818-8586
--- Please mark
|X| votes as in
--- this example.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEE AS DIRECTOR.
Please refer to the Proxy Statement for a discussion of the Proposal.
1. ELECTION OF DIRECTOR
NOMINEE: (01) Morgan Gust
FOR WITHHELD
--- ---
| | | |
--- ---
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEE AS DIRECTOR.
---
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
---
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
your full title.
Signature: Date: Signature: Date:
------------- ---------- ------------- -----------